Customers Bancorp in Pennsylvania has agreed to pay $58 million to settle a dispute over its loan partnership with Kabbage during the Paycheck Protection Program.
The settlement, which still needs court approval, should help what remains of Kabbage as the firm goes through bankruptcy proceedings following the sale of key assets to American Express in 2020. Amex
The court dispute involved $65.5 million in servicing and referral fees that Kabbage said Customers Bank never paid under their PPP partnership. Customers, a West Reading, Pennsylvania, company with roughly $20.4 billion in assets, previously argued that it did not have to pay the fees because of numerous failures by Kabbage in its processing of PPP loans.
In a securities filing on Tuesday, Customers Bancorp said it had previously accrued for the payments so the settlement "is not expected to have a material financial impact" on the company. It also noted that the $58 million agreement is less than what was under dispute, and that the amount should be lower due to other funds that Kabbage owes the bank.
Under the settlement agreement, Kabbage would receive an immediate cash infusion of $23 million. The company, which continues to work with borrowers under the brand KServicing, declined to comment on Monday.
Kabbage has faced inquiries from regulators over its handling of PPP loans, including over concerns that it did not apply enough scrutiny to fraudulent loans. The Miami Herald
Kabbage said in a court filing last week that the settlement is a "key step forward" in its bankruptcy proceedings, giving the firm liquidity to continue working with customers, and helping avoid disruptions for its customers under a more rapid wind-down of the business.
KServicing also said the settlement will further smooth the bankruptcy process by helping the company "put forward a more definitive plan and provide much needed clarity to their creditors."
The federal government launched the PPP as a life raft for small businesses during the early days of the COVID-19 pandemic. Kabbage made PPP loans and serviced them on behalf of Customers Bank and other institutions.
Together, the two companies made $1.8 billion in PPP loans during the first round of the PPP, and Customers Bank paid $47 million in servicing fees to Kabbage.
When the second round of PPP lending opened, the two companies renewed their partnership and made some $800 million in new loans. Kabbage has said that it earned $65.5 million in loan referral and servicing fees from the second round, but that Customers Bank refused to pay "on account of alleged failures in the company's processing of PPP loans."
Kabbage says that it has continued to service the loans despite the lack of payment. It filed a lawsuit against Customers Bank in May, though KServicing said in the court filing last week that the parties reached a "fair and reasonable compromise" that will resolve their various legal disputes.
