The DOJ accused Kabbage of inflating tens of thousands of PPP loans by double-counting employee taxes, failing to exclude wages above $100,000, and improperly calculating leave and severance payments.
This led to the Small Business Administration (SBA) forgiving loans larger than what borrowers were eligible for. Despite being aware of these issues as early as April 2020, Kabbage allegedly lowered its fraud check thresholds to process more loans quickly without taking corrective actions.
The settlement is part of the broader fallout from the PPP, which, while crucial in preventing massive job losses during the COVID-19 pandemic, was susceptible to fraud.
The DOJ's actions stem from a COVID fraud enforcement task force established by Attorney General Merrick Garland in 2021. The final amount
Kabbage will pay depends on the outcome of its bankruptcy proceedings, with a $12.5 million credit already accounted for due to previous payments made to the SBA during an earlier investigation. The remnants of Kabbage, now known as KServicing, are continuing to wind down in bankruptcy court.
Our Opinion:
The allegations against Kabbage are serious issues that undermine the integrity of the lending industry. It is particularly troubling that Kabbage was aware of these problems as early as April 2020 but failed to take corrective actions and even lowered its fraud check thresholds to process more loans quickly.
Alternative finance lenders are responsible for maintaining high standards of integrity and compliance, especially when dealing with government funds intended to support small businesses during a crisis.
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