The Small Business Administration (SBA) announced Thursday that it had launched an unprecedented crackdown on fraudulent Biden-era loans made ostensibly to help businesses weather the brunt of the manufactured financial disaster enabled by COVID. Led by Vice President JD Vance’s White House Task Force to Eliminate Fraud (see Trump Signs Task Force EO Launching 'Whole of Government' Assault on Fraud – RedState), the SBA announced it had referred 562,000 suspected fraudulent Paycheck Protection Program (PPP) and COVID Economic Injury Disaster Loans (EIDL)—worth $22.2 billion—to the U.S. Treasury for collection. This marks a 180-degree turn from the Biden administration's policy of turning a blind eye to fraud, whether in Supplemental Nutrition Assistance Program (SNAP) benefits, Medicaid, or immigration. In fact, all 562,000 targets of this enforcement action had been identified by the Biden administration as fraudulent, but it decided to do nothing.
“From Day One, the Trump SBA has worked tirelessly to crack down on billions in pandemic-era fraud that the Biden Administration forgave or ignored. After extensive review, and with the strong support of the White House Task Force to Eliminate Fraud, we are taking our most decisive action yet to end a Biden-era scheme that protected over 560,000 borrowers tied to more than $22 billion in suspected pandemic-era fraud,” said SBA Administrator Kelly Loeffler. “For years, the Biden Administration shielded these borrowers from debt collectors as part of a de facto amnesty scheme – but today, they will finally face accountability. The SBA is deeply grateful to the U.S. Department of the Treasury for its partnership in this historic action, and we look forward to continued collaboration as we work to claw back stolen taxpayer dollars and hold fraudsters accountable.”
This may only be the tip of the iceberg. The SBA notes, “As Vice President Vance outlined in his Day One memo to the Task Force, ‘research findings show over 1,000,000 suspicious Paycheck Protection Program (PPP) loans.’ Indeed, the SBA approved approximately $1.2 trillion in PPP and COVID-EIDL loans from 2020-2021, of which at least $200 billion is estimated to be fraudulent, according to the SBA Office of the Inspector General.”
Under federal law, delinquent debts must be referred to the Treasury’s Bureau of the Fiscal Service once they become sufficiently overdue, and loans flagged by internal fraud controls are expected to be sent to law‑enforcement authorities. But first, the Treasury Department makes an offer you’d like to refuse, but can’t.
Once your SBA debt has been transferred from the SBA to the Treasury Department’s Bureau of Fiscal Service, you may receive a series of collection letters and phone calls demanding that you contact Treasury.
Treasury’s collection agents say that they will only entertain settlement offers at a 20% discount if you pay the total amount (principal SBA debt balance plus up to 30% in accrued interest, penalties and administrative costs) if you pay them within 30 days. For example, if your alleged SBA debt is $200,000 and the accrued interest, penalties and costs is $60,000, totaling $260,000, Treasury’s collection agents will tell you they’ll settle your debt for $208,000 (80% of total SBA debt claimed with accruals). But, you must pay the $208,000 within 30 days of accepting Treasury's offer. Or, you can agree to their repayment agreement where you will have to pay $7,222 a month for the next 36 months (3 year term). For most folks, these settlement offers are virtually impossible to accept.
Then Treasury’s Bureau of Fiscal Service opens its toolbox, which is the financial equivalent of something you’d find in a medieval dungeon.
- Treasury Offset Program (TOP): Automatically offsets or reduces federal payments (such as income tax refunds, federal salaries, and federal benefits) to repay the debt.
- Administrative Wage Garnishment (AWG): The Treasury can order employers to garnish up to 15% of a borrower's disposable pay.
- Private Collection Agencies: Treasury contracts with private firms to collect delinquent debt.
- Administrative Collection: Demands for payment, including adding hefty penalties and interest to the original loan balance.
- Credit Bureau Reporting: Delinquent debts are reported to major credit bureaus, severely impacting personal credit scores.
- Asset Seizure and Liens: Treasury can place liens on assets and, in some cases, freeze or seize assets, especially if the loan had a personal guarantee.
While fraud is a problem, sloth and incompetence also seem to be issues. A House Oversight Committee report based on an Inspector General audit found that the agency had charged off more than $47 billion in delinquent EIDL loans and recovered less than 1% of the original loan amount, indicating major gaps in oversight and collection practices as well as a general lack of ambition on the part of SBA. In fact, the SBA didn’t bother to follow its own procedures to attempt to collect delinquent debt.
While I’m sure there was a lot of nibbling around the edges, the general theme of the SBA PPP and EIDL frauds seems to be “go big or go home.”
- Item: “Eight California residents were convicted of several charges in relation to a fraud ring that submitted 150 fraudulent PPP and EIDL loan applications using stolen and fake identities. According to the indictment documents, the group received more than $18 million in government funding and used it to purchase million-dollar homes, gold, jewelry, watches, designer handbags and clothing, cryptocurrencies, and a Harley-Davidson motorcycle.”
- Item: “David Hines of Miami pleaded guilty to wire fraud after receiving $3.9 million in fraudulent PPP loans, according to the Justice Department. He was sentenced in May 2021 to more than six years in prison. According to the indictment documents, Hines did not use the PPP funds for payroll expenses and instead used them to purchase a $318,000 Lamborghini, luxury jewelry, and expensive clothing. Records of his spending include purchases at Saks Fifth Avenue and Miami Beach resorts.”
- Item: “Creed White submitted approximately 120 fraudulent applications for PPP and EIDLs on behalf of 18 other dormant businesses he owned or controlled, which had no actual operations or employees. Approximately 40 of the applications were approved, resulting in the disbursement of more than $11.5 million in loan proceeds into bank accounts that Creed White controlled, and which he later transferred among other accounts and used to pay for unauthorized expenses and for his personal enrichment.”
In short, the SBA’s enforcement campaign signals a decisive federal turn toward accountability after years of lax enforcement. It is an effort to restore integrity to relief programs and recover funds that were meant to keep legitimate businesses afloat but which somehow ended up in private bank accounts.
There is an upside and a downside to this. The upside is obvious. If the government is going to dole out public money for private use, be it SNAP, Medicaid, housing vouchers, or disaster relief, we are owed the respect of having that money treated with respect and not like a Dire Straits song.
The downside is that nothing can mimic the monkey-see-monkey-do nature of the federal bureaucracy. Just as it is a safe bet that somewhere along the line, people were promoted and financially rewarded for the volume of loans generated, one can easily see the pendulum swinging toward rewarding people for loans that defaulted and for the value of delinquent loans sent to Treasury for collection. If you recall, in the late 1990s, it was revealed that IRS agents were getting bonuses for shutting down businesses with tax liens rather than working with them to resolve the debt. There has to be a viable middle ground, and maybe we can get there once we recoup the $1 trillion Joe Biden and his minions gave away to SBA fraudsters.
Editor’s Note: Thanks to President Trump’s leadership and bold policies, America’s economy is back on track.
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