Cash America 2012 Annual Report Download - page 32

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or the timeframe in which the CFPB may consider such rules. Although the CFPB does not have the authority to
regulate interest rates, it is possible that at some time in the future the CFPB could propose and adopt rules that require
certain changes to short-term consumer lending products and services, including certain short-term loans offered by or
through the Company, which could make these products and services materially less profitable or even impractical to
offer and could force the Company to modify or terminate certain of its product offerings. The CFPB could also adopt
rules imposing new and potentially burdensome requirements and limitations with respect to other consumer loan
products and services. Any such rules could have a material adverse effect on the Company’s business, results of
operations and financial condition or could make the continuance of all or part of its U.S. consumer loan business
impractical or unprofitable.
In furtherance of its regulatory and supervisory powers, the CFPB has the authority to impose monetary
penalties for violations of applicable federal consumer financial laws, require remediation of practices and pursue
enforcement actions. For further discussion of the CFPB see “Item 1A. Risk Factors—Risks Related to the Company’s
Business and Industry—The Consumer Financial Protection Bureau could have a significant impact on the Company’s
U.S. consumer loan business.”
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 the United States in 1984 and in Mexico in 2008. See
“Recent Developments” above and “Item 8. Financial Statements and Supplementary Data—Note 3” for additional
information regarding the acquisition of retail services locations, including recent acquisitions and the acquisition of the
Company’s Mexico-based pawn lending locations. See also “Recent Developments—Business Developments—
Reorganization of Mexico-based Pawn Operations and Purchase of Noncontrolling Interest” above for recent
developments related to the Company’s Mexico-based pawn operations.
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 and unpaid fees.
The Company relies solely on the disposition of pawned property to recover the principal amount of an unpaid
pawn loan, plus a yield on the investment, because the Company’s pawn loans are non-recourse against the customer. 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 16.7% of the Company’s total revenue in 2012, 17.8% in 2011 and 18.2% in 2010.
In the Company’s pawn lending operations, the maximum pawn loan amount 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