Tom Dundon, Portland Trail Blazers Buyer, Built His Fortune on Subprime Loans — ProPublica

When the Portland Path Blazers went up on the market this 12 months for the primary time in three many years, native leaders have been so decided to maintain the group in Portland that they penned a widely publicized letter promising the Nationwide Basketball Affiliation they’d work with whoever the brand new proprietor was to safe an overhaul of the group’s area.

Followers cheered as a bunch of buyers led by Texan Tom Dundon went all-in with a $4 billion bid for the group, which has now been accepted. Many speculated about what Dundon’s possession of a newly profitable Nationwide Hockey League group in Raleigh, North Carolina, would portend for Oregon’s oldest and largest sports activities franchise.

There was no public dialogue regionally about the truth that Dundon created an organization Oregon accused in 2020 of preying on residents via high-interest automobile loans they couldn’t afford. The state’s then-attorney basic stated that the enterprise practices of Santander Shopper USA have been “predatory and dangerous and won’t be tolerated in Oregon” as she introduced Oregon’s piece of a $550 million multistate lawsuit settlement with the corporate.

As well as, Oregon is a part of an ongoing multistate investigation into one other nationwide subprime lender for which Dundon has served in a management function, Exeter Finance. The Oregon Division of Justice confirmed to Oregon Public Broadcasting and ProPublica the state’s function within the investigation, the existence of which Exeter has disclosed in securities filings.

It’s unclear how these points may have an effect on the dedication of Oregon Gov. Tina Kotek and Portland Mayor Keith Wilson to a partnership, which may embrace tens or a whole bunch of tens of millions in public cash primarily based on previous area tasks in different cities. Spokespeople for each Wilson and Kotek declined to reply when requested if the elected leaders knew about Dundon’s historical past with regulators.

Mark Williams, a former Federal Reserve regulator who teaches finance at Boston College, stated Dundon’s file is a crucial consideration.

“The cash used to purchase the Portland Path Blazers is cash that was constructed on predatory lending,” Williams stated of Dundon. “He had a chance. He seized it. He made plenty of revenue. And the way did he make that revenue? He made it on the backs of low- and poor-credit people.”

Dundon’s buy of the Blazers awaits approval from the NBA’s board of governors, which regularly takes months, earlier than it might shut.

OPB and ProPublica acquired no response after sending a abstract of their reporting and an inventory of inquiries to Dundon, his funding agency, the general public relations employees of his hockey group and the attorneys representing him in a chapter dispute.

Dundon later answered to a textual content message looking for remark: “Sadly at this level within the course of I’m not obtainable. Blissful to talk with you after closing. Thx.”

Dundon left Santander Shopper in 2015. In biographical posts on-line and former information media interviews, Dundon has described his method to subprime lending as offering alternatives for individuals with bad credit report to personal automobiles and ensuring debtors obtain a good deal.

“Simply because somebody has bad credit report doesn’t imply they’re a nasty individual,” he instructed The Dallas Morning News shortly after leaving the corporate.

Santander Shopper declined to touch upon Dundon. In a press release, the corporate stated: “Working in a extremely regulated trade, we have now strong processes in place which might be designed to guard clients and cling to all regulatory necessities and trade finest practices.”

A spokesperson for Exeter Finance declined to remark. The corporate has stated in filings that it’s cooperating with the present investigation by states’ attorneys basic.

The case that Santander Shopper settled with attorneys basic in 2020 involved greater than 265,000 debtors throughout the nation, together with 2,000 in Oregon. The settlement settlement stated it didn’t represent proof of, or admission to, any of the state’s allegations towards the corporate.

As for Exeter Finance, Oregon shoppers have filed 23 complaints towards it with the Shopper Monetary Safety Bureau, all of which the company listed as “closed with rationalization” from the corporate.

A type of complaints was from AshLe’ Penn.

Penn, a single mom of three working as a staffing firm account supervisor in 2021, wanted a automobile. Her credit score was dangerous. However a dealership was in a position to get her a mortgage on a 2014 Chrysler 300 via Exeter Finance.

