WASHINGTON—A group of senators wants more information about the 2024 collapse of Synapse Financial Technologies, a banking-as-a-service (BaaS) technology provider that acted as a middleman, whose closure raised numerous questions around the  model and raised questions safety of held by fintechs and the role of intermediaries in the financial system. 

In the wake of Synapse’s bankruptcy, numerous customers of its partners, including some banks, could not access funds, and an estimated $65 million to $95 million remains unaccounted for.

When Synapse filed for bankruptcy, thousands of people who used apps like Yotta or Juno to earn interest on their savings couldn’t access their funds anymore.

Synapse primarily kept its funds with Evolve Bank in Tennessee. However, because it wasn’t the banks involved that failed, FDIC insurance does not cover the losses.

What Letter States

Now in a letter to Federal Reserve Gov. Michelle Bowman, four senators who include Sen. Elizabeth Warren (D.-MA) and Sen. John Fetterman (D.-PA) are alleging the Fed failed to properly oversee Evolve and should have caught the missing funds scandal.  

“There were several troubling warning signs that should have prompted immediate supervisory and enforcement intervention from the Federal Reserve,” the letter reads, according to The Wall Street Journal.

Synapse’s CEO has accused Evolve Bank of mishandling customer funds, while Evolve Bank said the problem is actually with Synapse. 

A criminal investigation has been opened. A Synapse executive allegedly attempted to sound the alarm prior the bankruptcy, the Journal reported. 

The Journal noted that the senators slammed Fed governor Bowman for promoting fintech partnerships with small banks while the Synapse fiasco was brewing. 

Lack of Policing

“Instead of appropriately policing Evolve’s compliance with federal consumer financial laws, you were publicly championing small bank partnerships with fintech companies, and warning against placing any additional regulatory or supervisory ‘burden’ on these arrangements,” the letter adds.