Cash America 2008 Annual Report Download - page 29

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6
The Company provides an allowance for valuation and shrinkage of its merchandise. The amount
of this allowance is based on management’s evaluation of factors such as historical shrinkage and the
quantity, composition and age of merchandise on hand. At December 31, 2008, total pawn operations
merchandise on hand was $109.5 million, after deducting an allowance for valuation and shrinkage of
merchandise of $0.7 million.
Cash Advance Activities
The Company’s cash advance products are generally offered as single payment cash advance loans.
These loans generally have a loan term of seven to 45 days and are generally payable on the customer’s next
payday. The Company originates cash advances in some of its locations and arranges for customers to
obtain cash advances from independent third-party lenders in others. The Company also offers cash
advances over the internet under the name CashNetUSA in the United States and under the name QuickQuid
in the United Kingdom.
In a typical cash advance transaction, a customer executes a promissory note or other repayment
agreement generally supported by that customer’s personal check or authorization to debit the customer’s
checking account via an Automated Clearing House (“ACH”) transaction. Customers may repay the
amount due from the cash advance either with cash, by allowing their check to be presented for collection,
or by allowing their checking account to be debited via an ACH transaction. Collection activities are an
important 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 provides services in connection with single payment cash advances originated by
independent third-party lenders, whereby the Company acts as a credit services organization on behalf of
consumers in accordance with applicable state laws (the “CSO program”). The CSO program includes
arranging loans with independent third-party lenders, assisting in the preparation of loan applications and
loan documents, and accepting loan payments. To assist the customer in obtaining a loan through the CSO
program, the Company also, as part of the credit services it provides to the customer, guarantees, on behalf
of the customer, the customer’s payment obligations to the third-party lender under the loan. 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, 2008, the CSO program was offered in Texas and Maryland. In July 2008,
the Company discontinued offering the CSO program to customers in Florida and began underwriting its
own loans pursuant to the Florida deferred presentment statute.
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, 2008, a cash advance product was available in 679
total locations, including 431 pawnshop locations and 248 standalone cash advance locations, and the
internet lending operations had cash advances outstanding in 33 states and in the United Kingdom. Cash
advance products offered under the CSO program were available at 249 locations and through the
CashNetUSA website.
In connection with the Company’s card services business, the Company provides marketing and
loan processing services for a third-party bank issued line of credit made available by the bank on certain
stored-value debit cards the bank issues (“Processing Program”). The Company also acquires a
participation interest in the receivables generated by the bank in connection with the Processing Program.
The Company classifies revenue from its participation interest in the receivables generated by the third-
party lending bank, as well as marketing, processing and other miscellaneous fee income generated from its
card services business as cash advance fees.