CFPB Moves to Keep Synapse Case Alive for Consumer Relief

Reports of the Consumer Financial Protection Bureau’s death have been exaggerated.

The agency is in flux in terms of staffing and funding as the President Donald Trump administration has pursued a different regulatory tack than past administrations.

However, there came a hint Friday (June 20) that the CFPB may be seeking consumer redress in the Synapse bankruptcy and sharpening its scrutiny of back-end reconciliation in particular and FinTechs and fund flows more generally.

The CFPB filed an unexpected statement of interest in the Chapter 11 case of Synapse Financial Technologies, urging a California bankruptcy judge to convert the proceeding to Chapter 7 rather than dismiss it.

Consumer Harm and Reconciliation

“The bureau has reason to believe that Synapse may have engaged in unfair practices by failing to properly track and reconcile consumer funds across partner financial institutions in violation of Sections 1031 and 1036 of the Consumer Financial Protection Act [CFPA],” the filing said. “Those unfair practices may have caused significant consumer harm to certain consumers. The bureau intends to continue conducting additional fact-finding and analysis to establish its claim and attempt to quantify consumer harm, but as detailed in the trustee’s motion, and in the numerous status reports filed by the trustee, the shortfall between the money consumers had in their accounts at the time their accounts were frozen and the money that has been returned by the partner financial institutions may be as high as $95 million.”

Synapse’s role as an intermediary to help FinTechs gather customer deposits and hold them with Synapse has been a flashpoint in the debate over banking as a service and improving the transparency of money movement. End users have been unable to access funds, and there have been challenges tied to untangling “for benefit of” accounts.

In an interview late last year with PYMNTS, Ingo Payments CEO Drew Edwards said: “My sense is they tried oversimplification and potentially took millions of consumers’ money accounts, and put them into a single commingled omnibus account without proper real-time or even daily reconciliation of very complicated money in and money outflows.”

In Friday’s filing, the CFPB said it has logged “hundreds of complaints” from users of the FinTech apps.

“Accordingly, the bureau may have an unsecured claim against the debtor for monetary and other relief to address consumer harm resulting from the debtor’s conduct,” the filing said.

Opening the Door for Settlements and Compensation

A Chapter 7 conversion would keep the court’s oversight in place and allow the CFPB to seek ways to compensate victims, the agency said.

“In the event the bureau asserts a claim against the debtor for violations of the CFPA, it is the bureau’s understanding that the estate would not have sufficient assets to fully satisfy any claim or monetary judgment that might be allowed,” the filing said. “Nevertheless, the bureau has a strong interest in pursuing its claim because it has a mechanism to potentially make victims whole without payment from debtor’s estate.”

That mechanism would come as the CFPB could tap “the authority to utilize its Civil Penalty Fund to provide monetary relief to victims harmed by a violation of the CFPA, provided that a final order in favor of the bureau imposes civil penalties for the violation,” the filing said.

A settlement (consent order) with the Synapse estate, with an attendant “nominal civil penalty” would set the wheels in motion to use the civil penalty fund to compensate depositors, per the filing.

Dismissing the case, by contrast, and failure to keep it in Chapter 7, could force the CFPB to sue in district court, prolonging compensation and making it harder to identify harmed consumers.

The unobligated balances as of this year in the CFPB’s Civil Penalty Fund stood at $428 million in fiscal year 2025, per Congressional documentation.

The funding of the CFPB itself may get a reprieve. The Senate’s parliamentarian said budget cuts contained in the so-called “One Big Beautiful Bill” violate budgetary rulemaking. Those actions may reportedly not wind up making it into the bill.