Tons of deals just went up in smoke when the Tricolor Auto Finance bankruptcy filing went through. This was a major blow to dealers across the country.
Tricolor Auto Finance went bankrupt in September 2025, and the fallout is hitting dealers who relied on them for special finance deals. This wasn’t a small player either. They were moving serious volumes in the subprime space, helping dealers close sales with customers who couldn’t get traditional financing.
The Tricolor Auto Finance bankruptcy sent dealers scrambling
Now those dealers are scrambling. When a major finance partner collapses, it takes down deals in progress, strands customers’ mid-purchase, and leaves dealerships holding contracts they thought were solid. The worst part? Some dealers have built their entire business model around funneling risky credit customers to lenders like Tricolor.
What is the lesson learned?
The lesson here is simple but painful: diversify your financial partners. Dealers who put all their eggs in one subprime basket just learned why that’s a bad idea. Special finance programs can boost sales numbers fast, but if your main lender goes under, you’re left explaining to customers why their approved loan just disappeared. Smart dealers keep multiple financing relationships and don’t get too cozy with any single lender, no matter how many deals they’re closing.
Fraud investigations at the center of it
The subprime auto lender collapse of Tricolor has much more to do with fraudulent activities than the risky loans they gave out. Unfortunately, this means many special finance dealer programs will be out the window, and this could be the largest of the auto finance failures of 2025. The writing was quickly on the wall with employees being told they were being placed on a temporary, unpaid leave and that they would hear by October 6 whether they still had jobs. The CEO quickly resigned from the Origin Bank’s Board of Directors, which was another telling sign. Origin was a major lender to Tricolor with $30 million tied up in the company.
A major player in the Tricolor Auto Finance bankruptcy
Subprime lenders are always risky, but not like Tricolor. This dealer finance partner put all deals at risk by mostly double dealing. One of the largest investors in the subprime lender is Fifth Third Bancorp which reported that it has up to $200 million in losses from fraudulent activities. This is much more than a subprime lending problem with massive dealership impact, it could have a wide-reaching effect on the financial market as a whole.
How was Tricolor double dealing?
The Tricolor Auto Finance bankruptcy has a lot of fraud claims tied to it. It appears the company was using identical loan portfolios as collateral for separate warehouse credit lines with different banks.
To explain:
Typically, portfolios, which are made of several auto loans from various customers grouped together, can be used as collateral to obtain financing. This allows subprime lenders like Tricolor to finance company operations. Tricolor is accused of using the same auto loan portfolio as collateral at multiple banks for different credit lines.
This means several banks would have a right to the portfolio at the same time, but would never be able to recover the value because so many lines of credit had been financed through a single portfolio. Because each bank believes it has an exclusive claim to the cash flow or value of a portfolio, but that isn’t the case, Tricolor could be charged with fraud.
The riskiest loans led to the Tricolor Auto Finance bankruptcy
Tricolor has specifically marketed to customers who cannot get auto loans through traditional banking systems, including undocumented immigrants. In a bond deal this year, Tricolor reports that more than half of its borrowers do not have a credit score or hold a driver’s license. If dealers are pushing these types of deals, which they shouldn’t be, that could be a serious problem.
Unfortunately, even by following the rules to ensure a borrower has a credit score and a driver’s license, some deals require subprime lending, like Tricolor. Many dealers used this auto finance company to secure loans and increase sales, but they need to take a hard look at their subprime partners after this incident.
Dealers that utilize several subprime lenders won’t have an issue; they might lose a few deals that were in the works through Tricolor, but it won’t be a huge hit. However, other dealers that relied upon Tricolor exclusively will be hurt by this bankruptcy.
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