(Bloomberg) -- Citizens Financial Group Inc. is halting new auto lending it does in partnership with car dealers as financial services firms continue to curb their exposure to the sector.

The decision to end indirect auto lending goes into effect July 1, the bank said in a statement Wednesday. Citizens will continue to retain and service auto loans already on its balance sheet, it said. 

In indirect auto lending, a bank works with car dealerships to arrange financing for buyers, as opposed to a consumer borrowing from the bank directly. The business line has lost popularity with banks seeking to build more direct relationships with clients.

Citizens started to deemphasize auto loan origination volume and reduce the number of active relationships with car dealers in the third quarter of 2022, according to the statement. As of March 31, Citizens had $11.5 billion of auto loans outstanding, down 20.1% year-over-year.

“As Citizens continues to optimize its balance sheet, this decision further enables us to lend in areas that provide better risk adjusted returns and improved opportunities to deepen relationships with our customers,” Citizens consumer lending head Eric Schuppenhauer said.

Other financial firms have pulled back from auto lending as historically high used car prices leave borrowers underwater on their auto loans.

In 2021, KeyCorp sold its indirect auto loan portfolio for $3.2 billion to a subsidiary of Waterfall Asset Management. In an interview late last year, Fifth Third Bancorp Chief Tim Spence said the bank was reducing auto loan origination.

Read more: Wall Street Warns of Trouble Brewing in Auto Loans as Prices Dip

More recently, Capital One Financial Corp. said in April said it was winding down a lending business that car dealerships use to buy inventory, and lenders including Ally Financial Inc. have taken a hit on their auto lending as consumer credit worsens.

(Updates with further details on indirect auto lending starting in the third paragraph.)

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