Massive Covid Aid Fraud Was Fueled by Fintech Companies: Report

Massive Covid Aid Fraud Was Fueled by Fintech Companies: Report

By Yuval Rosenberg and Michael Rainey
Thursday, December 1, 2022

Welcome to December! Today, the Senate approved a measure that will force rail workers to accept a contract between their unions and freight companies, effectively eliminating the threat of a potentially crippling nationwide strike that could have started as soon as next week. The contract provides for a 24% increase in pay but does not include the additional paid sick days that some workers have demanded. The bipartisan 80-15 vote sends the measure, already passed by the House, to President Joe Biden for his signature.

Meanwhile, the World Cup continued to entertain, as Japan earned a surprising victory over Spain and Germany failed to advance to the next round, despite a furious effort against Costa Rica. The final matches of group play come Friday.

Here’s what else is going on.

Supreme Court to Review Biden Student Loan Forgiveness Plan

The Supreme Court on Thursday declined to overturn a lower court’s injunction halting the student loan relief plan enacted by President Joe Biden in August, leaving the program on hold for now. The high court said it would hear oral arguments in the case in February on an expedited basis, promising a potentially definitive decision on the debt relief program by June.

The Biden plan, estimated to cost roughly $400 billion, would cancel up to $20,000 in student loan debt for millions of borrowers, subject to income restrictions. About 26 million people have already applied for debt relief, but conservative groups and Republican-led states have sought to block the program in the courts.

In the case before the court Thursday, a group of six states led by Nebraska argued that Biden does not have the legal authority to forgive student debt. The Biden administration claims it has such authority under the Higher Education Relief Opportunities for Students (HEROES) Act of 2002, a 9/11-era law that allows a president to suspend student loan payments during a national emergency. (The White House has relied on the same authority to repeatedly extend a pause on student loan payments first enacted by former president Donald Trump during the early days of the Covid-19 pandemic.)

The states argue in papers filed with the court that the use of the HEROES Act "requires a real connection to a national emergency." While Trump did declare a national emergency due to Covid-19 in March of 2020, the states claim that the Biden administration is using that declaration as a cover to achieve unrelated political ends: "the department’s reliance on the Covid-19 pandemic is a pretext to mask the president’s true goal of fulfilling his campaign promise to erase student-loan debt."

Number of the Day: 6%

The personal consumption expenditures (PCE) price index — a key measure of inflation closely watched by the Federal Reserve — rose by 6% on an annual basis in October, the Bureau of Economic Analysis announced Thursday. That’s a reduction from the 6.3% increase recorded in September and the lowest reading since November 2021.

The increase in the core PCE index, which excludes volatile food and fuel prices, also slowed, rising by 5% in October, compared to 5.2% in September and a 5.4% peak earlier this year.

The latest report boosts confidence that the Fed’s efforts to cool inflation are having an effect. New York Fed President John Williams said Thursday that there are signs that "inflation is turning." Economist Paul Ashworth of Capital Economics, said in a research note that, "We expect to see a lot more good news on inflation over the coming months."

Quote of the Day

"The United States makes no apology and I make no apology [for the Inflation Reduction Act] … but there are occasions when you write a massive piece of legislation — and that has almost $368 billion for the largest investment in climate change in all of history — and so there’s obviously going to be glitches in it and need to reconcile changes."

President Biden, at a joint press conference with French President Emmanuel Macron, who has been critical of the Inflation Reduction Act, the climate and health care legislation passed earlier this year by Democrats, and another law promoting U.S. semiconductor manufacturing.

Macron had warned Wednesday evening that the U.S. might "fragment the West" by subsidizing American-made electric vehicles and providing tax credits for renewable energy. "We need to co-ordinate and re-synchronize our policy agendas," the French leader said.

Biden, in his response Thursday, added that the U.S. law was not meant to exclude European businesses. "There’s tweaks we can make that will fundamentally make it easier for European companies," he said.

Fintech Companies Facilitated Massive Covid Aid Fraud: Report

The Paycheck Protection Program, the pandemic aid effort that provided nearly $800 billion in forgivable loans to small businesses, was plagued by massive fraud. Financial technology companies facilitated that fraud, according to a damning report released Thursday by the House Select Committee on the Coronavirus Crisis.

The PPP was administered by private lenders, and the report says that fintech companies played a huge part as middlemen helping to process applications and get out the emergency relief funds. But congressional investigators allege that the companies often overlooked signs of fraud, or even welcomed such questionable loans, and then "sought to evade responsibility" by pointing fingers at the Trump administration.

"Despite fintechs’ claims that their use of technology and innovation would allow them to better administer the PPP than traditional financial institutions, many of these companies appear to have failed to stop obvious and preventable fraud, leading to the needless loss of taxpayer dollars," the report says. "The Select Subcommittee’s investigation found that many fintechs, largely existing outside of the regulatory structure governing traditional financial institutions and with little to no oversight from lenders, took billions in fees from taxpayers while becoming easy targets for those who sought to defraud the PPP."

The watchdog report says that two fintech companies, Womply and Blueacorn, facilitated nearly a third of all the PPP loans funded in 2021 but failed to implement strong fraud-detection systems despite a responsibility to safeguard taxpayer money.

Blueacorn, for example, received more than $1 billion in processing fees "but spent little on fraud prevention and eligibility verification," the report says. It adds that the company spent $8.6 million, or less than 1% of the fees it got, on its fraud prevention program, but gave its owners nearly $300 million in profits and also directed some $666 million to a marketing firm controlled by some of its top leaders.

Womply was paid more than $2 billion in processing fees, but its fraud prevention practices were criticized by lenders as "put together with duct tape and gum." The company also took more than $5 million in PPP loans for itself, which the Small Business Administration later determined it was not eligible to receive, according to the report.

Internal communications from another fintech, named Kabbage, which facilitated more than 310,000 PPP loans, showed that employees were aware that the company’s loan review process was problematic. One employee wrote her supervisor that "the level of fraud we’re reviewing is wildly underestimated." In another message, a Kabbage risk manager told his team of fraud specialists that the level of diligence in evaluating PPP loans was different than in other lending because "the risk here is not ours – it is SBA’s risk." In a September 30, 2020 email, Kabbage’s head of policy wrote: "At the end of the day[,] it’s the SBA’s shitty rules that created fraud, not [Kabbage]."

The bottom line: The fintech companies involved generated huge profits from the PPP, while fraudsters and criminal gangs identified them as the "paths of least resistance" to bilking the government out of billions of dollars.

Rep. Jim Clyburn (D-SC), who chairs the House subcommittee that prepared the report, called for further investigation into the companies involved. In a statement, he said: "We must learn from this inexcusable misconduct, to erect guardrails that will help ensure that federal programs—including emergency assistance programs in future crises—are administered more effectively, efficiently, and equitably while keeping waste, fraud, and abuse to an absolute minimum."

Read more about the report at The Washington Post.

P.S. It’s nowhere near as important, but it needs to be said: Can we do something about these fintech company names?

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