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Note 2 - Significant Accounting Policies and Consolidated Financial Statement Components
12 Months Ended
Dec. 31, 2019
Notes to Financial Statements  
Significant Accounting Policies [Text Block]
2.
Significant Accounting Policies and Consolidated Financial Statement Components
 
The following is a summary of significant accounting policies we follow in preparing our consolidated financial statements, as well as a description of significant components of our consolidated financial statements.
 
Basis of Presentation and Use of Estimates
 
We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the U.S. (“GAAP”). The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our consolidated financial statements, as well as the reported amounts of revenues and expenses during each reporting period. We base these estimates on information available to us as of the date of the financial statements. Actual results could differ materially from these estimates. Certain estimates, such as credit losses, payment rates, costs of funds, discount rates and the yields earned on credit card receivables, significantly affect the reported amount of credit card receivables that we report at fair value and our notes payable associated with structured financings, at fair value; these estimates likewise affect the changes in these amounts reflected within our fees and related income on earning assets line item on our consolidated statements of operations. Additionally, estimates of future credit losses have a significant effect on loans, interest and fees receivable, net, as shown on our consolidated balance sheets, as well as on the provision for losses on loans, interest and fees receivable within our consolidated statements of operations.
 
We have eliminated all significant intercompany balances and transactions for financial reporting purposes.
 
Unrestricted Cash and Cash Equivalents
 
Unrestricted cash and cash equivalents consist of cash, money market investments and overnight deposits. We consider all highly liquid cash investments with low interest rate risk and original maturities of
three
months or less to be cash equivalents. Cash equivalents are carried at cost, which approximates market. We maintain unrestricted cash and cash equivalents for general operating purposes and to meet our longer term debt obligations. The majority of these cash balances are
not
insured.
 
Restricted Cash
 
Restricted cash as of
December 31, 2019
 and
2018
 includes certain collections on loans, interest and fees receivable, the cash balances of which are required to be distributed to noteholders under our debt facilities. Our restricted cash balances also include minimum cash balances held in accounts at the request of certain of our business partners.
 
Loans, Interest and Fees Receivable
 
Loans, Interest and Fees Receivable, at Fair Value.
Loans, interest and fees receivable held at fair value represent receivables underlying credit card securitization trusts, and which qualify as a variable interest entity ("VIE"), that are consolidated onto our consolidated balance sheet, some portfolios of which are unencumbered and some of which are still encumbered under structured financing facilities. Further details concerning our loans, interest and fees receivable held at fair value are presented within Note
6,
“Fair Values of Assets and Liabilities.”
 
Loans, Interest and Fees Receivable.
Our loans, interest and fees receivable, gross, currently consist of receivables associated with (a) our U.S. point-of-sale and direct-to-consumer financing and other credit products platform within our Credit and Other Investments segment and (b) our Auto Finance segment’s operations. Our Credit and Other Investments segment loans, interest and fees receivable generally are unsecured, while our Auto Finance segment loans, interest and fees receivable generally are secured by the underlying automobiles in which we hold the vehicle title. We purchased loans with outstanding principal of
$182.9
million and
$179.4
million for the years ended
December 31, 2019
and
2018
, respectively, through our pre-qualified network of independent automotive dealers and automotive finance companies.
 
We show both an allowance for uncollectible loans, interest and fees receivable and unearned fees (or “deferred revenue”) for our loans, interest and fees receivable (i.e., as opposed to those carried at fair value). Our loans, interest and fees receivable consist of smaller-balance, homogeneous loans, divided into 
two
 portfolio segments:  Credit and Other Investments; and Auto Finance. While each of these categories has unique features, they share many of the same credit risk characteristics and thus share a similar approach to the establishment of an allowance for loan losses. Each portfolio segment is divided into pools based on common characteristics such as contract or acquisition channel. For each pool, we determine the necessary allowance for uncollectible loans, interest and fees receivable by analyzing some or all of the following unique attributes for each type of receivable pool:  historical loss rates; current delinquency and roll-rate trends; vintage analyses based on the number of months an account has been in existence; the effects of changes in the economy on our customers; changes in underwriting criteria; and estimated recoveries. For our Auto Finance segment we
may
further reduce the expected charge-off, taking into consideration specific dealer level reserves which
may
allow us to offset our losses and, in the case of secured loans, the impact of collateral available to offset a potential loss. Conversely, for receivables in our Credit and Other Investments segment, which generally do
not
have a secured interest in collateral, we look to reserve for the gross expected exposure to charge-offs.
 
