In a new court filing tied to the Synapse bankruptcy, the CFPB mentioned that Synapse may have engaged in unfair practices by failing to properly track and reconcile consumer funds.
As these alleged unfair practices have caused significant consumer harm, the Bureau intends to continue conducting additional fact-finding and analysis in order to establish its claim and attempt to quantify consumer harm. In addition, CFPB’s statement of interest supported the motion to convert or dismiss the case, but also argued that the court should keep the case active as a Chapter 7 bankruptcy in order to facilitate the Bureau's pursuit of a claim against the Synapse estate for allegedly violating the Consumer Financial Protection Act.
According to the filing, the Bureau expressed multiple reasons to believe that Synapse may have engaged in unfair practices by failing to properly track and reconcile consumer funds across Partner Financial Institutions, a practice that is in violation of Sections 1031 and 1036 of the Consumer Financial Protection Act. With this in mind, a potential enforcement action against the Synapse estate by the CFPB could give rise to an overall unsecured claim against the estate for monetary or other relief in order to address consumer harm that resulted from the Debtor’s conduct.
Furthermore, as the Synapse estate has no meaningful assets to satisfy any claim or monetary judgments that might be allowed, the Bureau will continue to pursue its claim since it can use the Civil Penalty Fund to potentially reimburse the victims without payment from the Debtor’s estate. Companies and firms that reach settlements with the CFPB that include civil money penalties pay into the fund, which can be tapped in order to help reimburse harmed victims who otherwise would not receive compensation.
However, the Bureau needs to win a final order against the Synapse estate that imposes civil penalties for the violation in order to tap those funds and reimburse customers.
The initiative comes after multiple partners and companies have distanced themselves from Synapse Financial Technologies following its bankruptcy and its overall financial collapse. In April 2024, when Synapse filed for Chapter 11 bankruptcy, its four banking partners lost contact with Synapse’s financial records, leaving USD 265 million in customer deposits blocked. At the moment, there has been no regulatory accountability for any of the entities or individuals that were involved in the situation.
Furthermore, CFPB’s decision follows its recent focus on ensuring that financial markets meet the needs of customers, providers, and the overall economy, as the bureau was developed to facilitate a single point of accountability for enforcing federal client financial laws and safeguard individuals in the financial landscape.
Every day we send out a free e-mail with the most important headlines of the last 24 hours.
Subscribe now