The CFPB Has Entered the Chat: Is A Synapse "Bailout" In the Cards?

Paddle Pays $5M FTC Penalty, MoneyGram Reaches $250,000 Settlement with NY AG

Jun 22, 2025

Hey all, Jason here.

After a brief but enjoyable time in Mexico City, I’m wrapping up this week’s newsletter from my mom’s now-empty house in the Chicago suburbs, after helping her move to new accommodations (so please forgive any typos!)

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The CFPB Has Entered the Chat: Is A Synapse “Bailout” In the Cards?

Late in the day on Friday, the Consumer Financial Protection Bureau made what, at this point, can only be described as a fairly shocking (in a positive way) filing in the Synapse bankruptcy case.

Despite repeated public pleas from the Chapter 11 Trustee, former FDIC Chair Jelena McWilliams, and the bankruptcy judge, Hon. Martin Barash, federal and state regulators and law enforcement have remained nearly silent on the matter, despite as much as $95 million in consumer deposits that are still unaccounted for and the three primary banks involved — AMG, Lineage, and Evolve — lobbing accusations back and forth in various court filings and, at times, in public.

Image: In re: Synapse Financial Technologies, Inc.

The brief, four-page statement of interest the CFPB filed on Friday is a rare sign of hope for depositors who remain out of pocket and have had increasingly little visibility into what is happening at the banks behind the scenes.

The Bureau’s statement of interest supports McWilliams’ motion to convert or dismiss the case, but argues that the court should keep the case active as a Chapter 7 bankruptcy in order to facilitate the Bureau pursuing a claim against the Synapse estate for allegedly violating the Consumer Financial Protection Act.

According to the filing, “[t]he Bureau has reason to believe that Synapse may have engaged in unfair practices by failing to properly track and reconcile consumer funds across Partner Financial Institutions in violation of Sections 1031 and 1036 of the Consumer Financial Protection Act.”

These alleged unfair practices have caused significant consumer harm, the Bureau argues, and the “Bureau intends to continue conducting additional fact finding and analysis to establish its claim and attempt to quantify consumer harm.”

A potential enforcement action against the Synapse estate by the CFPB could give rise to an unsecured claim against the estate “for monetary and other relief to address consumer harm resulting from the Debtor’s conduct.”

But the Synapse estate has no meaningful assets — this has been oft-repeated by McWilliams, the Chapter 11 Trustee, and, indeed, is the primary driver of her motion to convert or dismiss the case.

The Bureau’s statement of interest acknowledges the estate has few if any assets, stating, “it is the Bureau’s understanding that the estate would not have sufficient assets to fully satisfy any claim or monetary judgment that might be allowed. Nevertheless, the Bureau has a strong interest in pursuing its claim because it has a mechanism to potentially make victims whole without payment from Debtor’s estate.”

That mechanism? The CFPB’s Civil Penalty Fund, which was established as part of the Dodd-Frank legislation that created the Bureau.

Firms that reach settlements with the Bureau that include civil money penalties pay into the fund, which can then be tapped by the Bureau “to help compensate harmed victims who wouldn’t otherwise receive compensation from the defendant in the case,” according to the Bureau’s site. The “defendant,” in this case, would the Synapse estate.

However, in order to tap those funds, the Bureau must win a final order against the Synapse estate that imposes civil penalties for the violation(s) — even if said penalty awarded is “nominal,” according to the Bureau’s filing in the bankruptcy case.

Keeping the bankruptcy case in Chapter 7 rather than dismissing it would simplify the Bureau’s process of obtaining such an order; according to the Bureau’s statement, “The Bureau’s ability to file a claim and obtain redress for consumers will be aided if this Court maintains jurisdiction over the case and resolves the Bureau’s claim in the context of the bankruptcy case.”

By keeping the case in the bankruptcy process, should the Bureau determine that Synapse did engage in unfair practices in violation of the CFPA, “the Bureau will seek to negotiate a settlement, including a nominal civil penalty, with the Chapter 7 trustee, which may allow the Bureau to utilize the Bureau’s Civil Penalty Fund to provide redress to harmed consumers,” the CFPB’s statement says.

In plain English: the CFPB can enter into a consent order with the Synapse estate, if the eventual Chapter 7 Trustee approves it, and, so long as there is a “nominal” civil penalty, it would enable the Bureau to tap its consumer relief funds to, potentially, make out-of-pocket depositors whole.

On the other hand, should Barash, the bankruptcy judge, choose to dismiss case, rather than convert it to Chapter 7, “in order to pursue relief, the Bureau would need to file a complaint and litigate its claims against [the Synapse estate] in federal district court, a process that may take significantly longer, even if the Bureau obtains a default judgment,” the CFPB’s statement says.

The Bureau argues this “would likely further delay any relief to harmed consumers and decrease the likelihood the Bureau would be able to identify and potentially compensate victims.”

While McWilliams deflected questions about the CFPB’s potential involvement in the Synapse fiasco during the case, pointing to the fact that all of the banks involved are below the $10 billion asset threshold for supervision by the CFPB, this argument has always been something of a red herring.

