Recent developments suggest that there may be hope for the thousands of Americans who have had their savings trapped in frozen fintech accounts for the past two months. Banks caught up in the aftermath of the collapse of fintech intermediary Synapse have been working diligently to piece together account information for stranded customers. This progress could potentially lead to the release of funds in a matter of weeks, according to sources familiar with the matter. Evolve Bank & Trust and Lineage Bank have been particularly active in this effort, having hired a former Synapse engineer to assist in unlocking crucial data from the failed fintech middleman.
Regulators such as the Federal Reserve and the Federal Deposit Insurance Corp. have been applying pressure on the banks involved in the situation to expedite the release of funds to affected customers. Media coverage and the attention of lawmakers have further raised awareness about the issue. Since May, over 100,000 customers of fintech apps like Yotta, Juno, and Copper have found themselves locked out of their accounts. Federal Reserve Chair Jerome Powell has publicly called on Evolve Bank to take whatever steps necessary to make funds available to these depositors.
Optimism in Negotiations
Key players in the negotiations, including Evolve founder and Chairman Scot Lenoir, have recently expressed optimism following weeks of apparent gridlock in a California bankruptcy court. Challenges such as poor record-keeping and a lack of funds for a forensic analysis have complicated efforts to determine who is owed what. This scenario has shed light on the shortcomings of small banks involved in the “banking-as-a-service” sector when it comes to managing unregulated partners like Synapse.
While Evolve Bank initially intended to release $46 million held from payment processing accounts to provide partial payments to fintech customers, recent developments have suggested the feasibility of a more comprehensive reconciliation of customer accounts. However, uncertainties remain regarding how the four primary banks involved – Evolve, Lineage, AMG National Trust, and American Bank – alongside what remains of Synapse, will address a likely shortfall of funds. According to bankruptcy trustee Jelena McWilliams, up to $96 million owed to customers is currently unaccounted for.
Confusion and Contradictory Statements
Efforts to clarify the situation have faced challenges, with conflicting information emerging from various sources. Evolve Bank recently responded to inquiries from its regulator, FINRA, emphasizing that while it holds certain payment processing funds, deposits from the Yotta app had been transferred out of Evolve and to a network of banks in late October 2023. This statement was corroborated by an email from Yotta CEO Adam Moelis to Lenoir. Amidst the evolving narrative, uncertainties persist regarding the possession and control of customer funds, raising questions about the path to a resolution for affected individuals.
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