BHPH Lender Tricolor Promotes ‘Graduation’ Into Higher Credit Tiers

Most lenders would like to win the consumer’s business and have them coming back for their next loan, but used-car retailer Tricolor is hoping to prop up its subprime consumers and get them into higher credit tiers by the time they need to apply for a new loan.

Tricolor is a retailer and buy-here-pay-here lender that works with a niche subprime consumer base — focusing on the sale and financing of vehicles to Hispanic consumers. The company’s goal is to educate consumers to help them “graduate” from its lending platform to higher tier lenders — maybe even captive finance arms.

“With us, [consumers] can ultimately access better financing because we are going to allow you the opportunity to build credit,” Chief Executive Daniel Chu told Auto Finance Excellence. “It’s our responsibility to help those customers build credit, and that, in turn, will help drive new customers,” Chu added.

Throughout Tricolor’s 20 locations across cities in Texas, it asks consumers to watch a series of educational videos, which explain auto loans, insurance, taxes, and the importance of a credit score, while they’re completing their financing.

But, the problem for subprime consumers is deeper than education. The majority of buy-here-pay-here operators are not reporting to the credit bureaus, Chu said.

“Some lenders don’t report to one of the three major credit bureaus,” Chu added. “Why would they do that? Because they don’t want the customers, the borrowers that have good performance with them to be able to go upstream and access better financing than they can provide.”

These customers are often locked out of mainstream financial services and are forced to secure credit from predatory or expensive alternatives, such as payday, pawn shop or auto title loans — creating a downward cycle of debt and fees.

“As a part of our overall strategy, our emphasis has always been on providing a superior customer experience. A quality consultative brand supports our value proposition,” Chu said. “It will come back and result in new customers.”

Additionally, Tricolor is developing an “alternative credit bureau” for buy-here-pay-here consumers based on their “ability to pay, versus intent to pay,” Chu said.

“If consumers can prove through their employment behavior that they are consistent with applying themselves, [Tricolor] believes that is deserving of extending better finance terms,” Chu said.

The company can track the consistency of a consumer’s hourly work schedule to help determine their reliability as a borrower. The hourly labor market represents 77 million people in the U.S. that are paid hourly at a total spend greater than $2.2 trillion annually, according to Dallas-based WorkRecord, a partner of Tricolor. Nearly 60% of the workforce earns less than $16.00 per hour.

“Our conviction is that ‘ability to pay’ is the best predictor of loan performance for this demographic profile, and we intend to apply our experience in lending to the unbanked consumer and utilize WorkRecords’ data to provide access to more affordable credit for this highly underserved segment,” he added. “The positive impact on these consumers’ lives can be significant by providing a path to fair credit and affordable lending. Based upon reactions from potential lender partners, we expect our strategy will be embraced by those financial services providers seeking to improve their value proposition and more effectively serve this segment.”

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