Did FinTech Lenders Facilitate PPP Fraud?

103 Pages Posted: 18 Aug 2021 Last revised: 7 Dec 2021

See all articles by John M. Griffin

John M. Griffin

University of Texas at Austin - Department of Finance

Samuel Kruger

University of Texas at Austin - Department of Finance

Prateek Mahajan

University of Texas at Austin - Department of Finance

Date Written: December 6, 2021

Abstract

In the distribution of the Paycheck Protection Program’s (PPP) $803 billion in funds, FinTech lenders began minimally but ramped up their market share to over 80% of originated loans by the end of the program. 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 supplemental measures and extensive supporting analysis. Suspicious loans exhibit sharp and discontinuous increases in misreporting at maximum loan thresholds and round loan amounts with discontinuities more pronounced among FinTechs. FinTech loans are more than 3.5 times as likely to be initiated by someone with a felony record, strongly cluster in industry-county pairs to a degree that is infeasible based on U.S. Census data, and frequently exhibit similar loan features within lender-county pairs. Differences across lenders are persistent with certain FinTech lenders seemingly specializing in questionable loans. Few of these loans have been prosecuted by authorities or repaid. FinTech lenders in round three rapidly increased both their market share and the fraction of their loans with potential misreporting, particularly in zip codes with the highest levels of questionable lending in earlier rounds. From the first round of the program in April 2020 to the last month of the program in May 2021, the amount of potential misreporting increased more than four-fold. While FinTech lenders likely expand PPP access, this may come at the cost of facilitating fraudulent credit.

Keywords: FinTech, Paycheck Protection Program (PPP), Misreporting, Fraud

JEL Classification: G21, G23, G28, H12

Suggested Citation

Griffin, John M. and Kruger, Samuel and Mahajan, Prateek, Did FinTech Lenders Facilitate PPP Fraud? (December 6, 2021). Available at SSRN: https://ssrn.com/abstract=3906395 or http://dx.doi.org/10.2139/ssrn.3906395

John M. Griffin (Contact Author)

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-6621 (Phone)

HOME PAGE: http://www.jgriffin.info

Samuel Kruger

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States

Prateek Mahajan

University of Texas at Austin - Department of Finance ( email )

United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
2,062
Abstract Views
9,039
rank
9,547
PlumX Metrics