Fintech lenders helped speed the delivery of forgivable government loans to small businesses crushed by the pandemic. But these tech-savvy lenders may also have opened the door to widespread fraud and misuse of taxpayer money.
Fintechs are almost five times more likely than traditional banks to have made “highly suspicious” loans through the $780 billion Paycheck Protection Program (PPP), according to research published Tuesday.
Nine of the top ten PPP lenders with the highest rate of suspicious loans are fintechs — and the remaining one acts like a fintech company, according to the study by researchers at the McCombs School of Business at the University of Texas at Austin.
Altogether, the researchers found that 1.8 million PPP loans with a total value of $76.3 billion had suspicious characteristics.
The report points to regulatory gaps and due diligence failures that allowed for suspicious lending of taxpayer money intended to help mom-and-pop shops hurt by the pandemic.
“These findings highlight the large costs of low oversight and lack of sufficient negative ramifications to borrowers and lenders for poor lending practices in the PPP,” the academics concluded.