Penn must make $511 month-to-month funds over 72 months, reflecting an rate of interest of 28%.

“The rate of interest was fairly insane,” she stated in an interview. “However I wanted a automobile so dangerous.”

Two years later, Penn discovered herself three funds behind and had been evicted from her condo, she stated. In line with her shopper criticism, she was dwelling within the sedan when Exeter despatched an organization to repossess it in January 2023. It was late at evening, and she or he was parked outdoors her ex’s home. Her daughters watched from inside. She wrote that she spent the following 10-plus hours locked in her automobile, in a standoff with the repo agent, earlier than enlisting a chapter legal professional who halted the repossession.

She recorded a lot of it on video, which she shared with Exeter.

“It was horrific. I imply, I cried. I cried for God,” Penn instructed OPB and ProPublica. “I used to be afraid to go away my automobile. I couldn’t get out of my automobile after that. I used to be simply so afraid someone was going to take it.”

Penn complained, arguing the regulation prohibits repossessing a automobile with somebody inside, and demanded $150,000 in compensation. Exeter instructed her that it had executed a radical evaluation, which concluded that she had did not pay and that she was warned forward of time her automobile could be taken away.

Penn’s model of occasions, Exeter wrote, couldn’t be corroborated.

Constructing an Auto Mortgage Large

Allegations of predatory lending would hardly stand out amongst NBA house owners.

It’s a billionaires’ membership whose previous and present members or their corporations have been accused of housing discrimination, knowingly underwriting improper mortgages, exploiting jail inmates, making racist comments and fascinating in sexual misconduct. The Blazers’ present proprietor, Jody Allen, settled lawsuits by which her firm’s safety guards accused her of sexual harassment and making an attempt to smuggle penguin skulls and giraffe bones out of Antarctica and Africa. All of the house owners, together with Allen, have denied the allegations towards them in courtroom filings or in statements to the information media.

Dundon’s path to NBA possession started at used automobile dealerships, the place he labored in finance. Within the mid-Nineties, he and other former dealership workers co-founded the company Drive Financial Services. Dundon grew to become its president and chief working officer.

The corporate billed itself as “setting a brand new commonplace within the sub-prime lending trade.” Sellers appreciated that Drive Monetary would mortgage cash to individuals different corporations wouldn’t, according to its website on the time, as a result of it was in a position to “overlook adverse credit score histories akin to cost offs, bankruptcies and repossessions.”

Finance consultants who’ve studied the subprime lending trade say it provides a final resort for some individuals to personal a automobile. Lenders set excessive rates of interest partly to soak up the losses from those that can’t make funds. Even when lenders comply with shopper legal guidelines, defaults are frequent.

“The choice is, ‘Let’s simply not difficulty loans to individuals which might be very dangerous, after which they’ll by no means default,’” stated College of Utah professor Mark Jansen, who has authored a number of papers on subprime loans. “However in lots of locations with out public transport, no automobile means no job.”

In 2006, the Spanish firm Banco Santander acquired Drive Monetary and remodeled it into Santander Shopper USA. Dundon stored a ten% possession stake and a seat on its board of administrators. He stayed on as CEO of the newly fashioned firm.

Dundon emerged as a key determine within the progress of the subprime auto mortgage trade, stated Williams, the Boston College finance professor.

Williams, who made automobile loans as a financial institution officer earlier than working in monetary regulation and danger evaluation, now teaches courses about subprime automobile loans and different lending dangers. He began finding out automobile financing corporations like Santander when he was researching a 2010 e book about systemic danger within the finance trade. In 2015, he was one of many consultants the New York Senate tapped for help with a report on the risks of the subprime auto loans industry.

Williams stated Dundon “was one of many people that actually grew the trade. Many would argue that he took it to a brand new degree.”

Below Dundon, the worth of Santander Shopper jumped from just over $600 million on the time of the acquisition to just about $9 billion in 2014, according to Bloomberg.

