CFPB to refund $46 million to Synapse victims

• Key insight: The CFPB has tapped its Civil Penalty Fund to reimburse Synapse victims.
• What's at stake: Bank‑fintech partnerships face heightened regulatory scrutiny and potential liability exposure.
• Forward look: Expect tighter BaaS guardrails and heightened enforcement on recordkeeping practices.

Source: Bullets generated by AI with editorial review

The Consumer Financial Protection Bureau has said it will give victims of Synapse Financial Technologies' collapse $46 million from the CFPB's Civil Penalty Fund, a pool of money gathered from fines imposed in the course of the agency's enforcement actions. The news was first reported by Bloomberg Law.

The victims are customers of savings app Yotta, crypto investing app Juno and teen banking app Copper, among other fintechs that worked with Synapse to make their bank relationships easier to manage. Their end users lost large amounts of money — in some cases, their life savings — when Synapse went bankrupt in April 2024.

During the Synapse bankruptcy hearings, it became clear that the company's records did not match its bank partners' records, resulting in a $60 million to $90 million shortfall in end users' accounts. The bank partners, Evolve Bank & Trust, Lineage Bank, AMG National Trust Bank and American Bank, have paid out what they believe these customers were owed. 

"AMG is very pleased that the CFPB is able to assist in this unprecedented situation," AMG CEO Sheryl Bollinger told American Banker. "We hope that their allocation reflects a full reimbursement of the amounts Synapse owed the end users."

Evolve Bank declined a request for comment. Representatives of the other two banks did not immediately respond to a request for comment.

The CFPB's recent announcement was a single line on its Civil Penalty Fund page: "Synapse Financial Technologies, Inc. $46,248,291." It is not certain whether all Synapse victims will be made whole and how the money will be allocated. The CFPB did not respond to a request for more information. 

In August, the CFPB filed an official complaint against Synapse and charged the bankrupt firm a $1 fee, a prerequisite for dipping into the Civil Penalty Fund.

"Synapse engaged in unfair acts or practices by failing to maintain adequate records of the location of consumers' funds and failing to ensure those records matched the records maintained by the Partner Banks," the CFPB said in its complaint. In doing so, Synapse violated the Consumer Financial Protection Act of 2010, the agency said.

Some observers worried that the CFPB is not recompensing victims for the full amount of the estimated shortfall.

"Considering what the recent baseline has been, I am encouraged that the CFPB is doing something, but $46 million seems on the far light end of what consumers lost," John McNamara, a former CFPB official who is now chief growth officer at Avtal, told American Banker. "I thought it might be as much as $90 million."  

The Synapse collapse is a poster child of what can go wrong in bank-fintech partnerships, McNamara said.

"I am a big fan of fintech, and I think even the fintechs would like to see a strong message sent that banking-as-a-service needs guardrails, and there are consequences for sloppiness," he said. "Maybe I'm a foolish optimist, and I hope the CFPB will continue to go after bad actors and players who operate in a foolish manner jeopardizing consumers and causing actual monetary loss."