Tricolor’s Busted Money Machine Has Wall Street Rethinking Risks

When Tricolor founder Daniel Chu made his pitch to investors, he touted the used-car company’s end-to-end model: They sold cars, financed the loans, and — if the borrower stopped paying — repossessed the vehicle and got it back on the lot, pronto.

The speed and efficiency was reassuring to backers, offering additional support for otherwise risky loans. And for years, the company was considered a paragon of the “buy here, pay here” industry that caters to low-income borrowers. The government recognized its community focus, and credit graders gave high marks to most of the bonds backed by Tricolor loans.

That ...