Cash America 2007 Annual Report Download - page 25

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aspect of the cash advance product offering due to the high incidence of unpaid balances beyond stated
terms. The Company operates centralized collection centers to coordinate a consistent approach to customer
service and collections.
The Company offers cash advances in which it lends its own funds and cash advances originated by
independent third-party lenders under a program in which the Company acts as a credit services
organization on behalf of consumers in accordance with applicable state laws (the “CSO program”). Credit
services that the Company provides to its customers under the CSO program include arranging loans with
independent third-party lenders, assisting in the preparation of loan applications and loan documents, and
accepting loan payments at the location where the loans were arranged. For the customer who obtains a
loan from a third-party lender through the CSO program, the Company also, as part of its credit services,
guarantees, on behalf of the customer, the customer’s payment obligations to the third-party lender. A
customer who obtains a loan through the CSO program pays the Company a fee for the credit services,
including the guaranty, and enters into a contract with the Company governing the credit services
arrangement. Losses on cash advances acquired by the Company as a result of its guaranty obligations are
the responsibility of the Company. As of December 31, 2007, the CSO program was offered in Texas and
Florida. The Company discontinued the CSO program in Michigan in February 2007, and has since offered
only cash advances underwritten by the Company to customers in that state. In January 2008, the Company
began offering a CSO program in the state of Maryland through its online platform.
The Company offers short-term unsecured cash advances in many of its pawnshops, in standalone
Cash America Payday Advance and Cashland locations, and, since its acquisition of CashNetUSA in
September 2006, over the internet. As of December 31, 2007, a cash advance product was available in 735
total locations, including 431 pawnshop locations and 304 standalone cash advance locations, and the
internet lending operations had cash advances outstanding in 32 states and in the United Kingdom. Cash
advance products offered under the CSO program were available at 319 locations and through the
CashNetUSA website. Although cash advance transactions may take the form of loans or deferred check
deposit transactions, this report refers to cash advances originated both by the Company and by third-party
lenders under the CSO program as “cash advances” for convenience. Cash advance fees earned by the
Company contributed approximately 38.2% of the Company’s total revenue in 2007, 28.1% in 2006 and
23.8% in 2005.
If the Company collects a delinquent amount that exceeds the amount it has acquired as a result of
its guaranty to third-party lenders, the Company is entitled to the excess when collected. Since the
Company may not succeed in collecting all of its delinquent accounts, it records an accrual for amounts
estimated to be adequate to absorb credit losses from cash advances in the aggregate cash advance portfolio,
including those it expects to acquire as a result of its guaranty obligations. As of December 31, 2007,
$148.4 million of combined gross cash advances was outstanding, including $34.6 million owned by the
third-party lenders that is not included in the Company’s consolidated balance sheet. An allowance for
losses of $25.7 million has been provided in the consolidated financial statements. The Company also
provided accrued losses for third-party owned portfolios of $1.8 million at December 31, 2007, which is
included in “Accounts payable and accrued expenses” in the accompanying consolidated balance sheet. See
Item 8. Financial Statements and Supplementary Data, Note 4 of “Notes to Consolidated Financial
Statements.”