Cash America 2015 Annual Report Download - page 72

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Pawn Loan Fees and Service Charges
Pawn Loans and Pawn Loan Fees and Service Charges Receivable
Pawn loans are short-term loans made on the pledge of tangible personal property. The pawn loan amount is
generally assessed as a percentage of the personal property’s estimated disposition value. 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.
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. Pawn loans
written during each calendar month are aggregated and tracked for performance. This empirical data allows the
Company to analyze the characteristics of its outstanding pawn loan portfolio and estimate the collectability of the
pawn loan fees and service charges.
Revenue Recognition— Pawn Lending
Pawn loan fees and service charges revenue includes interest, service charges and extension fees and are
typically calculated as a percentage of the pawn loan amount based on the size and duration of the transaction, as
permitted by applicable laws. Other fees, such as origination fees, storage fees and lost ticket fees are generally a
fixed amount per pawn loan. Pawn loan fees and service charges revenue and the related pawn loan fees and service
charges receivable are accrued ratably over the term of the loan for the portion of those pawn loans estimated to be
collectible. If the actual performance of the loan portfolio differs significantly (positively or negatively) from
estimates, revenue for the next reporting period would be likewise affected.
At the end of 2015 and based on the revenue recognition method described above, the Company had
accrued $52.8 million of pawn loan fees and service charges receivable. Assuming the pawn loan fees and service
charges receivable balance as of December 31, 2015 was overestimated or underestimated by 10%, pawn loan fees
and service charges revenue would decrease or increase by approximately $5.3 million in 2015 and net income
attributable to the Company would decrease or increase by approximately $3.3 million, net of taxes.
Consumer Loans and Allowance and Liability for Estimated Losses on Consumer Loans
Allowance and Liability for Estimated Losses on Consumer Loans
The Company monitors the performance of its consumer loan portfolio and maintains either an allowance or
liability for estimated losses on consumer loans (including earned fees and interest) at a level estimated to be
adequate to absorb credit losses inherent in the portfolio. The allowance for estimated losses on the consumer loans
owned by the Company reduces the outstanding loan balance in the consolidated balance sheets. The liability for
estimated losses related to loans guaranteed under the Company’s CSO programs is included in “Accounts payable
and accrued expenses” in the consolidated balance sheets. Increases or decreases in the allowance and the liability
for estimated losses are increased by charge-offs and decreased by recoveries, and the net change is recorded as
“Consumer loan loss provision” in the consolidated statements of income.
In determining the allowance or liability for estimated losses on consumer loans, the Company applies a
documented systematic methodology. In calculating the allowance or liability for loan losses, outstanding loans are
divided into discrete groups of short-term loans and installment loans and are analyzed as current or delinquent.
The allowance or liability for short-term loans classified as current is based on historical loss rates adjusted
for recent default trends for current loans. For delinquent short-term loans, the allowance or liability is based on a
six-month rolling average of loss rates by stage of collection. For installment loans, the Company uses a migration
analysis to estimate losses inherent in the portfolio once an adequate period of time has elapsed in order for the
Company to generate a meaningful indication of performance history. The allowance or liability calculation under
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