These reserves are considered in conjunction with (and potentially reduced by) any unearned fees and discounts that 
may 
be applicable for an outstanding loan receivable. A considerable amount of judgment is required to assess the ultimate amount of uncollectible loans, interest and fees receivable, and we continuously evaluate and update our methodologies to determine the most appropriate allowance necessary. We 
may 
individually evaluate a receivable or pool of receivables for impairment if circumstances indicate that the receivable or pool of receivables 
may 
be at higher risk for non-performance than other receivables (e.g., if a particular retail or auto-finance partner has indications of non-performance (such as a bankruptcy) that could impact the underlying pool of receivables we purchased from the partner).
 
Certain of our loans, interest and fees receivable also contain components of deferred revenue including merchant fees on the purchases of receivables for our point-of-sale receivables and annual fee billings for our direct-to-consumer credit card receivables. Our point-of-sale and auto finance loans, interest and fees receivable include principal balances and associated fees and interest due from customers which are earned each period a loan is outstanding, net of the unearned portion of merchant fees and loan discounts. Additionally, many of our direct-to-consumer credit card receivables have an annual membership fee that is billed to the consumer on card activation and for each anniversary of that date thereafter. As of
December 31, 2019
 and
December 31, 2018
, the weighted average remaining accretion period for the
$90.3
million and
$43.9
 million of deferred revenue reflected in the consolidated balance sheets was
11
months. Included within deferred revenue, are merchant fees and discounts on purchased loans of
$48.1
million and
$30.0
million as of
December 31, 2019
 and
December 31, 2018
, respectively.
 
A roll-forward (in millions) of our allowance for uncollectible loans, interest and fees receivable by class of receivable is as follows: 
 
For the Year ended December 31, 2019
 
Credit Cards
   
Auto Finance
   
Other Unsecured Lending Products
   
Total
 
Allowance for uncollectible loans, interest and fees receivable:
     
 
     
 
     
 
     
 
Balance at beginning of period
  $
(35.4
)   $
(1.3
)   $
(42.5
)   $
(79.2
)
Provision for loan losses
   
(161.5
)    
(3.5
)    
(83.4
)    
(248.4
)
Charge offs
   
80.2
     
4.6
     
68.1
     
152.9
 
Recoveries
   
(4.6
)    
(1.4
)    
(5.6
)    
(11.6
)
Balance at end of period
  $
(121.3
)   $
(1.6
)   $
(63.4
)   $
(186.3
)
 
As of December 31, 2019
 
Credit Cards
   
Auto Finance
   
Other Unsecured Lending Products
   
Total
 
Allowance for uncollectible loans, interest and fees receivable:
     
 
     
 
     
 
     
 
Balance at end of period individually evaluated for impairment
  $
    $
(0.4
)   $
(0.1
)   $
(0.5
)
Balance at end of period collectively evaluated for impairment
  $
(121.3
)   $
(1.2
)   $
(63.3
)   $
(185.8
)
Loans, interest and fees receivable:
     
 
     
 
     
 
     
 
Loans, interest and fees receivable, gross
  $
509.2
    $
89.8
    $
399.2
    $
998.2
 
Loans, interest and fees receivable individually evaluated for impairment
  $
    $
2.1
    $
0.1
    $
2.2
 
Loans, interest and fees receivable collectively evaluated for impairment
  $
509.2
    $
87.7
    $
399.1
    $
996.0
 
 
For the Year ended December 31, 2018
 
Credit Cards
   
Auto Finance
   
Other Unsecured Lending Products
   
Total
 
Allowance for uncollectible loans, interest and fees receivable:
     
 
     
 
     
 
     
 
Balance at beginning of period
  $
(18.2
)   $
(2.3
)   $
(42.5
)   $
(63.0
)
Provision for loan losses
   
(46.6
)    
(0.3
)    
(53.4
)    
(100.3
)
Charge offs
   
29.9
     
2.2
     
58.2
     
90.3
 
Recoveries
   
(0.5
)    
(0.9
)    
(4.8
)    
(6.2
)
Balance at end of period
  $
(35.4
)   $
(1.3
)   $
(42.5
)   $
(79.2
)
 
As of December 31, 2018
 
Credit Cards
   
Auto Finance
   
Other Unsecured Lending Products
   
Total
 
Allowance for uncollectible loans, interest and fees receivable:
     
 
     
 
     
 
     
 
Balance at end of period individually evaluated for impairment
  $
    $
(0.2
)   $
(0.1
)   $
(0.3
)
Balance at end of period collectively evaluated for impairment
  $
(35.4
)   $
(1.1
)   $
(42.4
)   $
(78.9
)
Loans, interest and fees receivable:
     
