The bankruptcies of Tricolor and PrimaLend marked the first major insolvencies that the U.S. auto lending industry had seen in years. According to industry observers, they serve as a wake-up call for lenders that may have grown too comfortable with minimal oversight and few consequences.
In a recent Law360 article, Joseph Cioffi, Davis+Gilbert’s Chief Operating Partner and Chair of the Bankruptcy, Creditors’ Rights + Finance Practice Group, was quoted on why subprime auto lenders are facing a “potent mix of factors right now” that could make the sector a “breeding ground for bad acts.”
After years of regulatory retreat, and with few investor losses or ratings downgrades, many lenders assumed the sector was shielded from major shocks.
“I think those good times have led folks in the industry to believe that it’s impenetrable,” Joseph said.
The cracks are starting to show. Fitch Ratings recently reported that car payments that are at least 60 days late among subprime borrowers rose to 6.65% last month, the highest level since 1994. And the failures of Tricolor and PrimaLend represent only a small slice of the much broader auto lending ecosystem.
Read the full article below.