10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number: 000-50552

ASSET ACCEPTANCE CAPITAL CORP.

(Exact name of registrant as specified in its charter)

Delaware	80-0076779
(State or other jurisdiction of incorporation or organization)	(I.R.S.Employer Identification No.)

28405 Van Dyke Avenue

Warren, Michigan 48093

(Address of principal executive offices)

Registrant’s telephone number, including area code:

(586) 939-9600

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of July 23, 2010, 30,604,175 shares of the registrant’s common stock were outstanding.

ASSET ACCEPTANCE CAPITAL CORP.

Quarterly Report on Form 10-Q

TABLE OF CONTENTS

			Page
PART I – Financial Information
Item 1.	Financial Statements (unaudited)		3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		42
Item 4.	Controls and Procedures		43
PART II – Other Information
Item 1.	Legal Proceedings		43
Item 1A.	Risk Factors		43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		43
Item 4.	Submission of Matters to a Vote of Security Holders		44
Item 6.	Exhibits		45
Signatures			46
Exhibits:	10.1	Employment Agreement dated May 17, 2010 between Asset Acceptance, LLC and Reid E. Simpson
	10.2	Third Amendment to the Credit Agreement dated May 28, 2010, between Asset Acceptance Capital Corp. and JPMorgan Chase Bank, N.A. and other lenders
	31.1	Rule 13a-14(a) Certification of Chief Executive Officer
	31.2	Rule 13a-14(a) Certification of Chief Financial Officer
	32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

Quarterly Report on Form 10-Q

We file reports with the Securities and Exchange Commission (“SEC”), which we make available on our website, www.assetacceptance.com, free of charge. These reports include Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to such reports, each of which is provided on our website as soon as reasonably practicable after we electronically file such materials with or furnish them to the SEC.

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ASSET ACCEPTANCE CAPITAL CORP.

Consolidated Statements of Financial Position

	June 30, 2010			December 31, 2009
	(Unaudited)
ASSETS
Cash	$	5,900,221		$	4,935,248
Purchased receivables, net		325,380,271			319,772,006
Income taxes receivable		5,360,500			5,553,181
Property and equipment, net		13,902,380			14,521,666
Goodwill		14,323,071			14,323,071
Intangible assets, net		979,065			1,079,065
Other assets		7,797,533			6,231,732
Total assets	$	373,643,041		$	366,415,969
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Accounts payable	$	3,342,798		$	3,002,299
Accrued liabilities		17,797,411			21,294,388
Income taxes payable		1,787,460			1,196,071
Notes payable		167,359,956			160,022,514
Capital lease obligations		242,391			278,459
Deferred tax liability, net		57,553,566			57,524,754
Total liabilities	$	248,083,582		$	243,318,485
Stockholders’ equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued and outstanding		—			—
Common stock, $0.01 par value, 100,000,000 shares authorized; issued shares — 33,220,757 and 33,220,132 at June 30, 2010 and December 31, 2009, respectively		332,208			332,201
Additional paid in capital		148,942,125			148,243,688
Retained earnings		19,885,191			18,754,217
Accumulated other comprehensive loss, net of tax		(2,321,921	)		(2,955,451	)
Common stock in treasury; at cost, 2,616,582 and 2,616,424 shares at June 30, 2010 and December 31, 2009, respectively		(41,278,144	)		(41,277,171	)
Total stockholders’ equity		125,559,459			123,097,484
Total liabilities and stockholders’ equity	$	373,643,041		$	366,415,969

See accompanying notes.

3

ASSET ACCEPTANCE CAPITAL CORP.

Consolidated Statements of Operations

(Unaudited)

	Three months ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
Revenues
Purchased receivable revenues, net	$	50,626,874		$	48,819,343		$	101,713,420		$	105,559,022
Gain on sale of purchased receivables		107,825			—			324,848			—
Other revenues, net		180,152			262,610			431,247			514,129
Total revenues		50,914,851			49,081,953			102,469,515			106,073,151
Expenses
Salaries and benefits		18,660,755			18,367,377			38,165,621			38,213,894
Collections expense		23,072,450			21,640,610			47,265,390			43,767,293
Occupancy		1,697,154			1,859,381			3,449,281			3,670,242
Administrative		2,201,611			2,228,678			3,942,979			4,559,064
Depreciation and amortization		1,146,329			959,496			2,308,711			1,845,314
Loss on disposal of equipment and other assets		5,342			5,137			5,543			6,541
Total operating expenses		46,783,641			45,060,679			95,137,525			92,062,348
Income from operations		4,131,210			4,021,274			7,331,990			14,010,803
Other income (expense)
Interest expense		(2,888,677	)		(2,471,838	)		(5,517,102	)		(5,113,964	)
Interest income		371			3,731			1,413			4,692
Other		40,961			(67,963	)		55,563			3,814
Income before income taxes		1,283,865			1,485,204			1,871,864			8,905,345
Income tax expense		509,408			642,917			740,890			3,460,914
Net income	$	774,457		$	842,287		$	1,130,974		$	5,444,431
Weighted-average number of shares:
Basic		30,682,152			30,623,320			30,676,471			30,617,189
Diluted		30,781,363			30,711,491			30,760,432			30,668,037
Earnings per common share outstanding:
Basic	$	0.03		$	0.03		$	0.04		$	0.18
Diluted	$	0.03		$	0.03		$	0.04		$	0.18

See accompanying notes.

4

ASSET ACCEPTANCE CAPITAL CORP.

Consolidated Statements of Cash Flows

(Unaudited)

	Six months ended June 30,
	2010			2009
Cash flows from operating activities
Net income	$	1,130,974		$	5,444,431
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,308,711			1,845,314
Amortization of deferred financing costs		577,355			263,303
Deferred income taxes		(181,161	)		176,278
Share-based compensation expense		698,444			761,230
Net (reversal of impairment) impairment of purchased receivables		(965,031	)		10,295,300
Non-cash revenue		(258,845	)		(45,442	)
Loss on disposal of equipment and other assets		5,543			6,541
Gain on sale of purchased receivables		(324,848	)		—
Changes in assets and liabilities:
Increase (decrease) in accounts payable and other accrued liabilities		86,857			(2,840,763	)
(Increase) decrease in other assets		(1,367,348	)		1,258,018
Decrease in income taxes receivable, net		784,070			4,120,061
Net cash provided by operating activities		2,494,721			21,284,271
Cash flows from investing activities
Investments in purchased receivables, net of buy backs		(79,724,106	)		(41,138,254	)
Principal collected on purchased receivables		72,939,859			65,601,634
Proceeds from the sale of purchased receivables		324,874			—
Purchase of property and equipment		(1,594,968	)		(1,885,272	)
Proceeds from sale of property and equipment		—			210
Net cash (used in) provided by investing activities		(8,054,341	)		22,578,318
Cash flows from financing activities
Borrowings under notes payable		60,700,000			17,800,000
Repayment of notes payable		(53,362,558	)		(54,777,486	)
Payment of deferred financing costs		(775,808	)		—
Purchase of treasury shares		(973	)		(923	)
Repayment of capital lease obligations		(36,068	)		—
Net cash provided by (used in) financing activities		6,524,593			(36,978,409	)
Net increase in cash		964,973			6,884,180
Cash at beginning of period		4,935,248			6,042,859
Cash at end of period	$	5,900,221		$	12,927,039
Supplemental disclosure of cash flow information
Cash paid for interest, net of capitalized interest	$	4,998,502		$	5,208,677
Net cash paid (received) for income taxes		137,980			(705,644	)
Non-cash investing and financing activities:
Increase in fair value of derivative instruments		843,503			1,639,023
Decrease in unrealized loss on cash flow hedge		(633,530	)		(1,171,921	)

See accompanying notes.

5

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation and Summary of Significant Accounting Policies

Nature of Operations

Asset Acceptance Capital Corp. (a Delaware corporation) and its subsidiaries (collectively referred to as the “Company”) are engaged in the purchase and collection of defaulted and charged-off accounts receivable portfolios. These receivables are acquired from consumer credit originators, primarily credit card issuers including private label card issuers, consumer finance companies, healthcare providers, telecommunications and other utility providers, resellers and other holders of consumer debt. The Company may periodically sell receivables from these portfolios to unaffiliated companies.

In addition, the Company finances the sales of consumer product retailers.

The accompanying unaudited interim financial statements of the Company have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”) and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the Company’s financial position as of June 30, 2010 and its results of operations for the three and six months ended June 30, 2010 and 2009 and cash flows for the six months ended June 30, 2010 and 2009, and all adjustments were of a normal recurring nature. The operations of the Company for the three and six months ended June 30, 2010 and 2009 may not be indicative of future results. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Reporting Entity

The accompanying consolidated financial statements include the accounts of Asset Acceptance Capital Corp. (“AACC”) and all wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company currently has two operating segments, one for purchased receivables and one for finance contract receivables. The finance contract receivables operating segment is not material and therefore is not disclosed separately from the purchased receivables segment.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items related to such estimates include the timing and amount of future cash collections on purchased receivables, deferred tax assets, goodwill and share-based compensation. Actual results could differ from those estimates making it reasonably possible that a change in these estimates could occur within one year.

Revenue Recognition

The Company accounts for its investment in purchased receivables using the guidance provided in the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Subtopic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality”, (referred to as the “Interest Method”). Refer to Note 2, “Purchased Receivables and Revenue Recognition”, for additional discussion of the Company’s method of accounting for purchased receivables and revenue recognition.

6

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Seasonality

Collections tend to be seasonally higher in the first and second quarters of the year due to consumers’ receipt of tax refunds and other factors. Conversely, collections tend to be lower in the third and fourth quarters of the year due to consumers’ spending in connection with summer vacations, the holiday season and other factors. However, revenues remain relatively level, excluding the impact of impairments, due to the application of the Interest Method of revenue recognition. In addition, the Company’s operating results may be affected to a lesser extent by the timing of purchases of charged-off consumer receivables due to the initial costs associated with purchasing and loading these receivables into the Company’s systems. Consequently, income and margins may fluctuate from quarter to quarter.

Collections from Third Parties

The Company regularly utilizes unaffiliated third parties, primarily attorneys and other contingent collection agencies, to collect certain account balances on behalf of the Company in exchange for a percentage of the balance collected. The Company records gross proceeds received by the unaffiliated third parties as cash collections. The Company records the percentage of the gross cash collections paid to the third parties and the reimbursement of certain legal and other costs, as a component of collections expense. The percent of gross cash collections from such third party relationships were 35.1% and 31.6% for the three months ended June 30, 2010 and 2009, respectively, and 33.6% and 31.7% for the six months ended June 30, 2010 and 2009, respectively.

Accrued Liabilities

The details of accrued liabilities were as follows:

	June 30, 2010		December 31, 2009
Accrued payroll, benefits and bonuses	$	6,348,504	$	6,858,421
Fair value of derivative instruments		3,829,656		4,673,159
Accrued general and administrative expenses		3,644,407		3,243,887
Deferred rent		2,996,572		3,152,922
Purchased receivables (1)		—		2,399,832
Accrued interest expense		581,388		641,556
Other accrued expenses		396,884		324,611
Total accrued liabilities	$	17,797,411	$	21,294,388

(1) The rights, title and interest of an acquired portfolio was transferred to the Company as of December 31, 2009 and was funded during January 2010.

Concentration of Risk

For the three and six months ended June 30, 2010, the Company invested 80.9% and 79.9% (net of buybacks), respectively, in purchased receivables from its top three sellers. For the three and six months ended June 30, 2009, the Company invested 73.2% and 74.1% (net of buybacks through June 30, 2010), respectively, in purchased receivables from its top three sellers. No sellers were included in the top three in both of the three-month periods. One seller is included in the top three in the six-month periods for both years.

Interest Expense

Interest expense includes interest on the Company’s credit facilities, unused facility fees, the ineffective portion of the change in fair value of the Company’s derivative financial instrument (refer to Note 4, “Derivative Financial Instruments and Risk Management”), interest payments made on the interest rate swap and amortization of deferred financing costs. During the three and six months ended June 30, 2010, the Company recorded interest expense of $2,888,677 and $5,517,102, respectively, including amortization of $301,750 and $577,355 of deferred financing costs. During the three and six months ended June 30, 2009, the Company recorded interest expense of $2,471,838 and $5,113,964, respectively, including amortization of $131,651 and $263,303 of deferred financing costs.

7

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Earnings Per Share

Earnings per share reflect net income divided by the weighted-average number of shares outstanding. Diluted weighted-average shares outstanding for the three months ended June 30, 2010 and 2009 included 99,211 and 88,171 dilutive shares, respectively, related to outstanding stock options, deferred stock units, restricted shares and restricted share units (collectively the “Share-Based Awards”).

Diluted weighted-average shares outstanding for the six months ended June 30, 2010 and 2009 included 83,961 and 50,848 dilutive shares, respectively, related to Share-Based Awards. There were 908,838 and 765,940 outstanding Share-Based Awards that were not included within the diluted weighted-average shares as their fair value or exercise price exceeded the market price of the Company’s stock at June 30, 2010 and 2009, respectively.

Goodwill and Other Intangible Assets

Intangible assets with finite lives are amortized over their estimated useful life, ranging from five to seven years, using the straight-line method. Goodwill and trademark and trade names with indefinite lives are not amortized, instead, these assets are reviewed annually to assess recoverability or more frequently if impairment indicators are present. Impairment charges are recorded for intangible assets when the estimated fair value is less than the book value. Refer to Note 8, “Fair Value”, for additional information about the fair value of goodwill and other intangible assets.

Comprehensive Income (Loss)

Components of comprehensive income are changes in equity other than those resulting from investments by owners and distributions to owners. Net income is the primary component of comprehensive income. Currently, the Company’s only component of comprehensive income other than net income is the change in unrealized gain or loss on derivatives qualifying as cash flow hedges, which are recorded net of income taxes. The aggregate amount of such changes to equity that have not yet been recognized in net income are reported in stockholders’ equity in the accompanying consolidated statements of financial position as “Accumulated other comprehensive loss, net of tax”.

A summary of accumulated other comprehensive loss, net of tax is as follows:

	Three months ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
Opening balance	$	(2,752,974	)	$	(4,195,172	)	$	(2,955,451	)	$	(4,664,862	)
Change		431,053			702,231			633,530			1,171,921
Ending balance	$	(2,321,921	)	$	(3,492,941	)	$	(2,321,921	)	$	(3,492,941	)

Fair Value of Financial Instruments

The fair value of financial instruments is estimated using available market information and other valuation methods. Refer to Note 8, “Fair Value” for more information.

8

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Recently Issued Accounting Pronouncements

The following accounting pronouncements have been issued and will be effective for the Company in or after fiscal year 2010:

In February 2010, the FASB issued updated guidance that no longer requires SEC filers to disclose the date through which it has evaluated subsequent events and the basis for that date. The adoption of this guidance, as of February 24, 2010, did not have a material impact on the Company’s financial position, results of operations or cash flows.

In January 2010, the FASB issued guidance that requires additional disclosures related to the components of the reconciliation of fair value measurements using unobservable inputs to and transfers between levels in the hierarchy of fair value measurement. The standard is effective for interim and annual reporting periods beginning after December 15, 2009, except for certain provisions related to Level 3 disclosures that are effective for interim and annual reporting periods beginning after December 15, 2010. The adoption of this guidance did not have a material impact on the Company’s financial position, results of operations or cash flows.

2. Purchased Receivables and Revenue Recognition

Purchased receivables are receivables that have been charged-off as uncollectible by the originating organization and typically have been subject to previous collection efforts. The Company acquires pools of accounts which are the rights to the unrecovered balances owed by individual debtors through such purchases. The receivable portfolios are purchased at a substantial discount (generally more than 90%) from their face values due to a deterioration of credit quality since origination and are initially recorded at the Company’s acquisition cost, which equals fair value at the acquisition date. Financing for the purchases is primarily provided by the Company’s cash generated from operations and from borrowings on the Company’s revolving credit facility.

The Company accounts for its investment in purchased receivables using the Interest Method when the Company has reasonable expectations of the timing and amount of cash flows expected to be collected. The Company purchases pools of homogenous accounts receivable. Pools purchased after 2004 may be aggregated into one or more static pools within each quarter, based on common risk characteristics and payer dynamics. Risk characteristics of purchased receivables are generally considered to be similar since purchased receivables are usually in the late stages of the post charged-off collection cycle. The Company therefore aggregates most pools purchased within each quarter. Pools purchased before 2005 may not be aggregated. Each static pool, either aggregated or non-aggregated, retains its own identity and does not change over the remainder of its life. Each static pool is accounted for as a single unit for recognition of revenue, principal payments and impairments.

Collections on each static pool are allocated to revenue and principal reduction based on an internal rate of return (“IRR”). The IRR is the rate of return that each static pool requires to amortize the cost or carrying value of the pool to zero over its estimated life. Each pool’s IRR is determined by estimating future cash flows, which are based on historical collection data for pools with similar characteristics. The actual life of each pool may vary, but will generally range between 36 and 84 months depending on the expected collection period. Monthly cash flows greater than revenue recognized will reduce the carrying value of each static pool. Monthly cash flows lower than revenue recognized will increase the carrying value of each static pool. Each static pool is reviewed at least quarterly and compared to historical trends and operational data to determine whether it is performing as expected. This comparison is used to determine future estimated cash flows. If the revised cash flow estimates are greater than the original estimates, the IRR is increased prospectively to reflect the revised estimate of cash flows over the remaining life of the static pool. If the revised cash flow estimates are less than the original estimates, the IRR remains unchanged and an impairment is recognized. If cash flow estimates increase in periods subsequent to recording an impairment, reversal of the previously recognized impairment is made prior to any increases to the IRR.

The cost recovery method is used when collections on a particular portfolio cannot be reasonably predicted. When appropriate, the cost recovery method may be used for pools that previously had an IRR assigned to them. Under the cost recovery method, no revenue is recognized until the Company has fully collected the cost of the portfolio. As of June 30, 2010, the Company had 23 unamortized pools on the cost recovery method with an aggregate carrying value of $1,118,049 or about 0.3% of the total carrying value of all purchased receivables. As of December 31, 2009, the Company had 50 unamortized pools on the cost recovery method with an aggregate carrying value of $2,271,595 or about 0.7% of the total carrying value of all purchased receivables.

9

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Agreements to purchase receivables typically include general representations and warranties from the sellers covering account holder death, bankruptcy, fraud and settled or paid accounts prior to sale. These representations and warranties permit the return of certain ineligible accounts from the Company back to the seller. The general time frame to return accounts is within 90 to 180 days from the date of the purchase agreement. Proceeds from returns, also referred to as buybacks, are applied against the carrying value of the static pool.

Although not its usual business practice, the Company may periodically sell, on a non-recourse basis, all or a portion of a pool to unaffiliated parties. The Company does not have any significant continuing involvement with the sold pools subsequent to sale. Proceeds of these sales are compared to the carrying value of the accounts and a gain or loss is recognized on the difference between proceeds received and the carrying value which is included in “Gain (loss) on sale of purchased receivables” in the accompanying consolidated statements of operations. The agreements to sell receivables typically include general representations and warranties.

Changes in purchased receivables portfolios were as follows:

	Three months ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
Beginning balance	$	310,792,323		$	346,048,993		$	319,772,006		$	361,808,502
Investment in purchased receivables, net of buybacks		48,175,147			19,520,505			77,324,274			41,138,254
Cost of purchased receivables sold, net of returns		—			—			(26	)		—
Cash collections		(84,214,073	)		(87,293,577	)		(173,429,403	)		(181,410,514	)
Purchased receivable revenues, net		50,626,874			48,819,343			101,713,420			105,559,022
Ending balance	$	325,380,271		$	327,095,264		$	325,380,271		$	327,095,264

Accretable yield represents the amount of revenue the Company expects over the remaining life of existing portfolios. Nonaccretable yield represents the difference between the remaining expected cash flows and the total contractual obligation outstanding (face value) of purchased receivables. Changes in accretable yield were as follows:

	Three months ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
Beginning balance (1)	$	442,628,674		$	536,991,949		$	466,199,721		$	534,985,144
Purchased receivable revenues, net		(50,626,874	)		(48,819,343	)		(101,713,420	)		(105,559,022	)
Additions due to purchases		57,615,299			44,305,248			86,270,094			85,696,634
Reclassifications from (to) nonaccretable yield		26,775,974			(16,804,875	)		25,636,678			550,223
Ending balance (1)	$	476,393,073		$	515,672,979		$	476,393,073		$	515,672,979

(1) Accretable yields are a function of estimated remaining cash flows and are based on historical cash collections. Refer to Forward-Looking Statements on page 21 and Critical Accounting Policies on page 40 for further information regarding these estimates.

