A Dallas-based auto lender once praised by the U.S. Treasury for “community development” has filed for bankruptcy amid allegations of fraud and financial misconduct, leaving major U.S. banks facing heavy losses.
Tricolor Holdings, which specialized in selling used cars and providing loans to illegal immigrants, built its business model on customers who could not qualify for traditional financing, according to Revolver News, which first reported the company’s collapse. The company charged high interest rates and above-market vehicle prices, marketing the program as “social lending.” Subsequent reporting by Barron’s and state regulators confirmed that Tricolor had repeatedly been cited for delayed title transfers, improper license plate usage, and inflated vehicle pricing.
As previously reported by The Dallas Express, the auto lender disclosed that 69% of its 2023 customers were “undocumented.” A company representative said, “Due to the current environment, Tricolor shifted its focus from the no FICO borrower to a general market profile.”
In 2019, the U.S. Treasury certified Tricolor as a Community Development Financial Institution (CDFI), granting it a federal endorsement as a “socially responsible” lender. Despite that certification, the company repeatedly drew citations from state regulators for delayed title transfers, improper plate usage, and selling cars without holding titles.
Tricolor’s troubles intensified when Fifth Third Bancorp discovered what it described as “alleged fraud,” according to Barron’s. The bank said it could face up to $200 million in losses tied to a commercial borrower that a person familiar with the matter identified as Tricolor. “When you have a fraud, it’s ultimately a client selection issue,” Fifth Third CEO Timothy Spence said at a September 10 banking conference. “We’re not in the business of doing business with people who commit fraud.”
Co-founder Ken Weaver previously served time in prison for selling stolen cars, according to local news reports. Weaver did not disclose that record while seeking to operate a Texas utility that later drew numerous customer complaints. Tricolor CEO Daniel Chu stated in 2022 that he removed Weaver from the company after learning about his background.
Chu’s own history includes allegations of financial misconduct and self-dealing. He resigned from another used-car company after accounting irregularities surfaced and was later sued by partners in a tech venture over a disputed transaction. Chu denied wrongdoing and said issues with regulators stemmed from vendor mistakes.
The company’s liquidation has prompted scrutiny of federal initiatives that label risky lending programs as ‘equity’ or ‘community’ efforts.