Thousands of Americans have found themselves in a dire situation as savings accounts they believed were secure have been locked during the collapse of fintech middleman Synapse. These accounts, which customers thought were backed by the full faith and credit of the U.S. government, have instead left many with significant losses. CNBC has spoken to a dozen customers caught in this predicament, with losses ranging from $7,000 to over $200,000.

"The Hidden Risks of Fintech Savings Accounts Exposed"

Former Texas Schoolteacher's Story

For 15 years, former Texas schoolteacher Kayla Morris diligently saved every dollar she could for her growing family. When she and her husband sold their house last year and stowed away the proceeds of $282,153.87 in an account at the savings startup Yotta held at a real bank, they thought they had a safe place. However, like thousands of other customers, Morris was snared in the collapse of Synapse and has been locked out of her account for six months as of November. She was devastated to learn that Evolve Bank & Trust, where her funds were supposed to be held, was only going to pay her $500 out of the $280,000. Her voice wavered as she recounted the ordeal during a court hearing last week.This crisis began in May when a dispute between Synapse and Evolve Bank over customer balances boiled over, and Synapse turned off access to a key system used to process transactions. Synapse helped fintech startups like Yotta and Juno offer checking accounts and debit cards by connecting them with small lenders like Evolve. In the immediate aftermath of Synapse's bankruptcy, a court-appointed trustee found that up to $96 million of customer funds was missing. Despite six months of court-mediated efforts between the four banks involved, the mystery of where those funds are has not been solved. The estate of Andreessen Horowitz-backed Synapse does not have the money to hire an outside firm to perform a full reconciliation of its ledgers.

Thousands of Affected Customers

At Yotta alone, 13,725 customers are being offered a combined $11.8 million despite putting in $64.9 million in deposits. CNBC has spoken to a dozen customers caught in this predicament, with people owed sums ranging from $7,000 to well over $200,000. From FedEx drivers to small business owners, teachers to dentists, they have all lost years of savings after turning to fintechs like Yotta for higher interest rates or innovative features. One such customer is Zach Jacobs, a 37-year-old from Tampa, Florida. He logged onto Evolve's website on Nov. 4 and found that he was getting back just $128.68 of the $94,468.92 he had deposited. This led him to take action and organize with other victims online, creating a board of volunteers for a group called Fight For Our Funds. So far, 3,454 people have signed on, saying they've lost a combined $30.4 million.Andrew Meloan, a chemical engineer from Chicago, had hoped to see the return of $200,000 he'd deposited with Yotta. Early this month, he received an unexpected PayPal remittance from Evolve for $5. He felt conned as he had been given an Evolve routing and account number when he signed up but was now told that only $5 of his money was available and the rest was somewhere else.

The Risks of the System

Unlike meme stocks or crypto bets where users assume some risk, most customers viewed funds held in FDIC-backed accounts as the safest place to keep their money. People relied on accounts powered by Synapse for everyday expenses like buying groceries and paying rent or for saving for major life events. Several people CNBC interviewed said signing up seemed like a good bet since Yotta and other fintechs advertised that deposits were FDIC-insured through Evolve. However, they were abandoned by U.S. regulators who have so far declined to act. In June, the FDIC made it clear that its insurance fund does not cover the failure of nonbanks like Synapse, and recovering funds through the courts is not guaranteed. Three months later, the FDIC proposed a new rule to improve the chances of customers qualifying for coverage in a future calamity.Jelena McWilliams, a former FDIC chair, told the California judge handling the Synapse bankruptcy case that she was "disheartened" that every financial regulator has decided not to help. The FDIC and Federal Reserve declined to comment, and McWilliams did not respond to emails.

Winners and Losers

Things hadn't always seemed so dire. Early in the proceedings, McWilliams suggested to Judge Martin Barash that customers be given a partial payment to spread the pain. But more coordination was needed between Evolve and the other lenders that held customer funds than what ultimately happened. As the hearings dragged on, the three other institutions began disbursing the funds they had, while Evolve took months to perform a comprehensive reconciliation. Around the time Evolve completed its efforts in October, it said it could only figure out the user funds it held, not the location of the missing funds. This led to relative winners and losers. Some end users received all their funds back, while others like Indiana FedEx driver Natasha Craft received none. As of Nov. 12, the four banks released $193 million to customers, or more than 85% of what they held earlier in the year.The Nov. 13 hearing provided the only public venue for victims to register their distress. Dozens of victims queued up in the hopes of testifying about receiving a tiny fraction of what they're owed, and the event went longer than three hours. Andreatte Caliguire, who is owed $22,000, said, "You can't imagine the panic when it said I was getting 81 cents. I have no money, no path forward, nothing."

Evolve's Stance and the Future

Evolve says that "the vast majority" of funds held for Yotta and other customers were moved to other banks in October and November 2023 on directions from Synapse. However, the spokesman added that where those end user funds went after that is an important question that Evolve cannot answer with the data it currently has. Yotta says that Evolve has given fintech firms and the trustee no information about how it determined payouts, despite acknowledging in court that a shortfall existed at Evolve prior to October 2023. Several executives have recently left the bank, and Yotta hopes regulators take notice and act.In statements released ahead of this month's hearing, Evolve said that other banks refused to participate in its efforts to create a master ledger, while AMG and Lineage said that Evolve's implication that they had the missing funds was "irresponsible and disingenuous." As the banks and other parties hurl accusations at each other and lawsuits pile up, the window for cooperation is rapidly closing. As Judge Barash said last week, "As time goes by, my impression is that unless the banks that are involved can sort this out voluntarily, it may not get sorted out. There's nothing optimistic about what I'm telling you."