The US Justice Department has launched an investigation into Tricolor Holdings, a once-celebrated subprime car lender that filed for bankruptcy this week amid allegations of fraud. The Dallas-based group, known for financing car purchases for lower-income Hispanic customers, has left some of America’s biggest banks and global investors bracing for massive losses.
According to people familiar with the matter, prosecutors are examining whether Tricolor pledged the same collateral on multiple loans, a practice that could amount to significant fraud. The bankruptcy filings in Texas federal court revealed the company has between $1bn and $10bn (₹8,300 crore – ₹83,000 crore) in assets and liabilities and over 25,000 creditors.
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The financial exposure is staggering. JPMorgan Chase and Fifth Third Bank each have about $200mn (₹1,660 crore) at risk, while Barclays also appears as a secured lender in court disclosures. Asset manager BlackRock, which invested $90mn (₹747 crore) in 2021 as part of its push into “responsible lending,” is also facing losses.
Fifth Third chief executive Tim Spence hinted at the crisis on Wednesday, noting his bank had discovered “significant fraud in the collateral file that was used” to secure loans. JPMorgan, meanwhile, had already flagged suspicious activity earlier this year and tipped off the DoJ.
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From Restructuring Hopes to Liquidation
Tricolor had managed a loan portfolio worth $1.4bn (₹11,620 crore) as of March, securitizing its car loans into bonds sold to investors. The lender had hired Sidley Austin to prepare for a Chapter 11 restructuring, which would have allowed it to continue operations. But as the depth of irregularities surfaced, plans shifted to a Chapter 7 liquidation, forcing the appointment of a court trustee.
The rapid unraveling underscores how a company celebrated for helping underserved communities could implode so dramatically. For the financial system, the case highlights both the fragility of subprime lending and the risks hidden in asset-backed securities. With federal investigators digging deeper, the Tricolor scandal may soon rank among the most damaging corporate fraud cases in recent years.