WASHINGTON — The Consumer Financial Protection Bureau has allocated about $46 million to compensate victims of the collapse of the bankrupt Synapse Financial Technology, drawing from the agency’s Civil Penalty Fund, the Bureau confirmed.
The CFPB announced the payment Nov. 28, though the allocation came to wider attention late last week through reports by Bloomberg Law and FinTech Business Weekly. The funds total $46,248,291, but it remains unclear whether that amount represents the full sum owed to affected depositors or how the CFPB calculated the figure, according to the reports.
During Synapse’s bankruptcy proceedings, Chapter 11 Trustee Jelena McWilliams repeatedly estimated a shortfall in customer funds of between $65 million and $95 million. The CFPB has separately projected a gap of between $60 million and $90 million, suggesting the Civil Penalty Fund allocation may not cover all losses. The Bureau did not immediately respond to media outlets’ request for comment.
Was Key Intermediary
Before its collapse, Synapse acted as a key intermediary between financial technology startups and banks, enabling fintech firms to store and manage customer deposits. At its peak, the company handled billions of dollars in consumer funds. When Synapse failed last year, thousands of customers were suddenly locked out of their accounts, the news outlets said.
According to the CFPB, consumers reported being unable to use debit cards, withdraw or transfer money, pay bills, or receive essential deposits such as wages and salaries. Many said the disruption caused severe financial hardship, including difficulty affording food, rent or mortgage payments, medical care and other basic expenses.
The Allegations
In a complaint filed earlier, the CFPB alleged that Synapse failed to maintain accurate records of consumer funds and did not ensure its records matched those of its partner banks, “causing consumers to lose access to their funds.” The bureau said breakdowns in recordkeeping and fund management led to widespread financial instability for customers, highlighting risks in the fintech sector when consumer funds are not properly tracked and reconciled.
Criminal Investigations
The collapse has triggered criminal investigations, civil lawsuits from some fintech partners, and a regulatory probe by the Financial Industry Regulatory Authority into the conduct of two former Synapse executives.
Synapse has accused its primary banking partner, Evolve Bank and Trust, of mishandling customer funds, while Evolve has said responsibility lies with Synapse.
