Regions to pay $4.9M for allegedly forgiving ineligible PPP loan

• Key insight: The Justice Department said Regions improperly approved forgiveness of a loan in 2021 that was ineligible for the Paycheck Protection Program.
• Supporting data: Regions said it disagrees with the allegations regarding a single loan out of 75,000 that the bank processed. 
• Forward look: The action is part of an expanded DOJ crackdown on Small Business Administration lenders.

Regions Financial will pay nearly $5 million to settle allegations that it improperly approved forgiveness of a pandemic relief loan that was ineligible for the Small Business Administration's Paycheck Protection Program.

On Friday, the Department of Justice said the $160.7 billion-asset Regions, in Birmingham, Alabama, was "unjustly enriched" by one specific SBA loan in 2021. Federal prosecutors said the loan forgiveness should never have been approved. Regions agreed to pay a $4.92 million fine.

"The PPP was intended to provide critical assistance to eligible businesses during the economic uncertainty caused by the Covid-19 pandemic," Assistant Attorney General Brett A. Shumate said in a press release. "The department is committed to ensuring that PPP lenders are held accountable for failing to comply with applicable program requirements."

Regions said in a statement that it did not agree with the DOJ's allegations but chose to settle the case to resolve the issue. Regions said it made over 75,000 PPP loans during the pandemic.

"While we disagree with claims made in this matter, we have settled with the goal of closing this chapter and moving on," Regions said. "We are proud of our record supporting small businesses and have resolved this one individual matter regarding one specific loan from that 75,000 total."

Regions is on a growing list of financial institutions targeted by the federal government for pandemic-era lending failures. Last year the SBA's Office of Inspector General said that nearly 38,000 PPP loans — worth roughly $4.6 billion — were improperly forgiven and should have been flagged for potential clawbacks, but were never fully reviewed by the SBA prior to being forgiven or paid out.

The DOJ has expanded its focus from fraudulent borrowers to the lenders themselves.

In January, the banking subsidiary of Cleveland-based KeyCorp agreed to pay $7.7 million after a fraud ring that involved a former branch manager secured millions in fraudulent PPP loans for shell companies.

Because the statute of limitations for pandemic relief fraud cases has been extended to 10 years, federal prosecutors are actively investigating banks that appeared to rubber-stamp such loans. When a bank approved PPP loan forgiveness, the SBA paid off the principal and interest, while the bank pocketed a processing fee.

The investigation involved the DOJ's Fraud Section, the U.S. Attorney's Office for the Western District of Missouri, the SBA, and the FDIC's Office of Inspector General.

Congress created the PPP in March 2020 as part of the Coronavirus Aid, Relief and Economic Security Act to provide federally guaranteed loans to small businesses suffering economic hardship due to the COVID-19 pandemic.