Cash collections include collections from fully amortized pools of which 100% of the collections were reported as revenue. Components of cash collections from fully amortized pools were as follows:

	Three months ended June 30,				Six months ended June 30,
	2010		2009		2010		2009
Fully amortized before the end of their expected life	$	3,198,011	$	6,224,318	$	6,957,252	$	13,466,278
Fully amortized after their expected life		7,396,970		7,343,413		14,773,786		15,619,146
Previously accounted for under the cost recovery method		3,242,694		2,264,848		7,023,452		5,000,716
Total cash collections from fully amortized pools	$	13,837,675	$	15,832,579	$	28,754,490	$	34,086,140

10

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Changes in purchased receivables portfolios under the cost recovery method were as follows:

	Three months ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
Beginning balance	$	1,531,329		$	6,594,228		$	2,271,595		$	9,804,318
Addition of portfolios		118,365			43,302			128,710			132,380
Buybacks, impairments and resale adjustments		(6,933	)		(240,561	)		(8,425	)		(714,882	)
Cash collections until fully amortized		(524,712	)		(2,414,417	)		(1,273,831	)		(5,239,264	)
Ending balance	$	1,118,049		$	3,982,552		$	1,118,049		$	3,982,552

During the three and six months ended June 30, 2010, the Company recorded net impairment reversals of $1,064,711 and $965,031, respectively, related to its purchased receivables. The Company recorded net impairments of $6,846,000 and $10,295,300 during the three and six months ended June 30, 2009, respectively. The net reversal of impairments increased revenue and the carrying value of purchased receivable portfolios during 2010 whereas net impairments reduced revenue and the carrying value of the purchased receivable portfolios during 2009.

Changes in the purchased receivables valuation allowance were as follows:

	Three months ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
Beginning balance	$	98,882,900		$	73,685,026		$	104,416,455		$	71,949,326
Impairments		284,189			7,144,000			383,869			10,935,000
Reversal of impairments		(1,348,900	)		(298,000	)		(1,348,900	)		(639,700	)
Deductions (1)		(1,323,689	)		(314,771	)		(6,956,924	)		(2,028,371	)
Ending balance	$	96,494,500		$	80,216,255		$	96,494,500		$	80,216,255

(1) Deductions represent valuation allowances on purchased receivable portfolios that became fully amortized during the period and, therefore, the balance is removed from the valuation allowance since it can no longer be reversed.

3. Notes Payable

The Company’s amended credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders named therein, originated on June 5, 2007 (the “Credit Agreement”). Under the terms of the Credit Agreement, the Company has a five-year $100,000,000 revolving credit facility (the “Revolving Credit Facility”) and a six-year $150,000,000 term loan facility (the “Term Loan Facility” and, together with the Revolving Credit Facility, the “Credit Facilities”). The Credit Facilities bear interest at 200 to 250 basis points over the bank’s prime rate depending upon the Company’s liquidity, as defined in the Credit Agreement. Alternately, at the Company’s discretion, the Company may borrow by entering into one, two, three, six or twelve-month contracts based on the London Inter Bank Offer Rate (“LIBOR”) at rates between 300 to 350 basis points over the respective LIBOR, depending on the Company’s liquidity. The Company’s Revolving Credit Facility includes an accordion loan feature that allows it to request a $25,000,000 increase as well as sublimits for $10,000,000 of letters of credit and for $10,000,000 of swingline loans. The Credit Agreement is secured by a first priority lien on all of the Company’s assets. The Credit Agreement also contains certain covenants and restrictions that the Company must comply with, which, as of June 30, 2010 were:

• Leverage Ratio (as defined) cannot exceed (i) 1.5 to 1.0 at any time on or before December 30, 2011 or (ii) 1.25 to 1.0 at any time thereafter;

• Ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth (as defined) cannot exceed (i) 2.5 to 1.0 at any time on or before December 30, 2011, (ii) 2.25 to 1.0 at any time on or after December 31, 2011 and on or before March 30, 2012, (iii) 2.0 to 1.0 at any time thereafter; and

• Consolidated Tangible Net Worth (as defined) must equal or exceed $85,000,000 plus 50% of positive consolidated net income for three consecutive fiscal quarters ending December 31, 2007 and for each fiscal year ending thereafter, such amount to be added as of December 31, 2007 and as of the end of each such fiscal year thereafter.

11

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

On May 28, 2010, the Company, JPMorgan Chase Bank, N.A. and other lenders entered into a Third Amendment to Credit Agreement (“Third Amendment”). The Third Amendment adjusted the levels of the Leverage Ratio used to set the applicable margin on outstanding borrowings and the respective interest spreads. The Third Amendment also changed certain financial covenant definitions to allow for adjustments related to charges for the FTC investigation, limited to $7,000,000, and the net impact of the fourth quarter 2009 purchased receivable impairment charges, limited to $20,000,000. The changes did not impact total available borrowing capacity; however, they did loosen the financial covenant restrictions which in turn increased the Company’s ability to borrow under the terms of the agreement. In exchange for amending the Credit Agreement, the Company incurred deferred financing costs of $775,808.

The Credit Agreement contains a provision that requires the Company to repay Excess Cash Flow (as defined) to reduce the indebtedness outstanding under its Credit Agreement. The Company made required payments of $8,962,558 and $2,427,486 in March 2010 and 2009, respectively. The Excess Cash Flow payment is due within 10 days of the issuance of the annual financial statements. The repayment provisions are:

• 50% of the Excess Cash Flow for such fiscal year if the Leverage Ratio was greater than 1.0 to 1.0 as of the end of such fiscal year;

• 25% of the Excess Cash Flow for such fiscal year if the Leverage Ratio was less than or equal to 1.0 to 1.0 but greater than 0.875 to 1.0 as of the end of such fiscal year; or

• 0% if the Leverage Ratio is less than or equal to 0.875 to 1.0 as of the end of such fiscal year.

Commitment fees on the unused portion of the Revolving Credit Facility are paid quarterly, in arrears, and are calculated as an amount equal to a margin of 0.50% on the average amount available on the Revolving Credit Facility.

The Credit Agreement requires the Company to effectively cap, collar or exchange interest rates on a notional amount of at least 25% of the outstanding principal amount of the Term Loan Facility. Refer to Note 4, “Derivative Financial Instruments and Risk Management” for additional information.

The Company had $167,359,956 and $160,022,514 of borrowings outstanding on its Credit Facilities as of June 30, 2010 and December 31, 2009, respectively, of which $134,109,956 and $143,822,514 was outstanding on the Term Loan Facility, respectively, and $33,250,000 and $16,200,000 was outstanding on the Revolving Credit Facility, respectively. The Term Loan Facility requires quarterly repayments totaling $1,500,000 annually until March 2013 with the remaining balance due in June 2013. The Revolving Credit Facility expires in June 2012.

The Company was in compliance with the covenants of the Credit Agreement as of June 30, 2010.

4. Derivative Financial Instruments and Risk Management

Risk Management

The Company may periodically enter into derivative financial instruments, typically interest rate swap agreements, to reduce its exposure to fluctuations in interest rates on variable-rate debt and their impact on earnings and cash flows. The Company does not utilize derivative financial instruments with a level of complexity or with a risk greater than the exposure to be managed nor does it enter into or hold derivatives for trading or speculative purposes. The Company periodically reviews the creditworthiness of the swap counterparty to assess the counterparty’s ability to honor its obligation.

The Company records derivative financial instruments at fair value. Refer to Note 8, “Fair Value” for additional information. Counterparty default would further expose the Company to fluctuations in variable interest rates.

Derivative Financial Instruments

In September 2007, the Company entered into an amortizing interest rate swap agreement whereby, on a quarterly basis, it swaps variable rates under its Term Loan Facility for fixed rates. At inception and for the first year, the notional amount of the swap was $125,000,000. Every year thereafter, on the anniversary of the swap agreement the notional amount decreases by $25,000,000. As of June 30, 2010, the notional amount was $75,000,000. This swap agreement expires on September 13, 2012.

12

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The Company’s financial derivative instrument is designated and qualifies as a cash flow hedge. The effective portion of the gain or loss is reported as a component of other comprehensive income (“OCI”) in the accompanying consolidated financial statements. To the extent that the hedging relationship is not effective, the ineffective portion of the change in fair value of the derivative is recorded in interest expense. Hedges that receive designated hedge accounting treatment are evaluated for effectiveness at the time that they are designated as well as throughout the hedging period.

Changes in fair value are recorded as an adjustment to Accumulated Other Comprehensive Income (“AOCI”), net of tax. Amounts in AOCI will be reclassified into earnings under certain situations; for example, if the occurrence of the transaction is no longer probable or no longer qualifies for hedge accounting. In these situations, all or a portion of the transaction would be ineffective. The Company does not expect to reclassify any material amount currently included in AOCI into earnings due to ineffectiveness within the next twelve months.

As of June 30, 2010, the Company did not have any fair value hedges.

The following tables summarize the fair value of derivative instruments:

	June 30, 2010			December 31, 2009
	Financial Position Location	Fair Value		Financial Position Location	Fair Value
Derivatives designated as hedging instruments
Interest rate swap	Accrued liabilities	$	3,829,656	Accrued liabilities	$	4,673,159
Total derivatives designated as hedging instruments		$	3,829,656		$	4,673,159

The following tables summarize the impact of derivatives designated as hedging instruments:

Derivative	Amount of Gain or (Loss) Recognized in AOCI (Effective Portion)						Location of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)						Location of Gain or (Loss) Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	Three Months Ended June 30,							Three Months Ended June 30,							Three Months Ended June  30,
	2010			2009				2010			2009				2010		2009
Interest rate swap	$	(323,790	)	$	(227,271	)	Interest expense	$	(881,343	)	$	(946,369	)	Interest Expense	$	675	$	157
Total	$	(323,790	)	$	(227,271	)	Total	$	(881,343	)	$	(946,369	)	Total	$	675	$	157

Derivative	Amount of Gain or (Loss) Recognized in AOCI (Effective Portion)					Location of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)						Location of Gain or (Loss) Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income (Ineffective  Portion and Amount Excluded from Effectiveness Testing)
	Six Months Ended June 30,						Six Months Ended June 30,							Six Months Ended June  30,
	2010			2009			2010			2009				2010		2009
Interest rate swap	$	(919,138	)	$	80,549	Interest expense	$	(1,762,641	)	$	(1,719,572	)	Interest Expense	$	1,238	$	1,217
Total	$	(919,138	)	$	80,549	Total	$	(1,762,641	)	$	(1,719,572	)	Total	$	1,238	$	1,217

13

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

5. Property and Equipment

Property and equipment consisted of the following:

	June 30, 2010			December 31, 2009
Computer equipment and software	$	20,755,225		$	19,453,679
Furniture and fixtures		6,163,105			6,096,969
Office equipment		4,090,905			4,087,986
Leasehold improvements		2,255,542			2,456,788
Equipment under capital leases		278,460			278,459
Total property and equipment, at cost		33,543,237			32,373,881
Less accumulated depreciation and amortization		(19,640,857	)		(17,852,215	)
Net property and equipment	$	13,902,380		$	14,521,666

6. Share-Based Compensation

The Company adopted a stock incentive plan (the “Stock Incentive Plan”) during February 2004 that authorizes use of stock options, stock appreciation rights, restricted stock grants and units, performance share awards and annual incentive awards to eligible key associates, non-associate directors and consultants. The Company reserved 3,700,000 shares of common stock for issuance in conjunction with share-based awards to be granted under the plan of which 2,187,243 shares remain available to be granted as of June 30, 2010. The purpose of the plan is (i) to promote the best interests of the Company and its stockholders by encouraging associates and other participants to acquire an ownership interest in the Company, thus aligning their interests with those of stockholders and (ii) to enhance the ability of the Company to attract and retain qualified associates, non-associate directors and consultants. No participant may be granted options during any one fiscal year to purchase more than 500,000 shares of common stock.

Based on historical experience, the Company uses an annual forfeiture rate of 15% for associate grants. Grants made to non-associate directors have no forfeiture rates associated with them due to immediate vesting of grants to this group.

The share-based compensation expense and related tax benefits were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
Share-based compensation expense	$	479,435	$	524,412	$	698,444	$	761,230
Tax benefits		190,225		207,374		276,444		295,814

The Company’s share-based compensation arrangements are described below.

Stock Options

The Company utilizes the Whaley Quadratic approximation model, an intrinsic value method, to calculate the fair value of stock awards on the date of grant using the assumptions noted in the following table. Changes to the subjective input assumptions can result in different fair market value estimates. With regard to the Company’s assumptions stated below, the expected volatility is based on the historical volatility of the Company’s stock and management’s estimate of the volatility over the contractual term of the options. The expected term of the options are based on management’s estimate of the period of time for which the options are expected to be outstanding. The risk-free rate is derived from the five-year U.S. Treasury yield curve on the date of grant.

The following table summarizes the assumptions used to determine the fair value of stock options granted:

Options issue year:	2010	2009
Expected volatility	57.20%-59.90%	51.37%-54.53%
Expected dividends	0.00%	0.00%
Expected term	4 Years	5 Years
Risk-free rate	2.20%-2.42%	1.98%-2.06%

14

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

As of June 30, 2010, the Company had options outstanding for 1,042,500 shares of its common stock under the Stock Incentive Plan. These options have been granted to key associates and non-associate directors of the Company. Option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant and have contractual terms ranging from seven to ten years. The options granted to key associates generally vest between one and five years from the grant date, whereas the options granted to non-associate directors generally vest immediately. The fair value of stock options is expensed on a straight-line basis over the vesting period.

The related compensation expense was as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
Administrative expenses (1)	$	147,297	$	166,937	$	147,297	$	166,937
Salaries and benefits (2)		99,479		85,634		197,903		160,075
Total	$	246,776	$	252,571	$	345,200	$	327,012

(1) Administrative expenses include amounts for non-associate directors.

(2) Salaries and benefits include amounts for associates.

The following table summarizes all stock option transactions from January 1, 2010 through June 30, 2010:

	Options Outstanding		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
					(In years)
Beginning balance	930,417		$	11.54
Granted	136,958			6.77
Forfeited or expired	(24,875	)		7.56
Outstanding at June 30, 2010	1,042,500			11.00	6.24	$	108,003
Exercisable at June 30, 2010	703,324		$	13.25	6.16	$	28,070

The weighted-average grant date fair value of the options granted during the six months ended June 30, 2010 and 2009 was $3.17 and $4.17, respectively.

As of June 30, 2010, there was $805,255 of total unrecognized compensation expense related to nonvested stock options granted under the stock incentive plan, which is comprised of $728,972 for options expected to vest and $76,283 for options not expected to vest. Unrecognized compensation expense for options expected to vest is expected to be recognized over a weighted-average period of 2.38 years.

Deferred Stock Units

As of June 30, 2010, the Company had granted 47,537 deferred stock units (“DSUs”) of its common stock to non-associate directors under the Company’s Stock Incentive Plan. DSUs represent the Company’s obligation to deliver one share of common stock for each unit at a later date elected by the non-associate director, such as when his or her board service ends. DSUs vest immediately upon grant and are not subject to forfeiture. DSUs do not have voting rights but would receive common stock dividend equivalents in the form of additional DSUs. The value of each DSU is equal to the market price of the Company’s stock at the date of grant.

The fair value of the DSUs granted is expensed immediately to correspond with the vesting schedule. The related expense for the three months ended June 30, 2010 and 2009 includes $24,985 and $21,878 in administrative expenses, respectively. The related expense for the six months ended June 30, 2010 and 2009 includes $49,989 and $43,758 in administrative expenses, respectively.

The following table summarizes all DSU related transactions from January 1, 2010 through June 30, 2010:

	DSUs	Weighted-Average Grant-Date Fair Value
Beginning balance	39,721	$	8.39
Granted	7,816		6.40
Ending balance	47,537	$	8.06

15

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

There was no unrecognized compensation expense related to nonvested DSUs as of June 30, 2010.

Restricted Shares and Restricted Share Units

The Company grants restricted shares and restricted share units (restricted shares and restricted share units are referred to as “RSUs”) to key associates and non-associate directors under the Stock Incentive Plan. Each RSU is equal to one share of the Company’s common stock. The value of the RSUs is equal to the market price of the Company’s stock at the date of grant.

The RSUs granted to associates generally vest over two to four years, based upon service or performance conditions. RSUs granted to non-associate directors generally vest when the non-associate director terminates his or her board service. Of the RSUs outstanding at June 30, 2010, 81,828 granted to associates will vest contingent on the attainment of performance conditions.

The fair value of the RSUs is expensed on a straight-line basis over the vesting period based on the number of RSUs that are expected to vest. For RSUs with performance conditions, if those conditions are not expected to be met, the compensation expense previously recognized is reversed. The related compensation expense, net of reversals, was as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
Administrative expenses (1)	$	103,221	$	114,823	$	103,221	$	114,823
Salaries and benefits (2)		104,453		135,140		200,034		275,637
Total	$	207,674	$	249,963	$	303,255	$	390,460

(1) Administrative expenses include amounts for non-associate directors.

(2) Salaries and benefits include amounts for associates.

The Company issues shares of common stock for RSUs as they vest. The following table summarizes all RSU related transactions from January 1, 2010 through June 30, 2010:

Nonvested RSUs	RSUs		Weighted-Average Grant-Date Fair Value
Beginning balance	232,951		$	8.12
Granted	95,698			6.41
Vested and issued	(625	)		13.21
Forfeited	(21,464	)		7.95
Ending balance	306,560		$	7.58

As of June 30, 2010, there was $1,547,339 of total unrecognized compensation expense related to nonvested RSUs, which was comprised of $753,690 for RSUs expected to vest and $793,649 for RSUs not expected to vest. Unrecognized compensation expense for RSUs expected to vest is expected to be recognized over a weighted-average period of 2.36 years.

7. Contingencies

Litigation Contingencies

The Company is involved in certain legal matters that management considers incidental to its business. The Company recognizes liabilities for contingencies and commitments when a loss is probable and estimable. The Company recognizes expense for defense costs when incurred. The Company does not expect these routine legal matters, either individually or in the aggregate, to have a material impact on the Company’s financial position, results of operations, or cash flows.

As previously reported, the Federal Trade Commission (“FTC”) has commenced an investigation into the Company’s debt collection practices under the Fair Credit Reporting Act, the Fair Debt Collection Practices Act and the Federal Trade Commission Act and has provided draft pleadings and a proposed consent decree to the Company. The Company, its

16

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

counsel and the FTC staff are continuing in their discussions to resolve the matter. Because the discussions with the FTC are ongoing, an estimate of the amount or range of loss cannot be made at this time, and no accrual has been included in the Company’s consolidated financial statements as of June 30, 2010.

Registration Rights Agreement

The Company has a registration rights agreement with certain stockholders. Pursuant to the agreement, the Company will pay all costs related to any secondary securities offering requested by these stockholders and the stockholders may sell any outstanding shares owned by them. The Company filed a registration statement on behalf of one of the selling stockholders in 2008 to register 10,932,051 shares of common stock held by the stockholder and paid $45,246 in costs related to the registration statement. The selling stockholders collectively retain the right to request two additional registrations of specified shares under the registration rights agreement, in which case, the Company will be required to bear applicable offering expenses in the period in which any future offering occurs.

8. Fair Value

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1	–	Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2	–	Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3	–	Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability.

Disclosure of the estimated fair value of financial instruments often requires the use of estimates. The Company uses the following methods and assumptions to estimate the fair value of financial instruments.

	Total Recorded Fair Value  at June 30, 2010		Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Interest rate swap liability	$	3,829,656	—	$	3,829,656	—

The fair value of the interest rate swap represents the amount the Company would pay to terminate or otherwise settle the contract at the financial position date, taking into consideration current unearned gains and losses. The fair value was determined using a market approach, and is based on the three-month LIBOR curve for the remaining term of the swap agreement. Refer to Note 4, “Derivative Financial Instruments and Risk Management”, for additional information about the fair value of the interest rate swap.

Goodwill and Other Intangible Assets

Goodwill and certain intangible assets not subject to amortization are assessed annually for impairment using fair value measurement techniques. Specifically, goodwill impairment is determined using a two-step test. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its book value, including goodwill. If the fair value of the reporting unit exceeds its book value, goodwill is considered not impaired and the second step of the impairment test is unnecessary. If the book value of the reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the book value of that goodwill. If the book value of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.

17

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The estimate of fair value of the Company’s goodwill is determined using various valuation techniques including market capitalization, which is a Level 1 input, and an analysis of discounted cash flows, which includes Level 3 inputs. At the time of the annual goodwill impairment test in the fourth quarter of 2009, market capitalization was substantially higher than book value. A discounted cash flow analysis was also performed as of December 31, 2009 for the purchased receivables operating segment. A discounted cash flow analysis requires various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The Company based assumptions about future cash flows and growth rates on its budget and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the reporting unit. Given recent declines in the Company’s stock price, a discounted cash flow analysis was also performed as of June 30, 2010. The fair value of goodwill using a discounted cash flow analysis exceeded the book value as of June 30, 2010 and therefore, goodwill was not considered to be impaired.

