Cross River Bank caught in PPP lending report crosshairs

Included in the list of companies the U.S. Small Business Administration is investigating following the release of a report last week by the House Select Subcommittee on the Coronavirus Crisis is one New Jersey-based institution: Cross River Bank. 

Despite its comparatively small size, throughout the pandemic, the Fort Lee-based company was one of the top Paycheck Protection Program facilitators nationwide. According to data from the SBA, Cross River was the No. 6 PPP lender for 2021, approving 288,932 loans for a net nearly $6.6 billion, with an average loan size of $22,787.  

For Cross River, the Dec. 8 announcement was more than a surprise — it was a shock.  

“[T]he idea that they mentioned us in their statement together with these other guys, is outrageous,” Phil Goldfeder, senior vice president of public affairs for Cross River, told NJBIZ. “It’s absolutely outrageous.” 

In its statement responding to the congressional report, the SBA said it immediately suspended two companies – Blueacorn and Womply – from working with the agency in any capacity while it investigates. Cross River was among eight lenders also identified by the SBA that the agency said it would launch full investigations into, along with: Benworth, Capital Plus, Celtic Bank, Customers Bank, Fountainhead, Harvest and Prestamos, “as well as the individuals and other related entities named in the report.” 

Part of the blow for Cross River comes from the fact that the company and the SBA have worked together so well, up until this point.

Because it is “in the technology business,” Cross River was a natural partner “when Congress and the SBA reached out to banks to help respond to the pandemic by originating PPP loans,” Goldfeder said. In fact, according to Cross River, it was open and accepting applications April 3 — the official launch date of the program. 

Beyond working together throughout the effort, Goldfeder says that Cross River has continued to be a partner to the SBA since PPP closed over a year ago, including with examining specific loans, for example. “[W]e were a very natural partner for the SBA in this program. And we did it following every guideline and every nuance and very well within the regulatory structures that you would expect from a regulated bank,” he said. 

Pointing fingers

The report, which examines “the poor performance of many financial technology companies” in administering the PPP program doesn’t hold back, alleging its targets abdicated the responsibility to suss out fraud in the application process for the pandemic relief program, resulting in the approval of “large numbers” of fraudulent applications. 

“Even as these companies failed in their administration of the program, they nonetheless accrued massive profits from program administration fees, much of which was pocketed by the companies’ owners and executives,” U.S. Rep. James Clyburn, D-S.C., and chair of the subcommittee said in Dec. 1 news release issued on the report’s findings. “On top of the windfall obtained by enabling others to engage in PPP fraud, some of these individuals may have augmented their ill-gotten gains by engaging in PPP fraud themselves.”

Among its findings, “We Are Not the Fraud Police”: How Fintechs Facilitated Fraud in the Paycheck Protection Program, accuses fintechs of observing fraud in the program, but attributing it as coming from federal mismanagement while seeking to evade responsibility for its effects. 

While a handful of practices, reactions and quotes from the 83,000-plus documents the subcommittee reviewed for its work – it first requested information from Cross River, Kabbage, Bluevine and Celtic Bank in May 2021 – were included in highlights with its release, to Goldfeder’s point: Cross River was not referenced in any of these examples or the report’s Executive Summary.  

Cross River is included in a section of the report that is critical of fintechs and lenders for their attempts to “evade responsibility” due to supposed program mismanagement.

“Congress provides them [the SBA] the mandate to create equity within the SBA lending programs. It’s their job to work with partners who operate within the confines of the regulatory structure, like Cross River,” Goldfeder said. But, he added: “not everybody is created equal. And so it’s the SBA’s job to understand and recognize the difference between a good actor and a bad actor within the fintech ecosystem [and] their enforcement has demonstrated that they don’t truly understand.”

Previously, the same subcommittee found that adequate safeguards were absent from pandemic relief programs under the SBA and the Department of the Treasury. And after the matter was referred, the SBA Inspector General found “that under the Trump Administration … SBA did not implement controls ‘that could have reduced the likelihood of ineligible or fraudulent business a PPP loan.'”

Elsewhere in the report, Cross River is among identified “partners” that successfully pushed Bluevine to reform its practices during PPP’s lifespan, “likely reducing fraud.” And Cross River is also singled out – along with Customers Bank – for deciding to stop working with Kabbage, which helped to facilitate more than 310,000 loans and was offered as an example in the report of the lack of incentive there was for “fintechs to implement strong fraud prevention controls or appropriate borrower servicing” – after the first round of PPP.  

“When asked about its experience with Kabbage during the PPP, Cross River indicated that it ended its partnership with Kabbage in August 2020,” the report says. “Among other factors, Cross River described concerns surrounding Kabbage’s application reviews, including ‘process and documentation issues’ that made it ‘a prudent risk management decision not to work with Kabbage during the 2021 PPP.’” 

Seeking resolution

“The report … vindicated Cross River,” Goldfeder told NJBIZ. “It said that partnering with Cross River, the fintech companies were forced to operate within a regulated structure.”  

Unlike the requirements – or lack thereof – from others.  

“[T]hat the SBA would lump us together with nefarious bad actors that were charading as fintechs to defraud the government. Cross River has always operated with the highest regulatory gold standard – and within the full view and partnership of the SBA – and [it’s] just simply unfortunate that they would characterize us in their statement that way,” Goldfeder said. 

As for what’s next, Cross River is in constant communication with members of Congress, members of the administration and the SBA to try and resolve the matter as quickly as possible, Goldfeder said.

“[W]e were there for the SBA when they needed us to help provide loans to the smallest small businesses across the country,” he said. “And we’re asking them now just to operate in good faith and work with us to resolve any outstanding issues.” 

Outstanding on Cross River’s side is a payment due to the bank from the SBA – a more than $300 million payment. 

“We’ve talked to them [SBA] a number of times over the last few days and they have failed to provide us any formal timeline about how long, how quickly this will take, and how they’re going to process our payment in the interim. We’ve asked repeatedly, they’ve refused to give us that,” Goldfeder said. 

“For them to sort of, at this point, operate in bad faith and withhold critical funding that’s owed to Cross River is disingenuous and a bad sign,” he said. “And it shows the SBA truly doesn’t know the difference between kind of the good actors, like Cross River,” and the bad actors.