Cash America 2009 Annual Report Download - page 110

CASH AMERICA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
82
the maturity date and the expiration of the grace period is fully reserved to the extent that the underlying
collateral has not been sold. If the proceeds from the sale are less than the outstanding loan balance, a loss is
recorded for the difference at the time the collateral is sold. If the proceeds exceed the outstanding loan
balance, the Company recognizes as revenue the accrued service charges and other fees and expenses incurred
in relation to the non-payment and sale of the loan collateral on behalf of the customer. In the event there are
proceeds greater than the accrued service charges and all fees and expenses, the excess amount is available to
the customer if a claim is made within six months, after which any unclaimed excess amount is recognized as
revenue. The collateral underlying unredeemed loans is not owned by the Company; therefore, the carrying
value is held in “Pawn loans” on the Company’s consolidated balance sheets until sold.
Cash Advances • The Company offers cash advance products through its cash advance storefront locations,
its internet channel, its card services business and many of its pawn lending locations. In addition, the
Company arranges for customers to obtain cash advances from independent third-party lenders in other
locations. Cash advance fees include revenue from the cash advance portfolio owned by the Company and
fees paid to the Company for arranging, marketing or processing cash advance line of credit products from
independent third-party lenders for customers through the CSO program (as described below) and the
Company’s card services business. Cash advance fees associated with the Company’s card services business
(as described below) include revenue from the Company’s participation interest in receivables originated by
the third-party lender, as well as marketing, processing and other miscellaneous fee income. Although cash
advance transactions may take the form of loans, deferred check deposit transactions, credit services
transactions, or the marketing and processing of, and the participation in receivables originated by, a third-
party lender’s line of credit product, the transactions are referred to throughout this discussion as “cash
advances” for convenience.
Cash advances provide customers with cash, typically in exchange for a promissory note or other
repayment agreement supported, in most cases, by that customer’s personal check or authorization to debit
that customer’s account via an electronic Automated Clearing House (“ACH”) transaction for the aggregate
amount of the payment due. The customer may repay the cash advance in cash or by allowing the check to be
presented for collection by manual deposit or through an electronic debit ACH for the amount due. The
Company accrues fees and interest on cash advances on a constant yield basis ratably over the period of the
cash advance, pursuant to its terms.
The Company provides a cash advance product in some markets by acting as a credit services
organization on behalf of consumers in accordance with applicable state laws (the “CSO program”). Under
the CSO program, the Company provides consumers with certain credit services, such as arranging loans with
independent third-party lenders, assisting in the preparation of loan applications and loan documents and
accepting loan payments. The Company also guarantees the customer’s payment obligations in the event of
default if the customer is approved for and accepts the loan. A customer who obtains a loan through the CSO
program pays the Company a fee for these credit services (“CSO fees”). CSO fees are deferred and amortized
over the term of the loan and recorded as cash advance fees in the accompanying consolidated statements of
income. The contingent loss on the guaranteed loans is accrued and recorded as a liability, which
approximates the fair value of the liability. As of December 31, 2009, $187.3 million of combined gross cash
advances were outstanding, including a guaranteed amount of $49.9 million owned by the third-party lenders
that is not included in the Company’s consolidated balance sheets. The amount of the guaranteed loans
approximates the fair value of the liability.
The Company also offers an internet longer-term installment loan product that typically has an
average term of four months. The Company records revenue from this product as cash advance fees under
similar methods as its traditional cash advance product as described above.