The annual impairment test for other intangible assets not subject to amortization, for example, trademark and trade names, consists of a comparison of the fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The estimates of fair value of intangible assets not subject to amortization are determined using various discounted cash flow valuation methodologies, which include Level 3 inputs. Significant assumptions are inherent in this process, including estimates of discount rates and future cash flows. Discount rate assumptions are based on an assessment of the risk inherent in the respective intangible assets, and include estimates of the cost of debt and equity for market participants in the Company’s industry.

During the third quarter of 2009, the Company completed its periodic valuation of trademark and trade names and determined that the book value exceeded the fair value as a result of a decline in business activity associated with this intangible asset. As a result, the Company recognized an impairment charge for the difference between the fair value and the book value of $1,167,600.

The following disclosures pertain to the fair value of certain assets and liabilities, which are not measured at fair value in the accompanying consolidated financial statements.

Purchased Receivables

The Company initially records purchased receivables at cost, which is discounted from the contractual receivable balance. The balance of purchased receivables is reduced as cash is received in accordance with the Interest Method. The carrying value of receivables was $325,380,271 and $319,772,006 at June 30, 2010 and December 31, 2009, respectively. The Company computes the fair value of purchased receivables by discounting the estimated future cash flows generated by its forecasting model using an adjusted weighted-average cost of capital. The fair value of purchased receivables approximated the carrying value at both June 30, 2010 and December 31, 2009.

Credit Facilities

The Company’s Credit Facilities had carrying amounts of $167,359,956 and $160,022,514 as of June 30, 2010 and December 31, 2009, respectively. The fair value of the Credit Facilities approximated carrying value at both June 30, 2010 and December 31, 2009, respectively. The Company computed the fair value of its Credit Facilities based on quoted market prices, current market rates for similar debt with approximately the same remaining maturities or discounted cash flow models utilizing current market rates.

9. Income Taxes

The Company recorded income tax expense of $509,408 and $642,917 for the three months ended June 30, 2010 and 2009, respectively, and $740,890 and $3,460,914 for the six months ended June 30, 2010 and 2009, respectively. The provision for income tax expense reflects an effective income tax rate of 39.7% and 43.3% for the three months ended June 30, 2010 and 2009, respectively, and 39.6% and 38.9% for the six months ended June 30, 2010 and 2009, respectively.

18

ASSET ACCEPTANCE CAPITAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

As of June 30, 2010, the Company had a gross unrecognized tax benefit of $1.0 million that, if recognized, would result in a net tax benefit of approximately $0.7 million which would have a positive impact on net income and the effective tax rate. During the three and six months ended June 30, 2010, there were no material changes to the unrecognized tax benefit. Since January 1, 2009, the Company has accrued interest related to the unrecognized tax benefits of approximately $161,000, which has been classified as income tax expense in the accompanying consolidated statements of operations.

The federal income tax returns of the Company for the years 2006-2009 are subject to examination by the IRS, generally for three years after the latter of their extended due date or when they are filed. The state income tax returns of the Company are subject to examination by the state taxing authorities, for various periods generally up to four years.

10. Subsequent Event

On July 29, 2010, the Company filed a current report with the SEC on Form 8-K reporting its commitment to exit the healthcare accounts receivable purchase and collection business conducted by its Premium Asset Recovery Corporation (“PARC”) subsidiary by selling its healthcare receivables to a third party. In conjunction with this transaction, the Company will close its Deerfield Beach, Florida office housing that subsidiary and incur approximately $1.3 million in restructuring charges. This includes employee termination benefits of approximately $0.2 million, contract termination costs of approximately $0.1 million for the remaining lease payments on the Deerfield Beach office, accelerated depreciation charges on furniture and equipment of approximately $0.1 million, write-off of intangible assets of approximately $0.8 million and other exit costs of approximately $0.1 million. The employee termination benefits, contract termination costs and other exit costs will require the outlay of cash, while the accelerated depreciation and write-off of intangible assets represent non-cash charges.

The decision to sell the healthcare receivables and close the PARC subsidiary was made in the third quarter of 2010 and accordingly the financial impact is not reflected in the accompanying June 30, 2010 financial statements. The actions to close this office are expected to be substantially complete by December 31, 2010.

19

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Company Overview

We have been purchasing and collecting charged-off accounts receivable portfolios from consumer credit originators since the formation of our predecessor company in 1962. Charged-off receivables are the unpaid obligations of individuals to credit originators, such as credit card issuers including private label card issuers, consumer finance companies, healthcare providers, telecommunications and utility providers. Since these receivables are delinquent or past due, we purchase them at a substantial discount to face value. Since January 1, 2000, we purchased 1,159 consumer debt portfolios, with an original charged-off face value of $42.7 billion for an aggregate purchase price of $1.0 billion, or 2.52% of face value, net of buybacks. We purchase and collect charged-off consumer receivable portfolios for our own account as we believe this affords us the best opportunity to use long-term strategies to maximize our profits.

Macro-economic factors continue to impact our results of operations both positively and negatively. Factors such as reduced availability of credit for consumers, a depressed housing market, elevated unemployment rates and other factors have a negative impact on us by making it more difficult to collect from consumers on the charged-off accounts receivable portfolios (“paper”) we have acquired. Conversely, as a result of these negative macro-economic factors, the supply of available paper has increased while prices we pay have remained at lower levels than in recent years. Lately we have observed indicators that some of these trends are starting to reverse. For example, we are observing increased competition for available paper coupled with slightly higher pricing.

Our cash collections are typically higher in the first half of the year because of tax refunds and other factors. However, first half 2010 collections declined when compared to the same period in 2009 as a result of the continuing difficult collections environment. First half 2010 collections have also been negatively impacted by the 21.3% reduction in purchasing in 2009 when compared to 2008 because collections on portfolios are usually the strongest six to 18 months after purchase. Collections were positively impacted in the quarter by further expansion of our relationship with a third party agency in India.

Our levels of purchasing were significantly higher in the first half of 2010 as compared to the same period in 2009; however, we have not felt the full benefit of that increase on collections because of the lag between the time of purchase and peak collections. We amended our credit agreement in the second quarter of 2010, which significantly increased our ability to borrow on our Revolving Credit Facility. That increased capacity provides us the opportunity to buy paper at higher levels that we did in 2009.

In the fourth quarter of 2009, we recorded a $32.4 million impairment on our purchased receivables, primarily on the 2006 and older vintages, because we determined that the IRRs assigned to our portfolios were too high in relation to the timing or amount of estimated remaining collections. During the first half of 2010, we exceeded our revised collection forecasts for certain portfolios. That consistent performance against expectations allowed us to recognize yield increases on select portfolios and reverse certain previously recorded impairments. As a result of these actions, revenues and purchased receivable amortization were favorable in the second quarter of 2010 as compared to the same period of 2009, during which we recorded $6.8 million in net impairment charges. If collections continue to exceed our expectations, we may increase IRRs or reverse previous impairments on certain portfolios. However, if collections do not continue to meet expectations, we may be required to record additional impairments.

We continue to review our business and operations and to look for opportunities to become more efficient. In July 2010, we completed the purchase of substantially all of the assets of BSI eSolutions, LLC, a software vendor, including its debt collection software, which we are implementing to replace our legacy debt collection software platform. We made the acquisition to protect our investment in the software we acquired and to enhance our ability to successfully implement it. We expect the acquisition to have a neutral impact to net income for the remainder of 2010 and 2011.

In addition, on July 29, 2010, we filed a current report with the SEC on Form 8-K reporting our commitment to exit the healthcare accounts receivable purchase and collection business conducted by our PARC subsidiary by selling our healthcare receivables to a third party for expected proceeds between $1.0 million and $1.5 million. The corresponding gain on the sale, based on the June 30, 2010 receivables balances, would be between approximately $0.4 million and $0.9 million. In conjunction with this transaction, we will close our Deerfield Beach, Florida office housing that subsidiary and will incur approximately $1.3 million in restructuring charges. Restructuring charges include employee termination benefits of approximately $0.2 million, contract termination costs of approximately $0.1 million for the remaining lease payments on the Deerfield Beach office, accelerated depreciation charges on furniture and equipment of approximately $0.1 million, write-off of intangible assets of approximately $0.8 million and other exit costs of approximately $0.1 million. The employee termination benefits, contract termination costs and other exit costs will require the outlay of cash, while the accelerated depreciation and write-off of intangible assets represent non-cash charges.

20

For the three and six months ended June 30, 2010, we collected $1.6 million and $3.5 million, respectively, on the healthcare receivables. We expect operating expenses to decline by approximately $2.5 million per year starting in 2011. In addition, the transaction will result in a one-time tax benefit of approximately $4.7 million in the third quarter of 2010, depending upon the final proceeds from the sale of the healthcare receivables.

The decision to sell our healthcare receivables assets and to close the PARC subsidiary was made in the third quarter of 2010 and accordingly the financial impact is not reflected in our June 30, 2010 financial statements. The actions to close this office are expected to be substantially complete by December 31, 2010 with majority of these restructuring activities and outlay of cash to occur at this time.

Forward-Looking Statements

This report contains forward-looking statements that involve risks and uncertainties and that are made in good faith pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements include, without limitation, statements about future events or our future financial performance. In some cases, forward-looking statements can be identified by terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “intend”, “plan”, “believe”, “estimate”, “potential” or “continue”, the negative of these terms or other comparable terminology. These statements involve a number of risks and uncertainties. Actual events or results may differ materially from any forward-looking statement as a result of various factors, including those we discuss in our annual report on Form 10-K for the year ended December 31, 2009 in the section titled “Risk Factors” and elsewhere in this report.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations. Factors that could affect our results and cause them to materially differ from those contained in the forward-looking statements include the following:

• instability in the financial markets and a prolonged economic recession limiting our ability to access capital and to acquire and collect on charged-off receivable portfolios;

• our ability to maintain existing, and to secure additional financing on acceptable terms;

• a decrease in collections if changes in or enforcement of debt collection laws impair our ability to collect, including any unknown ramifications from the recently passed Dodd-Frank Wall Street Reform and Consumer Protection Act;

• failure to comply with government regulation, including our ability to successfully conclude the on-going FTC matter;

• our ability to purchase charged-off receivable portfolios on acceptable terms and in sufficient amounts;

• a decrease in collections as a result of negative attention or news regarding the debt collection industry and debtors’ willingness to pay the debt we acquire;

• the costs, uncertainties and other effects of legal and administrative proceedings impacting our ability to collect on judgments in our favor;

• ongoing risks of litigation in our litigious industry, including individual and class actions under consumer credit, collections and other laws;

• our ability to substantiate our application of tax rules against examinations and challenges made by tax authorities;

• our ability to make reasonable estimates of the timing and amount of future cash receipts and values and assumptions underlying the calculation of the net impairment charges for purposes of recording purchased receivable revenues;

• our ability to respond to changes in technology to remain competitive, including our ability to successfully complete the conversion of our legacy debt collection platform to a different software system;

21

• our ability to successfully hire, train, integrate into our collections operations and retain in-house account representatives;

• our ability to successfully seek opportunities to diversify beyond collecting on our purchased receivables portfolios;

• our ability to acquire and to collect on charged-off receivable portfolios in industries in which we have little or no experience;

• any significant and unanticipated changes in circumstances leading to goodwill impairment or other impairment of intangible asset, which, in turn, could adversely impact earnings and reduce our net worth; and

• other unanticipated events and conditions that may hinder our ability to compete.

22

Results of Operations

The following table sets forth selected consolidated statements of operations data expressed as a percentage of total revenues and as a percentage of cash collections for the periods indicated.

	Percent of Total Revenues								Percent of Cash Collections
	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009		2010		2009		2010		2009
Revenues
Purchased receivable revenues, net	99.4	%	99.5	%	99.3	%	99.5	%	60.1	%	55.9	%	58.6	%	58.2	%
Gain on sale of purchased receivables	0.2		0.0		0.3		0.0		0.2		0.0		0.2		0.0
Other revenues, net	0.4		0.5		0.4		0.5		0.2		0.3		0.3		0.3
Total revenues	100.0		100.0		100.0		100.0		60.5		56.2		59.1		58.5
Expenses
Salaries and benefits	36.7		37.4		37.2		36.0		22.2		21.0		22.0		21.1
Collections expense	45.3		44.1		46.1		41.3		27.4		24.8		27.3		24.2
Occupancy	3.3		3.8		3.4		3.5		2.0		2.1		2.0		2.0
Administrative	4.3		4.5		3.8		4.3		2.6		2.6		2.3		2.5
Depreciation and amortization	2.3		2.0		2.3		1.7		1.4		1.1		1.3		1.0
Loss on disposal of equipment and other assets	0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0
Total operating expenses	91.9		91.8		92.8		86.8		55.6		51.6		54.9		50.8
Income from operations	8.1		8.2		7.2		13.2		4.9		4.6		4.2		7.7
Other income (expense)
Interest expense	(5.7	)	(5.0	)	(5.4	)	(4.8	)	(3.4	)	(2.8	)	(3.2	)	(2.8	)
Interest income	0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0
Other	0.1		(0.2	)	0.0		0.0		0.0		(0.1	)	0.1		0.0
Income before income taxes	2.5		3.0		1.8		8.4		1.5		1.7		1.1		4.9
Income tax expense	1.0		1.3		0.7		3.3		0.6		0.7		0.4		1.9
Net income	1.5	%	1.7	%	1.1	%	5.1	%	0.9	%	1.0	%	0.7	%	3.0	%

Three Months Ended June 30, 2010 Compared To Three Months Ended June 30, 2009

Revenue

We generate substantially all of our revenue from our main line of business, the purchase and collection of charged-off consumer receivables. We refer to revenue generated from this line of business as purchased receivable revenues. Purchased receivable revenues is the difference between cash collections and amortization of purchased receivables.

The following table summarizes our purchased receivable revenues including cash collections and amortization:

	Three Months Ended June 30,									Percentage of Cash  Collections Three Months Ended June 30,
(in millions)	2010		2009		Change			Percentage Change		2010		2009
Cash collections	$	84.2	$	87.3	$	(3.1	)	(3.5	)%	100.0	%	100.0	%
Purchased receivable amortization		33.6		38.5		(4.9	)	(12.7	)	39.9		44.1
Purchased receivable revenues, net		50.6		48.8		1.8		3.7		60.1		55.9

We believe that the decrease in cash collections is primarily a result of macro-economic factors that continue to affect consumers’ liquidity and their ability to repay their obligations, and is also due to lower levels of purchasing in 2009. Macro-economic factors reducing consumers’ ability to pay include the three-month average unemployment rate, which increased from 9.3% in June 2009 to 9.7% in June 2010, a depressed housing market and a continued tight credit environment for consumers, among other factors. During 2009, we invested 21.3% less in purchased receivables than we did in 2008. Generally, collections are strongest on portfolios six months to 18 months after purchase; therefore, the reduction in purchasing is having a negative impact on collections in the second quarter of 2010 when compared to the prior year. Cash collections include collections from fully amortized portfolios of $13.8 million and $15.8 million for 2010 and 2009, respectively, of which 100% were reported as revenue.

23

Purchased receivable revenues fluctuate based on changes in the balance of purchased receivables, the IRR associated with each portfolio and the amount of net impairments recognized. Impairments are generated when current yields assigned to portfolios are too high in relation to the timing and/or amount of current or future collections. When cash collections decline a larger portion of collections is allocated to revenue and less is allocated to amortization of portfolio balances. Portfolio balances that amortize too slowly in relation to current or expected collections lead to impairments, which increase the amount of amortization and offset revenue. Conversely, when the timing or amount of collections exceed expectations amortization will increase. If portfolio balances amortize too quickly and we expect collections to continue to exceed expectations, we may reverse previously recognized impairments, or if there are no impairments to reverse, we may increase the assigned yields.

The amortization rate of 39.9% for the second quarter of 2010 was 4.2 percentage points lower than the amortization rate of 44.1% for the same period of 2009. The improvement in the amortization rate is primarily due to the impact of yield increases on select portfolios, including certain pools within the 2007 to 2009 vintage years, and the $1.1 million net reversal of impairments, including certain pools within the 2004 to 2006 vintage years, recognized in the second quarter of 2010. The yield increases and impairment reversals were a result of cash collections in excess of expectations on certain portfolios during the first half of 2010, which resulted in higher than expected amortization on these portfolios. In contrast, the amortization rate in the second quarter of 2009 was negatively impacted by net impairments of $6.8 million which was a result of a significant decrease in expectations for future collections on certain portfolios. The lower amortization rate in the second quarter of 2010 had the effect of increasing purchased receivable revenues even though collections were lower than during the prior year period. Refer to “Supplemental Performance Data” on Page 30 for a summary of purchased receivable revenues and amortization rates by year of purchase.

Revenues on portfolios purchased from our top three sellers during vintage years 1993 through 2010 were $19.0 million and $14.2 million during the three months ended June 30, 2010 and 2009, respectively. The top three sellers were the same in both three month periods.

Investments in Purchased Receivables

We generate revenue from our investments in portfolios of charged-off consumer accounts receivable. Ongoing investments in purchased receivables are critical to continued generation of revenues. From period to period, we may buy charged-off receivables of varying age, types and demographics. As a result, the cost of our purchases, as a percent of face value, may fluctuate from one period to the next. Total purchases consisted of the following:

	Three Months Ended June 30,
(in millions, net of buybacks)	2010			2009			Change		Percentage Change
Acquisitions of purchased receivables, at cost	$	48.6		$	19.6		$	29.0	147.5	%
Acquisitions of purchased receivables, at face value	$	1,502.4		$	716.5		$	785.9	109.7	%
Percentage of face value		3.24	%		2.74	%

Our investment in purchased receivables increased in the second quarter of 2010, which is consistent with our strategy to significantly increase purchasing levels compared to the prior year. During 2009, we lowered overall purchasing and deferred a significant portion to the second half of the year in order to take advantage of declining pricing. As a result of fluctuations in the mix of purchases of receivables, the costs of our purchases, as a percent of face value, fluctuate from one period to the next and are not always indicative of our estimates of total return.

Investments under Forward Flow Contracts

Forward flow contracts commit a debt seller to sell a steady flow of charged-off receivables to us, and commit us to purchase receivables for a fixed percentage of the face value. Forward flow contracts may be attractive to us because they provide operational advantages from the consistent amount and type of accounts acquired.

24

Forward flow purchases consisted of the following:

	Three Months Ended June 30,
(in millions, net of buybacks)	2010			2009			Change			Percentage Change
Forward flow purchases, at cost	$	13.1		$	14.2		$	(1.1	)	(8.0	)%
Forward flow purchases, at face value	$	332.5		$	491.3		$	(158.8	)	(32.3	)%
Percentage of face value		3.94	%		2.90	%
Percentage of forward flow purchases, at cost of total purchasing		27.0	%		72.5	%
Percentage of forward flow purchases, at face value of total purchasing		22.1	%		68.6	%

Investments in forward flow contracts were lower in the second quarter of 2010 than in the same period of 2009 as a result of the timing, number of portfolios purchased and average size of each purchase made under these agreements. Purchases from forward flows in 2010 included 24 portfolios from nine forward flow contracts. Purchases from forward flows in 2009 included 17 portfolios from seven forward flow contracts.

Operating Expenses

Operating expenses are traditionally measured in relation to revenues. However, our industry measures operating expenses in relation to cash collections. We believe this is appropriate because amortization rates, the difference between cash collections and revenues recognized, vary from period to period. Amortization rates vary due to seasonality of collections, impairments and other factors and can distort the analysis of operating expenses when measured against revenues. Additionally, we believe that the majority of our operating expenses are variable in relation to cash collections.

The following table summarizes the significant components of our operating expenses:

	Three Months Ended June 30,									Percentage of Cash  Collections Three Months Ended June 30,
(in millions)	2010		2009		Change			Percentage Change		2010		2009
Salaries and benefits	$	18.7	$	18.4	$	0.3		1.6	%	22.2	%	21.0	%
Collections expense		23.1		21.6		1.5		6.6		27.4		24.8
Administrative		2.2		2.2		—		(1.2	)	2.6		2.6
Other		2.8		2.9		(0.1	)	0.9		3.4		3.2
Total operating expenses	$	46.8	$	45.1	$	1.7		3.8	%	55.6	%	51.6	%

Salaries and Benefits. The following table summarizes the significant components of our salaries and benefits expense:

	Three Months Ended June 30,									Percentage of Cash  Collections Three Months Ended June 30,
(in millions)	2010		2009		Change			Percentage Change		2010		2009
Compensation - revenue generating	$	11.3	$	11.1	$	0.2		1.7	%	13.4	%	12.7	%
Compensation - administrative		4.3		3.6		0.7		20.3		5.1		4.0
Benefits and other		3.1		3.7		(0.6	)	(16.4	)	3.7		4.3
Total salaries and benefits	$	18.7	$	18.4	$	0.3		1.6	%	22.2	%	21.0	%

The increases in compensation were a result of increased variable compensation for management based on expected achievement of financial and performance objectives, which were not considered achievable during the same period of the prior year. Benefits were favorable to the prior year as we continued our suspension of the Company matching component of our 401(k) plan.

