CFPB to Reimburse Synapse Financial Technologies’ Victims
The Consumer Financial Protection Bureau (CFPB) recently announced that it will disburse $46 million from its Civil Penalty Fund to the victims of Synapse Financial Technologies’ collapse. This news was reported first by Bloomberg Law.
The Background
Synapse Financial Technologies, a key player in the fintech space, filed for bankruptcy in April 2024, leaving a multitude of customers from different mobile applications, including Yotta, Juno, and Copper, in a financial predicament. These customers, who had leveraged Synapse’s services for easier management of their bank relationships, suffered significant losses. In some instances, individuals lost their entire life savings.
A Discrepancy in Records
During the Synapse bankruptcy hearings, a substantial discrepancy was revealed between the company’s records and those of its banking partners, indicating a shortfall of between $60 million and $90 million in end users’ accounts. The banking partners, which included Evolve Bank & Trust, Lineage Bank, AMG National Trust Bank, and American Bank, have since paid out what they believe were the owed amounts to these customers.
Sheryl Bollinger, the CEO of AMG, expressed her satisfaction at the CFPB’s initiative to assist in this unique situation, hoping that the allocation would fully reimburse the amounts Synapse owed the end users. However, it is worth noting that Evolve Bank did not make any comments, and representatives from the other two banks did not immediately respond to requests for comment.
CFPB’s Official Complaint
In August, the CFPB lodged an official complaint against Synapse and charged the bankrupt firm a $1 fee, a prerequisite for tapping into the Civil Penalty Fund. The complaint alleges that Synapse engaged in unfair practices by failing to maintain accurate records of consumers’ funds and neglecting to ensure that those records matched those of the partner banks. This action, according to the CFPB, violated the Consumer Financial Protection Act of 2010.
Concerns and Opinions
While the CFPB’s decision to reimburse victims is generally well-received, some observers expressed concern that the allocated amount might not fully cover the estimated shortfall. John McNamara, a former CFPB official and current chief growth officer at Avtal, expressed such concerns, stating that the $46 million seems far less than what consumers lost, which he believed to be as much as $90 million.
Furthermore, McNamara pointed out that the Synapse collapse is a case study of the potential risks inherent in bank-fintech partnerships. He emphasized the need for more stringent regulations in the banking-as-a-service sector and the importance of taking action against negligent entities that jeopardize consumer finances.
Despite the uncertainties surrounding the exact allocation of funds, the CFPB’s initiative is regarded as a step in the right direction towards consumer protection. The situation serves as a stark reminder of the critical role of regulatory bodies in safeguarding consumer interests in the rapidly evolving fintech landscape.
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