Cash America 2013 Annual Report Download - page 55

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not focus on the credit risk and high transaction costs of serving the Company’s customer segment. If the negative
characterization of these types of loans becomes increasingly accepted by consumers, demand for any or all of the
consumer loan products offered by the Company could significantly decrease, which could materially affect the
Company’s business, prospects, results of operations, financial condition and cash flows. Additionally, if the negative
characterization of these types of loans is accepted by legislators and regulators, the Company could become subject to
more restrictive laws and regulations applicable to short-term loans or other consumer loan products offered by the
Company that could materially adversely affect the Company’s business, prospects, results of operations, financial
condition and cash flows and could impair the Company’s ability to continue current operations.
In addition, the Company’s ability to attract and retain customers is highly dependent upon the external
perceptions of its level of service, trustworthiness, business practices, financial condition and other subjective qualities.
Negative perceptions or publicity regarding these matters— even if related to seemingly isolated incidents—could erode
trust and confidence and damage the Company’s reputation among existing and potential customers, which could make
it difficult for the Company to attract new customers and maintain existing ones and could significantly decrease the
demand for the Company’s products.
Current and future litigation or regulatory proceedings could have a material adverse effect on the Company’s
business, prospects, results of operations and financial condition.
The Company has been and is currently subject to lawsuits (including purported class actions) that could cause
the Company to incur substantial expenditures, generate adverse publicity and could significantly impair the Company’s
business, force the Company to cease doing business in one or more jurisdictions or cause it to cease offering one or
more products. The Company is also likely to be subject to further litigation in the future. The consequences of an
adverse ruling in or a settlement of any current or future litigation could cause the Company to have to refund fees
and/or interest collected, refund the principal amount of advances, pay treble or other multiple damages, pay monetary
penalties and/or modify or terminate the Company’s operations in particular states. In October 2013, the Company
entered into a Settlement Agreement to settle an outstanding class action lawsuit that had 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). See “Item 3. Legal Proceedings—Litigation” for
additional information regarding this settlement.
Defense of any lawsuit, even if successful, could require substantial time and attention of the Company’s
management and could require the expenditure of significant amounts for legal fees and other related costs. The
Company is also subject to regulatory proceedings, and the Company could suffer losses from interpretations of
applicable laws, rules and regulations in those regulatory proceedings, even if the Company is not a party to those
proceedings. Any of these events could have a material adverse effect on the Company’s business, prospects, results of
operations, financial condition and cash flows and could impair the Company’s ability to continue current operations.
Adverse court interpretations of the laws and regulations under which the Company operates could require the
Company to alter the products it offers or impair the Company’s ability to offer certain products.
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.