The collapse of US sub-prime auto lender and used car retailer Tricolor and auto parts manufacturer First Brands in the second half of last year saw several of the world’s largest funders lose hundreds of millions of dollars. In both cases, investigations allege that the companies systematically misled their funders. While the details vary, both companies have been accused of making loans against missing assets and of fabricating loans. Poor credit underwriting has also been identified, along with collusion from senior executives.
In order to understand why this is relevant for lenders in the UK, it’s worth looking at what happened under the bonnet – excuse the pun! I’ll focus on Tricolor.
Double-pledging collateral to multiple lenders
Tricolor is currently under investigation for pledging the same auto loans and other assets as collateral to multiple lenders and financing facilities at the same time. Prosecutors allege that approximately $2.2 billion in collateral was pledged even though Tricolor actually held around $1.4 billion in assets, meaning about $800 million of falsely represented collateral was used to obtain funding.
Manipulating loan data and performance reporting
Prosecutors allege that Tricolor misrepresented the performance and characteristics of its auto loans, including falsifying loan data to make delinquent or nearly worthless loans appear current and eligible as collateral. Executives allegedly manipulated borrowing base reports and other documentation sent to lenders so that loans that were in default or been written off appeared to meet lender requirements.
Fabricating records and misleading audits
To conceal the schemes when lenders audited or reviewed records, Tricolor is also accused of creating falsified documents, entering fake customer payment data, and manipulating system records to mislead auditors about loan status and ownership. Recorded internal discussions reportedly show executives debating how to explain discrepancies to lenders, including blaming software issues or creating misleading narratives about loan deferments.
Conspiracy, bank fraud and wire fraud charges
Several of the company’s senior finance executives have now been charged with conspiracy, bank fraud, wire fraud and related offenses for their roles in the alleged schemes. Two former senior executives pleaded guilty.
Enrichment and concealment
Prosecutors allege that some executives, notably the CEO, extracted significant personal benefit from the funds generated by the scheme, including purchasing expensive property. When lenders began questioning collateral and audit discrepancies in mid-2025, executives allegedly tried to conceal the fraud, initially claiming collateral problems were due to administrative errors.
Why this matters for UK mortgages
These companies had extensive private credit facilities provided by major global banks and private equity firms, many of which are now facing losses running into billions of dollars. Tricolor’s collapse was particularly unsettling. In June last year, it issued asset-backed securities supported by pools of sub-prime auto loans, with some tranches receiving AAA ratings from Kroll Bond Rating Agency. Just three months later, the business had failed. For those in the industry during the 2007–09 financial crisis, the parallels are uncomfortable.
Unlike then, regulators are all over this before anything systemic has even occurred. The Bank of England is now undertaking a broad review of the private credit market, while funders globally are beginning to do their own work to ensure their exposures are protected.
A substantial amount of flow funding agreements to the UK bridging and development finance sector come from retail and investment banks, private credit funds, hedge funds and insurers – many of which are global firms and some of which were exposed to Tricolor and a few other frauds in the States. Given that these facilities often include penalties for under-deployment, funders are increasingly aware of the potential unintended consequences that such intense pressure to get money out of the door quickly could have. Their worry is that pressure can lead to corners being cut.
Sensibly, at the first signs in the US of lax underwriting, funders in the UK lending market are getting ahead of any similar potential for loss here. Over the past six months, we have seen a rise in the number of clients asking us to do more granular risk assessments of their UK asset-backed lending. This has included stricter expectations around underwriting standards, governance and the accuracy of loan data. Verification of cash flows and assets is also increasingly commonplace in the work we are asked to undertake.
At present, there is no indication that unregulated UK lenders are doing anything untoward – but there remains the fact that because of what is happening in the US, there is a pre-emptive tightening of standards now happing here. For brokers, the implications are clear. Over the coming year, we are likely to see smaller bridging lenders exit the market or consolidate with larger players, alongside tighter criteria and more robust checks.
This should not be a cause for concern. Rather, it is the market doing what it should: identifying and addressing potential weaknesses early, before they develop into something more serious.
