Cash America 2014 Annual Report Download - page 20

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5
Services Offered by the Company
Pawn Lending Activities
Pawn Loans
The Company now offers pawn loans only in the United States. When receiving a pawn loan from the
Company, a customer pledges personal property to the Company as security for the loan. 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 transaction agreement, commonly
referred to as a pawn ticket. These pawn loan fees and service charges contributed approximately 30.1%, 30.3% and
26.4% of the Company’s total revenue from continuing operations in 2014, 2013 and 2012, respectively.
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 books,” newspapers, internet research and its (or its employees’) experience in disposing of similar items of
merchandise. The Company does not use a standard or mandated percentage of estimated disposition value in
determining the loan amount. Instead, its employees may set the percentage for a particular item and determine
whether the item’s disposition, in the event that the loan becomes delinquent and the item is forfeited, would yield a
profit margin consistent with the Company’s historical experience with similar items.
The Company holds the pledged property through the term of the loan and any extensions or renewals
thereof, unless earlier repaid, renewed or extended. The Company holds forfeited collateral until it is sold, as
described in “Merchandise Disposition Activities” below. The typical loan term is 30 to 90 days and, in many cases,
an additional grace period (typically 10 to 60 days) may be available to the borrower. Pawn loans may be either
paid in full with accrued pawn loan fees and service charges or, where permitted by law, may be renewed or
extended by the customer’s payment of accrued pawn loan fees and service charges. A pawn loan is considered
delinquent if the customer does not repay or, where allowed by law, renew or extend the loan on or prior to its
contractual maturity date plus any applicable grace period. Pawn loan fees and service charges do not accrue on
delinquent pawn loans. When a pawn loan is considered delinquent, any accrued pawn loan fees and service charges
are reversed and no additional pawn loan fees and service charges are accrued. The Company does not record pawn
loan losses or charge-offs because the amount advanced becomes the carrying cost of the forfeited collateral that is
to be recovered through the disposition of merchandise (as described below). The Company typically experiences
seasonal growth in its pawn loan balances, with increases during each of the second, third and fourth quarters of the
year following lower balances in the first quarter of the year due to the heavy repayment of loans with tax refund
proceeds received by customers.