25

Collections Expense. The following table summarizes the significant components of collections expense and the changes in each:

	Three Months Ended June 30,									Percentage of Cash  Collections Three Months Ended June 30,
(in millions)	2010		2009		Change			Percentage Change		2010		2009
Forwarding fees	$	10.2	$	9.5	$	0.7		8.2	%	12.1	%	10.8	%
Court and process server costs		6.1		5.9		0.2		2.9		7.2		6.8
Lettering campaign and telecommunications costs		3.9		4.0		(0.1	)	(3.3	)	4.6		4.6
Data provider costs		1.5		1.1		0.4		34.1		1.8		1.3
Other		1.4		1.1		0.3		20.6		1.7		1.3
Total collections expense	$	23.1	$	21.6	$	1.5		6.6	%	27.4	%	24.8	%

Forwarding fees include fees paid to third parties to collect on our behalf including our agency firm in India. These fees increased in 2010 compared to 2009 because of higher cash collections generated by third parties. Collections from such third party relationships were $29.5 million and $27.6 million, or 35.1% and 31.6% of cash collections, for 2010 and 2009, respectively, primarily driven by continued increases in work allocated to our agency firm in India. Rates paid to forwarding agencies vary based on the age and type of paper that we outsource. Rates also vary based on the mix of work performed by our agency firm in India, which is generally at a lower percentage than on collections we outsource domestically.

During 2010, our variable collection activities, such as telecommunications, lettering campaigns, and use of data provider services, increased in total as a result of higher purchasing activities during the first half of 2010 and the fourth quarter of 2009 compared to similar periods of prior years. Generally, these costs are higher in the first six months after purchase of a portfolio as we ramp up collection activities. Court and process server costs increased in 2010 over 2009 in part due to the increases in recent purchasing noted above. In addition, we have shifted forwarding activity from a third party that incurs court costs for outsourced accounts on our behalf to third parties for which we expense court costs as incurred.

Income Taxes. We recognized income tax expense of $0.5 million and $0.6 million for 2010 and 2009, respectively. The 2010 tax expense reflects a federal tax rate of 35.7% and a state tax rate of 4.0% (net of federal tax effect). For 2009, the federal tax rate was 36.4% and state tax rate was 6.9% (net of federal tax effect). The 0.7 percentage point decrease in the federal tax rate was a result of permanent book versus tax differences and the net effect of state taxes. The 2.9 percentage point decrease in the state rate was due to changes in apportionment percentages and tax rates among the various states. The overall decrease in tax expense was also impacted by the decrease in pre-tax income, which was $1.3 million for 2010 compared to $1.5 million for the same period of 2009.

Six Months Ended June 30, 2010 Compared To Six Months Ended June 30, 2009

Revenue

We generate substantially all of our revenue from our main line of business, the purchase and collection of charged-off consumer receivables. We refer to revenue generated from this line of business as purchased receivable revenues. Purchased receivable revenues is the difference between cash collections and amortization of purchased receivables.

The following table summarizes our purchased receivable revenues including cash collections and amortization:

	Six Months Ended June 30,									Percentage of Cash  Collections Six Months Ended June 30,
(in millions)	2010		2009		Change			Percentage Change		2010		2009
Cash collections	$	173.4	$	181.4	$	(8.0	)	(4.4	)%	100.0	%	100.0	%
Purchased receivable amortization		71.7		75.8		(4.1	)	(5.5	)	41.4		41.8
Purchased receivable revenues, net		101.7		105.6		(3.9	)	(3.6	)	58.6		58.2

26

We believe that the decrease in cash collections is primarily a result of macro-economic factors that continue to affect consumers’ liquidity and their ability to repay their obligations, and is also due to lower levels of purchasing in 2009. Macro-economic factors reducing consumers’ ability to pay include the six-month average unemployment rate, which increased from 8.7% in June 2009 to 9.7% in June 2010, a depressed housing market and a continued tight credit environment for consumers, among other factors. During 2009, we invested 21.3% less in purchased receivables than we did in 2008. Generally, collections are strongest on portfolios six months to 18 months after purchase, therefore, the reduction in purchasing is having a negative impact on collections in the first half of 2010 when compared to the prior year. Cash collections include collections from fully amortized portfolios of $28.8 million and $34.1 million for 2010 and 2009, respectively, of which 100% were reported as revenue.

The amortization rate of 41.4% for the first half of 2010 was 0.4 percentage points lower than the amortization rate of 41.8% for the first half of 2009. The improvement in the amortization rate is primarily due to the impact of yield increases on select portfolios, including certain pools within the 2007 to 2009 vintage years, and the impact of $1.0 million net reversal of impairments, including certain pools within the 2004 to 2006 vintage years, we recognized in 2010. The yield increases and impairment reversals were a result of cash collections in excess of expectations on certain portfolios during the first half of 2010, which resulted in higher than expected amortization on these portfolios. In contrast, the amortization rate in 2009 was negatively impacted by net impairments of $10.3 million, which was a result of a significant decrease in expectations for future collections on certain portfolios. Even though amortization as a percent was slightly favorable to the prior year, revenues were lower as a result of a decrease in the average carrying value of purchased receivables, primary due to the impairments recognized in the fourth quarter of 2009, and lower average IRRs on recent purchases. Refer to “Supplemental Performance Data” on Page 30 for a summary of purchased receivable revenues and amortization rates by year of purchase.

Revenues on portfolios purchased from our top three sellers during vintage years 1993 through 2010 were $37.5 million and $29.4 million during the six months ended June 30, 2010 and 2009, respectively. The top three sellers were the same in both six month periods.

Investments in Purchased Receivables

We generate revenue from our investments in portfolios of charged-off consumer accounts receivable. Ongoing investments in purchased receivables are critical to continued generation of revenues. From period to period, we may buy charged-off receivables of varying age, types and demographics. As a result, the cost of our purchases, as a percent of face value, may fluctuate from one period to the next. Total purchases consisted of the following:

	Six Months Ended June 30,
(in millions, net of buybacks)	2010			2009			Change		Percentage Change
Acquisitions of purchased receivables, at cost	$	78.4		$	41.4		$	37.0	89.3	%
Acquisitions of purchased receivables, at face value	$	2,324.7		$	1,453.8		$	870.9	59.9	%
Percentage of face value		3.37	%		2.85	%

Our investment in purchased receivables increased in the first half of 2010 compared to the prior year, which is consistent with our strategy to significantly increase purchasing levels. During 2009, we lowered overall purchasing and deferred a significant portion to the second half of the year in order to take advantage of declining pricing. As a result of fluctuations in the mix of purchases of receivables, the costs of our purchases, as a percent of face value, fluctuate from one period to the next and are not always indicative of our estimates of total return.

27

Investments under Forward Flow Contracts

Forward flow contracts commit a debt seller to sell a steady flow of charged-off receivables to us, and commit us to purchase receivables for a fixed percentage of the face value. Forward flow contracts may be attractive to us because they provide operational advantages from the consistent amount and type of accounts acquired. Forward flow purchases consisted of the following:

	Six Months Ended June 30,
(in millions, net of buybacks)	2010			2009			Change			Percentage Change
Forward flow purchases, at cost	$	30.6		$	29.5		$	1.1		3.9	%
Forward flow purchases, at face value	$	753.1		$	879.3		$	(144.2	)	(16.1	)%
Percentage of face value		4.06	%		3.28	%
Percentage of forward flow purchases, at cost of total purchasing		39.0	%		71.1	%
Percentage of forward flow purchases, at face value of total purchasing		32.4	%		61.7	%

Investments in forward flow contracts were higher in the first half of 2010 than in the same period in 2009, which is consistent with the increase in our total purchases for the same period. Purchases from forward flows in 2010 included 43 portfolios from 13 forward flow contracts. Purchases from forward flows in 2009 included 42 portfolios from nine forward flow contracts.

Operating Expenses

Operating expenses are traditionally measured in relation to revenues. However, our industry measures operating expenses in relation to cash collections. We believe this is appropriate because amortization rates, the difference between cash collections and revenues recognized, vary from period to period. Amortization rates vary due to seasonality of collections, impairments and other factors and can distort the analysis of operating expenses when measured against revenues. Additionally, we believe that the majority of our operating expenses are variable in relation to cash collections.

The following table summarizes the significant components of our operating expenses:

	Six Months Ended June 30,									Percentage of Cash  Collections Six Months Ended June 30,
(in millions)	2010		2009		Change			Percentage Change		2010		2009
Salaries and benefits	$	38.2	$	38.2	$	—		(0.1	)%	22.0	%	21.1	%
Collections expense		47.3		43.8		3.5		8.0		27.3		24.2
Administrative		3.9		4.6		(0.7	)	(13.5	)	2.3		2.5
Other		5.7		5.5		0.2		4.4		3.3		3.0
Total operating expenses	$	95.1	$	92.1	$	3.0		3.3	%	54.9	%	50.8	%

Salaries and Benefits. The following table summarizes the significant components of our salaries and benefits expense:

	Six Months Ended June 30,									Percentage of Cash  Collections Six Months Ended June 30,
(in millions)	2010		2009		Change			Percentage Change		2010		2009
Compensation—revenue generating	$	23.3	$	22.7	$	0.6		2.5	%	13.4	%	12.5	%
Compensation—administrative		7.9		7.6		0.3		3.5		4.6		4.2
Benefits and other		7.0		7.9		(0.9	)	(11.2	)	4.0		4.4
Total salaries and benefits	$	38.2	$	38.2	$	—		(0.1	)%	22.0	%	21.1	%

The increase in compensation for revenue generating departments, including our call center and legal collections, was a result of higher average headcount for in-house account representatives and incentive compensation for management. The increase in administrative compensation was a result of increased variable compensation for management based on expected achievement of financial and performance objectives, which were not considered achievable during the same period of the prior year. Benefits were favorable to the prior year as we continued our suspension of the Company matching component of our 401(k) plan.

28

Collections Expense. The following table summarizes the significant components of collections expense and the changes in each:

	Six Months Ended June 30,								Percentage of Cash  Collections Six Months Ended June 30,
(in millions)	2010		2009		Change		Percentage Change		2010		2009
Forwarding fees	$	20.1	$	19.7	$	0.4	1.8	%	11.6	%	10.9	%
Court and process server costs		12.8		11.4		1.4	12.7		7.4		6.3
Lettering campaign and telecommunications costs		8.4		7.8		0.6	7.7		4.8		4.3
Data provider costs		3.3		2.5		0.8	31.1		1.9		1.4
Other		2.7		2.4		0.3	13.5		1.6		1.3
Total collections expense	$	47.3	$	43.8	$	3.5	8.0	%	27.3	%	24.2	%

Forwarding fees include fees paid to third parties to collect on our behalf including our agency firm in India. These fees increased in 2010 compared to 2009 because of higher cash collections generated by third parties. Collections from such third party relationships were $58.2 million and $57.5 million, or 33.6% and 31.7% of cash collections, for 2010 and 2009, respectively, primarily driven by continued increases in work allocated to our agency firm in India. Rates paid to forwarding agencies vary based on the age and type of paper that we outsource. Rates also vary based on the mix of work performed by our agency firm in India, which is generally at a lower percentage than on collections we outsource domestically.

During 2010, our variable collection activities, such as telecommunications, lettering campaigns, and use of data provider services, increased as a result of higher purchasing activities during the first half of 2010 and the fourth quarter of 2009 compared to similar periods of prior years. Generally, these costs are higher in the first six months after purchase of a portfolio as we ramp up collection activities. Court and process server costs increased in 2010 over 2009 in part due to the increases in recent purchasing noted above. In addition, we have shifted forwarding activity from a third party that incurs court costs for outsourced accounts on our behalf to third parties for which we expense court costs as incurred.

Income Taxes. We recognized income tax expense of $0.7 million and $3.5 million for the six months ended June 30, 2010 and 2009, respectively. The 2010 tax expense reflects a federal tax rate of 35.9% and a state tax rate of 3.7% (net of federal tax effect). For 2009, the federal tax rate was 35.7% and state tax rate was 3.2% (net of federal tax effect). The 0.2 percentage point increase in the federal tax rate was a result of permanent book versus tax differences and the net effect of state taxes. The 0.5 percentage point increase in the state rate was due to changes in apportionment percentages and tax rates among the various states. The overall decrease in tax expense was also impacted by the decrease in pre-tax income, which was $1.9 million for 2010 compared to $8.9 million for the same period of 2009.

29

Supplemental Performance Data

Portfolio Performance

The following table summarizes our historical portfolio purchase price and cash collections on an annual vintage basis by year of purchase as of June 30, 2010:

Year of Purchase	Number of Portfolios	Purchase Price (1)		Cash Collections		Estimated Remaining Collections (2,3)		Total Estimated Collections		Total Estimated Collections as a Percentage of Purchase Price
	(dollars in thousands)
2003	76	$	87,147	$	434,396	$	2,282	$	436,678	501	%
2004	106		86,537		263,994		11,164		275,158	318
2005	104		100,747		202,168		11,711		213,879	212
2006(4)	154		142,235		289,092		49,689		338,781	238
2007	158		169,378		227,439		104,934		332,373	196
2008	164		154,063		160,393		180,356		340,749	221
2009	123		121,025		71,235		271,790		343,025	283
2010(5)	69		78,365		5,939		169,847		175,786	224
Total	954	$	939,497	$	1,654,656	$	801,773	$	2,456,429	261	%

(1) Purchase price refers to the cash paid to a seller to acquire a portfolio less the purchase price refunded by a seller due to the return of non-compliant accounts (also defined as “buybacks”) less the purchase price for accounts that were sold at the time of purchase to another debt purchaser.

(2) Estimated remaining collections are based on historical cash collections. Refer to Forward-Looking Statements on page 21 and Critical Accounting Policies on page 40 for further information regarding these estimates.

(3) Estimated remaining collections refers to the sum of all future projected cash collections on our owned portfolios using up to an 84 month collection forecast from the date of purchase. Estimated remaining collections for pools on a cost recovery method for revenue recognition purposes are equal to the carrying value. There are no estimated remaining collections for pools on a cost recovery method that are fully amortized.

(4) Includes 62 portfolios from the acquisition of PARC on April 28, 2006 that were allocated a purchase price value of $8.3 million.

(5) Includes only six months of activity through June 30, 2010.

The following table summarizes the remaining unamortized balances of our purchased receivables portfolios by year of purchase as of June 30, 2010:

Year of Purchase	Unamortized Balance		Purchase Price (1)		Unamortized Balance as a Percentage of Purchase Price		Unamortized Balance as a Percentage of Total
	(dollars in thousands)
2003	$	1,164	$	87,147	1.3	%	0.4	%
2004		5,189		86,537	6.0		1.6
2005		5,509		100,747	5.5		1.7
2006(2)		23,381		142,235	16.4		7.2
2007		50,607		169,378	29.9		15.5
2008		68,986		154,063	44.8		21.2
2009		93,627		121,025	77.4		28.8
2010(3)		76,917		78,365	98.2		23.6
Total	$	325,380	$	939,497	34.6	%	100.0	%

(1) Purchase price refers to the cash paid to a seller to acquire a portfolio less buybacks and the purchase price of accounts that were sold at the time of purchase to another debt purchaser.

(2) Includes portfolios from the acquisition of PARC on April 28, 2006 that were allocated a purchase price value of $8.3 million.

(3) Includes only six months of activity through June 30, 2010.

30

The following tables provide details of purchased receivable revenues by year of purchase:

	Three months ended June 30, 2010
Year of Purchase	Collections		Revenue		Amortization Rate (1)		Monthly Yield (2)		Net Impairments			Zero Basis Collections
2004 and prior	$	14,012,401	$	12,232,427	N/M		N/M		$	38,089		$	10,501,033
2005		4,047,269		3,018,844	25.4	%	15.44	%		(1,153,800	)		786,911
2006		9,974,216		5,363,233	46.2		6.78			51,000			1,241,187
2007		13,156,759		6,923,550	47.4		4.22			—			847,372
2008		16,654,669		7,599,601	54.4		3.38			—			98,532
2009		21,343,084		11,633,662	45.5		3.87			—			362,640
2010		5,025,675		3,855,557	23.3		2.88			—			—
Totals	$	84,214,073	$	50,626,874	39.9		5.36		$	(1,064,711	)	$	13,837,675
	Three months ended June 30, 2009
Year of Purchase	Collections		Revenue		Amortization Rate (1)		Monthly Yield (2)		Net Impairments			Zero Basis Collections
2003 and prior	$	14,882,021	$	13,402,082	N/M		N/M		$	489,000		$	12,484,108
2004		5,633,013		2,475,410	56.1	%	4.96	%		1,941,000			901,949
2005		6,103,487		864,320	85.8		1.23			2,488,000			34,537
2006		14,512,193		9,086,793	37.4		5.11			1,701,000			1,610,591
2007		18,191,261		9,907,523	45.5		3.67			—			706,439
2008		22,974,091		9,838,611	57.2		2.85			227,000			88,705
2009		4,997,511		3,244,604	35.1		3.90			—			6,250
Totals	$	87,293,577	$	48,819,343	44.1		4.83		$	6,846,000		$	15,832,579

	Six months ended June 30, 2010
Year of Purchase	Collections		Revenue		Amortization Rate (1)		Monthly Yield (2)		Net Impairments			Zero Basis Collections
2004 and prior	$	30,205,907	$	25,612,953	N/M		N/M		$	137,769		$	21,485,227
2005		9,253,696		5,487,498	40.7	%	12.06	%		(1,153,800	)		1,903,412
2006		21,619,661		11,857,884	45.2		6.78			51,000			2,654,458
2007		28,096,125		14,521,971	48.3		4.14			—			1,737,603
2008		35,005,726		16,342,011	53.3		3.40			—			211,662
2009		43,308,909		23,399,814	46.0		3.69			—			762,128
2010		5,939,379		4,491,289	24.4		2.78			—			—
Totals	$	173,429,403	$	101,713,420	41.4		5.35		$	(965,031	)	$	28,754,490
	Six months ended June 30, 2009
Year of Purchase	Collections		Revenue		Amortization Rate (1)		Monthly Yield (2)		Net Impairments			Zero Basis Collections
2003 and prior	$	32,115,952	$	29,595,638	N/M		N/M		$	412,700		$	26,617,497
2004		12,509,541		5,799,086	53.6	%	5.23	%		3,958,600			1,934,285
2005		13,541,643		4,641,864	65.7		2.97			2,745,000			77,042
2006		30,784,791		20,327,073	34.0		5.44			2,497,000			3,608,141
2007		39,310,080		21,131,396	46.2		3.70			—			1,664,748
2008		47,118,967		20,260,841	57.0		2.76			682,000			178,177
2009		6,029,540		3,803,124	36.9		3.82			—			6,250
Totals	$	181,410,514	$	105,559,022	41.8		5.08		$	10,295,300		$	34,086,140

(1) “N/M” indicates that the calculated percentage for aggregated vintage years is not meaningful.

(2) The monthly yield is the weighted-average yield determined by dividing purchased receivable revenues recognized in the period by the average of the beginning monthly carrying values of the purchased receivables for the period presented.

31

Account Representative Tenure and Productivity

We measure traditional call center account representative tenure by two major categories, those with less than one year of experience and those with one or more years of experience. The following table displays our account representative’s experience:

In-House Account Representatives by Experience

Number of account representatives:	Three months ended June  30,		Six months ended June  30,		Year ended December 31,
	2010	2009	2010	2009	2009	2008
One year or more (1)	524	588	546	580	587	515
Less than one year (2)	401	341	440	362	422	437
Total account representatives	925	929	986	942	1,009	952

(1) Based on number of average traditional call center Full Time Equivalent (“FTE”) account representatives and supervisors with one or more years of service.

(2) Based on number of average traditional call center FTE account representatives and supervisors with less than one year of service, including new associates in training.

Off-Shore Account Representatives

	Three months ended June  30,		Six months ended June  30,		Year ended December 31,
	2010	2009	2010	2009	2009(2)	2008
Number of account representatives (1)	226	—	192	—	17	—

(1) Based on number of average off-shore account representatives measured on a per seat basis.

(2) Includes activity beginning in November 2009 averaged over the 12 month period.

The following table displays our account representative productivity:

In-House Account Representative Collection Averages

	Three months ended June  30,		Six months ended June 30,		Year ended December 31,
	2010	2009	2010	2009	2009	2008
In-house collection averages	36,132	38,858	73,933	81,854	141,141	173,209

In-house account representation average collections per FTE decreased for the three and six months ended June 30, 2010 by 7.0% and 9.7%, respectively, compared to the prior year periods. Account representative productivity has declined because of the continuing difficult collections environment and the timing of our receivables purchases. Not only was purchasing 21.3% lower in 2009 when compared to 2008, but in 2010 purchases have been completed later in each calendar quarter. Staffing levels have been maintained to accommodate purchasing that was expected to be more evenly spaced throughout the year.

