Tricolor Auto Holdings Files Chapter 7 Bankruptcy
Tricolor Holdings, a major subprime auto lender and used car retailer, filed for Chapter 7 bankruptcy in the Texas federal court on September 10, 2025. The filing comes amid allegations of fraudulent activity and has affected over 25,000 creditors, according to court documents.
Background on Tricolor Holdings
Tricolor operated as the third-largest used auto retailer in Texas and California, with dealerships across six states under the names Tricolor Auto, Ganas Auto, Ganas Ya, and Lucky Lane Motors. The company specialized in providing auto loans to underserved communities, particularly Hispanic customers, including those using Individual Taxpayer Identification Numbers rather than Social Security numbers.
According to the company's own statements, Tricolor had disbursed over $5 billion in auto loans to Hispanic car buyers. In bond documentation from earlier this year, the company disclosed that 68% of its borrowers had no credit score and that over 50% didn't hold a driver's license.
Timeline of Recent Events
Early September 2025: The vast majority of Tricolor's workforce was placed on temporary unpaid leave, with employees informed that they would learn by October 6 whether they would still have their jobs.
September 9: Tricolor CEO Daniel Chu resigned from Origin Bank's Board of Directors. Origin Bank had $30 million tied up with Tricolor, according to published reports.
September 10: Fifth Third Bancorp disclosed in SEC filings that it had discovered "alleged external fraudulent activity at a commercial borrower" associated with a $200 million asset-backed finance loan. Sources later identified this borrower as Tricolor.
September 10: Tricolor filed for Chapter 7 bankruptcy, choosing liquidation rather than restructuring.
Bankruptcy Filing Details
Court records show Tricolor listed:
More than $1 billion in assets
More than $1 billion in liabilities
Over 25,000 creditors
Chapter 7 bankruptcy means the company will liquidate its assets rather than attempt to restructure and continue operations.
Financial Institution Exposure
Multiple major financial institutions have exposure to Tricolor:
Fifth Third Bank: Disclosed a potential $170-200 million impairment charge related to alleged fraudulent activity at Tricolor.
JPMorgan Chase: Reports indicate the bank has nearly $200 million of exposure to Tricolor and, along with Barclays, purchased a $217 million bundle of Tricolor loans in June 2025.
Origin Bank: Has approximately $30 million tied up with the company.
These institutions served as warehouse lenders for Tricolor, providing short-term financing to help the company fund loans before bundling and selling them to investors.
Alleged Fraudulent Activity
The alleged fraud involves "double-pledging," according to industry sources. This practice consists of using identical loan portfolios as collateral for separate warehouse credit lines with different banks. Each bank believes it has an exclusive claim to the portfolio's cash flows, unaware that other banks have been promised the same assets.
The U.S. Department of Justice is reportedly investigating the allegations, according to the Financial Times.
Market Context
Subprime auto loans represent 13.6% of loans issued nationally, according to Cox Automotive data. The subprime lending sector has faced increased pressure recently, with another subprime lender, Automotive Credit Corp, indefinitely pausing originations on August 7, 2025.
Auto Finance News notes this represents the second significant subprime lender issue in recent weeks.
Consumer Impact
Thousands of Tricolor customers face uncertainty regarding:
Loan payment processing
Vehicle title status
Trade-in loan payoff obligations
Extended warranty coverage
Industry experts generally advise consumers to continue making loan payments, as their financing obligations typically remain with the lending institution rather than the bankrupt dealer.
Asset-Backed Securities Performance
Tricolor's asset-backed securities began declining significantly before the bankruptcy filing, with some trading as low as 12 cents on the dollar, according to trader reports.
Servicer Transition
Vervent, a San Diego firm specializing in capital markets and loan servicing, is listed as the backup servicer on Tricolor's loans according to S&P Global. The company faces the task of transitioning servicing for billions in outstanding loans.
Regulatory Response
The Texas Department of Motor Vehicles is investigating 157 complaints related to Tricolor Auto. A DMV representative stated that buyers experiencing issues can file complaints at www.TxDMV.gov/complaints and noted that the Texas Office of Consumer Credit Commissioner regulates motor vehicle financing.
Industry Expert Analysis
Brian Bastin, program director for business and automotive programs at Keiser University, noted in a recent podcast with Auto Finance News that with 25,000 creditors having claims against some of the same collateral, "In all likelihood, there probably is not going to be enough money to be able to make whole everybody in this particular situation."
Bastin indicated that JPMorgan and Fifth Third Bank have taken impairments or losses of upwards of $200-300 million related to the situation.
Broader Market Implications
Industry observers note that the Tricolor situation may lead to:
Tighter lending standards across the auto finance sector
Increased scrutiny of subprime lending practices
Potential reduction in credit availability for underserved communities
Enhanced due diligence requirements for warehouse lending relationships
The total amount of asset-backed securities backed by auto loans exceeds $200 billion nationally. However, experts note this represents a smaller market than the mortgage-backed securities that contributed to the 2008 financial crisis.
Current Status
Most Tricolor dealership locations have closed, with some properties already listed for lease. The bankruptcy court will determine the priority of creditor claims and oversee the liquidation of the company's assets.
The Department of Justice investigation into alleged fraudulent activities remains ongoing.
This analysis is based on publicly available court filings, SEC disclosures, and industry reports.
