Dive Brief:
- A group of senators have called on partners and investors of middleware fintech Synapse to return millions of dollars to customers whose money is inaccessible amid the embattled firm’s bankruptcy proceedings.
- In a June 28 letter, Senate Banking Chairman Sherrod Brown, D-OH, along with Democratic Sens. John Fetterman of Pennsylvania, Ron Wyden of Oregon and Tammy Baldwin of Wisconsin, urged those linked to Synapse “to collectively pool the necessary resources to immediately make available all customer deposits currently frozen by the Synapse bankruptcy.”
- The fintech’s bankruptcy “has exposed the inherent weaknesses of this tri-party business model,” the senators wrote, adding that they expect involved companies to “take all necessary steps” to make customers whole.
Dive Insight:
The letter, addressed to Evolve Bank & Trust CEO Scott Stafford, was also sent to former Synapse CEO Sankaet Pathak, venture capital firm Andreessen Horowitz and other major investors in the bankrupt company, other bank partners including American Bank and AMG National Trust, and consumer-facing fintech partners such as Copper, Yotta, Juno and Mercury.
In the letter, the senators highlighted the role each played in the run-up to the Synapse mess, from venture capital firms funding the San Francisco-based middleware fintech without insisting on sufficient controls to protect consumers, to consumer fintechs promising their products were as safe as those of banks.
“As those that made the current situation possible, you must accept the tremendous responsibility that comes with handling consumers’ money,” lawmakers scolded.
For more than a month, about 100,000 customers have been locked out of accounts with banks that partner with Synapse. Affected customers also haven’t been given a clear timeline for restored access to their funds, the senators wrote.
The lawmakers called the potential shortfall of $65 to $96 million – between what consumers are owed and the funds held on their behalf by Synapse partner banks – “disturbing.” The sizable shortfall is likely to add complication and time to the process of returning funds to customers. Evolve, among the partner banks entangled in Synapse’s bankruptcy case, and Synapse have disagreed over which company holds customer funds.
“These developments are both deeply troubling and completely unacceptable,” senators wrote. “In due time we will find out who is ultimately responsible for this mess, but in the interim, the priority must be to restore consumers’ access to all of their money.”
Jelena McWilliams, former Federal Deposit Insurance Corp. chair and Synapse’s trustee in the bankruptcy case, has asked leaders of the Federal Reserve, FDIC, Office of the Comptroller of the Currency and Securities and Exchange Commission to have their agencies’ consumer protection units help those consumers.
Evolve was hit with a Federal Reserve enforcement action last month, over shortcomings in the bank’s anti-money laundering, risk management and consumer compliance programs. Last week, the bank also confirmed it suffered a data breach that involved customers’ personal information being released on the dark web.
