Another cockroach! Turmoil returns to the subprime lending market as PrimaLend files for bankruptcy.

```

On Wednesday local time, PrimaLend Capital Partners, headquartered in Plano, Texas, filed for bankruptcy after months of negotiations with creditors and failing to make timely interest payments, becoming the latest sign of stress in the low-income consumer sector of the U.S. economy.

PrimaLend Capital Partners focuses on serving subprime borrowers and providing financing to auto dealerships. Its main clients are "buy-here, pay-here" auto dealers, who primarily target low-income borrowers. According to its website, the company’s products include accounts receivable, real estate, and auto inventory financing.

According to documents filed with the Northern District Court of Texas, both PrimaLend's disclosed assets and liabilities are under $500 million. Sources revealed that creditors include Canadian Imperial Bank of Commerce (CIBC) and Amarillo National Bank. Both institutions declined to comment.

PrimaLend stated that it is seeking to sell its business in bankruptcy court and will continue to provide loans and services to its borrowers during bankruptcy proceedings. The company also said it has received a commitment for bankruptcy financing from existing lenders.

PrimaLend CEO Mark Jensen said in a press release:

This process will not trigger any debt to be immediately due or accelerated. We place great value on our relationships with our dealer borrowers and look forward to continuing to serve the 'buy-here, pay-here' industry.

According to information on its website, since its founding in 2007, PrimaLend has promoted itself as a lender that says "yes" when others say "no."

PrimaLend’s bankruptcy filing comes just weeks after another ‘buy-here, pay-here’ dealer, Tricolor Holdings, declared bankruptcy. At the same time, auto loan default rates among low-income Americans have reached their highest levels in decades.

The sudden liquidation of Tricolor previously shocked investors. Although the company is currently under court investigation for potential fraud and misconduct, this bankruptcy, along with the collapse of auto parts supplier First Brands Group, and loan-related write-offs due to fraud at regional banks Zions Bancorp and Western Alliance, has raised concerns:

After years of easy credit, perhaps other risks are lurking. Some investors have begun to look for other potential pitfalls in their portfolios.

JPMorgan Chase CEO Jamie Dimon warned last week that further problems may arise in the credit sector, quoting an old saying: "When you see one cockroach, there are usually more."

Finance and business blog Zerohedge commented that, in this sector, there are more dominoes to fall (or more cockroaches to find). The question is, will it spread? Even Bank of England Governor Andrew Bailey issued a warning this week, saying that the collapse of First Brands (and similar firms like Tricolor) may signal "larger financial problems" ahead.

Donald Clarke, president of Asset Based Lending Consultants, said this consumer distress means lenders in the subprime finance sector must be especially cautious:

Stay alert, don’t fall asleep at the wheel. You need to obtain borrowers’ financial statements now, tomorrow, every month—not find out months later that they’ve massively defaulted.

Many lenders are too complacent about their financing targets and assets, eager to place funds and ignoring the risks. Back in 2022, I advised a client not to invest in First Brands, as several warning signs investors are discussing today had already appeared, including insufficient information disclosure.

You’re lending hundreds of millions of dollars but don’t even look at the company’s books to see what’s inside? Is money really that easy to borrow? Unless we remain rational in the face of risk and deepen our due diligence, we will remain vulnerable.

Risk Warning and DisclaimerMarkets have risks, investments require caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial circumstances, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are appropriate for their particular situation. Investing based on this is at your own risk. ```