Bank Accounts Frozen After Synapse Shutdown: Impact on U.S. Businesses and Consumers
The sudden shutdown and bankruptcy of financial technology company Synapse have left tens of thousands of U.S. businesses and consumers in financial turmoil, with their bank accounts frozen and funds inaccessible.
Synapse, which filed for Chapter 11 bankruptcy protection in April, acted as a middleman between financial technology companies and banks, including partners like Evolve Bank & Trust. The shutdown of Synapse’s services has caused disruptions for customers of its partners, leading to accounts being frozen or showing incorrect balances.
Evolve Bank & Trust, based in Memphis, stated that Synapse’s shutdown has hindered their ability to verify transactions and comply with banking laws, resulting in frozen customer deposits. Despite this, Evolve assured customers that they are well capitalized.
The impact of Synapse’s collapse extends beyond Evolve, affecting other partners like Lineage Bank and savings rewards company Yotta. Customers have taken to Reddit message boards to express frustration over their inability to access their funds.
The scale of the disruptions caused by Synapse’s bankruptcy is still unfolding, with estimates suggesting that millions of Americans may have been exposed to their services. Creditors are pushing for the bankruptcy to be converted to Chapter 7, which could further complicate the situation for customers.
The chaos resulting from Synapse’s collapse raises questions about the fintech business model, where companies act as banks without the same protections. Regulators may step in to investigate Synapse’s behavior and its impact on customers, highlighting the risks associated with relying on financial middlemen.
This incident serves as a reminder of past financial disruptions, such as the 2015 case of RushCard, where customers were frozen out of their funds due to a botched software update. The fallout from Synapse’s collapse underscores the challenges and risks inherent in the fintech industry, prompting calls for greater oversight and regulation.
