BMO ends indirect retail auto finance business amid rising delinquencies

What’s happening at BMO?

Bank of Montreal (BMO), Canada’s third-largest bank, has announced the wind-down of its indirect retail auto finance business in Canada and the United States. The decision, disclosed on Saturday and reported by CBC News, is part of a strategic shift to focus on areas of stronger competitive positioning. This move will result in an unspecified number of job losses.

BMO’s indirect retail auto finance business has been operational in both Canada and the U.S., collaborating with car dealerships to arrange financing for buyers. However, rising borrowing costs and increased bad debt provisions—$492 million in the quarter ending July 31, up from $136 million a year earlier—prompted the bank to reassess its priorities.

The decision comes as consumer delinquency rates for vehicle loans surpass pre-pandemic levels, straining household budgets amid elevated interest rates.

Key Points:

• The wind-down affects dealer agreements, which were terminated effective September 15, 2024. Contracts submitted and approved prior to this date will still be funded.
• The decision aligns with BMO’s focus on growth areas, particularly in the U.S., where the bank recently acquired Bank of the West for $16.3 billion.
• BMO’s consumer installment and personal loan portfolio includes $104 billion in loans, with auto loans representing a significant portion.

Official statements and market context

Redirecting Resources: In a statement, BMO emphasized its intent to redirect resources to areas with stronger competitive advantages.

• “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,” the bank said.
• Paul Hunsley, the head of the auto finance division, assured dealers in a letter that contracts approved before September 15 would be honored.

Economic backdrop

The Bank of Canada’s data shows that vehicle loan delinquency rates are climbing as consumers grapple with high borrowing costs and mortgages. The Canadian economy is slowing, and banks, including BMO, are increasing provisions to address rising bad loans.

Timeline of events

To provide clarity, here’s a timeline of BMO’s recent developments

• June 2023: BMO reduces its capital markets division by four per cent, or more than 100 employees, as it grapples with slower trading and investment banking activity.
• September 15, 2024: Dealer agreements for the indirect retail auto finance business terminated.

What’s next for employees and dealers?

BMO is working to support employees impacted by the job cuts. While specific severance details have not been disclosed, the bank has committed to offering resources and guidance during the transition.

For car dealerships, the termination of agreements marks the end of a significant partnership. Dealers with contracts approved prior to September 15 will still see funding for those agreements.

Major banking layoffs and industry impact in 2023

BMO’s decision aligns with broader financial sector trends in 2023, as banks face increasing pressure from economic headwinds, rising delinquency rates, and a rapid rise in interest rates. Other financial institutions are similarly reducing exposure to high-risk lending and reallocating resources to areas of higher profitability.

What’s next for BMO employees?

If you’ve been affected by the layoffs, it’s important to understand your legal rights as a non-unionized employee. Depending on your role, tenure, and other factors, you may be entitled to severance pay.

Quick Facts About Severance:

• Compensation: Severance can include up to 24 months’ pay, as well as bonuses, commissions, and benefits.
• Deadlines: Employees generally have up to two years to review and negotiate severance offers.
• Severance Calculator: Use our Severance Pay Calculator to estimate what you’re owed.

For more detailed information, visit our comprehensive guide: BMO Layoffs: Your Rights and Severance Pay Explained.

WATCH: What to do if you’ve been laid off

On the Employment Law Show, employment lawyer Lior Samfiru explains five key steps every employee should take after being let go from their job. These include understanding your severance rights and avoiding common mistakes.

Resources for affected employees

For those impacted by BMO layoffs, these resources can help you navigate your next steps:

• Severance Pay for Provincially Regulated Employees
• Rights to Severance During Mass Layoffs
• Severance Entitlements in a Recession
• List of Layoffs in Canada

Talk to an employment lawyer

If you’re facing job loss, understanding your rights and options is crucial. At Samfiru Tumarkin LLP, our experienced team can help you:

• Review your severance package to ensure fairness.
• Negotiate better compensation without unnecessary conflict.
• Provide guidance on workplace rights and wrongful dismissal claims.

Contact us today to get the advice you need. Call 1-855-821-5900 or request a consultation online.