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There may be relief for the thousands of Americans whose savings have been locked away in frozen fintech accounts over the past two months.
Banks caught up in the chaos caused by the collapse of fintech broker Synapse have made progress gathering account information for dormant customers that could lead to the release of funds within weeks, according to a person briefed on the matter.
His staff Evolve Bank & Trust and Lineage Bank in particular have made progress after hiring a former Synapse engineer late last month to unlock data from the failed fintech intermediary, said the person, who requested anonymity to speak candidly about the process.
The development comes as regulators, including the Federal Reserve and the Federal Deposit Insurance Corp., pressure the affected banks to release funds after media and lawmakers raised awareness of the disaster.
Since May, more than 100,000 customers of fintech apps such as Yotta, Juno and Copper have been locked out of their accounts.
“We strongly encourage Evolve to do everything it can to help make money available to these depositors,” Federal Reserve Chairman Jerome Powell told the Senate Banking Committee on Tuesday.
The sudden optimism of key players involved in the negotiations, including Evolve’s founder and chairman Scottish Lenoir, comes after weeks of apparent impasse in a California bankruptcy court. Poor record keeping and a lack of funds to pay for a forensic analysis have made it difficult to deduce who owes what, bankruptcy trustee Jelena McWilliams he has said.
The episode revealed how small banks involved in banking-as-a-service were mismanaging unregulated partners like Synapse, founded in 2014 by a startup entrepreneur named Sankaet Pathak. Evolve and a number of peers have been reprimanded by bank regulators for shortcomings linked to their programs.
Missing customer funds
Evolve Bank originally planned to release $46 million it held from payment processing accounts to provide fintech clients with partial payments, according to the person familiar with the matter.
That plan changed in recent days when it became clear that something approaching full reconciliation of customer accounts was possible, the person said.
However, it remains unclear how the four main banks involved – Evolve, Lineage, AMG National Trust and American Bank – and what’s left of Synapse will deal with a potential shortage of funds, and that could hamper repayment efforts. Until 96 million dollars Debt to customers is lacking, McWilliams said.
Synapse’s manager did not respond to a request for comment. Neither did representatives of AMG, American Bank and Lineage. The FDIC declined to comment for this article.
On Friday, Evolve published one statement on its website, saying in part that it was the bank’s priority to “facilitate the distribution of funds to the customers to whom they belong as quickly as possible.”
Earlier this week, Evolve filed a response to a question from a regulator, FINRAseeking to make clear that while it holds some payment processing funds, deposits from the Yotta app were transferred out of Evolve and into a network of banks in late October 2023.
“We believe there is still some confusion about who owns and controls client funds,” Evolve told FINRA, according to documents obtained by CNBC.
The bank included an Oct. 27, 2023 email from Yotta CEO Adam Moelis to Lenoir in which Moelis confirmed that funds had left Evolve since that date.
“Synapse and Evolve are now saying contradictory things,” Moelis said this week in response to a CNBC inquiry. “We don’t know who is telling the truth.”
