Cash America 2011 Annual Report Download - page 74

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on the disposition of the related forfeited loan collateral. Any increase would be realized as additional service charge
revenue.
Merchandise held for disposition. In the Company’s domestic operations, merchandise held for disposition
consists primarily of forfeited collateral from pawn loans not repaid and merchandise that is purchased directly from
third parties or from customers. The carrying value of the forfeited collateral and other merchandise held for disposition
is stated at the lower of cost (cash amount loaned or paid) or market. With respect to the Company’s foreign pawn
operations, collateral underlying unredeemed pawn loans is not owned by the Company; therefore, proceeds in excess of
the amount loaned are recorded as pawn loan fees and service charges, rather than proceeds from disposition of
merchandise when the collateral is sold. Management provides an allowance for returns and valuation based on its
evaluation of the merchandise and historical shrinkage rates. Because pawn loans are made without recourse to the
borrower, the Company does not investigate or rely upon the borrower’s creditworthiness, but instead bases its lending
decision on an evaluation of the pledged personal property. The amount the Company is willing to finance is typically
based on a percentage of the pledged personal property’s estimated disposition value. The Company uses numerous
sources in determining an item’s estimated disposition value, including the Company’s automated product valuation
system as well as catalogs, “blue books,” newspapers, internet research and previous experience with disposing of
similar items. The Company performs a physical count of its merchandise in each location on multiple occasions on a
cyclical basis and reviews the composition of inventory by category and age in order to assess the adequacy of the
allowance.
Consumer loan fees. Upon completion of a transaction with a customer, funds are provided to the customer in
exchange for an obligation to repay the amount advanced plus fees and any applicable interest, which takes the form of a
consumer loan, and can be a loan written by the Company or by a third party. The Company recognizes interest on
consumer loans it writes and participation interests purchased from third parties on an effective yield basis ratably over
the term of the loan. Unpaid and accrued interest and fees is reflected in “Consumer Loans, net” in the consolidated
balance sheets. Fees generated through the Company’s CSO programs are deferred and amortized over the term of the
consumer loan arranged by the Company and recorded as revenue. The Company classifies its consumer loan portfolio
as either performing or nonperforming as described below in “Allowance for losses on consumer loans.” Consumer loan
fees and interest do not accrue on nonperforming loans, and once a loan is considered nonperforming, the Company does
not resume the accrual of interest on these loans. For nonperforming loans, all payments received are first applied
against accrued but unpaid interest and fees and then against the principal balance of the loan.
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 and MLOC receivables are considered nonperforming as of the payment due date when payment of an amount
due has not been made as of that date (after allowing for normal payment processing time). An installment loan is
considered nonperforming if the customer does not make two consecutive payments.
Where permitted by law, a customer may choose to renew a performing short-term consumer loan before it is
considered nonperforming by agreeing to pay the current finance charge for the right to make payment of the