The Lack of Govt Oversight on Tricolor

 10/15/2025

A few observations on the Tricolor Ch 7 fiasco from the WSJ today.  See my post yesterday about Tricolor, Charlie Javice, and First Brands.  This lack of oversight by Blackrock, Morgan Chase, and the Government sounds a lot like how we got into the sub-prime mess.

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In hindsight some of Tricolor’s problems appear obvious. A Tricolor bond offering this year showed that more than two-thirds of its borrowers lacked a credit score. For those with credit scores, the average was 614. More than half also didn’t have a driver’s license. Barron’s reported in 2022 on other problems.

For example, Texas regulators had cited Tricolor more than 130 times between 2019 and 2022, including for selling cars for which it didn’t hold title. The dealer also sold cars at prices on average 46% more than Kelley Blue Book’s “fair purchase price” value. Many customers defaulted in short order, resulting in cars being repossessed, which Tricolor then resold. 

 Yet the Treasury Department in 2019 designated Tricolor as a Community Development Financial Institution (CDFI). Congress established the program in 1994 with the goal of expanding credit for minority and lower-income folks. The CDFI designation makes businesses eligible for special grants. It can also lower their borrowing costs. 

 

BlackRock cited Tricolor’s CDFI designation in a 2022 press release for its $90 million investment. Tricolor is “a fintech company with a majority-diverse employee base that leverages proprietary AI-powered technology to sell and provide financing for high-quality, affordable used vehicles to underserved Latinx customer,” a BlackRock press release said.

Much of Tricolor’s marketing was hype, but investors didn’t notice or care. Tricolor borrowed billions of dollars from banks to make loans to customers, which were then packaged and sold as part of asset-backed securities to investors such as Pacific Investment Management Co. and AllianceBernstein.

Tricolor said last year that a bond offering “was oversubscribed by nearly 6.5 times.” The Treasury imprimatur and financing by sophisticated institutions may have given investors a false sense of security and caused them to relax underwriting standards. An eternal lesson relearned the hard way.

As for Washington, Tricolor illustrates how the CDFI program can contribute to reckless investing. The Trump Administration’s efforts to shrink the program have run into opposition in Congress from both parties. How many more CDFI program loan losses are waiting to be discovered?