32

Cash Collections

The following tables provide further detailed vintage collection analysis on an annual and a cumulative basis:

Historical Collections (1)

Year of Purchase	Purchase Price (3)		Year Ended December 31,																				Six Months Ended June 30, 2010
			2000		2001		2002		2003		2004		2005		2006		2007		2008		2009
	(dollars in thousands)
Pre-2000			$	35,110	$	29,994	$	25,315	$	19,655	$	15,066	$	12,287	$	9,295	$	7,154	$	5,025	$	3,464	$	1,430
2000	$	20,592		8,896		23,444		22,559		20,318		17,196		14,062		10,603		7,410		5,258		3,736		1,369
2001		43,029		—		17,630		50,327		50,967		45,713		39,865		30,472		21,714		13,351		8,738		3,209
2002		72,255		—		—		22,339		70,813		72,024		67,649		55,373		39,839		24,529		15,957		6,547
2003		87,147		—		—		—		36,067		94,564		94,234		79,423		58,359		38,408		23,842		9,499
2004		86,537		—		—		—		—		23,365		68,354		62,673		48,093		32,276		21,082		8,151
2005		100,747		—		—		—		—		—		23,459		60,280		50,811		35,638		22,726		9,254
2006(2)		142,235		—		—		—		—		—		—		32,751		101,529		79,953		53,239		21,620
2007		169,378		—		—		—		—		—		—		—		36,269		93,183		69,891		28,096
2008		154,063		—		—		—		—		—		—		—		—		41,957		83,430		35,006
2009		121,025		—		—		—		—		—		—		—		—		—		27,926		43,309
2010		78,365		—		—		—		—		—		—		—		—		—		—		5,939
Total			$	44,006	$	71,068	$	120,540	$	197,820	$	267,928	$	319,910	$	340,870	$	371,178	$	369,578	$	334,031	$	173,429

Cumulative Collections (1)

Year of Purchase	Purchase Price (3)		Total Through December 31,																				Total Through June  30, 2010
			2000		2001		2002		2003		2004		2005		2006		2007		2008		2009
	(dollars in thousands)
2000	$	20,592	$	8,896	$	32,340	$	54,899	$	75,217	$	92,413	$	106,475	$	117,078	$	124,448	$	129,746	$	133,482	$	134,851
2001		43,029		—		17,630		67,957		118,924		164,637		204,502		234,974		256,688		270,039		278,777		281,986
2002		72,255		—		—		22,339		93,152		165,176		232,825		288,198		328,037		352,566		368,523		375,070
2003		87,147		—		—		—		36,067		130,631		224,865		304,288		362,647		401,055		424,897		434,396
2004		86,537		—		—		—		—		23,365		91,719		154,392		202,485		234,761		255,843		263,994
2005		100,747		—		—		—		—		—		23,459		83,739		134,550		170,188		192,914		202,168
2006(2)		142,235		—		—		—		—		—		—		32,751		134,280		214,233		267,472		289,092
2007		169,378		—		—		—		—		—		—		—		36,269		129,452		199,343		227,439
2008		154,063		—		—		—		—		—		—		—		—		41,957		125,387		160,393
2009		121,025		—		—		—		—		—		—		—		—		—		27,926		71,235
2010		78,365		—		—		—		—		—		—		—		—		—		—		5,939

Cumulative Collections as Percentage of Purchase Price (1)

Year of Purchase	Purchase Price (3)		Total Through December 31,																				Total Through June  30, 2010
			2000		2001		2002		2003		2004		2005		2006		2007		2008		2009
2000	$	20,592	43	%	157	%	267	%	365	%	449	%	517	%	569	%	605	%	630	%	648	%	655	%
2001		43,029	—		41		158		276		383		475		546		597		628		648		655
2002		72,255	—		—		31		129		229		322		399		454		488		510		519
2003		87,147	—		—		—		41		150		258		349		416		460		488		498
2004		86,537	—		—		—		—		27		106		178		234		271		296		305
2005		100,747	—		—		—		—		—		23		83		134		169		191		201
2006(2)		142,235	—		—		—		—		—		—		23		94		151		188		203
2007		169,378	—		—		—		—		—		—		—		21		76		118		134
2008		154,063	—		—		—		—		—		—		—		—		27		81		104
2009		121,025	—		—		—		—		—		—		—		—		—		23		59
2010		78,365	—		—		—		—		—		—		—		—		—		—		8

(1) Does not include proceeds from sales of any receivables.

(2) Includes portfolios from the acquisition of PARC on April 28, 2006 that were allocated a purchase price value of $8.3 million.

(3) Purchase price refers to the cash paid to a seller to acquire a portfolio less buybacks less the purchase price for accounts that were sold at the time of purchase to another debt purchaser.

33

Seasonality

The success of our business depends on our ability to collect on our purchased portfolios of charged-off consumer receivables. Collections tend to be seasonally higher in the first and second quarters of the year due to consumers’ receipt of tax refunds and other factors. Conversely, collections tend to be lower in the third and fourth quarters of the year due to consumers’ spending in connection with summer vacations, the holiday season and other factors. However, revenue recognized is relatively level, excluding the impact of impairments, due to the application of the provisions prescribed by the Interest Method of accounting. In addition, our operating results may be affected to a lesser extent by the timing of purchases of charged-off consumer receivables due to the initial costs associated with purchasing and integrating these receivables into our system. Consequently, income and margins may fluctuate from quarter to quarter.

The following table illustrates our quarterly cash collections:

Cash Collections

Quarter	2010		2009		2008		2007		2006
First	$	89,215,330	$	94,116,937	$	100,264,281	$	95,853,350	$	89,389,858
Second		84,214,073		87,293,577		95,192,743		95,432,021		89,609,982
Third		—		77,832,357		90,775,528		90,748,442		80,914,791
Fourth		—		74,787,726		83,345,578		89,144,650		80,955,115
Total cash collections	$	173,429,403	$	334,030,597	$	369,578,130	$	371,178,463	$	340,869,746

The following table illustrates cash collections and percentage by source:

	Three months ended June 30,								Six months ended June 30,
	2010				2009(3)				2010				2009(3)
	Amount		%		Amount		%		Amount		%		Amount		%
Call center collections (1)	$	45,493,986	54.0	%	$	45,894,400	52.6	%	$	95,955,024	55.3	%	$	98,243,167	54.2	%
Legal collections (2)		38,720,087	46.0			41,399,177	47.4			77,474,379	44.7			83,167,347	45.8
Total cash collections	$	84,214,073	100.0	%	$	87,293,577	100.0	%	$	173,429,403	100.0	%	$	181,410,514	100.0	%

(1) Includes in-house, agency and off-shore agency collections.

(2) Includes in-house legal, legal forwarding, bankruptcy and probate collections.

(3) Amounts have been reclassified to conform to the current period presentation.

The following chart categorizes our purchased receivables portfolios acquired from January 1, 2000 through June 30, 2010 into major asset types, as of June 30, 2010:

Asset Type	Face Value of Charged-off Receivables (2)		%		No. of Accounts	%
	(in thousands)				(in thousands)
General Purpose Credit Cards	$	22,042,904	53.0	%	8,930	26.4	%
Private Label Credit Cards		6,143,514	14.8		8,163	24.1
Telecommunications/Utility/Gas		3,159,517	7.6		7,998	23.6
Healthcare		2,509,940	6.0		4,118	12.2
Health Club		1,562,689	3.8		1,272	3.8
Auto Deficiency		1,352,244	3.3		240	0.7
Installment Loans		1,343,459	3.2		353	1.0
Other (1)		3,439,960	8.3		2,784	8.2
Total	$	41,554,227	100.0	%	33,858	100.0	%

(1) “Other” includes charged-off receivables of several debt types, including student loan, mobile home deficiency and retail mail order. This excludes the purchase of a single portfolio in June 2002 with a face value of $1.2 billion at a cost of $1.2 million (or 0.1% of face value), consisting of approximately 3.8 million accounts.

(2) Face value of charged-off receivables represents the cumulative amount of purchases net of buybacks. The amounts in this table are not adjusted for payments received, settlements or additional accrued interest on any accounts in such portfolios that occur after the purchase date.

34

The age of a charged-off consumer receivables portfolio, the time since an account has been charged-off by the credit originator and the number of times a portfolio has been placed with third parties for collection purposes are important factors in determining the price at which we will offer to purchase a portfolio. Generally, there is an inverse relationship between the age of a portfolio and the price at which we will purchase it. This relationship is due to the fact that older receivables are typically more difficult to collect. The consumer debt collection industry places receivables into the following categories depending on the age and number of third parties that have previously attempted to collect on the receivables:

• fresh accounts are typically 120 to 180 days past due, have been charged-off by the credit originator and are being sold prior to any post charged-off collection activity. These accounts typically sell for the highest purchase price;

• primary accounts are typically 180 to 360 days past due, have been previously placed with one third party collector and typically receive a lower purchase price; and

• secondary and tertiary accounts are typically more than 360 days past due, have been placed with two or more third party collectors and receive even lower purchase prices.

We will purchase accounts at any point in the delinquency cycle. We deploy our capital within these delinquency stages based upon the relative values of the available debt portfolios.

The following chart categorizes our purchased receivables portfolios acquired from January 1, 2000 through June 30, 2010 into the major account types as of June 30, 2010:

Account Type	Face Value of Charged-off Receivables (2)		%		No. of Accounts	%
	(in thousands)				(in thousands)
Fresh	$	2,833,818	6.8	%	1,568	4.6	%
Primary		4,929,672	11.9		4,599	13.6
Secondary		9,902,284	23.8		8,606	25.4
Tertiary (1)		23,888,453	57.5		19,085	56.4
Total	$	41,554,227	100.0	%	33,858	100.0	%

(1) Excludes the purchase of a single portfolio in June 2002 with a face value of $1.2 billion at a cost of $1.2 million (or 0.1% of face value), consisting of approximately 3.8 million accounts.

(2) Face value of charged-off receivables represents the cumulative amount of purchases net of buybacks. The amount is not adjusted for payments received, settlements or additional accrued interest on any accounts in such portfolios that occur after the purchase date.

We also review the geographic distribution of accounts within a portfolio because collection laws differ from state to state. The following chart illustrates our purchased receivables portfolios acquired from January 1, 2000 through June 30, 2010 based on geographic location of debtor, as of June 30, 2010:

Geographic Location	Face Value of Charged-off Receivables (3)(4)		%		No. of Accounts	%
	(in thousands)
Texas (1)	$	5,992,087	14.4	%	5,418	16.0	%
California		5,028,648	12.1		3,862	11.4
Florida (1)		4,233,115	10.2		2,498	7.4
New York		2,514,661	6.0		1,468	4.3
Michigan (1)		2,164,088	5.2		2,586	7.6
Ohio (1)		1,896,017	4.6		2,371	7.0
Illinois (1)		1,662,692	4.0		1,775	5.3
Pennsylvania		1,479,609	3.6		1,049	3.1
New Jersey (1)		1,421,402	3.4		1,194	3.5
North Carolina		1,229,985	3.0		792	2.4
Georgia		1,195,117	2.9		927	2.7
Arizona		847,805	2.0		632	1.9
Other (2)		11,889,001	28.6		9,286	27.4
Total	$	41,554,227	100.0	%	33,858	100.0	%

35

(1) Collection site(s) located in this state.

(2) Each state included in “Other” represents less than 2.0% of the face value of total charged-off receivables.

(3) Excludes the purchase of a single portfolio in June 2002 with a face value of $1.2 billion at a cost of $1.2 million (or 0.1% of face value), consisting of approximately 3.8 million accounts.

(4) Face value of charged-off receivables represents the cumulative amount of purchases net of buybacks. The amounts in this table are not adjusted for payments received, settlements or additional accrued interest on any accounts in such portfolios that occur after the purchase date.

Liquidity and Capital Resources

Historically, our primary sources of cash have been from operations and bank borrowings. We have traditionally used cash for acquisitions of purchased receivables, repayment of bank borrowings, purchasing property and equipment and working capital to support growth. We believe that cash generated from operations combined with borrowings currently available under our Credit Facilities, will be sufficient to fund our operations for the next twelve months, although no assurance can be given in this regard. In the future, if we need additional capital for investment in purchased receivables, working capital to grow our business or acquire other businesses, we may seek to sell additional equity or debt securities or we may seek to increase the availability under our Revolving Credit Facility.

Borrowings

We maintain an amended credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and a syndicate of lenders named therein, that originated on June 5, 2007 (the “Credit Agreement”). Under the terms of the Credit Agreement, we have a five-year $100.0 million revolving credit facility (the “Revolving Credit Facility”) which may be limited by financial covenants, and a six-year $150.0 million term loan facility (the “Term Loan Facility” and together with the Revolving Credit Facility, the “Credit Facilities”). The Credit Facilities bear interest at 200 to 250 basis points over the bank’s prime rate depending upon our liquidity, as defined in the Credit Agreement. Alternately, at our discretion, we may borrow by entering into one, two, three, six or twelve-month London Inter Bank Offer Rate (“LIBOR”) contracts at rates between 300 to 350 basis points over the respective LIBOR rates, depending on our liquidity. Our Revolving Credit Facility includes an accordion loan feature that allows us to request a $25.0 million increase as well as sublimits for $10.0 million of letters of credit and for $10.0 million of swingline loans. The Credit Agreement is secured by a first priority lien on all of our assets. The Credit Agreement also contains certain covenants and restrictions that we must comply with, which as of June 30, 2010 were:

• Leverage Ratio (as defined) cannot exceed (i) 1.5 to 1.0 at any time before December 30, 2011 or (ii) 1.25 to 1.0 at any time thereafter;

• Ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth (as defined) cannot exceed (i) 2.5 to 1.0 at any time on or before December 30, 2011, (ii) 2.25 to 1.0 at any time on or after December 31, 2011 and on or before March 30, 2012, (iii) 2.0 to 1.0 at any time thereafter; and

• Consolidated Tangible Net Worth (as defined) must equal or exceed $85.0 million plus 50% of positive consolidated net income for three consecutive fiscal quarters ending December 31, 2007 and for each fiscal year ending thereafter, such amount to be added as of December 31, 2007 and as of the end of each such fiscal year thereafter.

On May 28, 2010, the Company, JPMorgan Chase Bank, N.A. and other lenders entered into a Third Amendment to Credit Agreement (“Third Amendment”). The Third Amendment adjusted the levels of the Leverage Ratio used to set the applicable margin on outstanding borrowings and the respective interest spreads. The Third Amendment also changed certain financial covenant definitions to allow for adjustments related to charges for the FTC investigation, limited to $7.0 million, and the net impact of the fourth quarter 2009 purchased receivable impairment charges, limited to $20.0 million. The changes did not impact total available borrowing capacity, however, they did loosen the financial covenant restrictions, which in turn increased our ability to borrow under the terms of the agreement. In exchange for amending the Credit Agreement, we incurred deferred financing costs of $775,808.

The financial covenants restrict our ability to borrow against the Revolving Credit Facility. At June 30, 2010, total available borrowings on our Revolving Credit Facility were $66.7 million, however, our capacity to borrow under the terms

36

of the financial covenants was limited to $46.6 million. The limitation is based on the Leverage Ratio, our most restrictive covenant at June 30, 2010. Our borrowing capacity could be reduced further if we incur cumulative net losses in future periods that reduce our Consolidated Tangible Net Worth, or we are not able to maintain the current level of Adjusted EBITDA in relation to outstanding borrowings.

The Credit Agreement contains a provision that requires us to repay Excess Cash Flow (as defined) to reduce the indebtedness outstanding under our Term Loan Facility. The Excess Cash Flow repayment provisions are:

• 50% of the Excess Cash Flow for such fiscal year if the Leverage Ratio was greater than 1.0 to 1.0 as of the end of such fiscal year;

• 25% of the Excess Cash Flow for such fiscal year if the Leverage Ratio was less than or equal to 1.0 to 1.0 but greater than 0.875 to 1.0 as of the end of such fiscal year; or

• 0% if the Leverage Ratio is less than or equal to 0.875 to 1.0 as of the end of such fiscal year.

Based on the Excess Cash Flow provisions, we made required payments of $9.0 million and $2.4 million on the Term Loan Facility during March 2010 and 2009, respectively. Payment of the Excess Cash Flow did not reduce our total borrowing capacity under the Revolving Credit Facility.

Commitment fees on the unused portion of the Revolving Credit Facility are paid quarterly, in arrears, and are calculated as an amount equal to a margin of 0.50%, depending on our liquidity, on the average amount available on the Revolving Credit Facility.

The Credit Agreement requires us to effectively cap, collar or exchange interest rates on a notional amount of at least 25% of the outstanding principal amount of the Term Loan Facility. As such, we have an interest rate swap agreement that hedges a portion of the interest on the Term Loan Facility. Refer to Note 4 of the consolidated financial statements, “Derivative Financial Instruments and Risk Management” for additional information.

We had $167.4 million and $160.0 million of borrowings outstanding on our Credit Facilities at June 30, 2010 and December 31, 2009, respectively, of which $134.1 million and $143.8 million was outstanding on the Term Loan Facility and $33.3 million and $16.2 million was outstanding on the Revolving Credit Facility. Along with the Excess Cash Flow prepayment requirements, the Term Loan Facility requires quarterly repayments totaling $1.5 million annually until expiration. The increase in total outstanding borrowings in 2010 was a result of increased levels of purchasing receivables portfolios.

We were in compliance with the covenants of the Credit Agreement as of June 30, 2010.

Cash Flows

The majority of our purchases of receivables have been funded with internal cash flow and borrowings against our Revolving Credit Facility. For the six months ended June 30, 2010, we invested $79.7 million in purchased receivables, net of buybacks, excluding payments in 2010 for receivables accrued at December 31, 2009, funded primarily by internal cash flow. Our cash balance has increased from $4.9 million at December 31, 2009 to $5.9 million as of June 30, 2010. We also made net borrowings against our Credit Facilities of $7.3 million during 2010.

Our operating activities provided cash of $2.5 million and $21.3 million for the six months ended June 30, 2010 and 2009, respectively. Cash provided by operating activities for these periods was generated primarily from operating income earned through cash collections as adjusted for non-cash items and the timing of payments of income taxes, accounts payable and accrued liabilities. We rely on cash generated from our operating activities to allow us to fund operations and re-invest in purchased receivables. Cash provided by operations has decreased as a result of lower purchased receivable revenues, including the effect of net amortization of receivables balances including the impact of impairments, and higher operating expenses. In the current year period, we recorded a net impairment reversal of $1.0 million, which is a negative non-cash adjustment to net income when determining cash flow from operating activities. In the prior year period, we recorded a net impairment charge of $10.3 million, which is a positive non-cash adjustment to net income when

37

determining cash flow from operating activities. Lower cash collections and higher amortization, if not offset by reductions in operating expenses, will further decrease cash provided by operating activities in future periods.

Investing activities used cash of $8.1 million and provided cash of $22.6 million for the six months ended June 30, 2010 and 2009, respectively. The change in cash used by investing activities in 2010 is a result of the significant increase in receivable purchasing in the period as compared to the prior year. The increase in purchasing has been partially offset by increased amortization of receivables balances excluding the impact of impairments and impairment reversals ,which are included in cash flow from operating activities. We believe that we have sufficient liquidity available to meet our purchasing objectives. However, continued pressure on collections in 2010 coupled with the borrowing constraints under our Revolving Credit Facility may cause 2010 purchasing to be at lower levels than we have seen historically.

We acquired $1.6 million and $1.9 million in property and equipment in 2010 and 2009, respectively. The amounts in 2010 and 2009 were primarily related to software and computer equipment for our new collection platform and improvements to our telecommunications systems. Implementation of the new collection platform is funded through cash flow from operating activities and borrowings under our Revolving Credit Facility.

Financing activities provided cash of $6.5 million and $37.0 million for the six months ended June 30, 2010 and 2009. Cash provided by financing activities in 2010 was primarily due to net borrowings on our Credit Facilities of $7.3 million. We also made a payment of $0.8 million in the current year to amend our Credit Agreement. Cash provided by financing activities would increase in future periods to the extent we use net borrowings on our Revolving Credit Facility to fund purchases of paper.

Adjusted EBITDA

We define Adjusted EBITDA as net income plus the provision for income taxes, interest expense, net, depreciation and amortization, share-based compensation, (gain) loss on sale of assets, impairment of assets, extraordinary gains and losses and purchased receivables amortization. Adjusted EBITDA is not a measure of liquidity calculated in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and should not be considered an alternative to, or more meaningful than, net income prepared on a U.S. GAAP basis. Adjusted EBITDA does not purport to represent cash flow provided by, or used in, operating activities as defined by U.S. GAAP, which is presented in our statements of cash flows. In addition, Adjusted EBITDA is not necessarily comparable to similarly titled measures reported by other companies.

We believe Adjusted EBITDA is useful to an investor in evaluating our operating performance for the following reasons:

• Adjusted EBITDA is widely used by investors to measure a company’s operating performance without regard to items such as interest expense, taxes, depreciation and amortization including purchased receivable amortization, and share-based compensation, which can vary substantially from company to company depending upon accounting methods and the book value of assets, capital structure and the method by which assets were acquired; and

• analysts and investors use Adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of companies in our industry.