That progress was constructed nearly solely with subprime debtors. Filings with the Securities and Trade Fee in Santander Shopper’s early years present the typical credit score rating on its loans was under 540. Roughly two-thirds of its loans had rates of interest over 20%.

A speaker bio for Dundon, posted by the MIT Sloan Sports Analytics Conference, stated he was “in a position to influence lives by growing entry to dependable transportation for people with restricted credit score historical past” throughout his time at Santander Shopper.

However the firm was additionally drawing shopper complaints.

Kenneth Dost was dwelling in Scappoose, Oregon, when the housing market crashed and the structure agency he labored with went underneath in 2007.

He was nonetheless struggling financially in 2010 when Santander Shopper took over the 15.85% Citi Monetary mortgage that he’d used to purchase his yellow Ford F-150 pickup. He stated in his criticism with the Oregon Division of Justice that Santander Shopper agreed over the telephone to decrease his funds from $399 a month to $281. Dost stated he then spent weeks going forwards and backwards with the corporate attempting to supply requested paperwork.

In November that 12 months, Dost stated, his daughter noticed the yellow truck being hauled away shortly after she stepped off her faculty bus. After repossessing the Ford, Santander Shopper stated in a letter to Oregon officers that the mortgage modifications Dost thought he acquired have been really topic to administration’s approval and that Dost’s mortgage “didn’t meet the rules.”

In one other letter, Santander Shopper instructed Oregon officers the documentation essential to change Dost’s mortgage was “not acquired in its entirety.” The letter additionally stated Dost was 59 days delinquent by the point he sought the modification.

After promoting the truck at public sale, Dost stated, Santander Shopper knowledgeable him he nonetheless owed greater than $2,000. That included a payment for repossessing his truck.

“This finally ends up being an additional windfall for Santander and more cash they’ll bleed from us,” Dost instructed state investigators. “That is fallacious.”

Dost grew to become one in all 24 debtors Oregon’s Division of Justice named in an April 2012 “investigative demand” letter addressed to Dundon. The state ordered the Santander Shopper CEO to offer testimony in individual or else flip over the debtors’ paperwork.

Santander selected the latter, and Oregon’s legal professional basic reached an “assurance of voluntary compliance” with the corporate in 2013 that required it to take steps to guard shoppers and pay the state $25,000. The settlement stated it was not an admission by the corporate that it violated the regulation.

There was extra to come back.

Leaving Santander

Dundon knew stress on his firm from regulators was mounting.

In monetary stories between late 2014 and early 2015, Dundon disclosed that along with a state attorneys basic investigation, Santander Shopper additionally had acquired a subpoena from the U.S. Division of Justice and a discover from the Securities and Trade Fee that the company deliberate to analyze its lending practices.

In early 2015, the corporate reached a $9 million settlement with the U.S. Justice Department over allegations the corporate illegally repossessed navy service members’ automobiles. The corporate neither admitted nor denied the allegations underneath the settlement. It was quoted as saying it absolutely cooperated with the federal government and had taken steps to enhance its compliance with the regulation.

Round that point, a front-page story in The New York Instances detailed how Dundon and others had amassed wealth by packaging dangerous auto loans made to low-income individuals and promoting these loans as securities for a whole bunch of tens of millions of {dollars}. Regulators stated it resembled the best way banks offered bundles of shoddy house loans earlier than the housing bubble burst within the mid-2000s.

Dundon reassured inventory analysts in April 2015 that “we’re too good to have a bust.”

However on the identical earnings name, Dundon acknowledged issues, saying the corporate had “lots of work to do” to satisfy regulatory expectations.

The Federal Reserve Financial institution of Boston was one regulatory company wanting into Santander Shopper. It discovered quite a few deficiencies with the corporate. In late June 2015, Santander Shopper’s board of administrators voted to accept a Fed enforcement action that required the corporate to submit written plans to enhance its danger administration and firm construction.

