The collapse of the fintech intermediary Synapse in May has resulted in significant financial losses for thousands of Americans, with more than $90 million of customer funds currently unaccounted for, Independent reports.
This has sparked widespread concern and a class action lawsuit as investors who used various fintech apps have been left with limited or no access to their money.
One such investor, Kayla Morris, a former schoolteacher from Texas, saw her life savings of $282,153.87 vanish after she deposited it into the fintech platform Yotta, which relied on Synapse’s services to manage customer funds. Following the bankruptcy of Synapse, Morris was informed that she would only receive $500 of her original deposit. This outcome was devastating for her and many others affected by the collapse. Another customer, Zach Jacobs, had over $94,000 invested, but was only able to recover less than $130.
Synapse, which provided vital financial services to fintech companies like Yotta and Juno, acted as a middleman for banking tasks such as bookkeeping and ledger management. These services were critical because many of these fintech platforms, which offer gamified personal finance tools, do not hold banking licenses and thus are not covered by FDIC insurance. To compensate for this, fintech companies partner with FDIC-insured banks, but Synapse was responsible for managing and tracking customer deposits.
Before its bankruptcy, Synapse worked with over 100 fintech companies, serving approximately 10 million users. However, when Synapse declared bankruptcy in April, it caused a major disruption. The partner banks that relied on Synapse’s records were unable to access important information about customer deposits, leaving users locked out of their funds. As a result, between $65 million and $95 million of the $265 million in deposits that were tied to Synapse are still unaccounted for.
The situation has prompted the Federal Deposit Insurance Corporation (FDIC) to propose new regulations requiring banks to maintain direct access to records from third-party entities managing customer funds. This rule aims to prevent similar situations in the future by ensuring more robust ledger-keeping for fintech companies.
However, for the affected customers, the damage has already been done. In response, a class action lawsuit has been filed against Synapse’s partner banks—American Bank, AMG National Trust, Lineage Bank, and Evolve Bank & Trust. The lawsuit accuses the banks of gross mismanagement in handling customer deposits, leaving users without clear access to their money. While some funds have been returned, reports indicate that payouts have been disproportionately low, with some customers receiving only a fraction of their original deposits. For example, some customers received just $0.84 for every $10,000 deposited, causing further frustration.
