Fintech firms pressure Small Business Administration in ongoing dispute over bad PPP loans
The Small Business Administration last year suspended a fintech company in litigation with three lenders in Florida. The company now claims it was wrongly held liable for lenders’ dishonesty and negligence by the federal government.
Womplya California-based marketing software company, entered into litigation with several Florida lenders, including the Sunshine State Economic Development Corporation, Fountainhead Commercial Capital and Benworth Capital Partners.
The dispute with Benworth, a Coral Gables-based company, has dragged on even as the federal Small Business Administration imposed a six-month suspension on Womply.
The fintech firm was criticized by Congress last year for failing to process applications it processed Paycheck protection program loans approved during the COVID-19 pandemic. The OPS program was approved to cover wages for companies forced to close for extended periods, and aimed to prevent unnecessary layoffs.
It is worth noting that Womply was among a small number of fintechs that during the pandemic focused on facilitating loans, and made billions as a result. But federal investigators say that was because it put collection fees ahead of verifying the legitimacy of the loan applications.
A select committee on the coronavirus crisis investigation found about a third of all OPS loans in the country were processed by two fintech companies: Womply and Blueacorn.
A report claims that these firms “failed to implement systems that can consistently detect and prevent fraudulent and otherwise ineligible PPP applications” and that “lending partners, tasked with monitoring the activities of these fintechs, often did little to monitor the activities of the companies to which they delegated their responsibilities.”
Fintechs specialize in using technology to complete the delivery of financial services. But the report indicates that the lack of screening regarding OPS loans failed to prevent “inhibitory fraud” while companies collected more than $2 billion in processing fees.
After the survey, the Small Business Administration in December announced it would bar Womply from cooperating with the federal agency in any way. Meanwhile, the agency announced investigations into Benworth and Fountainhead.
Lawyers for Womply told the SBA that Benworth bore significant responsibility regarding fraudulent loans and had sought to maximize his own profits.
In a letter to SBA Administrator Isabel Guzman, Womply lawyer Alexander Cheney accuses Benworth of an ongoing campaign to have “SBA officials try to influence the outcome of a private commercial arbitration with Womply.”
“The SBA should not put its thumb on the scale,” Cheney wrote.
In a letter to Womply in December, SBA Credit Risk Management Director Susan Streich said Womply’s suspension would last 180 days, which would give the SBA time to further analyze the fintech firm’s compliance with loan program requirements.
Womply CEO Tony Scammell personally accepted three OPS loans to various businesses. He too pleaded guilty in 2014 for insider trading in an unrelated case and has been permanently banned from working in the securities industry.
When Womply started offering services for OPS loans, the number of applications from small businesses skyrocketed, New York Times noted at the time.
Benworth, a Coral Gables-based lender, used the Womply platform to service more than 305,000 PPP loans, with a principal amount of more than $4 billion, according to Cheney’s letter. At one point, Cheney claims the lender did huge business and demanded a discount on fees to Womply, withholding $95 million,
“At that time, Benworth did not claim that Womply’s fees violated any regulation, rule or law,” Cheney wrote.
The letter notes that Wolply has similar disputes that were fully resolved with Fountainhead, the Sunshine State EDC and Capital Plus Financial.
Cheney wrote that the Benworth trials continued because Benworth was president Bernie Navarro “sought to exploit his relationship with the senator Marco Rubio of Florida to convince the SBA to issue new rules that will help Benworth in its private commercial dispute with Womply.”
Rubio was one chief architect of the PPP program in the Senate.
The SBA findings that resulted in Womply’s suspension followed an 18-month investigation. Benworth has operated out of Coral Gables since 2008 and also has an office in Puerto Rico. The company specializes in hard money loans.
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