The Consumer Financial Protection Bureau yesterday announced it had filed an adversary proceeding against Synapse Financial Technologies, a bankrupt fintech company. The complaint alleges violations of the Consumer Financial Protection Act due to Synapse’s inadequate record-keeping of consumer funds.
Synapse served as a middleware provider, delivering technology that linked nonbank fintech platforms which offered consumer banking services like deposits, debit cards, ACH, and wire transfers to partner banks. These platforms allowed embedded financial services without direct consumer-bank ties. The CFPB claims Synapse committed unfair acts by failing to accurately track funds across banks, leading to mismatches between its ledgers and bank records.
Problems surfaced after Synapse’s Chapter 11 bankruptcy filing in April 2024. Discrepancies began as early as September 2023 with one bank holding less than indicated. By mid-2023, Synapse’s Cash Management Program spread funds across multiple banks via omnibus “for the benefit of” accounts. Operations halted in May 2024, cutting off data access for at least one bank. Following the appointment of a trustee, reconciliations uncovered a $60-90 million shortfall, freezing thousands of consumers’ funds for weeks or months.
Affected consumers faced severe hardships, unable to pay rent, mortgages, medical bills, or buy food, with fears of homelessness. Many still haven’t recovered full balances. The Bureau noted consumers lacked control over fund movements, exacerbating the injury.
Alongside the complaint, the CFPB submitted a proposed stipulated final judgment and order, agreed upon by the trustee. If approved by the court, it would permanently enjoin Synapse from participating in deposit-taking, fund transmission, custodial activities, or financial data processing. The order also prohibits selling customer information obtained pre-effective date and imposes a nominal $1 civil money penalty. The financial penalty enables the CFPB to tap its Civil Penalty Fund for redress to harmed consumers who won’t otherwise receive full compensation.
Read the complaint. Read the stipulated final judgment
