Did FinTech Lenders Facilitate PPP Fraud?

Abstract

In the $793 billion Paycheck Protection Program, we examine metrics related to potential misreporting including nonregistered businesses, multiple businesses at residential addresses, abnormally high implied compensation per employee, and large inconsistencies with jobs reported in another government program. These measures consistently concentrate in certain FinTech lenders and are cross-verified by seven additional measures. FinTech market share increased significantly over time, and suspicious lending by FinTechs in 2021 is four times the level at the start of the program. Suspicious loans are being overwhelmingly forgiven at rates similar to other loans. THE MELDING OF FINANCIAL TECHNOLOGY and banking, also known as Fin-Tech lending, has emerged at a rapid pace in the aftermath of the financial crisis. Buchak et al. (2018) find that an increase in regulatory burdens for

Bank Types, Inclusivity, and Paycheck Protection Program Lending During COVID-19

“…Since they are not embedded in any community, fintechs lack both the local knowledge or the incentive to improve a community or region, and connections with local development officials and community-based organizations that have worked hard for decades to help businesses survive and thrive in marginalized communities. Furthermore, since they short-circuit traditional labor-intensive lending processes, online fintech lenders may not only be uniquely vulnerable to lax oversight and large-scale fraud ( Griffin et al, 2023 ), but may, once appropriate oversight and checks are in place, prove most suitable for minority small businesses that are least in need of extensive technical support and a personal touch to navigate requirements. Indeed, important questions remain for future work about how extensively a fintech model can sustain the level of inclusivity it traced during the PPP in settings where lenders assume credit risk.…”

Applications or Approvals: What Drives Racial Disparities in the Paycheck Protection Program?

“…Because the SBCS is conducted by the Federal Reserve's member banks, it is highly likely that the survey's respondents are legitimate businesses. This differentiates our sample from the population of PPP borrowers, which Griffin, Kruger, and Mahajan (2022) show includes many fictitious firms that received funding based on fraudulent representations. 9 Thus, our sample likely does not include firms that engaged in criminal activity in an attempt to receive PPP funds for which they knew they did not qualify.…”

“…While we argue that these administrative burdens reduced PPP take-up, particularly for Black-owned firms, they may also have reduced fraud by screening out fictitious businesses and applications for excessive loan amounts (Aman-Rana, Gingerich, and Sukhtankar, 2022) Griffin, Kruger, and Mahajan (2022). use a variety of indicators to estimate the percentage of PPP loans that are potentially fraudulent.…”

Nonprofit Organizations’ Financial Obligations and the Paycheck Protection Program

“…First, we contribute to the growing PPP literature. Prior research examines the barriers to participation (e.g., Humphries et al 2020;Birdthistle and Silver 2021;Beaton et al 2020), employment outcomes (e.g., Autor et al 2022;Bartik et al 2021;Bartlett and Morse 2021;Chetty et al 2020;Cole 2022;Doniger and Kay 2021;Granja et al 2022;Humphries et al 2020), and the role of loan originators (e.g., Ballew et al 2021;Erel and Liebersohn 2022;Griffin et al 2023).…”