Subprime lenders pull back from non-FICO borrowers

Subprime auto lenders that serve borrowers with no FICO scores are tightening underwriting standards and shifting strategies to prioritize loan performance, particularly amid growing uncertainty around U.S. immigration policy. Irving, Texas-based Tricolor , which specializes in financing for Hispanic and undocumented borrowers, is actively moving toward more credit-visible customers. Currently, about 55% of Tricolor’s portfolio consists of non-FICO borrowers, but the company is targeting an average score of 670 for new originations to “meet growing demand,” Chief Strategy Officer Mauricio Delgado told Auto Finance News . “What we're doing is we're restricting sales to lower FICOs, like lower FICO borrowers, while providing a bit more concessions to the higher FICO borrowers,” Delgado said. “What we're doing is we're restricting sales to lower FICOs, like lower FICO borrowers, while providing a bit more concessions to the higher FICO borrowers." - Mauricio Delgado, Tricolor Recent Tricolor ABS deal shows shift That shift is evident in Tricolor’s capital markets activity. In its $328 million asset-backed securitization (ABS) on March 11, loans to borrowers without a credit score fell to 68.2%, down from 72.4% in the previous deal on Oct. 7, 2024, and more than 80% in earlier transactions, according to an AFN analysis of Kroll Bond Rating Agency reports. Tricolor has not noticed deterioration in credit performance among non-FICO borrowers, Delgado said. “These borrowers remain critical to the U.S. economy, and they continue to prioritize their car payments so they can work and provide for their families,” he said. Still, Tricolor and other lenders are navigating an uncertain political climate, given that President Donald Trump has signaled a more aggressive stance on immigration, prompting concerns that policy changes could affect loan performance, Boris Peresechensky , principal portfolio manager at Orange Investment Advisors, told AFN . “It’s in their best interest for the performance of these deals to be as little impacted by the worst-case immigration policy scenario as possible,” he said. While enforcement actions have mostly targeted individuals with criminal records, he noted, any sweeping deportation efforts could introduce risk, although Tricolor’s improved recoveries offer some cushion. If a borrower faces deportation, Tricolor works with their family to maintain the loan. If that’s not possible, the customer typically returns the vehicle voluntarily. In such cases, the lender charges off the loan and usually signs a mutual voluntary release, opting not to pursue the remaining balance, Delgado said. FinBe also shifts ahead of ABS transaction Subprime lender FinBe is also scaling back its exposure to non-FICO borrowers, which currently account for about half of its portfolio, Chief Executive Scot Seagrave told AFN . FinBe, based in Fort Lauderdale, Fla., originates across three programs: non-FICO, open bankruptcies and traditional subprime. Amid wariness over immigration policy, the lender is now emphasizing traditional subprime borrowers. “There’s talk of potential deportation, so it’s probably wise that we diversify among the three programs,” Seagrave said. “There’s talk of potential deportation, so it’s probably wise that we diversify among the three programs." -- Scot Seagrave, FinBe Like Tricolor, FinBe has not experienced credit weakness among its non-FICO borrowers, who have been in the United States for an average of more than four years. None have been deported, Seagrave added. The lender’s focus this year is improving credit performance ahead of an ABS transaction, planned for late April or early May, he said. Reducing exposure to immigration-related risk could help FinBe strengthen its credit profile ahead of the deal, Seagrave said. Niche but resilient segment Lending to undocumented borrowers carries inherent risk due to limited visibility into applicants’ financial histories, Alec Young , chief investment strategist at equity research firm MapSignals , told AFN . However, he argued that any impact would likely be minimal to the broader subprime market. “They’re in a financially vulnerable position, and it’s risky lending to them,” Young said. “But I think the market will shrug this off as a niche development.” Immigrant labor remains essential across industries like restaurants, hospitality, landscaping , and even healthcare, Young added. These sectors continue to face labor shortages and are unlikely to see mass layoffs. “A lot of things wouldn’t function without immigrant labor,” he said. “So, I don’t really see why there would be a big spike in delinquencies.” Auto Finance Summit East 2025 is set for May 12-14 at the JW Marriott Nashville featuring fireside chats with Santander Consumer USA and Chase Auto. Visit autofinance.live for more information. Early-bird registration is available here .

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