The CFPB has filed a complaint against Synapse Financial Technologies Inc, alleging that the company engaged in unfair acts and practices in violation of the Section 1036(a)(1)(B) of the CFPA by failing to maintain sufficient records of the location of consumers’ funds, failing to ensure the records matched the records maintained by its partnering banks, and causing consumers to lose access to their funds.
Synapse is a Delaware corporation that principally operated in Woodland Hills, California. It provided proprietary technology and software that was a bridge between nonbank fintech platforms that offered banking services to consumers and traditional partnering banks.
On April 22, 2024, Synapse filed for chapter 11 bankruptcy protection. The complaint was filed in the U.S. Bankruptcy Court for the Central District of California.
The complaint stated that as early as September 2023, Synapse’s records did not match the records maintained by partner banks.
In 2017, Synapse worked with only one bank. Beginning in mid-2023, Synapse engaged with additional banks to offer FinTech Platform end users a Cash Management Program. As part of that program, Synapse directed the transfer of consumers’ funds from the FinTech Platforms to more than one bank to hold those funds for the benefit of consumers, according to the complaint. It also directed the movement of consumers’ funds to and from those banks to other banks that were originating and receiving ACH and wire transfers for the consumers, the complaint stated.
Synapse was responsible for tracking and maintaining records of the movement of funds across those banks and ensuring that those records matched those maintained by the banks.
“The partnering banks determined that the total funds they were holding for consumers was less than the total amount of consumer funds reflected in records Synapse provided to them, reflecting a shortfall of between $60 and $90 million,” the CFPB said, in an outline of the complaint.
The Bureau said that consumers did not have access to their funds for weeks or months, as the banks reconciled their records with Synapse’s records.
“Before the distributions were completed, some consumer End Users reported they lost all or most of their life’s savings,” according to the complaint. “Many reported they were unable to afford food or pay their rent, mortgage, hospital bills, or other bills without access to their funds. Some consumer End Users were also forced to pay late fees and other penalties because they did not have access to their funds to timely pay bills. These hardships caused certain End Users emotional distress, including some who expressed suicidal ideations.”
The CFPB filed a proposed stipulated final judgment that calls for appropriate injunctive relief, including a prohibition on the sale of consumer information and a $1 civil money penalty, which enables the CFPB to access its civil penalty fund for purposes of providing funds to harmed consumers.
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