Cash America 2010 Annual Report Download - page 35

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payable on the customer’s next payday. The Company also offers a longer-term installment loan product to customers
in certain states and the United Kingdom that typically have an average term of 4 to 42 months. Consumer loan fees
earned by the Company contributed approximately 38.0% of the Company’s total revenue in 2010, 33.2% in 2009 and
35.4% in 2008.
In certain circumstances, the customer may elect an extended repayment program that provides for a schedule
of periodic payments which typically range from 28 days to 180 days (subject to state guidelines) with no additional
fees or charges on the loan amount. Collection activities are an important aspect of the consumer loan 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 generally experiences
seasonal growth in consumer loan fees during the second, third and fourth quarters of each year due to loan balance
growth that typically occurs after the heavy repayment period of consumer loans with tax refund proceeds received by
customers in the first quarter each year.
In connection with the Company’s MLOC services channel, during 2008, 2009 and 2010, the Company
provided loan processing services for a third-party bank issued MLOC on certain stored-value debit cards the bank
issues (“Processing Program”). The Company also acquired a participation interest in the receivables originated by the
bank in connection with the Processing Program and other similar processing programs utilized by the bank. The
Company recorded revenue from its participation interest in the receivables, as well as processing and other
miscellaneous fee income originated from its MLOC services channel as consumer loan fees recognized ratably over
the loan period. MetaBank, whose iAdvance program has generated earnings for the Company's MLOC services
channel, terminated its iAdvance program as of October 13, 2010. See “Overview” section above for further
discussion related to the current status of the Company’s MLOC business.
Allowance for Losses on Consumer loans. In order to manage the portfolio of consumer loans effectively, the
Company utilizes a variety of underwriting criteria, monitors the performance of the portfolio and maintains either an
allowance or accrual for losses on consumer loans (including fees and interest) at a level estimated to be adequate to
absorb credit losses inherent in the portfolio. The portfolio includes balances outstanding from all consumer loans,
including short-term single payment loans, participation interests in receivables acquired through the MLOC services
channel, and multi-payment installment loans. In addition, the Company maintains an accrual for losses related to
loans guaranteed under CSO programs. The allowance for losses on Company-owned consumer loans offsets the
outstanding loan amounts in the consolidated balance sheets.
The Company stratifies the outstanding combined consumer loan portfolio by age, delinquency and stage of
collection when assessing the adequacy of the allowance or accrual for losses. It uses historical collection performance
adjusted for recent portfolio performance trends to develop the expected loss rates used to establish either the
allowance or accrual. Increases in either the allowance or accrual are recorded as a consumer loan loss provision
expense in the consolidated statements of income. Generally, the Company charges off all consumer loans once they
have been in default for 60 consecutive days, or sooner if deemed uncollectible. Recoveries on losses previously
charged to the allowance are credited to the allowance when collected.
Due to the short-term nature of the consumer loan product and the high volume of loans written, seasonal
trends are evident in quarter-to-quarter performance. Typically, in the normal business cycle, sequential losses, as
measured by the current period loss provision as a percentage of combined loans written in the period, are lowest in the
first quarter and increase throughout the year, with the final two quarters experiencing the peak levels of losses. See
“Item 7. Management’s Discussion and Analysis—Loss Experience” for additional information about the seasonality
of consumer loan losses.
See “Item 8. Financial Statements and Supplementary Data—Note 5” for further discussion related to
allowance for losses.
Check cashing and other financial services. The Company provides check cashing and other financial services
through its retail services locations and through its Mr. Payroll subsidiary. Other financial services include the sale of
stored-value cards, money orders and money transfers, among others. When the Company provides a check cashing