Our management uses Adjusted EBITDA:

• for planning purposes, including in the preparation of our internal annual operating budget and periodic forecasts;

• in communications with the Board of Directors, stockholders, analysts and investors concerning our financial performance;

• as a significant factor in determining bonuses under management’s annual incentive compensation program; and

• as a measure of operating performance for the financial covenants in our amended Credit Agreement, because it provides information related to our ability to provide cash flows for investments in purchased receivables, capital expenditures, acquisitions and working capital requirements.

38

The following table reconciles net income, the most directly comparable U.S. GAAP measure, to Adjusted EBITDA:

	Three Months Ended June 30,					Six Months Ended June 30,
	2010			2009		2010			2009
Net income	$	774,457		$	842,287	$	1,130,974		$	5,444,431
Adjustments:
Income tax expense		509,408			642,917		740,890			3,460,914
Interest expense, net		2,888,306			2,468,107		5,515,689			5,109,272
Depreciation and amortization		1,146,329			959,496		2,308,711			1,845,314
Share-based compensation		479,435			524,412		698,444			761,230
(Gain) loss on sale of assets, net		(102,483	)		5,137		(319,305	)		6,541
Purchased receivables amortization		33,587,199			38,474,234		71,715,983			75,851,492
Other		219,137			—		219,137			—
Adjusted EBITDA	$	39,501,788		$	43,916,590	$	82,010,523		$	92,479,194

39

Future Contractual Cash Obligations

The following table summarizes our future contractual cash obligations as of June 30, 2010:

	Year Ending December 31,
	2010		2011		2012		2013		2014		Thereafter
Operating lease obligations	$	2,531,854	$	4,930,576	$	4,552,094	$	4,188,049	$	4,239,939	$	5,412,873
Capital leases		47,012		112,828		112,828		17,808		—		—
Purchase obligations		956,000		—		—		—		—		—
Forward flow obligations (1)		22,961,750		—		—		—		—		—
Revolving credit (2)		—		—		33,250,000		—		—		—
Term loan (3)		750,000		1,500,000		1,500,000		130,359,956		—		—
Contractual interest on derivative instruments		1,565,642		2,198,781		946,267		—		—		—
Total (4)	$	28,812,258	$	8,742,185	$	40,361,189	$	134,565,813	$	4,239,939	$	5,412,873

(1) We have eight forward flow contracts that have terms beyond June 30, 2010 with the last contract expiring in December 2010. Five forward flow contracts expire in September 2010 with estimated monthly purchases of approximately $1.7 million. The remaining three forward flow contracts expire in December 2010 and have estimated monthly purchases of approximately $3.0 million.

(2) To the extent that a balance is outstanding on our Revolving Credit Facility, it would be due in June 2012 or earlier as defined in the Credit Agreement. Interest on our Revolving Credit Facility is estimated and is not included within the amount outstanding as of June 30, 2010.

(3) To the extent that a balance is outstanding on our Term Loan Facility, it would be due in June 2013. The variable interest is not included within the amount outstanding as of June 30, 2010.

(4) We have a liability of $1.0 million relating to uncertain tax positions, which has been excluded from the table above because the amount and fiscal year of payment cannot be reliably estimated.

Off-Balance Sheet Arrangements

We currently do not have any off-balance sheet arrangements.

Critical Accounting Policies

Revenue Recognition

We generally account for our revenues from collections on our purchased receivables by using the interest method of accounting (“Interest Method”) in accordance with U.S. GAAP, which requires making reasonable estimates of the timing and amount of future cash collections. Application of the Interest Method requires the use of estimates, primarily estimated remaining collections, to calculate a projected IRR for each pool. These estimates are primarily based on historical cash collections and payer dynamics. If future cash collections are materially different in amount or timing than the remaining collections estimate, earnings could be affected, either positively or negatively. The estimates of remaining collections are sensitive to the inputs used and the performance of each pool. Performance is dependent on macro-economic factors and the specific demographic makeup of the debtors in the pool. Higher collection amounts or cash collections that occur sooner than projected will have a favorable impact on reversal of impairments or an increase in yields and revenues. Lower collection amounts or cash collections that occur later than projected will have an unfavorable impact and may result in an impairment. Impairments to purchased receivables reduce our Consolidated Tangible Net Worth and put pressure on the financial covenants in our Credit Facilities.

We use the cost recovery method when collections on a particular portfolio cannot be reasonably predicted. Under the cost recovery method, no revenue is recognized until we have fully collected the cost of the portfolio.

We adopted the Interest Method in January 2005 and apply it to purchased receivables acquired after December 31, 2004. The provisions of the Interest Method that relate to decreases in expected cash flows amend previously followed guidance, for consistent treatment and apply prospectively to purchased receivables acquired before January 1, 2005. We purchase pools of homogenous accounts receivable and record each pool at its acquisition cost. Pools purchased after 2004 may be aggregated into one or more static pools within each quarter, based on common risk characteristics. Risk

40

characteristics of purchased receivables are assumed to be similar since purchased receivables are usually in the late stages of the post charged-off collection cycle. We therefore aggregate most pools purchased within each quarter. Pools purchased before 2005 may not be aggregated with other pool purchases. Each static pool, either aggregated or non-aggregated, retains its own identity and does not change over the remainder of its life. Each static pool is accounted for as a single unit for recognition of revenue, principal payments and impairments.

Each static pool of receivables is statistically modeled to determine its projected cash flows based on historical cash collections for pools with similar characteristics. An IRR is calculated for each static pool of receivables based on projected cash flows. The IRR is applied to the remaining balance of each static pool of accounts to determine the revenue recognized. Each static pool is analyzed at least quarterly to assess the actual performance compared to the expected performance. This review includes an assessment of the actual results of cash collections, the work effort used and expected to be used in future periods, the components of the static pool including type of paper, the average age of purchased receivables, certain demographics and other factors that help us understand how a pool may perform in future periods. We also review the actual performance against expected cash collections using our historical model. Generally, to the extent the differences in actual performance versus expected performance are favorable and the results of the review by pool is also favorable, the IRR is adjusted prospectively to reflect the revised estimate of cash flows over the remaining life of the static pool. If the differences in actual performance results in revised cash flow estimates that are less than the original estimates, and if the results of the review lead us to believe the decline in performance is not temporary, the IRR remains unchanged and an impairment is recognized. If cash flow estimates increase subsequent to recording an impairment, reversal of the previously recognized impairment is made prior to any increases to the IRR.

These periodic reviews, and any adjustments or impairments, are discussed with our Audit Committee.

Goodwill and Intangible Assets not Subject to Amortization

We periodically review the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether an impairment may exist. U.S. GAAP requires that goodwill and certain intangible assets not subject to amortization be assessed annually for impairment using fair value measurement techniques.

Specifically, goodwill impairment is determined using a two-step test. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its book value, including goodwill. If the fair value of the reporting unit exceeds its book value, goodwill is considered not impaired and the second step of the impairment test is unnecessary. If the book value of the reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the book value of that goodwill. If the book value of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.

The estimate of fair value of our goodwill reporting unit, the purchased receivables operating segment, is determined using various valuation techniques including market capitalization and an analysis of discounted cash flows. Given recent declines in the Company’s stock price, a discounted cash flow analysis was performed as of June 30, 2010. A discounted cash flow analysis requires us to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. We base assumptions about future cash flows and growth rates on our budget and long-term plans. We used a discount rate of 19.6%, which reflected our estimate of cost of equity and our assessment of the risk inherent in the reporting unit. The fair value of goodwill using a discounted cash flow analysis exceeded the book value as of June 30, 2010. However, a 1.5% increase in the discount rate, or a decrease in cash flow of approximately $2.0 million in each year would result in an excess of book value over fair value and indicate that goodwill may be impaired.

The annual impairment test for other intangible assets not subject to amortization, for example, trademark and trade names, consists of a comparison of the fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The estimates of fair value of intangible assets not subject to amortization are determined using various discounted cash flow valuation

41

methodologies. Significant assumptions are inherent in this process, including estimates of discount rates and future cash flows. Discount rate assumptions are based on an assessment of the risk inherent in the respective intangible assets and include estimates of the cost of debt and equity for market participants in the Company’s industry. We performed a discounted cash flow analysis of our trademark and trade names as of September 30, 2009 using a discount rate of 18% and determined that the carrying value exceeded the fair value, and we recorded an impairment of $1,167,000.

Income Taxes

We record a tax provision for the anticipated tax consequences of the reported results of operations. The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating losses and tax credit carry-forwards. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to be reversed.

We believe it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining deferred tax assets. In the event that all or part of the deferred tax assets are determined not to be realizable in the future, a valuation allowance would be established and charged to earnings in the period such determination is made. Similarly, if we subsequently realize deferred tax assets that were previously determined to be unrealizable, the respective valuation allowance would be reversed, resulting in a positive adjustment to earnings in the period such determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our results of operations and financial position. We account for uncertain tax positions using a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

Recently Issued Accounting Pronouncements

Refer to Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” of the accompanying consolidated financial statements for further information.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our exposure to market risk relates to the interest rate risk with our Credit Facilities. We may periodically enter into interest rate swap agreements to modify the interest rate exposure associated with our outstanding debt. The outstanding borrowings on our Credit Facilities were $167.4 million and $160.0 million as of June 30, 2010 and December 31, 2009, respectively. In September 2007, we entered into an amortizing interest rate swap agreement whereby, on a quarterly basis, we swap variable rates equal to three-month LIBOR for fixed rates on the notional amount of $125.0 million. Every year thereafter, on the anniversary of the swap agreement the notional amount decreases by $25.0 million. The outstanding unhedged borrowings on our Credit Facilities were $92.4 million as of June 30, 2010. Interest rates on unhedged borrowings may be based on the prime rate or LIBOR, at our discretion. Assuming a 200 basis point increase in interest rates on the unhedged borrowings, interest expense would have increased approximately $0.8 million and $0.6 million on the unhedged borrowings for the six months ended June 30, 2010 and 2009, respectively.

The interest rate swap was determined to be highly effective in hedging against fluctuations in variable interest rates associated with the underlying debt since we entered into the agreement. Interest rates have decreased since we entered into our swap agreement, reducing the fair value and resulting in a liability balance. Additional declines in interest rates will further reduce the fair value, while increasing interest rates will increase the fair value.

Interest rate fluctuations do not have a material impact on interest income.

42

Item 4. Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level to cause material information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 to be recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

There have been no changes in our internal controls over financial reporting that occurred during the three months ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

In the ordinary course of our business, we are involved in numerous legal proceedings. We regularly initiate collection lawsuits, using both our in-house attorneys and our network of third party law firms, against consumers and are occasionally countersued by them in such actions. Also, consumers occasionally initiate litigation against us, in which they allege that we have violated a federal or state law in the process of collecting on their account. It is not unusual for us to be named in a class action lawsuit relating to these allegations, with these lawsuits routinely settling for immaterial amounts. We do not believe that these ordinary course matters, individually or in the aggregate, are material to our business or financial condition. However, there can be no assurance that a lawsuit would not, if decided against us, have a material and adverse effect on our financial condition.

As previously reported, the Federal Trade Commission (“FTC”) has commenced an investigation into our debt collection practices under the Fair Credit Reporting Act, the Fair Debt Collection Practices Act and the Federal Trade Commission Act and has provided draft pleadings and a proposed consent decree to the Company. The Company and its counsel have since entered into discussions with the FTC staff to resolve this matter. We do not believe that the resolution of this matter will have a material adverse effect on our business.

Item 1A. Risk Factors

There were no material changes in any risk factors previously disclosed in the Company’s Report on Form 10-K filed with the Securities & Exchange Commission on March 12, 2010.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Company’s Repurchases of Its Common Stock

The following table provides information about the Company’s common stock repurchases during the second quarter of 2010:

Month	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased  as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April	—	$	—	—	—
May (1)	158		6.16	—	—
June	—		—	—	—
Total	158	$	6.16	—	—

(1) The shares were withheld for tax obligations in connection with the vesting of restricted share units. The shares were withheld at the fair market value on the vesting date of the restricted share units.

We did not sell any equity securities during the second quarter of 2010 that were not registered under the Securities Act.

43

Item 4. Submission of Matters to a Vote of Security Holders

The annual meeting of the shareholders of the Company was held on May 13, 2010. The results of the voting were as follows:

1. The following individuals were elected as directors for a three-year term:

Director	Votes for	Votes Withheld	Broker Non-Vote
Nathaniel F. Bradley IV	18,100,668	9,619,334	2,199,739
Anthony R. Ignaczak	17,634,753	10,085,249	2,199,739
William I Jacobs	18,125,480	9,594,522	2,199,739

The following is a list of the other directors whose term of office continues beyond the annual shareholder meeting:

Jennifer Adams

Terrence D Daniels

Donald Haider

H. Eugene Lockhart

William F. Pickard

2. The ratification of Grant Thornton LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2010:

Votes For	Votes Against	Votes Abstentions
24,963,575	4,945,771	10,395

44

Item 6. Exhibits

Exhibit Number	Description
10.1*	Employment Agreement dated May 17, 2010 between Asset Acceptance, LLC and Reid E. Simpson
10.2	Third Amendment to the Credit Agreement dated May 28, 2010, between Asset Acceptance Capital Corp. and JPMorgan Chase Bank, N.A. and other lenders (Incorporated by reference to Exhibit 10.1 included with the Current Report on Form 8-K filed on June 4, 2010)
31.1*	Rule 13a-14(a) Certification of Chief Executive Officer
31.2*	Rule 13a-14(a) Certification of Chief Financial Officer
32.1*	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

* Filed herewith

45

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on July 29, 2010.

	ASSET ACCEPTANCE CAPITAL CORP.
Date: July 29, 2010	By:	/S/    RION B. NEEDS
		Rion B. Needs
		President and Chief Executive Officer
		(Principal Executive Officer)
Date: July 29, 2010	By:	/S/    REID E. SIMPSON
		Reid E. Simpson
		Senior Vice President – Finance and Chief Financial Officer
		(Principal Financial and Accounting Officer)

46

EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into May 14, 2010 to be effective as of May 17, 2010, between ASSET ACCEPTANCE, LLC, a Delaware limited liability company (the “Company”), a wholly owned subsidiary of Asset Acceptance Capital Corp., a Delaware corporation (“AACC”), and REID E. SIMPSON (the “Executive”).

Recitals

A. The Company desires to employ the Executive and to have Executive serve as the Senior Vice President-Finance and Chief Financial Officer of the Company and AACC, subject to the terms of this Agreement.

B. The Executive desires to be employed by the Company and to serve as the Senior Vice President-Finance and Chief Financial Officer of the Company and AACC, subject to the terms of this Agreement.

Agreement

In consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows:

1. EMPLOYMENT PERIOD. The Company hereby agrees to employ the Executive and the Executive hereby accepts employment with the Company, on the terms and subject to the conditions hereinafter set forth in this Agreement, for the period commencing as of the date of this Agreement and ending at midnight on December 31, 2011 (the “Initial Term”). The term of employment shall be automatically extended for an additional one (1) year period (the “Extended Term”) on December 31, 2011 and on each subsequent anniversary thereafter unless at least two (2) years before December 31, 2011 or each such subsequent anniversary date, as the case may be, either party gives the other party notice in writing of his or its intent not to extend this Agreement, in which case the term of this Agreement shall end as of the end of the Initial Term or such Extended Term, as the case may be, unless sooner terminated in accordance with Section 6 hereof, provided that the period of the Executive’s employment under this Agreement pursuant to any such Extended Term cannot be extended beyond midnight on December 31, 2018. Subject to the provisions set forth below regarding Severance Benefits (as defined below), the Executive serves at the pleasure of the Board of Directors of AACC (the “Board of Directors”) and may be terminated at any time, at will, with or without Cause (as defined below). The period of the Initial Term and all such Extended Terms, subject to earlier termination under Section 6 hereof, are collectively referred to herein as the “Employment Period”.

2. POSITION AND DUTIES. Subject to the terms and conditions contained herein, the Executive shall serve as Senior Vice President-Finance and Chief Financial Officer of the Company and AACC and, in such capacities, shall provide such services and perform such functions, consistent with the nature of such positions, as shall be determined from time to time by the Board of Directors or Chief Executive Officer, or pursuant to authority of the Board of Directors, and such other reasonable duties as are from time to time agreed to between the Board of Directors or the Chief Executive Officer and the Executive. The Executive shall report directly to the Chief Executive Officer and shall observe all directives, rules, policies, regulations, customs and practices now or hereafter established by AACC and the Company for the conduct of their business to the extent the foregoing are not materially inconsistent with the terms of this Agreement. The Executive understands and agrees that he may be required to undertake normal business travel from time to time.

3. COMPENSATION; BENEFITS

(a) Regular Base Salary. As compensation for the performance of the Executive’s services hereunder, the Company shall pay to the Executive an annual salary (the “Regular Base Salary”) of $340,000 (less deductions required by law) payable in arrears in accordance with the Company’s payroll policy as the same may be modified by the Company from time to time. So long as this Agreement is in effect, the Regular Base Salary shall be subject to annual review, but shall not be reduced below $340,000.

(b) Bonus. The Executive shall be entitled to participate in such cash bonus plans and with such terms and conditions as may be determined by the Board of Directors from time to time (the “Bonus”), in each case with a target Bonus to be set at 80% of the Regular Base Salary payable and in each case payable within two and one-half months following the end of each fiscal year as to which the Bonus relates (or such later time as is allowed in accordance with Treasury Regulation 1.409A-3(d)). Unless otherwise expressly approved by the Board of Directors, upon termination of employment, all rights to receive any Bonus for any period shall also terminate; provided that:

(i) If the Executive’s employment is terminated during a fiscal year under the circumstances contemplated by Section 6(c) and the Executive would have otherwise been entitled to a Bonus with respect to the attainment of any broad-based objectives tied to the performance of AACC or the Company (ignoring whether the Executive attained any personal objectives not related to broad-based objectives tied to the performance of AACC or the Company), the Executive shall be entitled to receive the pro rata portion (based upon the number of days in such fiscal year that the Executive was employed by the Company) of the Bonus, if any, that would have been paid to the Executive pursuant to this Section 3(b) at the time such Bonus would have been paid had the Executive’s employment not been terminated under the circumstances contemplated by Section 6(c), with the amount of the Bonus subject to such pro rata portion to be calculated solely with respect to the broad-based objectives tied to the performance of AACC or the Company (i.e., regardless of whether such personal objectives were attained) (the “Earned Bonus”). (For example, if the Executive’s employment is terminated under the circumstances contemplated by Section 6(c), if the target Bonus was $272,000 (with 50% related to the attainment of personal objectives and 50% related to the attainment of broad-based objectives tied to the performance of AACC or the Company), and if the broad-based objectives tied to the performance of AACC or the Company were attained at the target level, then the Earned Bonus would be equal to the pro rata portion (based upon the number of days in such fiscal year that the Executive was employed by the Company) of $272,000.)

2

(ii) If the Executive’s employment is terminated pursuant to Section 6(d) within one (1) year of the effective date of a Change in Control (as defined below in Section 8(b)(ii)), the Executive shall be entitled to receive the amount described in Section 8(b)(ii).

(c) Benefits. During the Employment Period, the Executive shall be entitled to receive such other employee benefits, including, without limitation, participation in such group health, life, and disability plans provided by the Company, as are afforded from time to time hereafter to the other Senior Executives (as defined below) of the Company. The Executive acknowledges and agrees that (i) the Company does not guarantee the adoption or continuation of any particular employee benefit plan or program or other fringe benefit during his employment, (ii) participation by the Executive in any such plan or program shall be subject to the rules and regulations applicable thereto, (iii) participation by the Executive in any such plan or program may be limited from time to time by tax or other regulations applicable to AACC and the Company, and (iv) subject to the provisions in Section 3(b), the grant of any Bonus or equity award shall be at the discretion of the Board of Directors and, as a result, may or may not be equal to those of other Senior Executives based upon such factors as base salary, prior grants, etc.

As used herein, “Senior Executive” means any officer of AACC who files Forms 3, 4 and/or 5 under Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

(d) Vacation. During the Employment Period, the Executive shall be entitled to twenty-four (24) days paid time off (PTO) during each full calendar year to be scheduled at the mutual convenience of the Executive and AACC and otherwise in accordance with the policies of the Company. Any PTO not taken during a calendar year shall be forfeited.

(e) Initial Compensation and Relocation Reimbursement Matters. Set forth on Schedule 1 attached hereto are certain initial compensation and relocation reimbursement matters applicable to the Executive.

