Main Street Monday – Recommendations in Response to Fintech Fraud

December 5, 2022

Delaney Sexton
Contributing Editor

Main Street Monday – Recommendations in Response to Fintech Fraud

In a report written by the Select Subcommittee on the Coronavirus Crisis about fintech’s involvement in PPP fraud, it finishes with eleven recommendations to address PPP fraud issues and improve future programs. The Chair of the Subcommittee, James Clyburn, wrote to the SBA, the SBA’s Office of Inspector General, and the Department of Justice with their findings and recommendations.

The Subcommittee provided the following recommendations:

  1. The SBA Office of Inspector General should conduct a comprehensive review of waste, fraud, and abuse by lenders and their service providers in PPP.
  2. The OIG should update its 2015 examination of the SBA’s oversight of lender service providers and assess systemic risks posed by the involvement of fintechs and other underregulated entities in SBA programs and SBA lenders’ delegation of major compliance-related responsibilities to those entities.
  3. SBA and the OIG should investigate the retention and use of PPP applicant data by lenders, fintechs, and other third parties that obtained PPP applicant data on behalf of lenders.
  4. SBA should promptly issue and enforce guidelines that clarify the responsibilities of lenders and their service providers, particularly regarding underwriting, fraud screening, and suspicious activity reporting.
  5. Any plans to open 7(a) participation to fintechs and other unregulated, non-depository institutions must be accompanied by a well-defined, more rigorous, and better-resourced initial review process, and such entities should be subject to continuous monitoring to confirm their adherence to SBA rules and industry best practices.
  6. SBA should consider suspending or revoking the privileges of any participant found to have participated in unlawful or unethical conduct while participating in PPP.
  7. For future emergency financial assistance programs that prioritize speed of loan issuance, the SBA should conduct an aggressive and large-scale review of loans prior to their forgiveness to detect fraudulent and ineligible loans.
  8. The OIG should investigate suspicious loans to fintech executives, their families, and associates as identified in the Select Subcommittee’s report.
  9. The Department of Justice should continue prosecuting PPP fraud with an increased focus on fraud committed by individuals in positions of trust and authority related to the program, such as lenders, LSPs, and other agents.
  10. Congress should continue funding and supporting community lenders – including Community Development Financial Institutions (CDFIs), Minority Depository Institutions (MDIs), and others – so that they can increase their capacity to directly serve underserved communities and small businesses while performing intensive oversight of any firms that they hire to perform important services on their behalf.
  11. Congress should consider additional federal regulations for non-bank/non-depository fintechs considering their increasing role in the financial industry, including clearer standards on financial crime responsibilities.

Select Subcommittee Report