Dundon was out as CEO the identical day the enforcement settlement took impact, July 2, 2015. In his interview with The Dallas Morning Information on the time, Dundon stated that the Federal Reserve points didn’t contain him and that he and Santander Shopper’s mum or dad firm “had completely different concepts about the way to run a enterprise.”

He netted greater than $700 million in his separation settlement, which included cashing out his inventory, SEC filings present.

A slew of multimillion-dollar authorized settlements adopted for Santander Shopper within the wake of Dundon’s departure: $26 million for allegations of “unfair, high-rate loans” in Massachusetts and Delaware; $12 million to the Consumer Financial Protection Bureau, which discovered it engaged in “misleading acts” and violated shopper safety legal guidelines; and $550 million — the most important payout — with 34 attorneys basic, together with Oregon’s. The corporate didn’t admit wrongdoing in any of those instances.

After settling with state attorneys basic, the company stated at the time it had “strengthened our danger administration throughout the board” and referred to as the lending that regulators had scrutinized a “legacy” difficulty.

After Santander Shopper

Dundon used the cash he made via Santander Shopper to make a variety of investments, and he quickly grew to become identified much less for his tenure as an auto lender and as a substitute as a outstanding determine in leisure {and professional} sports activities.

By means of a brand new agency, Dundon Capital Companions, he invested in Topgolf, an leisure and restaurant chain constructed round golf driving ranges that was quickly rising on the time. Together with forays into actual property and well being care corporations, he grew to become the only real proprietor of the NHL’s Carolina Hurricanes in 2021.

But Dundon remained a participant amongst subprime auto lenders.

Filings with the Securities and Trade Fee present Dundon Capital Companions invested $100 million in Carvana in 2017, and offered a lot of the inventory a 12 months later. Nearly half of the loans that Carvana points are subprime, in response to a report from the short-selling agency Hindenburg Analysis.

In 2023, Dundon Capital invested in subprime automobile lender Exeter Finance, in response to the analysis agency Pitchbook.

Exeter Finance was based in 2006 in Irving, Texas, a suburb of Dallas, town the place Dundon and others based the corporate that grew to become Santander Shopper. Exeter’s web site exhibits that a number of former Santander executives took management roles at Exeter beginning in 2015, whereas Santander Shopper was underneath state and federal scrutiny. Exeter is presently listed on Dundon Capital’s web site as a part of its portfolio, and a 2022 news release from Exeter recognized Dundon as chairman of the board.

A 2024 investigation by ProPublica found that due to the best way Exeter Finance dealt with loans, it generally made more cash when debtors defaulted than after they paid on time.

Exeter has settled allegations of unfair lending practices, paying greater than $6 million mixed to Massachusetts and Delaware. (The corporate didn’t admit wrongdoing in both case.) In the meantime, it’s underneath investigation by the attorneys basic in 42 states, it stated in a company submitting this 12 months. These embrace Oregon, a spokesperson for Lawyer Normal Dan Rayfield confirmed.

Exeter has described the present multistate inquiry as an extension of calls for for info that began in 2015. The corporate wrote that the preliminary investigation involved its “origination, servicing and assortment practices” and that it cooperated with state requests for paperwork.

For JT Cotter of Bend, Oregon, Exeter Finance was the one lender obtainable when he purchased a used Honda Pilot at Carmax in 2022 for $28,000.

Cotter, who works privately with households of kids with particular wants, stated he had beforehand defaulted on a 2018 high-interest automobile mortgage from Santander Shopper.

“It demolished me,” he stated.

When Cotter wanted a brand new automobile and Exeter supplied him a fee of 19%, he thought, “‘Oh, it’s simply one other Santander.’ However I didn’t know there was really a connection.”

Exeter let him skip funds and prolong his mortgage, a observe that ProPublica’s 2024 investigation discovered was fundamental to the company’s business model. (The corporate stated on the time that it communicates with clients to make sure they know the prices concerned with extensions.)

Cotter stated what he didn’t know was that the funds Exeter let him skip have been moved to the top of the mortgage, growing the curiosity and charges he needed to pay. By 2024, his $731 month-to-month cost went solely towards curiosity, in response to an Exeter billing assertion reviewed by OPB and ProPublica. Exeter repossessed the Pilot eight months in the past.

