Subprime Auto Lender Collapse Delivers Blow to Risky Debt Market

The sudden collapse of a Texas subprime car lender is sending shock waves from border-town dealerships all the way to the upper echelons of Wall Street, ensnaring giants including JPMorgan Chase and BlackRock and raising concern that pain in the multibillion-dollar market for bundled auto loans is starting to mount.

Just hours after reports emerged late Tuesday of an alleged fraud scheme, Tricolor Holdings filed for bankruptcy and said it plans to liquidate, marking the latest and most painful blow yet to a risky lending business that’s been buffeted by a surge in interest rates and weakening jobs market. Federal prosecutors are now looking into allegations of fraud by Tricolor, according to people with knowledge of the matter.