Regulatory Body Imposes $59 Million Penalty on Fintech Companies Biz2Credit and Womply for Their Actions Concerning the PPP
In a significant development, fintech companies Biz2Credit and Womply have agreed to pay a combined $59 million to settle allegations of deception during the Paycheck Protection Program (PPP) loan process. The settlement comes following investigations by the Federal Trade Commission (FTC) and the Small Business Administration (SBA).
The FTC's Bureau of Consumer Protection, led by Samuel Levine, accused Womply of deceiving small business owners trying to secure loans at their time of greatest need. The allegations state that Womply's "PPP Fast Lane" platform promised loan applications would be prepared within 24 hours, faster than a bank. However, the true average processing time for Biz2Credit, which processed loans through Womply's platform, was more than a month, while they claimed it would be 10 to 14 business days.
Additionally, Womply's platform facilitated over 1.3 million PPP loans during the COVID-19 pandemic. Yet, more than 60% of Womply applications never resulted in funding, as per the settlement. Womply and its CEO, Toby Scammell, have agreed to pay $26 million to settle these allegations.
Biz2Credit, on the other hand, continued to advertise the 10- to 14-day time frame until nearly the end of the program, despite tens of thousands of applicants waiting more than two months for their PPP loans. The company funded 47% of businesses through the PPP process that were minority-owned, 32% were women-owned, and many had three employees or fewer. However, at times, Biz2Credit ignored applicants' requests to withdraw their loan applications, delaying or preventing them from getting PPP funds elsewhere, according to the FTC. Biz2Credit and its subsidiary, Itria Ventures, will pay $33 million in damages for misrepresenting the average processing time of PPP loan applications.
The SBA suspended Womply from working with the agency "in any capacity" in December 2022, a week after a scathing report identified the fintech as among the most lax of PPP participants with regard to anti-fraud standards. The FTC's complaint cites an example where a business owner reached out to employees of a third-party company working with Womply on their personal social media accounts due to lack of response.
Under the settlement, both companies have agreed to refrain from misrepresenting key information about loan applications or any material fact about a government benefit. The $26 million payment by Womply and CEO Toby Scammell is to settle allegations that they made false promises about the success of small businesses, especially single-employee ones like gig workers, in obtaining PPP funding.
The FTC's proposed order also prohibits Womply and its CEO from making any deceptive, false, or unsubstantiated claims about financial services or products. The settlement serves as a reminder for fintech companies to uphold transparency and accuracy in their operations, especially during times of crisis when small businesses are heavily reliant on such services.
The Small Business Administration estimates that $200 billion in COVID-19 relief was disbursed to potentially fraudulent actors, highlighting the importance of rigorous oversight in such programs.
