The federal government will not even attempt to recover some coronavirus-related loans that did not meet the conditions for forgiveness, in what could amount to the greenlighting of theft from an $800 billion program.
The Small Business Administration (SBA), which administered the pandemic aid Paycheck Protection Program (PPP), said it will not seek to collect on loans that should have been paid back, but were not, as long as the amount is $100,000 or less. The vast majority of the 12 million loans given out in 2020 and 2021 were under $100,000.
The agency’s inspector general, which is tasked with policing waste, fraud, and abuse, sounded the alarm at SBA’s decision, saying its logic does not add up and it should suspend the decision.
“SBA ending collections on PPP loans valued at $100,000 or less is not in compliance with applicable criteria,” the IG wrote. “SBA is potentially increasing the taxpayer burden by missing the opportunity to collect on these delinquent PPP loans,” it wrote.
It said that by openly allowing Americans to keep huge sums of money they are not entitled to, the federal government is encouraging future fraud against the government.
“Ending collections could set a precedence for future stimulus programs and incentivize ineligible borrowers to obtain loans valued at $100,000 or less. However, continuing to pursue collections will help ensure accountability from delinquent borrowers and promote program integrity,” it said.
Most of the loans were “forgivable,” meaning they essentially converted into a grant. But if recipients did not meet certain conditions, the money was due back. However, the agency is essentially just letting them keep it. One million borrowers with loans totaling $17 billion have not sought forgiveness for loans under $100,000.
“SBA made a decision to formally end collections on purchased PPP loans with an outstanding balance of $100,000 or less. SBA’s rationale for the decision was to provide equitable treatment between smaller sole proprietor borrowers not protected by an incorporation shield and larger incorporated borrowers,” the IG wrote in an “alert” questioning the decision. “Therefore, borrowers that have a purchased PPP loan with an outstanding balance of $100,000 or less would not be referred to the U.S. Department of the Treasury for collections or other collection measures.”
The law allows agencies to not try to collect money that is owed to them only if the cost of recovering the money would exceed the money itself. SBA claimed that was the case, but the IG said that was doubtful, and that the SBA didn’t even run the numbers.
“SBA purchased these PPP loans because the lender identified that the borrowers were 60 days or more past due on scheduled loan payments. However, SBA did not pursue collections on these loans. Instead, SBA charged off these loans and made no referral to Treasury, without conducting a sufficient cost benefit analysis to support ending collections,” it said.
Moreover, by referring the loans to the Treasury in accordance with normal procedures, the government has ways of easily recovering money at little cost, including withholding it from future tax refunds, it said. It also puts their name on a list to prevent them from taking advantage of other government programs.
And SBA did not give up on trying to claw back money that Americans weren’t entitled to because it proved fruitless. Rather, it never even tried. “We also did not find any evidence that SBA made any attempts to collect on the purchased PPP loans. At the onset of SBA purchasing the PPP loans in July 2021, it decided not to pursue debt collection for the purchased PPP loans,” the IG wrote.
PPP loans were doled out by banks, but the government was required to purchase the loans if there were any problems. Government investigations found that many financial institutions had a cavalier attitude as a result, taking a hands-off approach to fraud because the more loans they processed, the more money they made–and when loans were approved despite being ineligible, it was taxpayers, and not the bank, who would eat the cost.
Banks are supposed to make an initial effort at collecting money before selling the loan to the government, but SBA did not even require banks to show evidence that they made an attempt, the IG said.
The Debt Collection Improvement Act also allows agencies to suspend collections if the person has no ability to pay. However, SBA never investigated this, and some of the money may have gone to significantly well-off people.
SBA “stated in its analysis that the decision to end collections was to ensure equitable treatment between smaller sole proprietor borrowers and larger incorporated borrowers. SBA stated that if they pursued collections, the individuals associated with the generally larger incorporated borrowers would suffer nothing, whereas the individual sole proprietors, not protected by the incorporation shield, would incur collection efforts that the larger, incorporated borrowers would avoid. However, SBA’s analysis did not support equitable treatment as it did not provide any specific data on the breakdown of individual and corporate borrowers nor any quantitative assessment of effect to each type of borrower,” the IG wrote.
In a response to the IG, the SBA said it did not intend to reverse its decision, and defended itself by saying that it wasn’t worth recovering money because it has a very poor record of doing so–in one similar program, recording only 0.28% of the amount it was owed. And it asserted that Office of Management and Budget recommendations did not legally apply to it.
Earlier this month, the Government Accountability Office said in a searing, comprehensive report that large portions of the $4 trillion coronavirus stimulus program were marred by federal agencies’ seeming indifference to fraud, including a minimum of $60 billion in fraudulent unemployment insurance claims.