In one sense, it feels like a decade ago that Congress started working on the CARES Act. At the same time, it feels like only a few weeks ago, we discussed the formation of the PPP programs and the SBA’s new, outsized role in the government’s response. I’ve written about that role several times in this magazine, and many of us have spoken in person about it a few times over the last 18 months.
As you know, the two most notable lending programs the CARES Act gave life to are the PPP and the Economic Injury Disaster Loan (EIDL) Program. You all have probably heard all you want about PPP. I do not doubt that you’re still working through the forgiveness process on some of your loans. I am here to help with that process in any way I can. As much of a hassle certain aspects of PPP have been, ultimately, it is an extremely successful program, and that is due to private sector involvement. On the other hand, the EIDL Program — a direct lending program with the SBA — is drowning in fraud and paralyzed by ineptitude.
In my positions on the House Financial Services Committee and Small Business Committee, I deal with these programs every day, and I am always demanding data on the programs’ effectiveness. In May, the SBA Inspector General found that 846,111 EIDL applications have been flagged for identity theft. That report promoted numerous recommendations from the IG to shore up the program. The IG found that from Oct. 28, 2020, there was $78.1 billion in potentially fraudulent EIDL activity. Through Aug. 19, 2021, the SBA disbursed approximately $280 billion in COVID EIDL loans and grants, which equates to a fraud rate of nearly 30% within the program. This is absolutely unacceptable.
Of course, banks have processes in place and the expertise to prevent fraud, which is why PPP has seen such a small percentage of fraudulent loans.
The Government Accountability Office also issues regular reports highlighting the need for increased protections in the EIDL program. Those recommendations have largely gone ignored by the administration. As a result, last month, SBA Administrator Guzman sent me a letter citing that 1,127,327 EIDL applications now have an SBA Agency Hold for identity theft reasons. Over one million applications are fraudulent. It is a breathtaking bout of illicit behavior.
As the top Republican on the House Small Business Committee, I sent Administrator Guzman a letter (https://republicans-smallbusiness.house.gov/news/documentsingle.aspx?DocumentID=403684) that demanded
the defrauding of American taxpayers be immediately stopped. The American People cannot be paying for nefarious loan activity because of inadequate oversight by the agency handling this program. The Administrator must get serious about protecting taxpayer dollars and owes it to the public to immediately implement the GAO and IG protection recommendation.
Along with being an example of the massive amount of COVID money that has been abused over the last year and a half, this perfectly depicts the government’s inability to manage direct lending programs. Throughout history, direct lending by the government has failed.
The way I see it, there are two reasons: first, the government has neither the processes in place nor the expertise banks utilize every day. They will never acquire the skill set necessary to run a successful loan program. Second, it’s not their money that is being wasted. The SBA doesn’t feel the pressure of going out of business. Their bottom line isn’t harmed by losses. They simply ask Congress for more of Americans’ money.
Can you imagine if banks had this level of fraud in PPP? We’d have hearings every day with members of Congress decrying the unspeakable injustices carried out by the private sector. And given what those numbers are, hearings would absolutely be necessary. Of course, banks have processes in place and the expertise to prevent fraud, which is why PPP has seen such a small percentage of fraudulent loans. We have to get the government out of direct lending entirely, and I am working on that effort right now.
I look forward to sharing those proposals with you and other propositions to overhaul the SBA and modernize its programs. An Administration designed to assist small businesses cannot be effective when it’s easier for fraudsters to access its services than honest working people. It’s long past time we fix that.
