Loans and Finance Receivables, Credit Quality Information and Allowances and Liabilities for Estimated Losses on Loans and Finance Receivables | 2. Loans and Finance Receivables, Credit Quality Information and Allowances and Liabilities for Estimated Losses on Loans and Finance Receivables Revenue generated from the Company’s loans and finance receivables for the three and nine months ended September 30, 2019 and 2018 was as follows (dollars in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2019 2018 2019 2018 Short-term loans $ 34,844 $ 57,851 $ 117,891 $ 161,538 Line of credit accounts 146,362 98,666 361,515 256,633 Installment loans and RPAs 148,082 137,107 428,208 382,264 Total loans and finance receivables revenue 329,288 293,624 907,614 800,435 Other 225 255 782 1,043 Total revenue $ 329,513 $ 293,879 $ 908,396 $ 801,478 Current and Delinquent Loans and Finance Receivables The Company classifies its loans and finance receivables as either current or delinquent. Short-term loans are considered delinquent when payment of an amount due is not made as of the due date. If a line of credit account or installment loan customer misses one payment, that payment is considered delinquent and the balance of the loan is considered current. If a line of credit account or installment loan customer does not make two consecutive payments, the entire account or loan is classified as delinquent and placed on a non-accrual status. The Company allows for normal payment processing time before considering a loan delinquent but does not provide for any additional grace period. The Company does not accrue interest on delinquent loans and does not resume accrual of interest on a delinquent loan unless it is returned to current status. In addition, delinquent loans generally may not be renewed, and if, during its attempt to collect on a delinquent loan, the Company allows additional time for payment through a payment plan or a promise to pay, it is still considered delinquent. Generally, all payments received are first applied against accrued but unpaid interest and fees and then against the principal balance of the loan. Allowance and Liability for Estimated Losses on Loans and Finance Receivables The Company monitors the performance of its loan and finance receivable portfolios and maintains either an allowance or liability for estimated losses on loans and finance receivables (including revenue, fees and/or interest) at a level estimated to be adequate to absorb losses inherent in the portfolio. The allowance for losses on the Company’s owned loans and finance receivables reduces the outstanding loans and finance receivables balance in the consolidated balance sheets. The Company provides services related to third-party lenders’ short-term and installment consumer loan products by acting as a credit services organization or credit access business, which it refers to as its CSO programs, on behalf of consumers in accordance with applicable state laws. The liability for estimated losses related to loans guaranteed under its CSO programs is initially recorded at fair value and is included in “Accounts payable and accrued expenses” in the consolidated balance sheets. In determining the allowance or liability for estimated losses on loans and finance receivables, the Company applies a documented systematic methodology. In calculating the allowance or liability for receivable losses, outstanding loans and finance receivables are divided into discrete groups of short-term loans, line of credit accounts, installment loans and RPAs and are analyzed as current or delinquent. Increases in either the allowance or the liability, net of charge-offs and recoveries, are recorded as a “Cost of revenue” in the consolidated statements of income. 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 aver age of loss rates by stage of collection. For line of credit account, installment loan and RPA portfolios, the Company generally uses either a migration analysis or roll-rate based methodology to estimate losses inherent in the portfolio. The allowance or liability calculation under the migration analysis and roll-rate methodology is based on historical charge-off experience and the loss emergence period, which represents the average amount of time between the first occurrence of a loss event and the charge -off of a loan or RPA. The factors the Company considers to assess the adequacy of the allowance or liability include past due performance, historical behavior of monthly vintages, underwriting changes and recent trends in delinquency in the migration anal ysis. The roll-rate methodology is based on delinquency status, payment history and recency factors to estimate future charge-offs. The Company fully reserves for loans and finance receivables once the receivable or a portion of the receivable has been classified as delinquent for 60 consecutive days and generally charges off loans and finance receivables between 60 and 65 days delinquent. If a loan or finance receivable is deemed uncollectible before it is fully reserved, it is charged off at that point. Loans and finance receivables classified as delinquent generally have an age of one to 64 days from the date any portion of the receivable became delinquent, as defined above. Recoveries on loans and finance receivables previously charged to the allowance are credited to the allowance when collected. The components of Company-owned loans and finance receivables at September 30, 2019 and 2018 and December 31, 2018 were as follows (dollars in thousands): As of September 30, 2019 Short-term Line of Credit Installment Loans and Loans Accounts RPAs Total Current receivables $ 22,628 $ 312,860 $ 738,466 $ 1,073,954 Delinquent receivables: Delinquent payment amounts (1) — 18,670 3,142 21,812 Receivables on non-accrual status 18,437 5,317 54,018 77,772 Total delinquent receivables 18,437 23,987 57,160 99,584 Total loans and finance receivables, gross 41,065 336,847 795,626 1,173,538 Less: Allowance for losses (11,488 ) (75,413 ) (85,483 ) (172,384 ) Loans and finance receivables, net $ 29,577 $ 261,434 $ 710,143 $ 1,001,154 As of