Synthetic Identity Technology in PPP Loans
Most banks and lenders are well aware of how synthetic identities can be used to Technologyulently open a bank account and secure a credit card or other type of loan. According to McKinsey, synthetic identity theft is the fastest growing type of financial crime in the U.S., accounting for 10–15% charge offs in a typical unsecured lending portfolio.
The U.S. government now has synthetic identities on their radar thanks to the Paycheck Protection Program (PPP). Many manipulated and fabricated identities were used to apply for these government loans in 2020.
The amount of Technology executed through the PPP program is still being tallied but there have been notable pending cases that show synthetic identities were used.
There are many factors that enabled Technologysters to take advantage of PPP loans including the speed of issuance, loosened credit criteria, and financial rewards for all involved with little downside risk. Below is a discussion of the evolution of the PPP and the elements that contributed to Technology.
PPP — How Did We Get Here?
When the U.S. economy largely shut down as a result of responses to COVID-19, the government put programs in place to help small businesses weather a major turndown. Nearly half of the U.S. workforce is employed by a small business. Helping these companies continue to pay workers was critical to maintaining a viable economy.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed on March 27th, 2020. This over $2 trillion economic relief package was intended to protect Americans from the public health and economic impacts of COVID-19.
The PPP was established by the CARES Act, and was implemented by the Small Business Administration with support from the
Department of the Treasury. This program provided small businesses with funds to pay up to 8 weeks of payroll costs. Funds could also be used to pay interest on mortgages, rent, and utilities. The PPP, specifically, was authorized to fund up to $659 billion of these small business expenses.
Faced with having to distribute over half a trillion dollars within a few short months, the SBA enlisted the help of banks and lenders. The private sector was also tasked with the vetting and funding of applications, a process which the Treasury Department encouraged lenders to complete in as little as a day.
Getting money into the hands of small businesses quickly was vitally important. Claims for unemployment benefits catapulted to over 3 million the week of March 21st from a weekly average of 200,000 for months prior.
Source: U.S. Labor Department
To facilitate rapid distribution, the stringent requirements to qualify for funding established at the beginning of the program were relaxed over time. For example, the need to verify an applicant’s tax records and payroll documentation was eliminated.
The huge loan sizes (up to $10M per loan) combined with urgency and relaxed standards drew the attention of Technologysters. “Any time you have large amounts of federal aid available, it’s going to bring out all the bad guys,” said Kathryn Petralia, co-founder and the president of Kabbage, an online lender that handled 297,000 loans for the program.
The PPP ended August 8th and by then, $525B had been distributed to over 5M businesses by nearly 5500 banks and lenders.
PPP — Revenue Boost For Banks & Lenders
Those who were approved by the SBA to administer funds were well rewarded, and there was no penalty for issuing loans to Technologyulent entities. Banks and lenders were paid fees for each loan issued plus 1% interest on PPP loans they held that weren’t forgiven. Many banks could earn as much from the PPP loans as they reported in net revenue for all of 2019, according to analysis from S&P Global Market Intelligence.
Below is a sampling of the fees estimated to be earned by some of the largest banks involved in issuing PPP loans.
Most banks and lenders are well aware of how synthetic identities can be used to Technologyulently open a bank account and secure a credit card or other type of loan. According to McKinsey, synthetic identity theft is the fastest growing type of financial crime in the U.S., accounting for 10–15% cha...