As we outlined in a previous Finextra story, financial services ‘schemers’ and ‘scammers’ can come in many different shades. Indeed, victims
of
online fraud and illegal schemes lose money every day to not just criminals and nefarious enterprises, but also to supposedly ‘above-board,’ legitimate products and their purveyors.
To help avoid non-criminal but financially unfulfilling or damaging products and services, it’s best not to rely too much on many ostensibly well-meaning but loosely researched and qualified ‘recommendation’ sites, including some of the most highly-publicised
and popular sites of this type on the internet.
Intuition and experience is smarter than many tempting or ‘trusted’ financial review sites
Prospective online product and service buyers should head straight to their own experience and ‘gut instincts’ to start their evaluations. If that initial inquiry doesn’t provide all the answers needed, they simply must follow it with much more careful and
determined research of their own.
In other words, we are all better off when we rely more on our own life lessons, common sense, and probably also a personally orchestrated ‘deeper dive’ to find the answers we need. That might require consulting multiple sources of reputable and cross-verifiable
information and honest, relevant, reviews by users we trust, with values similar to our own. Certainly, that can involve extra time and effort, but there are no shortcuts to financial safety and security.
Many modern products and propositions encourage buyers or subscribers to take substantial risk or promise outcomes that are significantly overstated or likely to be reality for far too few who agree to buy or enroll. When marketing ‘machines’ are geared
up and funded to speed sign-ups by new customers, how can average consumers or small businesspeople resist the urge to jump right in?
‘Go-go-go’ a signal to ‘doublecheck’ for prudent financial product prospects
The question above is more relevant now than ever - especially when it comes to shorter attention spans, and fast-moving, multi-channel social media campaigns of artfully orchestrated manipulation. Aren’t there supposed to be consumer protection policies
and programmes to help guard the unwitting, the unaware, and those prone to ‘fall for’ exaggerated or purposefully overstated promises from too often unrealised expectations?
The answers to these questions within the US marketplace - until recently, and perhaps into the future, pending any changes in federal agency programmes or proposed
policies under the new
Trump administration - have typically been ‘yes.’
Still, victims of many online financial product pitches fail to heed or even carefully consider the dangers of potentially perilous partnerships. These might be unknown up-front or disclosed (if at all) only after the purchasing process. In any regard, multilateral
connections are increasingly prevalent behind the scenes of some complex financial applications and service providers.
Watch that fine print: Even if it seems to protect you – it might not
Burying product downsides or substantial risks within that ‘fine print’ - the long pages of unavoidable (and often un-voidable) agreements to do business, is not a practice reserved to the digital arena.
However, when online providers say things that aren’t true in those clauses and sub-sections deep in their lengthy ‘in or out, accept or leave’ service or privacy agreements, there are supposed to be legal remedies for civilians to challenge their veracity
or actual performance.
And there often are – if one is willing to spend the money to document harm, prepare exhaustively in advance, and commit to fight in court (or more likely, undergo binding arbitration as the venue of choice usually mandated – in that same small print - by
the providers.)
Are there ways to debunk or cross-check the marketing claims that overstate or misinform on issues like insurance coverage provided, relevant legal statutes that apply or do not, or other critically important facts surrounding a product’s operational and
intermediary ties?
How is a potential customer supposed to arm themselves to ‘decode’ the marketing pitches – to determine just how much risk providers are really posing to each client, investor, or depositor who clicks to say ‘yes’ to their invitations?
Specifics and context - not just reviews – are critical to confirm coverage for potential loss
In the case of the
recent Synapse bankruptcy, a common complaint of those speaking up afterwards (and even today) regarding their financial and emotional or other injuries - caused by losing access to all or a portion of their funds in fintechs using the company’s intermediary
services - is that they ‘thought’ or ‘read in the fine print’ of official service agreements that their deposits were backed by
FDIC insurance.
