New Statute of Limitations on PPP Loan Fraud
On August 5, 2022, President Biden signed the PPP and Bank Fraud Enforcement Harmonization Act of 2022, which establishes a 10-year statute of limitations for civil enforcement and criminal charges against borrowers who engage in fraud relating to Paycheck Protection Program (PPP) loans.
The CARES Act established the PPP, which permitted the Small Business Administration (SBA) to provide loans to qualified businesses impacted by the COVID-19 pandemic. The federally guaranteed loans had to be used for payroll and certain non-payroll costs. Later, the Economic Aid Act, part of the Consolidated Appropriations Act of 2021, expanded upon the initial PPP: it authorized additional funding, extended the program to March 31, 2021, expanded access to entities other than businesses, added more eligible expenses, and authorized second-draw PPP loans for smaller borrowers.
PPP Loan Fraud
Over 8.5 million entities received PPP loans over the course of the program to help with costs during the pandemic. Unfortunately, such programs are susceptible to fraud, and some people took advantage of the loans to deceitfully claim funds. A report from the Office of the Inspector General identified 70,000 loans totaling $4.6 billion in potentially fraudulent loans. It was also determined that the SBA didn’t have the organizational structure to combat PPP fraud and did not provide enough guidance to lenders on how to identify fraudulent loans.
The new 10-year statute of limitations, which applies to both first and second-draw PPP loans, will give the federal government additional time to find those who have committed PPP loan fraud and bring them to justice. In addition, the House Committee on Small Business noted that financial technology firms and their lenders account for a disproportionate amount of loans connected to fraud, up to 75% of such loans, despite being a rather small percentage of the overall loans given out. Loan fraud connected to financial technology has a 5-year statute of limitations while bank-related fraud has a 10-year statute, so the Act reconciles that discrepancy by creating a uniform statute of limitations for all types of PPP loan fraud.
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