September 30, 2018 Short-term Line of Credit Installment Loans and Loans Accounts RPAs Total Current receivables $ 46,679 $ 203,960 $ 638,910 $ 889,549 Delinquent receivables: Delinquent payment amounts (1) — 10,270 2,531 12,801 Receivables on non-accrual status 31,829 2,394 53,795 88,018 Total delinquent receivables 31,829 12,664 56,326 100,819 Total loans and finance receivables, gross 78,508 216,624 695,236 990,368 Less: Allowance for losses (23,004 ) (41,478 ) (87,103 ) (151,585 ) Loans and finance receivables, net $ 55,504 $ 175,146 $ 608,133 $ 838,783 As of December 31, 2018 Short-term Line of Credit Installment Loans and Loans Accounts RPAs Total Current receivables $ 37,558 $ 213,896 $ 672,538 $ 923,992 Delinquent receivables: Delinquent payment amounts (1) — 10,783 2,696 13,479 Receivables on non-accrual status 30,167 2,884 52,732 85,783 Total delinquent receivables 30,167 13,667 55,428 99,262 Total loans and finance receivables, gross 67,725 227,563 727,966 1,023,254 Less: Allowance for losses (21,420 ) (51,008 ) (90,880 ) (163,308 ) Loans and finance receivables, net $ 46,305 $ 176,555 $ 637,086 $ 859,946 (1) Represents the delinquent portion of installment loans and line of credit account balances for customers that have only missed one payment and RPA customers who have not delivered agreed upon receivables. See “Current and Delinquent Loans and Finance Receivables” above for additional information. Changes in the allowance for losses for the Company-owned loans and finance receivables and the liability for losses on the Company’s guarantees of third-party lender-owned loans during the three and nine months ended September 30, 2019 and 2018 were as follows (dollars in thousands): Three Months Ended September 30, 2019 Short-term Line of Credit Installment Loans and Loans Accounts RPAs Total Allowance for losses for Company-owned loans and finance receivables: Balance at beginning of period $ 13,729 $ 51,419 $ 90,032 $ 155,180 Cost of revenue 12,195 83,755 75,339 171,289 Charge-offs (19,026 ) (66,186 ) (102,497 ) (187,709 ) Recoveries 4,716 6,425 23,297 34,438 Effect of foreign currency translation (126 ) — (688 ) (814 ) Balance at end of period $ 11,488 $ 75,413 $ 85,483 $ 172,384 Liability for third-party lender-owned loans: Balance at beginning of period $ 1,301 $ — $ 425 $ 1,726 (Decrease) increase in liability (99 ) — 76 (23 ) Balance at end of period $ 1,202 $ — $ 501 $ 1,703 Three Months Ended September 30, 2018 Short-term Line of Credit Installment Loans and Loans Accounts RPAs Total Allowance for losses for Company-owned loans and finance receivables: Balance at beginning of period $ 18,861 $ 31,050 $ 71,873 $ 121,784 Cost of revenue 26,080 46,749 90,782 163,611 Charge-offs (27,906 ) (40,010 ) (90,090 ) (158,006 ) Recoveries 6,071 3,689 14,829 24,589 Effect of foreign currency translation (102 ) — (291 ) (393 ) Balance at end of period $ 23,004 $ 41,478 $ 87,103 $ 151,585 Liability for third-party lender-owned loans: Balance at beginning of period $ 1,883 $ — $ 209 $ 2,092 Increase in liability 94 — 58 152 Balance at end of period $ 1,977 $ — $ 267 $ 2,244 Nine Months Ended September 30, 2019 Short-term Line of Credit Installment Loans and Loans Accounts RPAs Total Allowance for losses for Company-owned loans and finance receivables: Balance at beginning of period $ 21,420 $ 51,008 $ 90,880 $ 163,308 Cost of revenue 42,147 169,820 237,104 449,071 Charge-offs (67,587 ) (159,429 ) (306,674 ) (533,690 ) Recoveries 15,585 14,014 64,886 94,485 Effect of foreign currency translation (77 ) — (713 ) (790 ) Balance at end of period $ 11,488 $ 75,413 $ 85,483 $ 172,384 Liability for third-party lender-owned loans: Balance at beginning of period $ 1,964 $ — $ 202 $ 2,166 (Decrease) increase in liability (762 ) — 299 (463 ) Balance at end of period $ 1,202 $ — $ 501 $ 1,703 Nine Months Ended September 30, 2018 Short-term Line of Credit Installment Loans and Loans Accounts RPAs Total Allowance for losses for Company-owned loans and finance receivables: Balance at beginning of period $ 19,917 $ 31,148 $ 71,979 $ 123,044 Cost of revenue 67,011 103,343 223,470 393,824 Charge-offs (82,006 ) (103,371 ) (251,040 ) (436,417 ) Recoveries 18,332 10,358 43,820 72,510 Effect of foreign currency translation (250 ) — (1,126 ) (1,376 ) Balance at end of period $ 23,004 $ 41,478 $ 87,103 $ 151,585 Liability for third-party lender-owned loans: Balance at beginning of period $ 2,105 $ — $ 153 $ 2,258 (Decrease) increase in liability (128 ) — 114 (14 ) Balance at end of period $ 1,977 $ — $ 267 $ 2,244 Guarantees of Consumer Loans In connection with its CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for short-term and installment loans and is required to purchase any defaulted loans it has guaranteed. The guarantee represents an obligation to purchase specific loans that go into default. As of September 30, 2019 and 2018 and December 31, 2018, the amount of consumer loans guaranteed by the Company was $23.6 million, $30.1 million and $29.7 million, respectively, representing amounts due under consumer loans originated by third-party lenders under the CSO programs. The estimated fair value of the liability for estimated losses on consumer loans guaranteed by the Company of $1.7 million, $2.2 million and $2.2 million, as of September 30, 2019 and 2018 and December 31, 2018, respectively, is included in “Accounts payable and accrued expenses” in the consolidated balance sheets. Bank Program Loans In order to leverage its online lending platform, the Company launched a program with a bank in 2016 to provide technology, marketing services, and loan servicing for near-prime unsecured consumer installment loans. Under the program, the Company received marketing and servicing fees while the bank received an origination fee. The bank had the ability to sell the loans it originated to the Company. In May 2018, as a result of a change in the law in Ohio, our bank partner suspended lending and the Company suspended purchasing loans through this program. The Company plans to continue and grow this program by adding new partners and expanding into additional states. |