4. EXCLUSIVITY. During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive shall devote his full attention and time during normal business hours to the business and affairs of AACC and the Company, shall perform his services primarily at AACC’s headquarters, wherever the Board of Directors may from time to time designate them to be, and at all times use his best efforts to carry out such responsibilities faithfully and efficiently and to advance the business of AACC and the Company. During the Employment Period, the Executive will not be engaged in any other business activity which, in the reasonable judgment of the Board of Directors or its designee, conflicts with the duties of the Executive hereunder, whether or not such activity is pursued for gain, profit or other pecuniary advantage. It shall not be considered a violation of the foregoing for the Executive to (i) serve on not more than two (2) for profit, private, civic or charitable boards, provided that, other than any service by the Executive on the Board of Directors of AACC, the Executive shall not be permitted to serve on more than one (1) other board of directors of a company with securities registered under the Exchange Act, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions, and (iii) manage personal investments, so long as such activities in clauses (i), (ii) or (iii) do not compete with and are not provided to or for any entity that competes with or intends to compete with AACC or the Company or any of their subsidiaries and affiliates and do not interfere with the performance of the Executive’s responsibilities as an employee of the Company in accordance with this Agreement.

3

5. REIMBURSEMENT FOR EXPENSES. Upon the presentation of itemized vouchers and receipts to the reasonable satisfaction of the Company, the Company shall reimburse the Executive for travel, meals, entertainment and other expenses reasonably incurred by the Executive in the performance of his duties under this Agreement in accordance with the Company’s expense reimbursement policy as the same may be modified by the Company from time to time (provided that expense reimbursement will under no circumstances occur later than sixty (60) days after the date on which the expense is incurred).

6. TERMINATION.

(a) With or Without Cause. The Company shall be entitled to terminate this Agreement and the employment relationship established hereby with or without Cause immediately by giving written notice of termination to the Executive.

As used herein, “Cause” means any of the following circumstances:

(i) continual or deliberate neglect by the Executive in the performance of his material duties under this Agreement;

(ii) failure by the Executive to devote substantially all of his working time to the business of AACC and the Company and the Subsidiaries (the “Subsidiaries”) in accordance with Section 4 hereof;

(iii) the Executive’s willful failure to follow the directives of the Chief Executive Officer or the Board of Directors in any material respect; provided that such directives are not materially inconsistent with the terms of this Agreement;

(iv) the Executive’s engaging willfully in misconduct in connection with the performance of any of his duties hereunder which is reasonably likely to result, in the Board of Director’s good faith judgment, in material injury to the reputation of AACC, the Company or any of the Subsidiaries, including, without limitation, the misappropriation of funds;

(v) the Executive’s breach of the provisions of Section 7 of this Agreement or any other noncompetition, noninterference, nondisclosure, confidentiality or other similar agreement executed by the Executive with the Company, AACC or any of its Subsidiaries; or

4

(vi) the Executive’s engaging in conduct which is reasonably likely to result, in the Board of Director’s good faith judgment, in material injury to the reputation of the Company, AACC or any of its Subsidiaries, including, without limitation, commission of a felony, fraud, embezzlement or other crime involving moral turpitude;

provided that, with respect to the events set forth in clauses (i) through (iii), the Executive shall have been given written notice of the act, omission or event constituting Cause and shall not have cured such act, omission or event within 30 days after the giving of such notice.

After the effective date of termination for Cause under this Section 6(a), the Company shall not be obligated to make any further payments to the Executive under this Agreement, except for all amounts due the Executive hereunder as of such effective date for the accrued but unpaid Regular Base Salary (which shall be paid by the end of the next payroll period following the date of termination), plus any amounts or benefits to which the Executive may be entitled under the terms of any employee benefit plan of the Company, as in effect on the effective date of such termination.

(b) Resignation – Other than Retirement or Substantial Breach. In the event that the Executive resigns, other than upon Retirement or for Substantial Breach (as those terms are hereinafter defined), this Agreement and the employment relationship established hereby shall terminate immediately upon the receipt by the Company of notice of the Executive’s resignation. After the effective date of termination under this Section 6(b), the Company shall not be obligated to make any further payments under this Agreement, except for all amounts due the Executive hereunder as of such effective date for the accrued but unpaid Regular Base Salary (which shall be paid by the end of the next payroll period following the date of termination), plus any amounts or benefits to which the Executive may be entitled under the terms of any employee benefit plan of the Company, as in effect on the effective date of such termination.

(c) Death, Retirement or Disability. In the event that the Executive dies, Retires (as hereinafter defined) or becomes Disabled (as hereinafter defined) during the term of this Agreement, this Agreement and the employment relationship established hereby shall terminate immediately upon the date on which the Executive dies, Retires or becomes Disabled, as the case may be. After the effective date of termination under this Section 6(c), the Company shall not be obligated to make any further payments under this Agreement, other than payment to the Executive or the Executive’s heirs, devisees, executors, administrators, legal representatives or the trustee of a revocable trust of which the Executive is the grantor, as the case may be, of (i) all amounts due the Executive hereunder as of such effective date for the accrued but unpaid Regular Base Salary (which shall be paid by the end of the next payroll period following the date of termination), plus any amounts or benefits to which the Executive may be entitled under the terms of any employee benefit plan of the Company, as in effect on the effective date of such termination, and (ii) the pro rata portion of the Earned Bonus, if any, due to the Executive in accordance with Section 3(b).

For purposes of this Section 6(c), “Retires” or “Retirement” shall mean the voluntary termination of employment by the Executive after the Executive attains age sixty-five (65), and “Disabled” shall mean, as of any date, the inability of the Executive to perform his essential duties hereunder without reasonable accommodation for a period of six (6) months as determined in the good faith judgment of the Board of Directors.

5

(d) Without Cause or Substantial Breach. In the event that (i) the Company elects to terminate the employment of the Executive without Cause, or (ii) the Executive resigns from his employment hereunder following a Substantial Breach (as defined in this Section 6(d) (such Substantial Breach having not been corrected by the Company within thirty (30) days of receipt of written notice from the Executive of the occurrence of such Substantial Breach, which notice shall specifically set forth the nature of the Substantial Breach which is the reason for such resignation)), then, in either such event in clause (i) or (ii) and regardless of the time remaining in the Initial Term or Extended Term, as the case may be, the Company shall not be obligated to make any further payments under this Agreement, except (x) for amounts due the Executive hereunder as of such effective date for the accrued but unpaid Regular Base Salary (which shall be paid by the end of the next payroll period following the date of termination), plus any amounts or benefits to which the Executive may be entitled under the terms of any employee benefit plan of the Company, as in effect on the effective date of such termination, and (y) for the Severance Benefits as defined and provided in Section 8 hereof.

“Substantial Breach” shall mean any material breach by the Company of its obligations under this Agreement including without limitation: (i) the assignment of the Executive to a position or duties materially diminished from those normally assigned to a Senior Vice President-Finance and Chief Financial Officer of a business enterprise comparable to the Company and AACC; (ii) a material reduction in the Executive’s then Regular Base Salary; or (iii) a change in location at which the Executive is required to perform his duties for the Company, AACC and its Subsidiaries which is outside a 50 mile radius of Detroit, Michigan, but only if such change occurs within one (1) year after a Change in Control; provided that the term “Substantial Breach” shall not include (x) an immaterial breach by the Company of any provisions of this Agreement or (y) a termination for Cause under Section 6(a).

The Executive must notify the Company in writing of the Executive’s intention to invoke termination for “Substantial Breach” within ninety (90) days after the initial existence of such event and provide the Company with thirty (30) days for cure, or such event shall not constitute a “Substantial Breach” under this Agreement. Additionally, the Executive must terminate employment within one (1) year following the initial existence of one (1) or more of the events listed above for the termination to be considered a “Substantial Breach”. The date of resignation under this Section 6(d) shall be thirty-one (31) days after receipt by the Company of written notice of resignation; provided that the Substantial Breach specified in such notice shall not have been corrected by the Company during the preceding 30-day period. The effective date of termination of employment by the Company under this Section 6(d) and the effective date of resignation by the Executive under this Section 6(d) shall each be referred to as a “Section 6(d) Termination Date”.

(e) General. Notwithstanding anything in this Section 6 to the contrary, but subject to the consequences set forth in this Section 6, (i) the Company may terminate the Executive’s employment at any time with or without Cause, (ii) the Executive may terminate his employment at any time whether or not there has been a Substantial Breach and (iii) the Executive’s rights in any employee benefit plans offered by the Company shall be governed by the rules of such plans as well as by applicable law.

6

(f) Survival. Notwithstanding anything in this Section 6 to the contrary, the provisions of Sections 7 and 9 shall survive termination of this Agreement.

7. CONFIDENTIALITY AND NON COMPETITION. The Executive acknowledges that (x) the agreements and covenants contained herein are essential to protect AACC and the Company’s business and assets and (y) by virtue of his association with AACC and the Company, the Executive has access to and has obtained and will continue to have access to and obtain such knowledge, know-how, proprietary information, training and experience, which is known only to the members, officers or managers of AACC and the Company, or other employees, former employees, consultants, or others in a confidential relationship with the Company, AACC and its Subsidiaries, and there is a substantial probability that such knowledge, know-how, proprietary information, training and experience could be used to the substantial advantage of a competitor of AACC or the Company and to AACC or the Company’s substantial detriment.

(a) Covenant Not To Compete. The Executive agrees that, for the period commencing on the date of this Agreement and ending one (1) year after the effective date of the termination of the Executive’s employment with the Company (regardless of whether such effective date occurs upon the expiration of the Initial Term or the Extended Term, as the case may be, occurs pursuant to Section 6 or occurs after the expiration of the Initial Term or the Extended Term, as the case may be, due to the Executive’s continued employment with the Company outside of the terms of this Agreement) (the “Restricted Period”), the Executive shall not, in the Territory (hereinafter defined), directly or indirectly, either for himself or for, with or through any other person, own, manage, operate, control, be employed by, participate in, loan money to or be connected in any manner with, or permit his name to be used by, any business which is engaged (1) in the business of purchasing and collecting consumer accounts receivable that have been charged off by the original creditor (“Charged Off Accounts”), (2) in financing sales of consumer product retailers or (3) any other business activity in which the Company, AACC or any of its Subsidiaries may engage during the Employment Period (a “Competitive Activity”).

For purposes of this Agreement, the term “participate” includes any direct or indirect interest, whether as an officer, director, employee, partner, sole proprietor, trustee, beneficiary, agent, representative, independent contractor, consultant, advisor, provider of personal services, creditor, owner (other than by ownership of less than one (1) percent of the stock of a corporation that has a class of equity securities registered under the Securities Exchange Act of 1934), and the term “Territory” means each country in which AACC, the Company or any of their affiliates shall have conducted business in a substantial manner during the Employment Period.

7

(b) Nondisclosure or Use of Confidential Information.

(i) The Executive shall not, whether during or after employment, disclose to any person or entity or use, any information not in the public domain, in any form, acquired by the Executive while he was employed or associated with AACC and the Company or, if acquired following the termination of such association, such information which, to the Executive’s knowledge, has been acquired, directly or indirectly, from any person or entity owing a duty of confidentiality to the Company or AACC (the “Confidential Information”). By way of illustration but not limitation, Confidential Information may include trade secrets, supplier lists regarding Charged Off Accounts, collection methods, information regarding bulk purchases of Charged Off Accounts, employee compensation arrangements, business practices, plans, policies, secret inventions, processes and compilations of information, records and specifications, as well as information related to the management policies and plans for AACC, the Company or their affiliates.

(ii) Notwithstanding the foregoing, the restrictions in subsection (b)(i) of this Section 7 are not applicable to the disclosure or use of Confidential Information in connection with the following: (A) in the course of faithfully performing the Executive’s duties as an employee of the Company; (B) with the Company’s express written consent; (C) to the extent that any such Confidential Information is in the public domain other than as a result of the Executive’s breach of any of his obligations hereunder; or (D) where required to be disclosed by court order, subpoena or other governmental process. In the event that the Executive shall be required to make disclosure pursuant to the provisions of clause (D) of the preceding sentence, the Executive promptly (but in no event more than forty-eight (48) hours after learning of such subpoena, court order, or other governmental process) shall notify the Company in writing, by personal delivery or by facsimile, confirmed by mail or by certified mail, return receipt requested.

(iii) The Executive agrees and acknowledges that all of such Confidential Information, in any form, and copies and extracts thereof are and shall remain the sole and exclusive property of AACC and the Company, and the Executive shall on request return to the Company the originals and all copies of any such information provided to or acquired by the Executive in connection with his association with AACC or the Company, and shall return to the Company all files, correspondence and/or other communications received, maintained and/or originated by the Executive during the course of such association.

(c) No Interference. During the Restricted Period, the Executive shall not, without the prior written approval of the Board of Directors, directly or indirectly through any other person (i) induce or attempt to induce any employee of the Company, AACC or any of its Subsidiaries to leave the employ of the Company, AACC or any of its Subsidiaries or in any way interfere with the relationship between the Company, AACC or any of its Subsidiaries and any employee thereof, (ii) induce or attempt to induce any supplier of Charged Off Accounts or other business relation of the Company, AACC or any of its Subsidiaries to cease doing business with the Company, AACC or its Subsidiaries, or in any way interfere with the relationship between any such supplier or business relation and the Company, AACC and its Subsidiaries or (iii) acquire Charged Off Accounts from any person that was a seller of Charged Off Accounts to the Company, AACC or any of its Subsidiaries during the Restricted Period.

8

(d) Inventions. The Executive hereby sells, transfers and assigns to the Company or to any person or entity designated by the Company all of the entire right, title and interest of the Executive in and to all inventions, ideas, disclosures and improvements, whether patented or unpatented, and copyrightable material, made or conceived by the Executive, solely or jointly, or in whole or in part, during his employment (including employment prior to the date hereof) by the Company which are not generally known to the public or recognized as standard practice and which (i) relate to methods, apparatus, designs, products, processes or devices sold, leased, used or under construction or development by the Company or any subsidiary and (ii) arise (wholly or partly) from the efforts of the Executive during his employment with the Company (an “Invention”). The Executive shall communicate promptly and disclose to the Company, in such form as the Company requests, all information, details and data pertaining to any such Inventions; and, whether during the Restricted Period or thereafter, the Executive shall execute and deliver to the Company such form of transfers and assignments and such other papers and documents as reasonably may be required of the Executive to permit the Company or any person or entity designated by the Company to file and prosecute the patent applications and, as to copyrightable material, to obtain a copyright thereon. The Company shall pay all costs incident to the execution and delivery of such transfers, assignments and other documents. Any invention by the Executive within six months following the termination of his employment hereunder shall be deemed to fall within the provisions of this Section 7(d) unless the Executive bears the burden of proof of showing that the Invention was first conceived and made following such termination.

8. SEVERANCE BENEFITS.

(a) General; Release. If the Executive’s employment with the Company is terminated pursuant to Section 6(d) hereof, the Executive shall be entitled to receive as his sole and exclusive remedy the termination benefits provided under this Section 8 regardless of the time remaining in the Initial Term or Extended Term, as the case may be (the “Severance Benefits”). Any Severance Benefits that are not exempt from Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) must be paid no later than the last day of the Executive’s second tax year following the tax year in which the Executive’s separation from service occurs. As a condition of receiving the Severance Benefits, Executive agrees to sign an effective legal release in substantially the form attached hereto as Schedule 2, provided that such form may be revised to reflect subsequent changes in the law or practices as may be deemed necessary and advisable by counsel to the Company to provide for Executive’s waiver of any and all claims he has or may have against the Company, AACC and their agents, employees, directors, subsidiaries, attorneys, successors, assigns, and affiliates, as of the date of his termination.

(b) Amount.

(i) Non-Change in Control. Except in the circumstances described below in subsection (ii), the Executive shall, upon a termination of employment pursuant to Section 6(d), be paid periodically, according to the Company’s payroll policy, his Regular Base Salary at the rate in effect on the Section 6(d) Termination Date for the Severance Period (as defined below); provided that, if the Executive is a “specified employee” within the meaning of Code Section 409A, on the Section 6(d) Termination Date, the sum of such amount that is paid within the first six (6) months following the Section 6(d) Termination Date shall not exceed two (2) times the lesser of:

(A) the maximum dollar amount that may be taken into account under a tax-qualified retirement plan pursuant to Code Section 401(a)(17) for the year in which the Executive was terminated (for example, during 2010: $245,000 x 2 = $490,000); or

9

(B) the sum of the Executive’s annualized compensation based upon the annual rate of pay for services to the Company for the Executive’s taxable year prior to the taxable year in which the termination occurs (adjusted for any increase during the year that was expected to continue indefinitely if the Executive had not terminated employment).

The payments under this Section 8(b)(i) that are made during the first six (6) months following the Executive’s Section 6(d) Termination Date are intended to constitute a “separation pay plan due to involuntary termination of service” under Treasury Regulation Section 1.409A-1(b)(9)(iii). In the event the Executive’s separation pay is limited by application of this Section 8(b)(i), the Company shall make any additional true-up payments in accordance with Section 9 of this Agreement. Unless delayed under this Section 8(b)(i), any Regular Base Salary amounts due under this Section 8(b)(i) shall be paid no later than the end of the calendar year to which such salary amounts relate (determined by dividing the Executive’s annual Regular Base Salary by twelve (12)) and allocating such salary to each month following the Executive’s Section 6(d) Termination Date.

“Severance Period” shall mean the period beginning on the Section 6(d) Termination Date and continuing for a period of twelve (12) months, provided that, in the event the Company elects to terminate the employment of the Executive without Cause, such period will be shortened by the period of time between the date written notice is given by the Company to the Executive advising of the Company’s election to terminate the Executive without Cause and the Section 6(d) Termination Date.

(ii) Change in Control. If the Executive’s employment with the Company is terminated pursuant to Section 6(d) hereof within one (1) year after the effective date of a Change in Control (as defined below), the Executive shall, in lieu of the amount described above in subsection (i), receive the following amount payable as indicated below:

(A) An amount equal to the product of the following;

(1) one (1), multiplied by

(2) the annual amount of the Executive’s Regular Base Salary as in effect at the end of the calendar year preceding the Section 6(d) Termination Date (adjusted for any increase during the calendar year of the Section 6(d) Termination Date that had been expected to continue indefinitely).

10

The foregoing amount shall be due and payable in a lump sum within 60 days of the Section 6(d) Termination Date, unless subject to the 409A Suspension Period described in Section 9(a).

As used herein, “Change in Control” means the occurrence of any of the following events:

(w) the acquisition of ownership by a person, corporation or other entity, or a group acting in concert, of fifty-one percent, or more, of the outstanding common stock of AACC in a single transaction or a series of related transactions within a one-year period;

(x) a sale of all or substantially all of the assets of AACC to any person, corporation or other entity;

(y) a merger or similar transaction between AACC and another entity if shareholders of AACC do not own a majority of the voting stock of the surviving entity or any parent thereof and a majority in value of the total outstanding stock of such surviving entity or any parent thereof; or

(z) during any consecutive two-year period commencing after January 1, 2009, individuals who constituted the Board of Directors of AACC at the beginning of the period (or their approved replacements, as defined herein) cease for any reason to constitute a majority of the Board of Directors, with a new director being considered an “approved replacement” director if his or his election (or nomination for election) was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or were themselves approved replacement directors, but in either case excluding any director whose initial assumption of office occurred as a result of an actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board of Directors;

provided, however, that there shall not be included within the meaning of “Change in Control” any such event involving: (a) any employee benefit plan (or related trust) sponsored or maintained by AACC; or (b) any of the current shareholders of AACC as of January 1, 2009 (or any entity at any time controlled by any such shareholder or shareholders).

(B) The Executive shall also be paid an amount equal to the product of the following:

(1) one (1), multiplied by

(2) the sum of the Executive’s Bonus for the Company’s fiscal year immediately preceding the effective date of such Change in Control.

11

The foregoing amount shall be due and payable in a lump sum within 60 days of the Section 6(d) Termination Date, unless subject to the 409A Suspension Period, described in Section 9(a).

(iii) Certain Limitations. The Executive shall not be entitled to any further notice, severance pay, pay in lieu of notice or any compensation whatsoever, except any amounts owing under this Agreement. The Executive agrees that the foregoing notice is deemed conclusively to be reasonable notice of termination at common law and the Executive is not entitled to any additional notice or pay in lieu of notice or severance pay. The Executive acknowledges that the Company has drawn his attention to the provisions contained herein prior to executing this Agreement.

(c) Welfare Benefits and COBRA. The Company shall reimburse the Executive for his COBRA costs (to the extent applicable) for a period of eighteen (18) months following the Section 6(d) Termination Date (including dependent coverage) in any group health, vision and dental benefit plans provided by the Company, in effect immediately prior to the Section 6(d) Termination Date. Following the Section 6(d) Termination Date, the Company shall not be obligated to (i) provide disability, life or business accident insurance covering the Executive or (ii) to make contributions in respect of the Executive to any qualified retirement and pension plans or profit sharing plans for compensation paid after the Section 6(d) Termination Date. The Company will use its good faith efforts to make the payments hereunder directly to the Executive and/or to the insurance carrier / employee benefit provider, as the case may be, in such a manner as will maximize the tax efficiencies for both the Company and the Executive.

