Popular Bank agrees to $2.3M PPP loan fraud penalty

Popular Bank has agreed to pay a $2.3 million fine to the Federal Reserve in connection with six fraudulent Paycheck Protection Program loans that the bank originated. 

The New York division of Popular, a Puerto Rican bank, agreed to the penalty after self-reporting that it had funded the $1.1 million in falsely obtained loans in August 2020, according to an order from the Fed.  

The $71 billion-asset bank cooperated with the Fed’s investigation, agreed to the fine without admitting or denying the Fed’s allegations and has undertaken “substantial remediation related to its ineffective controls and procedures,” the order states.

“We have consented to the imposition of the order and the civil money penalty. The order does not impose any other obligations on the bank,” a Popular spokesperson wrote in an emailed statement.

The Fed’s investigation found that Popular did not follow required anti-money laundering policies and failed to “timely” report having detected “significant indications of potential fraud,” according to a press statement from the Fed. The order did not provide further details. 

The fine represents one of the first penalties assessed against a PPP lender. The $800 billion program was created in March 2020 to support small businesses forced to shutdown during COVID-19. 

Since last year, banks and fintech companies have come under increasing scrutiny for allowing rampant PPP fraud to take place by lowering due diligence standards to quickly disburse funds at the onset of the pandemic. The Department of Justice has estimated that at least 10% of PPP loans, as well as similar Emergency Injury and Disaster Loans, were fraudulently obtained.

In September, Houston-based Prosperity Bancshares settled with the Department of Justice for allegedly violating the False Claims Act by approving a $213,400 loan to a doctor who bank employees knew faced criminal charges which made him ineligible for a PPP loan.

Prosperity’s fine totaled $18,670, which prosecutors said reflected the bank’s cooperation as well as its implementation of compliance measures.

Kabbage, a fintech that has filed for bankruptcy protection but continues to work with borrowers under the brand KServicing, is another PPP lender that has come under scrutiny after the company disclosed it’s also facing a Department of Justice investigation for potential False Claims Act violations.

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