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Evolve & Synapse Client Money Ave Hit With Cease And Desist For False Deposit Insurance Claims
Spring Rulemaking Roundup, SoLo's Sloppy UX Loses Arbitration Bid, May Sees $4.5 Billion in Fintech Funding
Hey all, Jason here.
Happy Father’s Day to all my fintech dads out there. This week’s newsletter is coming to you from the French countryside, where we’re visiting some friends for the weekend. At least if I’m working over the weekend, I can do it with some delicious food and wine!
For readers located in the US, a happy Juneteenth — hopefully it can be a day for both celebration and reflection in a country that often feels more divided than ever.
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Evolve And Synapse Client Money Ave Hit With Cease And Desist For False Deposit Insurance Claims
Facing an explosion of false and potentially misleading claims about deposit insurance coverage, driven both by crypto and fintech services, the FDIC has sought to modernize and improve clarity on how companies describe such coverage, as well as stepping up enforcement actions.
Last week, Money Ave, which purports to offer personal and business checking accounts, personal loans, commercial property loans, merchant payment processing, auto refi loans, home loans, and life insurance received a cease and desist order from the FDIC regarding false and misleading statements the company has made about its deposit insurance coverage status.
Money Ave’s website describes customer funds as “covered by FDIC insurance up to $250,000 through Money Avenue LLC Bank,” despite the fact that the company is not an insured depository institution nor a bank of any kind.
A mirror site at bankmoneyave.com also made use of the FDIC logo as seen above, though this site was taken offline late last week.
Both appear to be blatant violations of the FDI Act, which, among other things, requires identifying the insured depository institution in which customer funds are held in close proximity to any claim of deposit insurance coverage.
According to the cease and desist letter, Money Ave responded to an initial FDIC inquiry by stating that it “is a fintech banking app on another entity’s platform. [The company] further stated that Money Avenue is in partnership with an FDIC-insured bank. Finally, [the company] attached what appears to be a master services agreement by and between Money Avenue and the third-party entity platform. Based on the information submitted, however, it is unclear as to the relationship and arrangement between Money Avenue and the FDIC-insured bank that [the company] identified in the letter.”
While the cease and desist doesn’t identify the third-party platform or bank partner, a review of Money Ave’s site and terms and conditions indicates the BaaS provider is Synapse and the bank partner is Evolve Bank & Trust.
The FDIC found that Money Ave’s response to its initial letter was “wholly unresponsive and insufficient, as it failed to respond to any of the violations detailed in the March 2023 Letter.”
The order requires Money Ave to:
immediately remove any statements that suggest Money Ave is FDIC-insured or that FDIC insurance provides coverage in any manner or extent other than what is set forth in the FDI Act
cease and desist from making any statements that Money Ave is FDIC-insured
and, within five business days of receiving the letter, which is dated June 15th, provide written confirmation that the company has complied
As of writing, Money Ave’s site still contains false and potentially deceptive deposit insurance claims.
False Deposit Insurance Claims Aren’t The Only Problems
While the cease and desist order addresses only the deposit insurance claims, those don’t appear to be the only potential problems with Money Ave’s marketing claims.
Money Ave’s site includes a variety of logos, suggesting membership in organizations and press accolades, including: Mortgage Bankers Association, American Association of Private Lenders, Inc 5000, Wall Street Journal, Forbes, New York Times, USA Today, and Techcrunch.
But a search of those sites turns up nothing about the company:
it does not appear to be a member of the Mortgage Bankers Association
it does not appear to be a member of the American Association of Private Lenders
Though the company did appear on the Inc 5000 list in 2020 and 2021.
Money Ave’s site claims to offer a slew of products, but the company itself only holds mortgage lending or broker licenses in three states: Georgia, New Jersey, and Pennsylvania.
The pages purporting to offer merchant payment processing, a business “credit builder,” business loans, and investment property loans are simple web forms that appear to harvest users’ data — it’s unclear if any of these services are actually available.
The personal loans, auto refinance, and life insurance offered are actually lead generation forms powered by MoneyLion’s Engine affiliate network (previously known as Even Financial.)
At one point, Money Ave either planned or purported to offer “blockchain banking,” even falsely claiming funds held in crypto wallets were FDIC-insured up to $250,000:
It’s not even clear that Money Ave’s banking product actually exists or works — a search in the Apple and Google app stores turns up nothing, and an attempt to create an account on its site is greeted with the following error:
Third-Party Risk Management Failures
The problems with Money Ave should be obvious.
The real question is, how did Money Ave pass Synapse’s and, more importantly, Evolve Bank & Trust’s due diligence and third-party risk management processes?
Banking regulators, including the Federal Reserve Board, Evolve’s primary federal regulator, have recently stepped up scrutiny of bank/fintech partnerships.
Earlier this month, the Fed, the OCC, and the FDIC released updated inter-agency guidance on risk management in third-party relationships — guidance which would cover Evolve’s relationship with Synapse and Money Ave.
The potential harm to consumers from Money Ave may be relatively minimal, but it is yet another red flag about Evolve and Synapse’s inability to adequately diligence and manage their fintech clients.
Representatives for Money Ave, Synapse, and Evolve Bank & Trust did not respond to requests for comment by the time of publication.
Sankaet Pathak, founder & CEO of Synapse, provided the following clarification after the publication of this piece:
“Money Avenue is only approved for internal testing and never went beyond that stage. In this test mode, there were only a handful of test accounts created with roughly $1300 in funds.
On top of that, Evolve and Synapse had been and continue to monitor Money Avenue’s main website which contains the proper disclosures. Outside of our relationship, Money Avenue had a different website that did not mention and was not connected to Evolve or Synapse. It was this other site that we believe the FDIC was referring to in their letter.
