Why It Matters

The collapse of fintech middleware provider Synapse in 2024 locked out more than 100,000 customers from $265 million in deposits they believed were federally insured. That failure exposed a regulatory blind spot at the heart of bank-fintech collaboration: when something goes wrong, no one is clearly responsible.

The House Financial Services Subcommittee on Digital Assets, Financial Technology, and Artificial Intelligence is now taking up that question directly, with a hearing scheduled for May 20 titled "Partnering For Innovation: How Bank-Fintech Collaborations Enhance Financial Infrastructure."

A Growing Risk Profile

Banks are partnering with fintechs at a rapid clip, offering everything from buy now/pay later products to stablecoins and international payment processing. As those financial infrastructure partnerships proliferate, so do the risks.

A May 11 report in American Banker found that banks' risk profiles are shifting as a direct result of these arrangements. Linda Lerner, a partner at law firm Halloran Farkas + Kittila, was quoted in that report saying banks "need to be more selective about their fintech partners and double down on efforts to ensure the bank is protected."

A separate American Banker investigation published May 7 found that banks and credit unions using third-party fintech partners to offer buy now/pay later products face significant financial and compliance exposure - a direct consequence of outsourcing consumer-facing financial products without clear accountability structures.

Liability in the Gaps

The regulatory and legal community has been tracking the liability question closely.

An April 2026 analysis from Bilzin Sumberg found that bank-fintech partnerships blur compliance responsibilities and that courts and regulators are actively working to assign liability when banking-as-a-service models break down. The analysis noted that "recent actions against fintech platforms tied to payment processing and digital wallets have imposed penalties for inadequate fraud controls and delayed reimbursements," and that "regulators have also penalized banks directly for failing to manage third-party fintech risk, emphasizing that outsourcing does not absolve regulatory accountability."

The Synapse collapse sits at the center of this debate.

According to reporting from PaymentsJournal, the failure "revealed gaps" in how banking-as-a-service arrangements protect consumers and "led to disruption for customers and increased scrutiny of record-keeping and partner oversight." It has been described as potentially forcing a "reset of the banking-as-a-service model" - and it is widely cited as a turning point in how regulators and Congress view these arrangements.

Regulators Already Moving

Federal regulators have not been standing still. According to a 2026 FDIC speech, the FDIC, OCC, and National Credit Union Administration, with FinCEN's concurrence, issued an order in June 2025 granting an exemption from a Customer Identification Program requirement. The accommodation allows institutions to collect only the last four digits of a customer's taxpayer identification number when using a trusted third-party fintech to verify the full number, a signal that federal agencies are actively adjusting rules to accommodate the bank fintech collaboration landscape, even as oversight questions remain unresolved.

A March 2026 piece in the Consumer Financial Services Law Monitor examined what separates successful bank-fintech programs from those that fail, noting that "regulators' and banks' views of fintech partnerships have evolved" and that increasingly technical regulatory exams are reshaping how institutions structure these arrangements.

The Hearing

The fintech innovation hearing will convene on May 20. Rep. Bryan Steil (R-WI) chairs the subcommittee, with Rep. Stephen Lynch (D-MA) serving as ranking member.

The broader House Financial Services Committee, chaired by Rep. French Hill (R-AR), provides the institutional backdrop. Other subcommittee members include Reps. Zach Nunn, Marlin Stutzman, Tom Emmer, Warren Davidson, John Rose, William Timmons, Byron Donalds, Troy Downing, Bill Foster, Josh Gottheimer, Ritchie Torres, Sylvia Garcia, Ayanna Pressley, Brad Sherman, Bill Huizenga, Mike Haridopolos, Tim Moore, Brittany Pettersen, and Sam Liccardo.

The Bottom Line

The central tension the subcommittee is navigating is not new, but it has grown more acute.

As The Financial Brand reported in February 2026, the term "BaaS" has fallen out of favor "due to a series of regulatory challenges faced by certain institutions," and the industry is actively reassessing what a responsible sponsor banking model looks like. The question before Congress is whether the current regulatory framework is equipped to answer that question or whether legislation is needed to fill the gaps that the Synapse collapse made visible.

Access the Legis1 platform for comprehensive political news, data, and insights.