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Fraud Friday – Bank Settles with Department of Justice, SBA for Failing to Follow Prudent Lending Standards

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April 25, 2014

By Bob Coleman
Editor, Coleman Report

SBAOIGI found this explosive piece in the just released SBA Inspector General March 2014 newsletter. I don’t know who the bank is, or what exactly occurred, but the bottom line is a “large” bank with branches in Utah paid $212,920 to settle claims with DOJ and SBA for allegedly failing to follow SBA’s prudent lending standard.

“The DOJ alleged that bank employees falsified borrower information on loan applications to meet underwriting criteria and obtain approvals on three SBA loans.

“In addition, borrowers used loan proceeds to invest in a Ponzi type scheme that benefitted certain bank employees. The bank – having knowledge of these activities—requested the SBA to pay the 50 percent guarantee on all three loans.

“The bank did not concur with DOJ’s allegations but agreed without admission to the settlement agreement.

“Following the DOJ settlement, the bank also entered into an administrative agreement with the SBA. The bank agreed to verify borrower income separate from the customer-facing employees who are responsible for initiating and negotiating loans with small businesses.

“The SBA believes that the bank knew or should have known of false statements on documentation for SBA loans prior to submitting a request for the SBA to make guarantee payments on loans. Further, the bank failed to follow reasonable and prudent lending practices as required by SBA regulations and policies.”

I’ll snoop around to get the whole story.

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