He by no means filed a criticism with the state Division of Justice as a result of, he stated, he didn’t realize it was one thing he may do.

Cotter now drives a Subaru. He stated he saved up and paid money for it.

A New Enviornment

Portland’s city-owned Moda Middle area has been the house of the Path Blazers because it opened in 1995 underneath the identify the Rose Backyard, changing town’s growing older Veterans Memorial Coliseum.

The group’s future within the Rose Metropolis wasn’t a outstanding debate in Portland till Allen, the proprietor, market it in Could. Requested to touch upon the group’s future in gentle of a possible sale, NBA Commissioner Adam Silver declared to reporters that Portland “seemingly wants a brand new area.”

“That can be a part of the problem for any new possession group coming in,” Silver stated on the time.

Others echoed Silver’s sentiment. Marshall Glickman, whose father based the Path Blazers in 1970, stated throughout an August interview on OPB’s “Think Out Loud” that any new proprietor would have “extraordinary leverage” over town and the state to pay for a brand new or renovated area. “And that leverage comes from the risk, which can be spoken or it will not be spoken, however the portability of the group that it may go away.”

Glickman began a corporation, Rip Metropolis Eternally, to construct public help for protecting the Blazers in Portland. He declined to remark additional however stated his statements in the course of the “Suppose Out Loud” interview weren’t directed particularly at Dundon, whose identify had not but surfaced.

Cities hardly ever come out forward after they put tax {dollars} into these stadium tasks, a bunch of researchers concluded in 2022 after examining more than 130 economic studies of publicly financed stadiums. Any public advantages from elevated foot site visitors, new visits to close by companies or heightened civic stature have been too small to justify the quantity the general public spent, the evaluation discovered.

Wilson and Kotek, the Portland mayor and Oregon governor, stepped up in a giant manner nonetheless. Of their letter to Silver, they stated they’d heard his considerations concerning the Blazers area “loud and clear” and “absolutely help renovating the Moda Middle to grow to be some extent of delight for the Blazers and for our metropolis.”

“We’re ready to discover the public-private partnerships wanted to make it occur,” they concluded.

Then, on Sept. 12, the present Blazers proprietor introduced that the franchise had accepted Dundon’s buy supply.

Dundon has not commented on the Blazers acquisition since, however U.S. Sen. Ron Wyden of Oregon stated he’d spoken with him simply earlier than the bid grew to become public. “He sounded very excited concerning the group’s future being right here in stunning Portland,” Wyden instructed reporters.

As in Portland, there have been considerations the NHL’s Hurricanes would depart Raleigh for an even bigger market when Dundon purchased the group. In 2023, the Hurricanes signed a long-term lease within the metropolis, asserting the event of a billion-dollar area and surrounding leisure district. The deal included $300 million in public cash.

Oregonians who borrowed cash from corporations linked to Dundon voiced feelings starting from dismay to disgust after they discovered their tax {dollars} may go towards supporting Dundon’s newest funding.

“Nice,” Dost stated. “Making a partnership with the satan, basically is what that’s.”

Penn, who was homeless when Exeter despatched a repo firm to take her automobile away, stated she considers herself a Blazers fan. She’s by no means made it to a recreation in individual, however her children went on a school-sponsored journey to the Moda Middle this 12 months.

She fended off repossession again in 2023, however the automobile broke down a number of months later. She couldn’t afford to repair it and stopped attempting to make funds. She ultimately discovered Part 8 housing, however with no automobile, she stated her children needed to cease enjoying soccer and basketball as a result of she had no option to get them to practices and video games.

Penn stated she wonders if the individuals who run Exeter know what’s occurred to debtors like her.

“I’ve seen their govt group, they usually’re undoubtedly consuming and feeding their households,” she stated, having regarded the corporate up on-line, “and I believe it’s undoubtedly on the expense of others not having the ability to.”