Synapse-Connected Banks Reportedly Closer to Releasing Customer Funds

Banks connected to the collapse of Synapse are reportedly close to recovering customers’ frozen funds.

These banks have made progress in putting together account information for those customers, which could mean their funds being released within weeks, CNBC reported Thursday (July 11), citing a source briefed on the matter.

Staff from Evolve Bank & Trust and Lineage Bank have in particular had success after recently hiring a former Synapse engineer to unlock data from the bankrupt FinTech middleman, said the source.

As CNBC notes, the development is happening as regulators — such as the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) — are putting pressure on officials to release funds after media and lawmakers have raised awareness of the situation.

Since May, more than 100,000 customers of FinTech apps including Yotta, Juno and Copper have been frozen out of their accounts.

“We’re strongly encouraging Evolve to do whatever it can to help make money available to those depositors,” Federal Reserve Chair Jerome Powell told the Senate banking committee Tuesday (July 9).

Likewise, a group of four Democratic senators last week called on Synapse, its investors and its banking partners to let customers access their funds.

According to the CNBC report, the optimism of players involved in the situation follows weeks of gridlock in bankruptcy court.

The sudden optimism of key players involved in the negotiations, including Evolve Chairman and founder Scot Lenoir, comes after weeks of apparent gridlock in a California bankruptcy court.

As PYMNTS wrote in May, Synapse’s troubles began — or at least became public — when the company’s largest client, Mercury, decided to work directly with Evolve, Synapse’s core banking partner, thus removing the need for Synapse as a middleman.

“That set off a chain of events, few of them good, for Synapse’s other clients who relied on the FinTech provider as their connective tissue,” that report said.

Synapse filed for bankruptcy and in April struck a deal to be acquired by TabaPay, though that agreement soon fell apart.

A status report last month on Synapse’s bankruptcy has highlighted the difficulty in returning funds to the company’s customers.

Trustee Jelena McWilliams told the Central California Bankruptcy Court that partner banks have dispersed most funds held in demand deposit accounts (DDAs) to users.

But returning funds held in more complex “for benefit of” (FBO) accounts has been more of a challenge because of discrepancies in Synapse’s records and a potential shortfall of $65 million to $96 million.

“The impact of Synapse’s bankruptcy on end-users has been devastating,” McWilliams wrote in a letter to regulators included in the court filing. “I understand that, without these funds, many end-users are unable to pay for basic living expenses and food.”