- Tricolor, which specialized in high-risk loans often issued without a credit check, is going out of business
- Larger banks you likely know better helped fund it; its failure could make them more risk-averse
A large bank you’ve never heard of is collapsing amid allegations of fraud. It might indirectly impact your ability to get a car loan.
Tricolor Holdings is a major provider of subprime auto loans. The company also operates a chain of used car dealerships across the Southwest under the names Tricolor Auto, Ganas, and Ganas Ye. It specializes in loans to low-credit and no-credit buyers, often issuing them without a credit check.
The company filed for bankruptcy on Wednesday. It did not cite a reason in its bankruptcy court filing. Most companies that file for bankruptcy use that process to restructure and stay in business. Tricolor plans to liquidate.
The move comes after the Financial Times reported earlier this week that the U.S. Justice Department was looking into fraud allegations at the company.
It’s the second subprime lender in trouble in recent weeks. Auto Finance News notes that the move comes “after subprime lender Automotive Credit Corp indefinitely paused all originations August 7.”
Loan Market Already Showed Signs of Tightening
- Auto credit has been easy to come by for most of 2025
- But the market showed signs of tightening last month
Subprime loans are a small portion of the automotive market. Kelley Blue Book parent company Cox Automotive reports that just 13.6% of loans issued nationally last month went to subprime buyers.
They tend to go to used car buyers. The average new car now costs nearly $50,000. Automakers have almost abandoned the low-cost market, with the last new car priced under $20,000 disappearing this year.
Conditions have been good for borrowers through most of 2025. But lenders began tightening their standards last month.
Tricolor’s failure could make them more conservative.
Larger Banks Often Back Smaller Banks
- JPMorgan Chase, Fifth Third Bancorp, and others have warned they face losses related to Tricolor’s bankruptcy
Tricolor’s bankruptcy could have ripple effects. Bloomberg explains, “JPMorgan Chase & Co., Fifth Third Bancorp and Barclays Plc are among banks bracing for potentially hundreds of millions of dollars in combined losses from loans tied to subprime auto lender Tricolor Holdings, according to people with knowledge of the matter.”
Those banks served as “warehouse lenders” for Tricolor – banks that provide short-term financing to help a company fund loans quickly so it can bundle them and sell them to investors.
The Dallas Morning News reports that Fifth Third, on Thursday, told the U.S. Securities and Exchange Commission that it had “recently discovered alleged external fraudulent activity at a commercial borrower … associated with their asset-backed finance loan.” That loan has a balance of $200 million.
The bank later confirmed that the “commercial borrower” was Tricolor.
Bloomberg reports that JPMorgan and Barclays purchased a $217 million bundle of Tricolor loans in June.
Those companies can afford the loss, but it will likely make them more reluctant to invest in potentially risky car loans. That could lead to tighter lending standards for car loans at every bank.
