Out of the Ashes

In 2005, everything seemed to be going well for subprime auto lender Centrix Financial. Centrix owner Robert Sutton had brought a novel business model to subprime. His firm arranged loans in conjunction with credit unions that, by their charter, were not permitted directly to partake in financing. Sutton worked out an arrangement in which credit unions would provide the loan money and Centrix would

In 2005, everything seemed to be going well for subprime auto lender Centrix Financial.

Centrix owner Robert Sutton had brought a novel business model to subprime. His firm arranged loans in conjunction with credit unions that, by their charter, were not permitted directly to partake in “risky” financing.

Sutton worked out an arrangement in which credit unions would provide the loan money and Centrix would assume the risks and collection responsibilities.

It worked great for a while. Centrix grew in six years from a firm with a few dozen employees to nearly 600.

Then the U.S. government pulled the rug out. The National Credit Union Admin. issued a “risk alert” disapproving of credit unions funding subprime loans as third parties.

Centrix executives hastily met with the head of the federal agency, pleading their case and emphasizing they were assuming liabilities and running a disciplined operation. Reassured, she said the risk alert would be cancelled.

But it wasn't, recalls one former Centrix executive, who still can't believe what happened next.

He says: “We went to the regional deputies of the NCUA and told them what their boss had said. And they said, ‘No, we're not canceling the risk alert.’ They wouldn't budge. We looked at each other, thinking, ‘They can't do that, can they? She's their boss.’

“We went back to her and told her what happened. She said off-handedly, ‘Well, I told them.’ And that was that. It was just so crazy.”

Unable to resume funding through credit unions, Centrix went bankrupt.

Sutton and many members of his former Centrix team are back with a new firm, Universal Special Auto Finance.

It is growing, doing business in 33 states, working with hundreds of dealers and taking some cues from the old Centrix business model, such as using a proactive, educational approach in dealing with borrowers who lack sterling credit histories.

Instead of credit unions, Universal gets its funding from midsized community banks.

“Our lending model is efficient, minimizes risk and generates consistent, impressive profitability for financial institutions and auto dealers,” says Universal President Sheryl Gurrentz.

The market demand for subprime auto loans is large and growing, says Steve Norbut, Universal's executive vice president of dealer sales, a position he held at the defunct Centrix.

Denver-based Universal has rolled out two programs this year.

The first is Dealer Direct Finance, which provides select auto dealerships with access to their own large-scale finance programs and control over their own special auto-finance market.

The second is a lending- solutions program offering a menu of auto-loan origination and portfolio management services to lending-related companies of various sizes.

The raw deal Centrix got is becoming a distant memory as Universal takes root.

“It has taken a lot of time and careful planning, but brick by brick, we have built a foundation that we know we can continue to build upon,” says Universal CEO John Scordo. “We are very proud of what we have created.”

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