The doors of one of America’s biggest independent used car chains have suddenly closed, leaving banks and borrowers tangled in the fallout. Dallas-based Tricolor Holdings, once the seventh-largest dealer of its kind in the country, filed for Chapter 7 bankruptcy. It’s a liquidation move that signals the end of its business.

Tricolor specialized in selling refurbished used cars to customers with poor or no credit

The company focused particularly in Hispanic communities across Texas, Arizona, and California.

Tricolor’s strategy leaned heavily on subprime lending, offering loans with interest rates far above the national average.

Borrowers reported being charged rates exceeding 20%, more than double the going rate for most used car loans

That practice made cars available to people who might not otherwise qualify. It also left thousands of families on the edge of default.

Last year alone, Tricolor issued more than $1 billion in auto loans, many tied to undocumented immigrants, according to bond rating reports.

Many subprime borrows end up realizing they simply can’t make the high-interest payments. They often default or give the car back. In both cases, the lender loses.

The business model was risky, but it was profitable…until it wasn’t

In recent weeks, the company furloughed staff, shut down its website, and executives quietly erased their LinkedIn profiles.

By this week, bankruptcy paperwork confirmed its collapse.

The ripple effect stretches far beyond used car buyers

Tricolor’s debt is now weighing on some of the largest names in global banking, Daily Mail shared.

JPMorgan Chase, Barclays, and Fifth Third Bancorp all face exposure to hundreds of millions of dollars in potential losses tied to the lender. Fifth Third also disclosed a single $200 million hit connected to what it described as “alleged external fraudulent activity,” and said it is working with law enforcement.

The company’s demise lands at a time when American car payments are already running hot

The average new car now costs close to $50,000, up $11,000 from 2019. With inflation and high interest rates keeping monthly payments steep, more households are falling behind.

National auto loan debt hit $1.66 trillion last year, surpassing student loan totals and trailing only mortgages as the country’s heaviest consumer liability.

Industry data shows more than 5% of borrowers are now delinquent, the highest rate in years

Tricolor’s bankruptcy, once just a problem for families buying used cars in the Southwest, has now become a story about whether banks can weather another storm fueled by risky lending and household strain.