Tom Dundon, Portland Path Blazers Purchaser, Constructed 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 a long time, native leaders have been so decided to maintain the workforce in Portland that they penned a broadly publicized letter promising the Nationwide Basketball Affiliation they’d work with whoever the brand new proprietor was to safe an overhaul of the workforce’s area.

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

There was no public dialogue domestically about the truth that Dundon created an organization Oregon accused in 2020 of preying on residents by means of high-interest automotive loans they couldn’t afford. The state’s then-attorney common stated that the enterprise practices of Santander Client 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 lot 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 document 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 a lot 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 could possibly shut.

OPB and ProPublica obtained 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 workforce and the attorneys representing him in a chapter dispute.

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

Dundon left Santander Client in 2015. In biographical posts on-line and former information media interviews, Dundon has described his strategy to subprime lending as offering alternatives for folks with unfavorable credit ratings to personal vehicles and ensuring debtors obtain a good deal.

“Simply because somebody has unfavorable credit ratings doesn’t imply they’re a foul particular person,” he instructed The Dallas Morning Information shortly after leaving the corporate.

Santander Client declined to touch upon Dundon. In an announcement, the corporate stated: “Working in a extremely regulated trade, we’ve got sturdy processes in place which are designed to guard clients and cling to all regulatory necessities and trade greatest 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 common.

The case that Santander Client settled with attorneys common 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 Client Monetary Safety Bureau, all of which the company listed as “closed with clarification” 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 automotive. Her credit score was dangerous. However a dealership was in a position to get her a mortgage on a 2014 Chrysler 300 by means of 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 automotive so dangerous.”

Two years later, Penn discovered herself three funds behind and had been evicted from her condominium, she stated. In line with her client grievance, she was residing within the sedan when Exeter despatched an organization to repossess it in January 2023. It was late at night time, and he or she was parked exterior her ex’s home. Her daughters watched from inside. She wrote that she spent the subsequent 10-plus hours locked in her automotive, 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 depart my automotive. I couldn’t get out of my automotive after that. I used to be simply so afraid any person was going to take it.”

Penn complained, arguing the regulation prohibits repossessing a automotive with somebody inside, and demanded $150,000 in compensation. Exeter instructed her that it had executed a radical overview, which concluded that she had didn’t pay and that she was warned forward of time her automotive can 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 firms have been accused of housing discrimination, knowingly underwriting improper mortgages, exploiting jail inmates, making racist feedback and interesting in sexual misconduct. The Blazers’ present proprietor, Jody Allen, settled lawsuits during which her firm’s safety guards accused her of sexual harassment and trying 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 court docket filings or in statements to the information media.

Dundon’s path to NBA possession started at used automotive dealerships, the place he labored in finance. Within the mid-Nineteen Nineties, he and different former dealership staff co-founded the corporate Drive Monetary Companies. Dundon grew to become its president and chief working officer.

The corporate billed itself as “setting a brand new normal within the sub-prime lending trade.” Sellers appreciated that Drive Monetary would mortgage cash to folks different firms wouldn’t, in keeping with its web site on the time, as a result of it was in a position to “overlook unfavourable credit score histories equivalent to cost offs, bankruptcies and repossessions.”

Finance specialists who’ve studied the subprime lending trade say it presents a final resort for some folks to personal a automotive. Lenders set excessive rates of interest partly to soak up the losses from those that can’t make funds. Even when lenders comply with client legal guidelines, defaults are widespread.

“The choice is, ‘Let’s simply not subject loans to folks which are 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 automotive means no job.”

In 2006, the Spanish firm Banco Santander acquired Drive Monetary and remodeled it into Santander Client USA. Dundon saved a ten% possession stake and a seat on its board of administrators. He stayed on as CEO of the newly shaped 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 automotive loans as a financial institution officer earlier than working in monetary regulation and threat evaluation, now teaches lessons about subprime automotive loans and different lending dangers. He began finding out automotive financing firms like Santander when he was researching a 2010 guide about systemic threat within the finance trade. In 2015, he was one of many specialists the New York Senate tapped for assist with a report on the dangers of the subprime auto loans trade.

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

Underneath Dundon, the worth of Santander Client jumped from simply over $600 million on the time of the acquisition to almost $9 billion in 2014, in keeping with Bloomberg.

That progress was constructed nearly totally with subprime debtors. Filings with the Securities and Trade Fee in Santander Client’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 activities Analytics Convention, stated he was “in a position to impression lives by rising entry to dependable transportation for people with restricted credit score historical past” throughout his time at Santander Client.

However the firm was additionally drawing client complaints.

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

He was nonetheless struggling financially in 2010 when Santander Client took over the 15.85% Citi Monetary mortgage that he’d used to purchase his yellow Ford F-150 pickup. He stated in his grievance with the Oregon Division of Justice that Santander Client agreed over the cellphone 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 offer requested paperwork.

