Cash America 2011 Annual Report Download - page 36

5
Services Offered by the Company
Pawn Lending. The Company’s retail services segment offers pawn loans through its retail services locations in
the United States and Mexico. The Company began offering pawn loans in Mexico in 2008 following its acquisition of
80% of the outstanding stock of Creazione Estilo, S.A. de C.V., a Mexican sociedad anónima de capital variable (the
“Prenda Fácil acquisition”), which operates retail services locations under the name “Prenda Fácil” (referred to as
“Prenda Fácil”). See “Item 8. Financial Statements and Supplementary Data—Note 3” for further discussion related to
the Prenda Fácil acquisition. When receiving a pawn loan from the Company, a customer pledges personal property to
the Company as security for the loan. The Company delivers a pawn transaction agreement, commonly referred to as a
pawn ticket, to the customer, along with the proceeds of the loan. If the customer does not repay the loan and redeem
the property, the Company either becomes the owner of the property or becomes the party responsible for the disposition
of the collateral in satisfaction of the loan.
The Company relies on the disposition of pawned property to recover the principal amount of an unpaid pawn
loan, plus a yield on the investment, because it does not have recourse against the customer for the loan. As a result, the
customer’s creditworthiness is not a significant factor in the loan decision, and a decision to redeem pawned property
does not affect the customer’s personal credit status with other third-party creditors. Goods pledged to secure pawn loans
are tangible personal property items such as jewelry, tools, televisions and other electronics, musical instruments and
other miscellaneous items.
The Company contracts for pawn loan fees and service charges as compensation for the use of the funds loaned
and to cover direct operating expenses related to the transaction. The pawn loan fees and service charges are typically
calculated as a percentage of the pawn loan amount based on the size and duration of the transaction and generally range
from 12% to 300% annually, as permitted by applicable laws. In addition, as required by applicable laws, the amounts
of these charges are disclosed to the customer on the pawn ticket. These pawn loan fees and service charges contributed
approximately 18.9% of the Company’s total revenue in 2011, 19.6% in 2010 and 20.6% in 2009.
In the Company’s pawn lending operations, the maximum amount the Company is willing to lend on a pawn
loan is generally assessed as a percentage of the pledged personal property’s estimated disposition value. The Company
relies on many sources to determine the estimated disposition value, including its proprietary automated product
valuation system, catalogs, “blue books,” newspapers, internet research and its (or its employees’) experience in
disposing of similar items of merchandise in particular retail services locations. The Company does not use a standard
or mandated percentage of estimated disposition value in determining the loan amount. Instead, its employees may set
the percentage for a particular item and determine whether the item’s disposition, if it is forfeited, would yield a profit
margin consistent with the Company’s historical experience with similar items.
The Company holds the pledged property through the term of the loan, unless earlier repaid, renewed or
extended. The Company holds forfeited collateral until it is sold, as described in “Merchandise Disposition Activities”
below. The typical loan term is 30 to 90 days plus, in many cases, an additional grace period (typically 10 to 60 days).
The Company’s pawn loans may be either paid in full with accrued pawn loan fees and service charges or, where
permitted by law, may be renewed or extended by the customer’s payment of accrued pawn loan fees and service
charges. Accrued interest on loans that have passed the maturity date and the expiration of the grace period is not
recognized as revenue until the underlying collateral has been sold. The Company does not record pawn loan losses or
charge-offs because the amount advanced becomes the carrying cost of the forfeited collateral that is to be recovered
through the merchandise disposition function described below. The Company typically experiences seasonal growth
during the second, third and fourth quarter of each year due to loan balance growth that occurs after the heavy
repayment period of pawn loans with tax refund proceeds received by customers in the first quarter each year.
Merchandise Disposition Activities. A related activity of the pawn lending operations is the disposition of
collateral from unredeemed pawn loans and the liquidation of a smaller volume of merchandise purchased from third
parties or directly from customers. The Company’s retail services segment engages in merchandise disposition activities
through its retail services locations in the United States and Mexico.