Did FinTech Lenders Facilitate PPP Fraud?

Abstract

In the distribution of the Paycheck Protection Program's (PPP) $780 billion in funds, FinTech lenders began minimally but ramped up their market share to over 70% of originated loans by April 2021. We examine metrics related to potential misreporting including non-registered businesses, multiple businesses at residential addresses, abnormally high implied compensation per employee, and large inconsistencies in jobs reported with another government program. We assess these four metrics with five additional measures and extensive supporting analysis. FinTech loans exhibit sharp and discontinuous increases in misreporting at maximum loan thresholds and at round loan amounts. FinTech loans are more than 3.5 times as likely to be initiated by someone with a criminal background, strongly cluster in industry-county pairs to a degree that is infeasible based on U.S. Census data on establishment counts, and frequently exhibit similar loan features within lender-county pairs. Certain FinTech lenders seem to specialize in questionable loans with more than 45% of their loans experiencing at least one misreporting indicator. Few of these loans seem to have been detected by authorities or repaid. FinTech lenders with the highest misreporting in the first two rounds of the program in 2020 increase both their market share and their misreporting substantially in the third round in 2021. While FinTech lenders likely expand PPP access, this may come at the cost of facilitating fraudulent credit.