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

In one other letter, Santander Client instructed Oregon officers the documentation essential to change Dost’s mortgage was “not obtained 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 Client 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 mistaken.”

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

Santander selected the latter, and Oregon’s legal professional common 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 strain on his firm from regulators was mounting.

In monetary studies between late 2014 and early 2015, Dundon disclosed that along with a state attorneys common investigation, Santander Client additionally had obtained 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 Division over allegations the corporate illegally repossessed army service members’ vehicles. The corporate neither admitted nor denied the allegations below 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 folks and promoting these loans as securities for a whole lot of tens of millions of {dollars}. Regulators stated it resembled the best way banks bought bundles of shoddy residence 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 Client. It discovered quite a few deficiencies with the corporate. In late June 2015, Santander Client’s board of administrators voted to just accept a Fed enforcement motion that required the corporate to submit written plans to enhance its threat 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 Client’s dad or mum 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 Client within the wake of Dundon’s departure: $26 million for allegations of “unfair, high-rate loans” in Massachusetts and Delaware; $12 million to the Client Monetary Safety Bureau, which discovered it engaged in “misleading acts” and violated client safety legal guidelines; and $550 million — the most important payout — with 34 attorneys common, together with Oregon’s. The corporate didn’t admit wrongdoing in any of those instances.

After settling with state attorneys common, the corporate acknowledged on the time it had “strengthened our threat administration throughout the board” and known as the lending that regulators had scrutinized a “legacy” subject.

After Santander Client

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

By 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 firms, he grew to become the only 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 bought a lot of the inventory a 12 months later. Nearly half of the loans that Carvana points are subprime, in keeping with a report from the short-selling agency Hindenburg Analysis.

In 2023, Dundon Capital invested in subprime automotive lender Exeter Finance, in keeping with 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 Client. Exeter’s web site reveals that a number of former Santander executives took management roles at Exeter beginning in 2015, whereas Santander Client was below state and federal scrutiny. Exeter is at present listed on Dundon Capital’s web site as a part of its portfolio, and a 2022 information launch from Exeter recognized Dundon as chairman of the board.

A 2024 investigation by ProPublica discovered that due to the best way Exeter Finance dealt with loans, it generally made more cash when debtors defaulted than once 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 below investigation by the attorneys common in 42 states, it stated in a company submitting this 12 months. These embrace Oregon, a spokesperson for Lawyer Common 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 youngsters with particular wants, stated he had beforehand defaulted on a 2018 high-interest automotive mortgage from Santander Client.

“It demolished me,” he stated.

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

Exeter let him skip funds and prolong his mortgage, a apply that ProPublica’s 2024 investigation discovered was elementary to the corporate’s enterprise mannequin. (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, rising the curiosity and charges he needed to pay. By 2024, his $731 month-to-month cost went totally towards curiosity, in keeping with an Exeter billing assertion reviewed by OPB and ProPublica. Exeter repossessed the Pilot eight months in the past.

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

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

A New Area

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

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

“That will likely 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 “Assume 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 menace, which can be spoken or it will not be spoken, however the portability of the workforce that it may go away.”

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

Cities not often come out forward once they put tax {dollars} into these stadium tasks, a gaggle of researchers concluded in 2022 after analyzing greater than 130 financial research of publicly financed stadiums. Any public advantages from elevated foot visitors, new visits to close by companies or heightened civic stature have been too small to justify the quantity the general public spent, the overview discovered.

Wilson and Kotek, the Portland mayor and Oregon governor, stepped up in a giant method nonetheless. Of their letter to Silver, they stated they’d heard his issues concerning the Blazers area “loud and clear” and “absolutely assist renovating the Moda Heart to grow to be some extent of pleasure 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 workforce’s future being right here in lovely Portland,” Wyden instructed reporters.

As in Portland, there have been issues the NHL’s Hurricanes would depart Raleigh for a much bigger market when Dundon purchased the workforce. 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 firms linked to Dundon voiced feelings starting from dismay to disgust once 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 automotive away, stated she considers herself a Blazers fan. She’s by no means made it to a sport in particular person, however her youngsters went on a school-sponsored journey to the Moda Heart this 12 months.

She fended off repossession again in 2023, however the automotive broke down just a few months later. She couldn’t afford to repair it and stopped attempting to make funds. She finally discovered Part 8 housing, however and not using a car, she stated her youngsters needed to cease taking part in soccer and basketball as a result of she had no solution 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 workforce, and so they’re undoubtedly consuming and feeding their households,” she stated, having appeared the corporate up on-line, “and I believe it’s undoubtedly on the expense of others not with the ability to.”