Many conduct online product comparisons using one of many ‘trusted recommendation’ sites and count on this third-party research to guide potential purchases. A closer examination of some of these review sites’ content – and specific language used in analysing
and perhaps ‘hyping’ certain providers and products over others – may yield a few unpleasant surprises, unfortunately.
Comparison sites can miss key points, misstate facts, and drive bad decisions
Taking that deeper dive was an important part of our own background research for this topic, because so many of these 'financial authority’ pages and forums – including some of those most popular and ‘trusted’ on the internet, openly feature companies that
pay to receive preferred placement and even positively slanted rankings in their ‘impartial’ reviews and ‘top ten’ lists.
Here is what we found: Some of these product/service review sites – either accidentally or on purpose - play a bit loosely with product descriptions and details, even now after so many stories of confusion leading to consternation have been told by the victims
of the Synapse situation.
They often downplay or omit key points on potential risks, true costs to participate, or difficulties involved in exiting complicated financial relationships while heralding the benefits of ‘easy,’ ‘fun,’ ‘exciting,’ ‘new,’ or ‘gamified’ investment or money
management apps or sites.
This lack of objectivity might be due to their focus more on referring or selling new customers for paying or affiliated partners - or gathering and monetising user data to bolster their own financial returns - rather than carefully parsing and explaining
the nuances, for example, of relevant regulations and laws applicable to prospective purchasers.
Most would agree that of all modern business matters, relationships involving financial affairs are where consumers should allow the least room for being anything but spot-on with the facts, conclusions, and outlines of rules and responsibilities. That’s
part of the reason why – for better or worse – financial institutions are so heavily regulated in nearly everything they do.
Cross-checking facts and assumptions show that words really matter to financial health
As part of a limited test of the Synapse victims' complaints that: “We were told we had FDIC insurance for our accounts” - we first visited the FDIC’s own website. We sought to confirm what it actually takes to be covered by the agency’s insurance.
Here is what it says: “FDIC deposit insurance covers $250,000 per depositor, per FDIC-insured bank, for each account ownership category.”
That last term is important because it includes lots of account scenarios. Going further, the agency’s explanation includes single, joint, ‘certain’ retirement - like individual retirement (IRA) accounts, trust, employee benefit plan, corporation/partnership/unincorporated
association, and government accounts.
Any consumer, small business, or organisation with modest or even substantial balances involved being told by an online provider or referring review site that their funds would be FDIC insured might – reading only this far – feel justifiably comfortable
with its ‘risk-reward’ profile. They would likely believe they were ‘in the clear’ and would be ‘made whole’ should something ‘go south’ with that provider or its financial products.
In fact, the FDIC provides specifics on what they would insure among all those accounts – and that is up to $250,000 in balances combined in any one category. Again, not a problem for most, and a legitimate concern for very, very few fintech or bank investors,
given the relatively substantial amounts required to exceed available coverage.
Sure, if customers chose to deposit (or allocate through another party) more than $250,000 in more than one individual or joint account held in an insured institution, the excess would NOT be covered.
However, it's likely that someone (especially a business) with that much money would be savvy enough (and hopefully advised up-front by their providers) to spread the funds around among eligible account alternatives – or open accounts at other FDIC-insured
institutions or firms offering other government guarantee programmes.
This might include, for example, the Securities Investors Protection Corporation (SIPC). That way, they could stay in compliance with stated guidelines for full coverage across multiple accounts and relationships. Some sites openly offer these suggested
‘safety valves’ to clients, but as we share below, without very careful analysis and planning, expected coverage might not actually apply to multi-party relationships anyway!
Don’t allow referral sites’ marketing or endorsements to cause your financial folly
Interestingly, we found that some supposedly ‘buttoned-up’, reputable sites of both the product review and financial provider varieties continue to technically misstate the FDIC’s policies, claiming fintech-affiliated bank partner coverage for customers
of “$250k per account”, “$250 thousand in insurance per customer,” or use similar erroneous language instead of employing a more accurate description of this important programme.
