Banking and Finance Law Daily Wrap Up, FINANCIAL INTERMEDIARIES—Bankruptcy court permanently bars Synapse and imposes $1 penalty, (Aug 22, 2025)

By Shashi Kant, BALLB, LLM.

The court’s order defines consumer harm, mandates oversight by the trustee and preserves obligations for data access and information sharing.

The U.S. Bankruptcy Court for the Central District of California entered a stipulated final judgment and order resolving the Consumer Financial Protection Bureau’s adversary proceeding against Synapse Financial Technologies, Inc. The order permanently bars the debtor, Synapse, from engaging in financial services operations and imposes a $1 civil money penalty, recognized as a general unsecured claim in the bankruptcy estate (Consumer Financial Protection Bureau v. Synapse Financial Technologies, Inc, No. 1:24-bk-10646-MB (Bankr. C.D. Cal. Aug. 21, 2025)).

Complaint. The Bureau alleged that Synapse, a provider of software enabling fintech platforms to connect with banks, failed to maintain accurate records of customer funds across multiple partner banks. According to the complaint, Synapse’s records did not match bank records as early as September 2023. Synapse expanded relationships with partner banks through a cash management program that moved customer funds across multiple banks using omnibus accounts. Partner banks included AMG National Trust Bank, Evolve Bank & Trust, and Lineage Bank.

The CFPB states that Synapse ceased operations in May 2024 after filing for Chapter 11, stopped providing data to at least one bank, and terminated access to an online dashboard relied upon by a partner bank. The Chapter 11 trustee later determined that Synapse’s records did not match multiple partner banks’ records, that banks held less money than Synapse’s systems indicated, and that many consumers could not withdraw or transfer funds for extended periods. The filing alleged a shortfall between aggregate balances in Synapse’s records and funds actually held by banks, estimated between $60 million and $90 million. Distributions of available funds began in May 2024 with AMG and in June 2024 with Evolve and Lineage. As of March 2025, many consumers had not received the full amount of their balances.

The Bureau pleaded that Synapse engaged in unfair acts or practices under the Consumer Financial Protection Act by failing to maintain adequate records of customer funds and ensure reconciliation with bank records. It sought permanent injunctive relief, monetary redress, and civil money penalties.

Background. Synapse Financial Technologies provided technology infrastructure to link fintech platforms with banks that held consumer funds, issued debit cards, and processed transactions. By late 2023, discrepancies emerged between Synapse’s internal ledgers and bank records. Despite these issues, Synapse continued to expand its programs, including a cash sweep and brokerage arrangement using omnibus accounts to distribute consumer funds across multiple institutions.

Synapse filed for Chapter 11 relief in April 2024 in the Central District of California. Following the filing, the company’s operations ceased in May 2024. Consumers began experiencing account freezes, and several partner banks suspended activity, preventing withdrawals, deposits, or transfers. A Chapter 11 trustee was appointed to oversee Synapse’s case. The trustee reviewed records and determined significant mismatches between Synapse’s data and bank-held balances. The trustee also sought to preserve data from Amazon Web Services and worked with partner banks on limited distributions to affected consumers. The CFPB entered the bankruptcy case, filing a Statement of Interest in June 2025 and signaling its intent to pursue enforcement action (see Banking and Finance Law Daily, June 24, 2025). The Bureau emphasized the shortfall and the need for data preservation to support potential consumer relief. In August 2025, the Bureau filed its adversary complaint and negotiated a stipulated judgment with the trustee (see Banking and Finance Law Daily, Aug 11, 2025).

Court’s findings. The final stipulated order entered August 21, 2025, states that the acts and practices alleged in the complaint resulted in harm to affected consumers. Harm is defined as the difference between each consumer’s account balance and the amount received in distributions from partner banks, plus prejudgment interest. The order defines terms including “Affected Consumers,” “Account Balance,” and “Partner Bank Distributions.” These definitions establish the framework for any further consumer redress actions in the bankruptcy or related proceedings.

Injunctive relief. Under the final order, Synapse is permanently enjoined from engaging in or assisting others with deposit-taking activities, transmission or exchange of funds, custodial or safekeeping activities, or financial data and payments processing. The company is prohibited from receiving compensation for providing services to persons engaged in those activities. The order further prohibits Synapse or the trustee from selling customer information obtained before the effective date. The trustee is directed not to seek authorization for the debtor to reengage in prohibited activities, except as necessary to recover property of the estate.

Monetary penalty. The court imposed a civil money penalty of $1 against Synapse. The penalty is deemed an allowed general unsecured claim against the bankruptcy estate and will be deposited in the Bureau’s Civil Penalty Fund. Synapse is prohibited from seeking tax benefits or reimbursement in connection with the penalty. The order also provides that the facts alleged in the complaint will be taken as true and given collateral estoppel effect in future proceedings to enforce the order or related monetary relief.

Oversight and reporting. The trustee is required to provide information requested by the CFPB within 14 days. The order sets out ongoing notice obligations to the Bureau during the pendency of the bankruptcy case, including notice of any related consumer actions and specified events concerning Synapse’s estate.

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