While the Bureau may not have primary supervisory or enforcement authority over the banks, industry analysts (including me) have long made an argument that the CFPB has a fairly clear claim to supervisory and enforcement authority over Synapse — including that this could be a viable path to make depositors whole via the Civil Penalty Fund.

Why now-former CFPB Director Rohit Chopra, known for his pugnacious style, didn’t pursue this strategy is an open question.

The most logical assumption is timing — with the bankruptcy case now heading toward a conclusion, but no resolution in sight for depositors, as the Bureau laid out in its filing, it needed to act before the bankruptcy case is dismissed, to leverage the bankruptcy process to reach a faster settlement with a prospective Chapter 7 Trustee.

Still, one can’t help but wonder how much hardship could have been avoided had the Bureau, under Chopra’s leadership, began executing this strategy more than a year ago, when it was becoming increasingly clear there would be no quick resolution to restoring depositors’ funds.

There’s a certain amount of irony that the only financial regulator that appears to be stepping up to try to drive forward a resolution for depositors is the CFPB led by current acting Director Russ Vought, who has sought to freeze nearly all of the Bureau’s activities, slash its funding, and layoff nearly the entire staff.

The potential for the CFPB to leverage the Civil Penalty Fund to make depositors whole poses an interesting and potentially troubling question: are we seeing the first “fintech bailout”?

As of yet, there has been no civil, criminal, or regulatory accountability for any of the entities or individuals involved in the situation: the banks, their boards and executive management teams, nor Synapse, its officers, board members, or investors (though both Evolve and Lineage have faced enforcement actions ostensibly related to their broader banking-as-a-service programs and third-party risk management failures.)

While the CFPB’s decision to involve itself in the case appears to increase the likelihood depositors are made whole, hopefully any potential fintech bailout doesn’t enable those responsible to continue avoiding accountability.

A representative for the CFPB did not respond to questions and a request for comment sent outside of normal business hours.

Former CFPB Director Rohit Chopra did not respond to questions and a request for comment sent outside of normal business hours.

Paddle Pays $5M FTC Penalty For Tech Support Telemarketing Scams

UK-based payment processor Paddle has agreed to pay a $5 million penalty and to a permanent ban on providing payment processing services to tech-support telemarketers to settle a lawsuit brought by the Federal Trade Commission.

In its complaint, the FTC alleged Paddle facilitated payment processing for tech support scams that leverage telemarketers to sell “bogus” tech support software and services, including by targeting the elderly.

According to the complaint, these offshore schemes, some of which impersonated well-known companies like Microsoft and McAfee, perpetrated scams and phishing attacks, and leveraged Paddle as a “merchant of record” in order to evade scrutiny and detection by banks and card networks.

In some cases, Paddle also, the complaint says, enrolled consumers in and charged them for automatically renewing subscriptions without providing clear disclosures that consumers were agreeing to recurring charges.

These actions, the FTC alleged, violated the FTC Act, the Telemarketing Sales Rule, and the Restore Online Shoppers’ Confidence Act.

In addition to the $5 million penalty and the permanent ban from providing payment processing for tech support telemarketing firms, under the settlement, Paddle will be:

Prohibited from assisting deceptive merchants or engaging in any tactic to avoid fraud or risk-monitoring programs established by banks or the card networks;
Required to implement effective client screening and monitoring, and provide periodic reporting about merchant-clients’ transactions to Paddle’s payment-service providers; and
Required to clearly and conspicuously disclose the terms of any subscription it processes, get consumers’ express informed consent to the subscription, and provide consumers with a simple way to cancel and prevent recurring charges.

MoneyGram Reaches $250,000 Settlement with NY AG Over Alleged Remittance Rule Violations

International remittance provider MoneyGram has reached a $250,000 settlement with New York Attorney General Letitia James, over allegations the company failed to follow consumer protection laws and “jeopardized” customers’ money transfers.

The settlement stems from a 2022 lawsuit jointly filed by the Consumer Financial Protection Bureau and the New York Attorney General against MoneyGram; the CFPB withdrew from the lawsuit in April 2025, under Trump’s acting CFPB Director, Russ Vought.

That suit alleged that MoneyGram:

violated the Remittance Rule, by repeatedly giving senders inaccurate information about when funds would be available to recipients abroad;
failed to provide investigations, responses, or remedies in response to customer complaints as required by the Remittance Rule;
engaged in unfair acts or practices by failing to make remittances available to recipients in a timely manner or making refunds available to senders in a timely manner;
and engaged in unfair acts or practices by unnecessarily delaying transactions.

The original complaint alleged violations of the Remittance Rule, Regulation E, which implements the Electronic Funds Transfer Act, and the Consumer Financial Protection Act.

In addition to the $250,000 penalty, the New York settlement requires MoneyGram to comply with applicable consumer protection laws by transferring funds and providing refunds in a timely manner.

MoneyGram must also ensure disclosures it makes to consumers are accurate and to investigate errors and complaints in a timely manner.

New York Attorney General James commented on the settlement, saying:

“New Yorkers who want to send funds to their loved ones abroad should be able to trust that the companies handling their hard-earned money are operating honestly. MoneyGram failed to follow the law for years, sometimes leaving its customers in the dark about where their money went. My office stopped MoneyGram’s illegal behavior and will continue to protect those who rely on MoneyGram to support their families.”

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