Why worry? In such situations, words really matter, even if they take up extra space or serve to dissuade some potential buyers from proceeding to purchase. As the FDIC’s specific verbiage shared above clearly indicates, statements by product recommendation
sites and related online financial services providers must be scrutinised, as some continue to troublingly oversimplify the insurance qualification requirements for many situations and customers.
What about the disconnect with those individuals who’ve claimed in media accounts that they were ‘certain,’ ‘assured,’ ‘guaranteed,’ etc., that the ‘fine print’ of their own user agreements with Synapse-connected fintech investment and deposit providers
online did in fact ensure their funds were safe?
The answer is found in the following two sentences, especially the latter one, included on the same page as the FDIC’s coverage descriptions: Under the headline “How to Know If Your Account is Covered,” the agency states:
“FDIC insurance covers deposits in all types of accounts at FDIC-insured banks, but it does not cover non-deposit investment products, even those offered by FDIC-insured banks. Additionally, FDIC deposit insurance doesn’t cover default or bankruptcy
of any non-FDIC-insured institution.”
As we noted in our previous story on this topic, the FDIC’s response to the ongoing reconcilement squabbles surrounding Synapse’s deposits held in four banks for dozens of its fintech partners and ‘For
Benefit Of’ (FBO) accounts for their clients, is that the agency
cannot and will not cover any Synapse account-holder losses because no FDIC-insured bank failed. And even if one did, refunds or other actions would only be provided with the proof and very clear accounting of insured balances held in eligible accounts
by all parties claiming FDIC coverage.
Only recently have most of the FBO accounts in each of the Synapse connected banks been fully or even partially reconciled. In fact, millions in client-owned funds have still not yet been accounted for - at least to the extent the FDIC or any qualified auditing
firm would require.
Amid all the murkiness and discord among previously collaborative product partners this much is clear: many individuals and businesses have been harmed. Those who had placed their hard-earned funds – and personal trust – in online providers that (often unknown
to them) used Synapse as a reporting and funds transfer intermediary on the back end of their core relationships have misunderstood or been misinformed regarding FDIC policies. Yet some of those providers still show a remarkable lack of business sense, or
continue to share confusing client guidance or other uninformed, unhelpful details.
One financial product site caught in the dispute with hundreds if not thousands of its customers waiting for return of their funds from the Synapse ‘freeze’ continues to recommend the failed intermediary as a suggested contact for more client information.
Elsewhere on its site it attacks one of Synapse’s former preferred banking partners for its actions in the dispute – and essentially absolves itself of any responsibility for errors that occurred - despite describing how it is now doubling coverage against
loss for customers through multiple FDIC-insured banks (which wouldn’t actually apply unless one or more of the banks providing eligible account coverage failed, as previously outlined).
Victims of Synapse’s bankruptcy number in the tens of thousands – even though most of them probably never knew they even had a relationship with the company. There are still millions of dollars in missing or unaccounted-for balances tied to the failed venture-backed
firm and tied up between it and its former operational partner banks and fintechs. The rightful holders of these funds - many of them very smart and exceedingly competent individuals in other areas of their lives – are now asking themselves: “How did we get
here?” and wondering what might keep them or others from ever going down the same fraught path of financial ruin in the future.
One lesson to be learned from their misfortune is to always lean on one’s intuition, common sense, and/or faith placed in referrals and recommendations that can truly be trusted. That's advice we all should heed - especially if we’re considering doing something
‘exciting,’ ‘cool,’ ‘innovative,’ or ‘fun’ - whether in the branch down the street or online - with our hard earned, livelihood-sustaining funds.
It’s better for everyone’s safety, security, and sanity - and for society as a whole - to do the due diligence needed and walk away quickly if something about a financial product doesn’t feel or look right. Better to leave the gambling to those who either
don’t care about pertinent facts or potential drawbacks', don’t mind losing their money, or both.