Kabbage Business Debt Relief

The COVID-19 pandemic resulted in extremely severe economic disruption and cash flow issues for many small businesses across the country. As a major online small business lender, Kabbage faced growing requests from borrowers for debt relief and restructuring of existing loans.

This article examines the Kabbage debt relief options available for struggling firms, regulatory actions around these programs, and potential legal issues to consider.

Kabbage’s COVID-19 Relief Programs

As part of the CARES Act in March 2020, the SBA began guaranteeing private lenders’ loans under the Paycheck Protection Program. Kabbage was approved as a PPP lender, and went on to fund over $7 billion in PPP loans during the pandemic.

For existing Kabbage borrowers, the company also offered its own COVID-19 relief programs including:

• Payment deferrals of 1-3 months
• Extended loan terms up to 12 months
• Waiving of late fees
• Suspension of credit bureau reporting

However, some borrowers complained these programs provided inadequate relief, and Kabbage’s hands were tied on doing more due to restrictions in underlying loan sale agreements with investors.

Regulatory Actions Related to Kabbage

In April 2020, a California regulatory action alleged Kabbage made misleading claims about deferrals and failed to adequately disclose program limitations. This resulted in a settlement requiring improved disclosures.

In August 2020, the CFPB filed suit alleging Kabbage approved ineligible businesses for PPP loans and failed to adequately vet applications. Kabbage agreed to a settlement imposing monitoring and reporting requirements.

While not directly related to debt relief options, these cases demonstrate heightened regulatory scrutiny of Kabbage’s COVID-19 response programs.

Kabbage Acquisition by American Express

In August 2020, American Express announced an agreement to acquire Kabbage’s loan portfolio and fintech platform. The $850 million deal closed in October 2020.

For Kabbage borrowers, this acquisition may open up new options for debt restructuring and relief depending on American Express policies. However, specific impacts are still uncertain.

Potential Legal Claims Related to Kabbage Debt Relief

Despite regulatory settlements and ownership changes, some small businesses may still consider legal action around Kabbage’s handling of COVID-19 relief programs. Potential claims could include:

• Breach of contract – Kabbage failed to provide contractually agreed upon relief programs
• Unfair/deceptive practices – Kabbage misled borrowers about nature and extent of debt relief
• Breach of good faith – Kabbage did not fairly administer relief programs or work with borrowers

However, Kabbage loan agreements typically require binding individual arbitration to resolve disputes, limiting litigation options.

Defenses Kabbage Could Raise

If sued by borrowers regarding COVID-19 debt relief, Kabbage could argue:

• They provided relief within the scope of what was promised
• Limits on relief options were due to investor agreements Kabbage had no control over
• Programs were administered uniformly across all eligible borrowers
• Binding arbitration clauses in loan contracts require out-of-court dispute resolution

An experienced business litigation lawyer can evaluate the merits of potential claims against Kabbage and likelihood of overcoming possible defenses.

Strategies for Seeking Kabbage Debt Relief

For small businesses still facing Kabbage loan repayment challenges, potential strategies include:

• Document your specific financial hardship and inability to pay
• Compile evidence your business qualified for relief programs
• Escalate to supervisors if frontline staff cannot help
• Contact your state Attorney General’s office to complain
• Consult an attorney to assess litigation options

The American Express acquisition may also open new avenues for negotiating debt relief or restructuring not previously available directly through Kabbage.

Alternatives to Kabbage Debt Relief

Other options beyond Kabbage itself include:

• SBA direct disaster loans – Low interest long term loans to pay off Kabbage debts
• Non-profit lenders – Groups like Kiva offer more flexible loan options
• Credit counseling – Services like the NFCC provide guidance working with lenders
• Debt settlement – Negotiating lower payoffs potentially below amount owed
• Bankruptcy – Court supervised process to discharge debts

The legal, financial and credit implications of these alternatives should be carefully weighed before proceeding.

Key Takeaways

• • Kabbage offered limited COVID-19 relief to existing borrowers
  • Regulatory settlements imposed greater oversight of Kabbage relief programs
  • Acquisition by American Express may open up new relief options
  • Borrowers have potential legal claims but arbitration clauses are a hurdle
  • Other debt relief alternatives beyond Kabbage may be available