And whenever something like this happens, onboarding of any new users (test or live) is frozen until adequate remediations are performed. Similar steps have been taken here as well.”
Spring Regulatory Roundup Of Upcoming Rulemaking
The Office of Information and Regulatory Affairs released its Spring 2023 Unified Agenda of Regulatory and Deregulatory Actions, which provides a snapshot of executive agencies’ plans to issue advance notices of proposed rulemaking (ANPR), notices of proposed rulemaking (NPR), and final rules over the next 12 months.
There are numerous proposed regulations that will impact banking and fintech on topics including: Basel III endgame, resolution resource requirements, insured depository institution resolution rules, oversight of industrial banks and their parent companies, incentive compensation, and source of strength requirements (Bank Reg Blog has a fantastic synopsis here.)
In addition to those listed above, there were two items that caught my eye.
FDIC: Consent to Engage in Certain Covered Activities
The FDIC’s filing included a proposed rule that would require banks it oversees to request permission before engaging in certain “covered activities.” Per the abstract of the rule (emphasis added):
The FDIC is seeking comment on proposed amendments to its regulations to establish filing requirements for FDIC-supervised institutions that seek to engage in certain covered activities, including permissible crypto-related activities and plans to leverage technological innovations to augment and transform the delivery channels through which they provide banking services.
The FDIC already requires banks it oversees to provide it of notice of “any activities involving or related to crypto assets.”
The second piece — “technological innovations” — is vague enough to cover a broad array of potential activities.
The first thing that jumped to mind was banking-as-a-service partnerships, especially with BaaS platforms, but perhaps I’m reading too much into this. It will certainly be worth watching how this rule develops.
CFPB: Supervision of Larger Participants in Consumer Payment Markets
Another proposed rule worth watching is the CFPB’s plan to consider designating new entities as “larger participants” that would fall directly under its supervisory authority. Per the rule abstract (spacing adjusted and emphasis added):
Under section 1024 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the CFPB is authorized to supervise certain nonbank covered persons for compliance with federal consumer financial laws and for other purposes.
Under section 1024(a)(1)(B) of the Dodd-Frank Act, for certain markets, the supervision program generally will apply only to "larger participant[s]" of these markets as defined by rule.
The CFPB has defined larger participants in several markets and is considering issuing additional regulations to define further the scope of the CFPB's nonbank supervision program.
In particular, the CFPB is considering rules to define larger participants in markets for consumer payments.
The general consensus is that the rule may be aimed at Big Tech players that have been consistently pushing further into financial services; namely, Apple and Google, which both offer digital wallets and payments capabilities.
CFPB Director Chopra, previously an FTC Commissioner, has made no secret of his suspicions of the largest tech companies and their practices.
Designating them as “larger participants” would give the CFPB greater authority to supervise and examine them for compliance with federal consumer protection law.
SoLo Loses Bid To Force Customer Into Arbitration Due To Sloppy UX
Anyone who has worked in product or user experience (UX) roles in a consumer financial services company will know how painful — but important — working with legal and compliance colleagues can be.
Feedback can feel pedantic — the placement of a checkbox, the color or size of a font.
But a recent ruling in a customer’s lawsuit against peer-to-peer payday lending app SoLo Funds illustrates the importance of diligent reviews of all consumer-facing UX, particularly when it comes to user onboarding and users’ review and acceptance of terms and conditions.
In this case, a SoLo user is suing the platform, alleging the company “misrepresents that its advances cost nothing,” as it collects “tips” and “donations” for the payday loans it brokers.
SoLo moved to compel the user to settle the case through arbitration, but ultimately failed to do so, because of the sloppy construction of the app’s UX and drafting of its loan agreements.
The legal analysis of whether or not a valid agreement to arbitrate was formed is somewhat lengthy and complex, but basically boils down to a requirement that (1) notice of the arbitration agreement is reasonably conspicuous and (2) manifestation of the user’s assent is unambiguous (eg affirmatively clicking a checkbox or button).
The linked “Terms of Service” does include an arbitration provision.
But, the check box “I agree to SoLo’s Terms & Conditions,” does not, itself, actually link to the terms a user is purportedly agreeing to.
The court found that as the “Terms of Service” appears seven lines above the the checkbox, it is not “in close proximity” to where a user expresses agreement.
Further, the “Terms of Service” link is not styled in a way that clearly indicates it is a link, such as underlining, using a contrasting color (typically blue), and capitalizing the text.
And, most importantly, there is nothing to indicate the box where a user agrees to “SoLo’s Terms & Conditions” is, in fact, the “Terms of Service” linked seven lines above.
For these reasons, the court ruled the arbitration notice was not reasonably conspicuous and the user did not manifest assent to the arbitration agreement.
Additionally, the court rejected SoLo Funds’ argument that the loan agreements the user signed incorporate by reference the terms and conditions, inclusive of the arbitration provision.
The court found that SoLo’s loan agreements do not expressly incorporate by reference SoLo’s terms and conditions; rather, the agreement merely states that a borrower can be deemed to be in default if the user “fails to abide by the terms of this Note or the SoLo Terms and Conditions.”
Fintech VC Deals: May Saw $4.5 Billion Across 259 Transactions
May saw somewhat of a rebound in fintech VC activity, with FT Partners’ monthly financing tracker showing $4.5 billion raised across some 259 deals.
Larger deals of note include India-based PhonePe, which raised $100 million, core banking provider Nymbus, which raised $70 million, and proptech firm Avenue One, which raised $100 million.
Other Good Reads
The Only Way To Win Is Not To Play (Fintech Takes)
SEC Sues Binance & Coinbase, Kicking Off The “Crypto Wars” (The Fintech Ledger)
UK Fintech Is Back! (Fintech Brainfood)
The Apple Vision Pro’s Impact on Banking (Ron Shevlin/Forbes)
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