Cash America 2013 Annual Report Download - page 30

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collections processes, which could possibly result in lower collections on loans made by the Company and a decrease in
the number of customers that it is able to approve.
In addition, on December 18, 2013, the United Kingdom passed the Financial Services (Banking Reform) Act,
which includes an amendment that requires the FCA to introduce rules “with a view to securing an appropriate degree of
protection for borrowers against excessive charges” on “high-cost short-term” consumer loans by January 2, 2015 and
could result in fee, cost of credit or other restrictions being adopted by the FCA. The Company is still assessing the
potential impact of these proposed changes and what effect such changes may have on its business, prospects, results of
operations, financial condition and cash flows. See “Item 1A. Risk Factors—The United Kingdom has recently
increased regulation of the consumer loan industry as well as demonstrated an increasing interest in considering
legislation or regulations that could further regulate or restrict the consumer loan products the Company offers” and
“The OFT is reviewing the payday lending sector in the United Kingdom, including the Company, which could result in
changes to the Company’s business processes or payday lending products” for additional information regarding
regulation in the United Kingdom.
2013 Litigation Settlement
In October 2013, the Company entered into a Settlement Agreement, which received final court approval in
January 2014, to settle an outstanding class action lawsuit that has been ongoing since 2004. The Settlement Agreement
requires a minimum payment by the Company of $18.0 million and a maximum payment of $36.0 million to cover class
claims (including honorarium payments to the named plaintiffs) and the plaintiffs’ attorneys’ fees and costs (including
the costs of claims administration) (the “Class Claims and Costs”), all of which will count towards the aggregate
payment for purposes of determining whether the minimum payment has been made or the maximum payment has been
reached. The actual payout will depend on the number of claimants who submit claims for payment. The Company
denies all of the material allegations of the lawsuit and denies any and all liability or wrongdoing in connection with the
conduct described in the lawsuit, but the Company agreed to the settlement to eliminate the uncertainty, distraction,
burden and expense of further litigation.
In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 450, Contingencies, the Company recognized a liability during the year ended December 31, 2013 in the
amount of $18.0 million. In February 2014, the amount to be paid in connection with the Class Claims and Costs was
substantially finalized, and the amount is not materially different than the liability accrued by the Company at December
31, 2013. The Class Claims and Costs will be paid during the first quarter of 2014. See “Item 3. Legal Proceedings—
Litigation” for additional information regarding this lawsuit.
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Ohio Court Decision
On May 28, 2009, one of the Company’s subsidiaries, Ohio Neighborhood Finance, Inc., doing business as
Cashland (“Cashland”), filed a standard collections suit in an Elyria Municipal Court in Ohio against Rodney Scott
seeking judgment against Mr. Scott in the amount of $570.16, which was the amount due under his loan agreement.
Cashland’s loan was offered under the Ohio Mortgage Loan Act (“OMLA”), which allows for interest at a rate of 25%
per annum plus certain loan fees allowed by the statute. The Municipal Court, in Ohio Neighborhood Finance, Inc. v.
Rodney Scott, held that short-term, single-payment consumer loans made by Cashland are not authorized under the
OMLA, and instead should have been offered under the Ohio Short-Term Lender Law, which was passed by the Ohio
legislature in 2008 for consumer loans with similar terms. Due to a cap on interest and loan fees at an amount that is less
than permitted under the OMLA, the Company does not offer loans under the Ohio Short-Term Lender Law.
On December 3, 2012, the Ohio Ninth District Court of Appeals affirmed the Municipal Court’s ruling in a 2-1
decision. Although this court decision is only legally binding in the Ninth District of Ohio, which includes four counties
in northern Ohio where Cashland operates seven stores and where the Company has modified its short-term loan product
in response to this decision, other Ohio courts may consider this decision.
The Supreme Court of Ohio heard the Company’s appeal of the Ninth District Court’s decision in December
2013, and a decision is expected during the first half of 2014. If the Ninth District Court’s decision is upheld by the Ohio
Supreme Court on appeal, the Company’s Ohio operations may be adversely affected. The Company relies on the
OMLA to make short-term loans in its retail services locations in Ohio, and if the Company is unable to continue