Popular Bank has been fined $2.3 million for allegedly failing to stop fraud by applicants to the Paycheck Protection Program, the federal government’s massive Covid-related bailout for struggling small businesses.
The Federal Reserve announced the fine Tuesday, saying New York-based Popular Bank, a subsidiary of Puerto Rico-based
Popular Inc.,
had processed six PPP loans worth about $1.1 million despite having detected significant signs of potential fraud.
The federal government used PPP loans to help businesses that experienced hardship during the Covid-19 pandemic, leaning on banks to dole out the money. Before the program ended in May 2021, nearly 12 million loans worth about $800 billion were made, according to figures from the Small Business Administration.
Though the government has taken action against PPP borrowers who committed fraud, the fine against Popular Bank represents the first time the Fed has taken action against a bank itself in connection with the program, a Fed spokeswoman said. She declined to say whether the regulator intended to file more actions targeting banks.
Popular Bank came forward to report the problem to the Fed, cooperated with its investigation and made substantial remediation efforts, the regulator said. The bank consented to the fine, a Popular Bank spokeswoman said, though the Fed order said the bank didn’t formally admit to or deny the allegations.
The loans at issue originated with Popular Bank in August 2020, during a year in which millions of applicants sought access to the government money to try to keep their struggling enterprises afloat. Federal officials were swamped early on with reports that some had abused the government’s lifeline to enrich themselves.
The sheer volume of loans issued under the PPP means the financial industry could expect more enforcement actions, said Melissa Goldstein, a partner at law firm Schulte Roth & Zabel LLP who previously worked on developing anti-money-laundering regulations for the Treasury Department’s Financial Crimes Enforcement Network.
“We were in the middle of a pandemic at the time those loans were issued, so compliance staff was stretched as well,” she said. “Folks were trying to get relief quickly, and some bad actors slipped through.”
The Justice Department in September fined a bank about $19,000 for processing a loan for an applicant the bank knew was facing criminal charges and thus ineligible for a loan, in a settlement it said was a first under the False Claims Act. That law allows the federal government to pursue individuals and businesses that have defrauded it.
The government also has taken action directly against thousands of alleged pandemic fraud perpetrators, filing criminal charges and other actions related to more than $8 billion in allegedly stolen money.
Write to Richard Vanderford at Richard.Vanderford@wsj.com
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