- Researchers scrutinize 10 million Paycheck Protection Program loans to identify signs of potential fraud
- Study concludes that as many as 15 percent of PPP loans could be fraudulent, with fintech lenders accounting for more than half of suspicious loans
- Major fintech companies decry findings, defending their fraud detection measures and questioning the study’s methodology
Summary by Dirk Langeveld
Financial technology firms were much more likely than traditional lenders to make Paycheck Protection Program loans to fraudulent borrowers, according to a recent study from the McCombs School of Business at the University of Texas, Austin.
Researchers looked at 10 million PPP loans for signs of potential fraud, such as unregistered businesses or multiple businesses registered at the same address. Nine out of 10 lenders with the highest rates of suspicious loans were fintech.
More than 500 people have been charged with improperly receiving funds through the program, which helped business owners maintain payroll and meet other expenses during revenue shortfalls brought on by the COVID-19 pandemic.
- Fraud concerns have dogged the program due to its quick rollout and limited oversight
- The study says as many as 15 percent of PPP loans could be fraudulent, accounting for 1.8 million of 11.8 million loans made for a total of about $76 billion; however, this figure fell to 1.2 million and $36 billion when limited to loans with two or more red flags, excluding certain loans that might raise concerns but still be legitimate
- Overall, fintech lenders accounted for 29 percent of PPP loans but more than half of suspicious loans
- Researchers found that both fintech and traditional lenders had suspicious loan approval rates of about 10 percent at the outset of PPP, but that fintech’s share climbed to 40 percent by the end of the program; however, they also noted that certain fintech companies had suspicious loan approval rates that were below average
- The study concluded that fintech helped improve access to PPP but also made the program more vulnerable to fraud
- Several larger fintech lenders criticized the study, defending their fraud detection measures and questioning the researchers’ methodology