About two weeks ago, Tricolor, a subprime auto lender, declared bankruptcy (here1, here2, here3, here4, here5, here6). It seems particularly poorly positioned given the recent changes in immigration enforcement — $X\%$ of its loans were to undocumented individuals — but there is a larger concern underlying the bankruptcy which is fraud.

There’s a concern that there may have been fraud with respect to using the same collateral to secure different warehouse loans. One wonders if the blockchain, and in particular stablecoins could make collateral more reliable?

Before we dive into how this might change the market, it’s worth exploring the two main open questions — how did JPMorgan not know, and why were KBRA’s credit ratings so high?

A bit of background.

• Tricolor serves consumers who are typically unable to obtain financing from traditional lending sources such as credit unions, banks, and captive auto finance companies - KBRA)
• the loans have a non-zero weighted average FICO score of 600 and approximately 62.0% of the borrowers do not have a credit score. - KBRA
• In addition, loans in TAST 2025-2 have an average principal balance of $20,943,
• weighted average APR of 16.90%,
• weighted average original term and remaining term of 64 and 58 months, respectively.
• Approximately 95.00% of Tricolor’s customers make bi-weekly loan payments.
• Lending to undocumented immigrants may increase the default level, should the borrower leave the country due to immigration status.

In Texas, Nevada, New Mexico, Arizona and California, the states in which Tricolor originates most of its auto receivables, a driver’s license is not required to purchase and obtain a title and registration for a motor vehicle or obtain insurance covering the motor vehicle.