Cash America 2011 Annual Report Download - page 38

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to customers in the United Kingdom in 2007 under the name “QuickQuid” and in Canada and Australia in 2009 under
the name “DollarsDirect.” The Company began offering its longer-term multi-payment installment loans to customers in
the United Kingdom in 2010 under the name “Pounds to Pocket.” Consumer loan fees include revenue from the loan
portfolio owned by the Company and fees paid to the Company for arranging, guaranteeing and processing loans from
independent third-party lenders for customers through the CSO programs and through the Company’s MLOC channel.
The Company offers or arranges short-term single payment consumer loans and longer-term multi-payment
installment loans. Single payment consumer loans are unsecured, generally have a loan term of seven to 45 days and are
usually payable on the customer’s next payday. The Company also offers lines of credit in several U.S. states, which
allow customers to draw on the line of credit in increments of their choosing, up to their credit limit. The Company
offers longer-term installment loan products with contract terms between four and 36 months to customers in certain
states in the United States and the United Kingdom. Consumer loan fees earned by the Company contributed
approximately 38.9% of the Company’s total revenue in 2011, 38.0% in 2010 and 33.2% in 2009. The fees the
Company charges on short-term single payment consumer loans in the United States vary by jurisdiction but typically
range between $10 to $25 per $100 borrowed, and the fees the Company charges on short-term single payment
consumer loans in the foreign markets in which the Company operates, which are the United Kingdom, Australia and
Canada, also vary but typically range between 20 and 29.50 per 100 borrowed in their respective currencies. Due to the
credit risk and high transaction costs of serving the Company’s customer segment, the fees the Company charges are
generally considered to be higher than the fees charged to customers with top-tier credit histories by commercial banks
and similar lenders who are typically unwilling to make unsecured loans to alternative credit customers.
In certain circumstances, the customer may elect to extend the time for payment through a payment plan or a
promise to pay, through 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 maximize loan repayment, facilitate regulatory compliance and coordinate a
consistent approach to customer service and collections. The Company generally experiences seasonal growth in
consumer loan fees during the 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.
The Company also provided MLOC services during 2008, 2009 and 2010, whereby advances were processed on
behalf of, and participation interests in MLOC receivables were purchased from, a third-party lender. The Company’s
MLOC services generated earnings through loan processing services as well as from fees generated from the
participation interests it acquired in MLOC advances made to the third-party lender's customers. The Company stopped
providing MLOC services on behalf of the third-party lender in October 2010 when the third-party lender discontinued
offering MLOC advances.
Allowance for Losses on Consumer Loans. The Company monitors the performance of its portfolio of consumer
loans and maintains either an allowance or liability for estimated losses on consumer loans (including fees and interest)
at a level estimated to be adequate to absorb credit losses inherent in the portfolio. The Company's consumer loan
portfolio consists of consumer loans the Company originates, guarantees or purchases, including short-term consumer
loans, multi-payment installment loans and participation interests in receivables acquired through its MLOC channel.
The allowance for losses on the Company’s owned consumer loans offsets the outstanding loan amounts in the
consolidated balance sheets. In addition, the Company maintains a liability for estimated losses related to loans
guaranteed under the CSO programs. The liability for estimated losses related to guaranteed loans, which approximates
the fair value of the liability, is included in “Accounts payable and accrued expenses” on the consolidated balance
sheets.
In determining the allowance or liability for estimated losses on consumer loans, the Company applies a
documented systematic methodology. Outstanding loans are divided into discrete groups of short-term loans,
installment loans and MLOC receivables and are analyzed as performing or nonperforming. Short-term consumer loans