Cash America 2013 Annual Report Download - page 53

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the consumer loan products the Company offers. In Australia the Company must comply with the responsible lending
guidelines under the National Consumer Credit Protection Act (2010), which was amended in 2012. The amendment
includes limitations on permissible fees charged on certain consumer loans, including consumer loans made by the
Company. The Company has recently altered the product it offers in Australia. The Company is still assessing the
impact that the changes will have on its business in Australia, but the Company expects the product offering will be less
profitable. If the reduction in profitability is such that the Company’s product offering is not sustainable, it may need to
exit Australia if the product cannot be further modified in a way that retains profitability in that country. See “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” above for recent UK
regulatory activity.
An inability to disburse U.S. consumer loan proceeds or collect consumer loan payments through the Automated
Clearing House system would materially adversely affect the Company’s consumer loan business.
When making consumer loans in the United States, the Company’s online consumer loan business uses the
Automated Clearing House (“ACH”), system to deposit loan proceeds into its customers’ bank accounts, and both the
Company’s online and storefront consumer loan businesses, including loans made through the CSO programs, depend
on the ACH system to collect amounts due by withdrawing funds from its customers’ bank accounts when it has
obtained written authorization to do so from the customer. The Company’s ACH transactions are processed by banks,
and if these banks cease to provide ACH processing services, the Company would have to materially alter, or possibly
discontinue, some or all of its consumer loan business if alternative ACH processors are not available.
It has been reported that recent actions by the U.S. Department of Justice (the “Justice Department”), the FDIC
and certain state regulators appear to be intended to discourage banks and ACH payment processors from providing
access to the ACH system for certain short-term consumer loan (or payday loan) providers that they believe are
operating illegally, cutting off their access to the ACH system to either debit or credit customer accounts (or both).
According to published reports, the Justice Department has issued subpoenas to banks and payment processors and the
FDIC and other regulators are said to be using bank oversight examinations to discourage banks from providing access
to the ACH system to certain online lenders. In August 2013, the Department of Financial Services of the State of New
York (the “NY DFS”), sent letters to approximately 35 online short-term consumer loan companies (that did not include
the Company as it does not offer consumer loans in New York) demanding that they cease and desist offering illegal
payday loans to New York consumers and also sent letters to over 100 banks, as well as the National Automated
Clearing House Association (“NACHA”) (which oversees the ACH network), requesting that they work with the NY
DFS to cut off ACH system access to New York customer accounts for illegal payday lenders. NACHA, in turn, has
requested that its participants review origination activity for these 35 online short-term consumer loan companies and to
advise NACHA whether it has terminated these lenders’ access to the ACH system or, if not, the basis for not doing so.
NACHA also requested that participants review ACH origination activities related to other online loan companies and to
terminate any ACH system access that would violate NACHA rules, which would include, according to NACHA, any
authorizations to use the ACH system to pay illegal loans that are unenforceable under state law. Maryland’s Division of
Financial Regulation has also been reported to have taken steps to stop banks in Maryland from processing illegal
payday loans in its state, and the California Department of Business Oversight similarly directed state-licensed banks
and credit unions to monitor transactions with any unlicensed lenders.
This heightened regulatory scrutiny by the Justice Department, the FDIC and other regulators has the potential
to cause banks and ACH payment processors to cease doing business with consumer lenders who are operating legally
simply to avoid the risk of heightened scrutiny or even litigation. In addition, NACHA has certain operating rules that
govern the use of the ACH system. In November 2013, NACHA proposed amendments to these rules that, if adopted,
would be effective in March 2015 and would establish limitations on ACH return rates and impose fees on certain ACH
returns. If these amendments are adopted in their current form, the Company’s access to the ACH system could be
restricted, its ACH costs could increase and the Company could be required to make changes to its business practices.
There can be no assurance that the Company’s access to the ACH system will not be impaired as a result of this
heightened scrutiny or the proposed NACHA rule amendments, and if this access is impaired, the Company’s consumer
loan business could be materially adversely affected and the Company may find it difficult or impossible to continue