Federal bank regulators have made it clear that they will not be stepping in to help customers of fintech companies who are struggling to access their money due to the bankruptcy of Synapse Financial Technologies. This decision was communicated during a five-hour hearing before U.S. Bankruptcy Court Judge Martin Barash in California. The immediate cause of pain for consumers is a dispute between Synapse and its bank partner, Evolve Bank & Trust, which has left customers of fintechs Yotta Technologies, Juno Finance, and Copper Banking without access to their accounts since May 11th.
Assistant U.S. Attorney Elan Levey, representing the U.S. Trustee, stated that federal banking regulators cannot intervene in this situation. While Evolve is regulated by the Federal Reserve as a state-chartered bank, the Fed does not oversee fintech companies like Synapse. However, the Fed has assured that it is monitoring the situation and ensuring Evolve complies with all legal requirements related to the accounts involved. This provided little comfort to customers who have been left in the dark about when they will be able to access their funds.
During the bankruptcy hearing, customers shared their personal stories of financial stress caused by the frozen accounts. One customer, a single mother with a mortgage payment due soon, expressed fear and frustration over the situation. Another customer highlighted a report quoting Synapse CEO Sankaet Pathak speculating about a possible bank run at Evolve, which Evolve’s lawyer denied. Synapse acts as an intermediary allowing fintech companies to provide banking services to their customers, and since filing for bankruptcy, has struggled to maintain operations.
The United States Trustee filed an emergency motion to convert Synapse’s bankruptcy to a Chapter 7 liquidation or appoint a Chapter 11 trustee due to mismanagement of the estate and financial losses. However, the court postponed a ruling on the motion to allow current management more time to address the issues. Some fintech clients have offered to provide funds to Synapse to keep the operations running smoothly. The dispute between Synapse and Evolve causing customer access issues remains unresolved, with Barash ordering both parties to meet and confer to find a solution by hiring a private mediator.
The ongoing bankruptcy of Synapse has left thousands of fintech customers without access to their money, with federal bank regulators refusing to intervene in the situation. Customers have expressed frustration and fear over their financial situations, with some even facing imminent mortgage payments without access to funds. The court hearing highlighted the struggles faced by both consumers and the involved parties in resolving the frozen account issue. However, efforts are being made to find a solution by ordering both Synapse and Evolve to meet and confer to restore customers’ access to their funds.
