Bank of Montreal will no longer originate indirect auto loans, the bank announced Saturday.
The bank has operated its indirect auto loan business, in which it works with car dealerships to set up buyer financing and then receives payments directly from the buyer, in both the U.S. and Canada, where it is headquartered.
"By winding down the indirect retail auto finance business, we have the ability to focus our resources on areas where we believe our competitive positioning is strongest," BMO said in a statement seen by Reuters.
Paul Hunsley, a BMO vice president and head of retail automotive finance, informed car dealers in a letter that dealer agreements would be terminated Sept. 15. BMO will fund contracts approved prior to that date, according to the letter, also seen by Reuters.
The development comes after BMO’s bad debt provisions increased threefold year-over-year, to $492 million as of a quarterly report July 31. Provisions for credit losses increased eightfold to $81 million in the same time frame.
It was not immediately clear how many jobs would be lost with the wind down of the business. Bank of the West, acquired by BMO in February, cut more than 200 jobs ahead of a conversion associated with the deal in August.
The indirect auto lending wind-down appears to be part of a trend among lenders, who are selling or ending their indirect auto loan business amid, as Capital One put it, a “more challenging economic environment.”
Citizens Bank halted indirect auto loan origination in July, with CEO Bruce Van Saun indicating it was to shield the firm from a potential recession.
KeyBank sold its portfolio of indirect auto loans in 2021 to a subsidiary of Waterfall Asset Management, which bought the portfolio for $3.2 billion.
The trend has caused neobank Upgrade to throw its hat in the ring, partnering with dozens of West Coast dealerships on auto financing. Upgrade, which launched the program this month in partnership with 30 dealerships, aims to partner with 1,000 by sometime next year.
BMO did not respond to Banking Dive’s request for comment.