There is no consensus on the number of undocumented people living and working in the United States. Estimates vary widely, ranging from just under 12 million to over 20 million.
Even critics of U.S. immigration policy and border security agree that most undocumented workers are productive, driven individuals, often holding more than one job – like other members of their households – and yet they are cut off from the American financial system.
There are many downsides to this status, and mobility is among the most critical. For undocumented workers with good incomes but no credit history, no social security number and very often no bank account, obtaining non-predatory auto credit can be a daunting task.
Daniel Chu, founder and CEO of Tricolor Holdings, is the son of immigrants who grew up in Texas and saw this firsthand.
“I could easily understand their desire to come to the United States and build a better life for their family and pursue their own version of the American dream, starting with identifying what the main challenge for them was, which was access to mobility. It was really the very genesis of our business,” he told PYMNTS CEO Karen Webster.
Not alone in this pursuit, Tricolor has certain advantages, one being a long track record – the company established in 2007 – and more importantly, a unique data set that powers underwriting decisions for undocumented workers with remarkable accuracy. .
With some 25 million unique pieces of information, Chu said, “In the past four or five years alone, we’ve been able to unleash the power of this very robust data set using artificial intelligence. It gave us the tools to identify patterns among those 25 million unique attributes that we can ultimately correlate with loan performance.
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The subscription innovates
Although credit scores and payslips are essential parts of the typical car loan underwriting process, Chu doesn’t think these helpful records tell the full story of borrowers.
“We’re bringing together attributes that over time we’ve actually been able to correlate to stability,” he said. “It makes sense that if a family has nine or 10 people all sharing one household, they’re going to make decisions that will at least give them greater stability.
“So we’re looking at a lot of different attributes that are correlated, but we’re also relying on more and more alternative data day by day.”
He thinks others are making “similar stability assessments”, demonstrating a change.
However, by constantly updating the data models, Chu said Tricolor’s algorithms are “able to predict with a fairly high level of accuracy.”
“We executed seven securitizations,” he continued. “Our last transaction was rated AAA. We have developed the technology to a point where, although there are always opportunities for improvement, it will predict with a reasonably high level of accuracy.
Additionally, he said, “Our loan structure is very well designed to serve the specific consumer we are targeting. It’s really about structuring something that we know meets the client’s needs, but also gives them a chance to succeed.
“Twenty-eight percent of our borrowers who don’t exist in the office, don’t have a social security number, actually have a credit score as a result of their financing with us,” Chu added. “Our whole business model is designed to, as we say, enable mobility, and there are several meanings to that. Sure, physical mobility and financial mobility, but we’re trying to move that consumer up the food chain to traditional financial services. »
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While government agencies – namely the Consumer Financial Protection Bureau (CFPB) – have shown strong interest in loans for the past year or so, a new lender expects scrutiny.
“We have had proactive meetings with the CFPB over the years,” Chu said. “Frankly, we have never been investigated. What we have learned, and what we believe, is that the CFPB wants to give consumers the opportunity to borrow on fair and affordable terms.
Fortunately for Tricolor, Chu said, “We are the only lender in any automotive capital market to be certified by the US Treasury as a financial institution. We believe this has been an important validation of our ability not only to provide affordable financial services, but also to reach the lower income brackets of the population. »
Tricolor is currently behind expected lifetime losses of around 14% to 15%, and Chu believes the lender compares well to others serving similar segments, which can expect losses. hovering around 20%.
With its one-of-a-kind dataset, Chu said, “We’ve been able to use artificial intelligence to continue to improve our performance and continue to build a more compelling value proposition that ultimately allows us to attract a better consumer. quality. .”
He added that about 15% of Habs borrowers have a FICO score. In fact, about 6% of his portfolio actually has top-notch FICO scores. That’s kind of the point, he told PYMNTS.
“We have very strong customer retention, but we actually stopped about six or seven years ago building strategies around what everyone today calls customer lifetime value, because we actually want to see our client go upstream,” Chu said.
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