Loans and Interest Receivable, Net

Loans and interest receivable primarily represent purchased consumer receivables arising from loans made by our partner chartered financial institutions to individual consumers to purchase goods and services using our PayPal Credit products. Although a chartered financial institution continues to own each respective customer account, we own the related consumer receivable and PayPal is responsible for all servicing functions related to the customer accounts. Effective August 2013, ownership of most of the existing customer accounts was transitioned from WebBank to a new chartered financial institution, Comenity Capital Bank. As part of the arrangement, we sell Comenity Capital Bank a participation interest in the entire pool of consumer receivables outstanding under the customer accounts. In May 2015, we concluded an arrangement with certain investors under which we sold a participation interest of approximately $710 million in a portion of these receivables, resulting in a gain of $30 million in marketing services and other revenues in our condensed consolidated statement of income. During the three months ended June 30, 2015 and 2014, we purchased approximately $1.5 billion and $1.2 billion, respectively, in consumer receivables. As of June 30, 2015, the total outstanding principal balance of this pool of consumer receivables was $3.1 billion, net of which Comenity Capital Bank and other investors owned a participation interest of $876 million, or 22% of the total outstanding balance of the consumer receivables at that date. Comenity Capital Bank and these investors have no recourse against us related to their respective participation interests for failure of debtors to pay when due. The participation interest held by Comenity Capital Bank and these investors have the same priority to the interests held by us and are subject to the same credit, prepayment, and interest rate risk associated with the consumer receivables.

Loans and interest receivable are reported at their outstanding principal balances, net of participation interest sold and pro-rata allowances, including unamortized deferred origination costs and estimated collectible interest and fees. We use a consumer's FICO score, among other measures, in evaluating the credit quality of our consumer receivables. A FICO score is a type of credit score that lenders use to assess an applicant's credit risk and whether to extend credit. Individual FICO scores generally are obtained each quarter the consumer has an outstanding consumer receivable owned by PayPal Credit. The weighted average consumer FICO score related to the pool of consumer receivables and interest receivable balance outstanding as of June 30, 2015 and December 31, 2014 was 687. As of June 30, 2015 and December 31, 2014, approximately 54.2%, for both periods, of the pool of consumer receivables and interest receivable balance was due from consumers with FICO scores greater than 680, which is generally considered "prime" by the consumer credit industry. As of June 30, 2015 and December 31, 2014, approximately 9.6% and 9.2%, respectively, of the pool of consumer receivables and interest receivable balance was due from customers with FICO scores below 599. As of June 30, 2015 and December 31, 2014, approximately 90% and 89%, respectively, of the portfolio of consumer receivables and interest receivable was current.

During 2013, we began working with a chartered financial institution, for the chartered financial institution to offer working capital loans to selected merchant sellers. We subsequently purchase the related merchant receivable from the chartered financial institution and, as a result, bear the risk of loss in the event the loan defaults. Under the program, participating merchants can borrow a certain percentage of their annual payment volume processed by PayPal and are charged a fixed fee for the loan. As of June 30, 2015, the total outstanding balance of this pool of merchant receivables was approximately $187 million.

The following table summarizes the activity in the allowance for loans and interest receivable, net of participating interest sold, for the periods indicated:



	Six Months Ended June 30,
	2015			2014
	(In millions)
Balance as of January 1	$	195		$	146
Sale of participating interest	(22		)	—
Charge-offs	(164		)	(139		)
Recoveries	14			13
Provision	162			140
Balance as of June 30	$	185		$	160