9. TAXES; CERTAIN DEDUCTIONS AND LIMITATIONS.

(a) Taxes. The benefits provided hereunder are intended to be exempt from, or comply with, Code Section 409A. Notwithstanding the foregoing, except as otherwise specifically provided elsewhere in this Agreement or herein, the Executive is solely responsible for the satisfaction of any taxes that may arise pursuant to this Agreement (including taxes arising under Code Section 409A regarding deferred compensation, and Code Section 4999 regarding golden parachute excise taxes). The Company shall not have any obligation whatsoever to pay such taxes or to otherwise indemnify or hold the Executive harmless from any or all of such taxes.

If any amounts that become due under this Agreement constitute “nonqualified deferred compensation” within the meaning of Code Section 409A, payment of such amounts shall not commence until the Executive incurs a “separation from service” within the meaning of Treasury Regulation Section 1.409A-1(h). If, at the time of the Executive’s separation from service, the Executive is a “specified employee” (within the meaning of Code Section 409A), any benefit to which Code Section 409A additional taxes could be assessed on account of his separation from service (including any amounts payable pursuant to the preceding sentence) will not be paid until after the end of the sixth calendar month beginning after the Executive’s separation from service (the “409A Suspension Period”) to the extent such delay may reasonably be expected to avoid Code Section 409A additional taxes. Within fourteen (14) calendar days after the end of the 409A Suspension Period, the Executive shall be paid a lump sum payment in cash equal to any payments delayed because of the preceding sentence. Thereafter, the Executive shall receive any remaining benefits as if there had not been an earlier delay. The Company shall have the sole discretion to interpret the requirements of the Code, including Code Section 409A, for purposes of this Agreement.

12

Notwithstanding any other provisions of this Agreement, the parties hereto agree to take all actions (including adopting amendments to this Agreement) as are required to comply with or minimize any potential interest charges and/or additional taxes as may be imposed under Code Section 409A with respect to any payment or benefit due the Executive under this Agreement (including a delay in some or all payments until the seventh month after the Executive’s employment termination).

(b) Deductions and Withholding. The Executive agrees that the Company shall be entitled to deduct and withhold from any compensation payable to the Executive under this Agreement (i) any taxes in respect of the Executive that the Company is required to deduct and withhold under federal, state or local law whether arising from compensation hereunder or otherwise and (ii) any other amounts lawfully due from the Executive as determined in good faith by the Company and/or the Board of Directors. In the event that the Executive is no longer employed by the Company at a time when the Company otherwise would be entitled to deduct and withhold any amount pursuant to the preceding sentence, the Executive shall remit such amount to the Company within five days after the receipt of notice from the Company specifying such amount or otherwise in accordance with the Executive’s obligations with respect thereto.

(c) Clawback – For Cause Matters. If, within 90 days after a Section 6(d) Termination Date, the Board of Directors becomes aware of facts that, if known during the Executive’s employment, it reasonably believes would have justified termination for Cause, the Company may refrain from paying any unpaid amounts due with respect to Severance Benefits or require the Executive to promptly (but in no event less than 90 days after notice to the Executive of such determination by the Board of Directors) repay any previously paid amounts related thereto.

(d) Clawback – Substantial Decline in Stock Price. Notwithstanding the provisions of Section 8, any payments under Section 8(b)(i) and (ii) will be capped at one times the Regular Base Salary at the rate in effect on the Section 6(d) Termination Date if (i) at any time during the period beginning on Section 6(d) Termination Date and ending six months thereafter, the rolling 30-day average closing price for the common stock of AACC is lower than 10% of the closing price for the common stock on the first (1^st) trading day after May 17, 2010 (i.e., 90% shareholder value lost), after taking into account any intervening adjustments to the common stock (such as stock splits) in the same manner as provided for option adjustments under the Company’s 2004 Stock Incentive Plan, as amended, and (ii) the Board of Directors, acting reasonably and in good faith, determines that such decline in the closing price of the common stock was materially attributable to the action or inaction of the Executive during the Employment Period.

13

(e) Certain Limitations – Parachute Payments. The benefit limitations of this Section 9(e) shall be applicable in the event the Executive receives any benefits under this Agreement which are deemed to constitute parachute payments under Code Section 280G. In the event that any payments to which the Executive becomes entitled in accordance with the provisions of this Agreement would otherwise constitute a parachute payment under Code Section 280G, then such payments will be subject to reduction to the extent necessary to assure that the Executive receives only the greater of (i) the amount of those payments which would not constitute such a parachute payment, or (ii) the after-tax amount of benefits after taking into account any excise tax imposed on the payments provided to the Executive under this Agreement (or on any other benefits to which the Executive may be entitled in connection with any change in control or ownership of AACC or the subsequent termination of the Executive’s employment with the Company) under Code Section 4999. Should a reduction in benefits be required to satisfy the benefit limit of this Section 9(e), then the payment of the Severance Benefits shall accordingly be reduced to the extent necessary to comply with such benefit limit. Should such benefit limit still be exceeded following such reduction, then any obligation of AACC or the Company to make payments under any other employee benefit plans shall be reduced to the extent necessary to eliminate such excess.

10. INJUNCTIVE RELIEF. Without intending to limit the remedies available to AACC and the Company, the Executive acknowledges that a breach of any of the covenants contained in Section 7 hereof may result in material irreparable injury to AACC, the Company or their affiliates for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, AACC and the Company shall be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction restraining the Executive from engaging in activities prohibited by Section 7 hereof or such other relief as may be required to specifically enforce any of the covenants in Section 7 hereof. The Executive hereby agrees and consents that such injunctive relief may be sought in any state or federal court of record in Michigan, or in the state in which such violation may occur, or in any other court having jurisdiction, at the election of AACC or the Company.

11. EXTENSION OF RESTRICTED PERIODS. In addition to the remedies AACC and the Company may seek and obtain pursuant to Section 10 of this Agreement, the Restricted Period shall be extended by any and all periods during which the Executive shall be found by a court to have been in violation of the covenants contained in Section 7 hereof.

12. SUCCESSORS; BINDING AGREEMENT. This Agreement is personal to the Executive and, without the prior written consent of the Board of Directors, shall not be assignable by the Executive otherwise than by will, the laws of descent and distribution or the terms of a revocable trust of which the Executive is the grantor. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

13. WAIVER AND MODIFICATION. Any waiver, alteration or modification of any of the terms of this Agreement shall be valid only if made in writing and signed by the parties hereto; provided that any such waiver, alteration or modification is consented to on the Company’s behalf by the Board of Directors. No waiver by either of the parties hereto of their rights hereunder shall be deemed to constitute a waiver with respect to any subsequent occurrences or transactions hereunder unless such waiver specifically states that it is to be construed as a continuing waiver.

14

14. SEVERABILITY. The Executive acknowledges and agrees that the covenants set forth in Section 7 hereof are reasonable and valid in geographical and temporal scope and in all other respects. If any of such covenants or other provisions of this Agreement are found to be invalid or unenforceable by a final determination of a court of competent jurisdiction (a) the remaining terms and provisions hereof shall be unimpaired and (b) the invalid or unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision.

15. SUBMISSION TO JURISDICTION; VENUE.

(a) WITH THE EXCEPTION OF THE RIGHTS OF AACC AND THE COMPANY UNDER SECTION 10 OF THIS AGREEMENT, ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY TRANSACTIONS CONTEMPLATED HEREBY SHALL BE BROUGHT IN THE COURTS OF THE STATE OF MICHIGAN OR IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF MICHIGAN SITTING IN DETROIT, MICHIGAN, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES HEREBY ACCEPTS FOR HIMSELF OR ITSELF AND IN RESPECT OF HIS OR ITS PROPERTY GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. EACH OF THE PARTIES IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY MAILING COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PARTY AT HIS OR ITS ADDRESS AS PROVIDED IN SECTION 18 HEREOF. NOTHING IN THIS PARAGRAPH (a) SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS IN ANY OTHER JURISDICTION.

(b) WITH THE EXCEPTION OF THE RIGHTS OF AACC AND THE COMPANY UNDER SECTION 10 OF THIS AGREEMENT, EACH PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTIONS WHICH HE OR IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT BROUGHT IN THE COURTS REFERRED TO IN PARAGRAPH (a) OF THIS SECTION 15 AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

(c) WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EACH OF THE PARTIES TO THIS AGREEMENT AGREES THAT, AT THE TIME OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY TRANSACTIONS CONTEMPLATED HEREBY, EACH OF THE PARTIES WILL EXECUTE SUCH INSTRUMENTS AND OTHER DOCUMENTS AS MAY BE NECESSARY TO CONSENT TO AND WAIVE ANY OBJECTION TO VENUE AND JURISDICTION IN THE COURTS IDENTIFIED IN SUBSECTIONS (a) AND (b) ABOVE.

15

16. WAIVER OF JURY TRIAL. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

17. BLUE PENCILLING. In the event that, notwithstanding the first sentence of Section 14 hereof, any of the provisions of Section 7 relating to the geographic or temporal scope of the covenants contained therein or the nature of the business restricted thereby shall be declared by a court of competent jurisdiction to exceed the maximum restrictiveness such court deems enforceable, such provision shall be deemed to be replaced herein by the maximum restriction deemed enforceable by such court.

18. NOTICES. All notices required to be given hereunder shall be in writing and shall be deemed to have been given if (a) delivered personally or by documented courier or delivery service, (b) transmitted by facsimile or (c) mailed by registered or certified mail (return receipt requested and postage prepaid) to the following listed persons at the addresses and facsimile numbers specified below, or to such other persons, addresses or facsimile numbers as a party entitled to notice shall give, in the manner hereinabove described, to the others entitled to notice:

In the case of the Company:

Asset Acceptance, LLC

28405 Van Dyke Avenue

Warren, Michigan 48093

Attention: President and Chief Executive Officer

Facsimile No.: 586-446-7832

with a copy (which will not constitute notice) to:

Asset Acceptance, LLC

28405 Van Dyke Avenue

Warren, Michigan 48093

Attention: Edwin L. Herbert, Esq.

Vice President and General Counsel

Facsimile No.: 586-446-7832

In the case of the Executive:

Reid E. Simpson

XXX XXXXX XXXXXX

XXXXXXX, XXXXXXXX XXXXX

16

Notice pursuant hereto shall be deemed given (i) if delivered personally, when so delivered, (ii) if given by facsimile, when transmitted to the facsimile number set forth above, when so transmitted if transmitted during normal business hours at the location to which it is transmitted or upon the opening of business on the next Business Day if transmitted other than during normal business hours at the location to which it is transmitted and (iii) if given by mail, on the third business day following the day on which it was posted.

19. CAPTIONS AND PARAGRAPH HEADINGS. Captions and section headings herein are for convenience only, are not a part hereof and shall not be used in construing this Agreement.

20. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding and agreement of the parties hereto regarding the employment of the Executive, and supersedes all prior agreements and understandings between the parties.

21. COUNTERPARTS. This Agreement may be executed in counterparts, including by facsimile transmission or electronic signature as permitted by applicable Law, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.

22. ACKNOWLEDGMENT AND INDEPENDENT LEGAL ADVICE. The Executive acknowledges that (a) he has read and understands this Agreement and that the Company has advised him that the foregoing alters and supersedes his common law rights, and (b) neither his execution of this Agreement nor his performance of services pursuant to this Agreement will violate any prior or existing employment agreement, non-competition agreement, or similar agreement to which the Executive is or ever has been a party. The Executive acknowledges that the Company has advised him to seek legal advice prior to executing this Agreement.

23. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Michigan, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Michigan or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Michigan.

[Signatures on next page]

17

WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

ASSET ACCEPTANCE, LLC
By:	/s/ Rion B. Needs	05/17/2010
	RION B. NEEDS	Date
Its:	President and Chief Executive Officer
/s/ Reid E. Simpson		05/17/2010
REID E. SIMPSON		Date

18

SCHEDULE 1

Certain Initial Compensation and Relocation Reimbursement Matters

Set forth below are certain initial compensation and relocation reimbursement matters applicable to the Executive:

(1) 2010 Management Bonus Plan. For 2010, the Executive shall be entitled to participate in AACC’s 2010 Annual Incentive Compensation Plan for Management (the “Management Bonus Plan”), with the target Bonus set at 80% of the Regular Base Salary and with the Personal Objectives to be jointly developed by the Executive and the President of AACC and with any Bonus payable pursuant thereto to be prorated for the calendar year 2010 based upon the Executive’s start date of May 17, 2010. A copy of the Plan previously has been provided to the Executive.

(2) Sign-On Bonus. The Company shall pay the Executive a sign-on bonus in the aggregate amount of $87,500, with $43,750 payable on May 17, 2010, being the Executive’s start date of employment, and with $43,750 payable promptly after the Executive notifies the Company that his and his family’s household goods have been shipped to his new residence in the metropolitan area of Detroit, Michigan.

(3) Sign-On Equity Grant. AACC shall effect a sign-on equity grant, with a grant date of May 17, 2010, being the Executive’s start date of employment, consisting of the following pursuant to AACC’s 2004 Stock Incentive Plan, as amended and restated:

(a) 23,000 non-qualified stock options that vest in four equal installments of 25% on each of the four anniversary dates of the grant date, with an exercise price equal to the closing price on May 17, 2010; and

(b) 10,000 restricted stock units that vest in four equal installments of 25% on each of the four anniversary dates of the grant date.

(4) Temporary Living. The Company shall pay the Executive for, or reimburse him for his expenses related to, his temporary living at the Towne Place Suites by Marriott in an amount not to exceed $65.00 per day for a period equal to the shorter of six (6) months or until the move of his family to the metropolitan area of Detroit, Michigan has been completed.

(5) Existing Home Sale. The Company shall reimburse the Executive for the real estate commissions incurred by him upon the sale of his current home in an amount not to exceed 7% of the sales price for such home.

19

(6) Relocation Matters. The Company shall reimburse the Executive for the expenses incurred with respect to the following relocation matters:

(a) two round trip coach airline tickets for his spouse from Chicago O’Hare or Midway airport to Detroit Metropolitan airport; and

(b) packing, transportation and insurance to transport all household goods and up to two automobiles from the metropolitan area of Chicago, Illinois to the metropolitan area of Detroit, Michigan.

(7) Settling-In Expenses. The Company shall pay the Executive a one-time lump sum amount of $5,000 for miscellaneous settling-in expenses payable after the Executive notifies the Company that his and his family’s household goods have been delivered to his new residence in the metropolitan area of Detroit, Michigan.

20

SCHEDULE 2

Form of Release

AGREEMENT AND RELEASE

Asset Acceptance, LLC (“Company”) and                      (“Executive”) enter into this Agreement and Release (“Agreement”) related to the termination of Executive’s employment with the Company.

RECITALS

A. The Company and Executive are parties to that certain Employment Agreement dated                      (the “Employment Agreement”) and that certain letter agreement dated                      (the “Letter Agreement”).

B. Executive’s employment with Company was terminated on                     .

C. This Agreement is the legal release described in the Employment Agreement and also referenced as Exhibit A to the Letter Agreement.

TERMS

1. Severance Pay; COBRA. Executive shall receive the severance benefits, as well as reimbursement of his COBRA costs, as set forth in the Employment Agreement and the Letter Agreement.

2. Release of Claims. Executive, on behalf of Executive, and anyone who could claim for Executive, agrees not to sue and fully release and discharge the Company, its parents, subsidiaries and affiliates, past, present and future, insurers, members, officers, employees, stockholders, representatives, assigns and successors, past, present and future (all referred to collectively as “Releasees”), from any and all claims, wages, demands, rights, severance, liens, agreements, contracts, covenants, actions, suits, causes of action, obligations, debts, costs, expenses, attorney’s fees, damages, judgments, orders and liabilities of whatever kind or nature in law, equity or otherwise, arising out of or in any way connected with his employment relationship with the Company, or his termination therefrom, including, but not limited to discrimination, retaliation, breach of contract, wrongful dismissal, libel, slander, tort, and, specifically, any action under (1) the Elliot Larsen Civil Rights Act; (2) Title VII of the Civil Rights Acts of 1964 and 1991, as amended, 42 U.S.C. §2000(e) et. seq.; (3) the Equal Pay Act; (4) the Americans With Disabilities Act, as amended, 42 U.S.C. §12101, et. seq.; (5) the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), 29 U.S.C. §1001, et. seq.; (6) the Family and Medical Leave Act of 1993; (7) the Age Discrimination in Employment Act of 1967 (“ADEA”); (8) any and all state laws regarding employment or employment discrimination and/or termination of employment; and (9) any other federal, state or local statute, rule, regulation, common law authority or precedent relating to, or dealing with, employment, termination of employment or employment discrimination that arose on or before the date of execution of this Agreement, as well as any claim for severance pay, bonus, commission, sick leave, holiday pay, overtime pay, life insurance, health or medical insurance or any other fringe benefit; provided, however, that this Section 2 does not pertain to the severance pay and reimbursement of COBRA costs described above in Section 1.

21

3. Confidentiality and Non-disparagement. Executive agrees that, except as disclosed by the Company in SEC filings or in releases of information to the general public or via Company-wide releases to its associates, he will keep the terms, amount and fact of this Agreement completely confidential, and that he will not hereafter disclose any information concerning this Agreement to anyone, except Executive’s attorneys, financial advisors and immediate family members. Executive agrees that he will not make any communication to any other associate of the Company or to any third-party that states or implies that the Company is not a good place to work or that reflects negatively upon the good character, business ethics or professional competence of the Company or any of its affiliates, officers, directors, members, employees, agents, successors or assigns.

Company agrees that no executive officer of the Company will make (or direct any representative to make) any communication to any other associate of the Company or to any third-party that states or implies that the Executive is not a good worker or that reflects negatively upon the good character, business ethics or professional competence of the Executive.

4. Return of Property. Executive must immediately return all property of the Company, including any manuals, access cards, files or data, regardless of how it is stored.

5. Unemployment Benefits. It is understood that Executive will not assert a claim for unemployment benefits for the period during which he is entitled to payments. After the period of payments, the Company will not contest any claim for unemployment made by Executive.

6. Notices Required By The Older Workers’ Benefit Protection Act.

a. Executive acknowledges that he has read each section of this Agreement, that the Agreement is written in a manner calculated to be understood by Executive, and that he in fact understands his rights and obligations under it, including the fact that he is waiving and releasing rights to bring an age discrimination claim against the Company under the Age Discrimination in Employment Act.

b. By signing this Agreement, Executive expressly acknowledges and agrees that, in return for this Agreement, he will receive compensation beyond which Employee was otherwise entitled to receive before entering into this Agreement.

c. Executive is hereby advised to consult with legal counsel before executing this Agreement.                      (initial here)

d. Executive has up to 21 calendar days following receipt of this Agreement to consider this Agreement before signing it. If Executive signs this Agreement before the 21 day period has ended, that is Executive’s voluntary decision.

e. If Executive decides to sign this Agreement, Employee has seven days after his execution of the Agreement (the “Revocation Period”). Any revocation of this Agreement should be in writing and must be delivered to the President and CEO before 5:00 p.m. on the seventh business after Executive signed the Agreement. If the seventh day does not fall on a business day, then the Revocation Period shall be deemed extended to 5:00 p.m. the next business day.

22

f. This Agreement will not become enforceable or effective until the Revocation Period has expired, and no monies or other consideration will be sent to Executive until after the Revocation Period has expired (assuming Executive has not timely exercised his right to revoke the Agreement).

g. This Agreement does not waive any of Executive’s future rights or any claims that may arise after the execution of this Agreement.

7. Governing Law. This Agreement shall be governed by and constructed in accordance with Michigan law, regardless of conflicts of law principles.

8. Severability. Should any of the covenants or other provisions of this Agreement be found to be invalid or unenforceable by a final determination of a court of competent jurisdiction, the remaining terms and provisions shall be unimpaired and the invalid or unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and which comes closest to expressing the intention of the invalid or unenforceable term or provision.

9. Entire Agreement. This Agreement, together with the Employment Agreement and the Letter Agreement, constitutes the entire understanding and agreement of the parties hereto regarding the employment of the Executive and supersedes all prior agreements and understandings between the parties. No waiver, alteration, or modification of this Agreement shall be valid unless signed by both the Executive and the President and CEO.

EXECUTIVE
	Date
ASSET ACCEPTANCE, LLC
By:
	Date
Its:

23

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Rion B. Needs, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Asset Acceptance Capital Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 29, 2010	/s/ Rion B. Needs
	Rion B. Needs
	President and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Reid E. Simpson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Asset Acceptance Capital Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 29, 2010	/s/ Reid E. Simpson
	Reid E. Simpson
	Senior Vice President – Finance and Chief Financial Officer
	(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Asset Acceptance Capital Corp. (the “Company”) on Form 10-Q for the period ended June 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Rion B. Needs, President and Chief Executive Officer of the Company, and Reid E. Simpson, Senior Vice President – Finance and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(a) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(b) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Rion B. Needs

Rion B. Needs

President and Chief Executive Officer

July 29, 2010

/s/ Reid E. Simpson

Reid E. Simpson

Senior Vice President – Finance and Chief Financial Officer

July 29, 2010