 
     
 
     
 
     
 
Loans, interest and fees receivable, gross
  $
188.6
    $
88.1
    $
264.6
    $
541.3
 
Loans, interest and fees receivable individually evaluated for impairment
  $
    $
0.4
    $
0.1
    $
0.5
 
Loans, interest and fees receivable collectively evaluated for impairment
  $
188.6
    $
87.7
    $
264.5
    $
540.8
 
 
Delinquent loans, interest and fees receivable reflect the principal, fee and interest components of loans we did
not
collect on or prior to the contractual due date. Amounts we believe we will
not
ultimately collect are included as a component in our overall allowance for uncollectible loans, interest and fees receivable. For most products we service other than our Auto Finance receivables, interest and fees are discontinued when loans, interest and fees receivable become contractually
90
or more days past due. We charge off our Credit and Other Investments and Auto Finance segment receivables when they become contractually more than
180
days past due. For all of our products, we charge off receivables within
30
days of notification and confirmation of a customer’s bankruptcy or death. However, in some cases of death, we do
not
charge off receivables if there is a surviving, contractually liable individual or an estate large enough to pay the debt in full.
 
Recoveries on accounts previously charged off are credited to the allowance for uncollectible loans, interest and fees receivable and effectively offset our provision for losses on loans, interest and fees receivable recorded at net realizable value on our consolidated statements of operations. (All of the above discussion relates only to our loans, interest and fees receivable for which we use net realizable value, as opposed to fair value accounting. For loans, interest and fees receivable recorded at fair value, recoveries offset losses upon impairment of the underlying loans, interest and fees receivable recorded at fair value, net of recoveries on our consolidated statements of operations.)
 
We consider loan delinquencies a key indicator of credit quality because this measure provides the best ongoing estimate of how a particular class of receivables is performing. An aging of our delinquent loans, interest and fees receivable, gross (in millions) by class of receivable as of
December 31, 2019
and
December 31, 2018
 is as follows:
 
As of December 31, 2019
 
Credit Cards
   
Auto Finance
   
Other Unsecured Lending Products
   
Total
 
30-59 days past due
  $
21.7
    $
8.1
    $
14.0
    $
43.8
 
60-89 days past due
   
18.5
     
3.0
     
11.5
     
33.0
 
90 or more days past due
   
46.6
     
2.6
     
27.2
     
76.4
 
Delinquent loans, interest and fees receivable, gross
   
86.8
     
13.7
     
52.7
     
153.2
 
Current loans, interest and fees receivable, gross
   
422.4
     
76.1
     
346.5
     
845.0
 
Total loans, interest and fees receivable, gross
  $
509.2
    $
89.8
    $
399.2
    $
998.2
 
Balance of loans greater than 90-days delinquent still accruing interest and fees
  $
    $
1.9
    $
    $
1.9
 
 
As of December 31, 2018
 
Credit Cards
   
Auto Finance
   
Other Unsecured Lending Products
   
Total
 
30-59 days past due
  $
7.1
    $
7.9
    $
9.7
    $
24.7
 
60-89 days past due
   
5.3
     
2.8
     
7.6
     
15.7
 
90 or more days past due
   
12.3
     
2.2
     
18.5
     
33.0
 
Delinquent loans, interest and fees receivable, gross
   
24.7
     
12.9
     
35.8
     
73.4
 
Current loans, interest and fees receivable, gross
   
163.9
     
75.2
     
228.8
     
467.9
 
Total loans, interest and fees receivable, gross
  $
188.6
    $
88.1
    $
264.6
    $
541.3
 
Balance of loans greater than 90-days delinquent still accruing interest and fees
  $
    $
1.5
    $
    $
1.5
 
 
Troubled Debt Restructurings.
As part of ongoing collection efforts, once an account in our Credit and Other Investments segment is 
90
 days or more past due, the account is placed on a non-accrual status. Placement on a non-accrual status results in the use of programs under which the contractual interest associated with a receivable
may
be reduced or eliminated, or a certain amount of accrued fees is waived, provided a minimum number or amount of payments have been made. Following this adjustment, if a customer demonstrates a willingness and ability to resume making monthly payments and meets certain additional criteria, we will re-age the customer’s account. When we re-age an account, we adjust the status of the account to bring a delinquent account current, but generally do 
not
 make any further modifications to the payment terms or amount owed. Once an account is placed on a non-accrual status, it is closed for further purchases. Accounts that are placed on a non-accrual status and thereafter make at least 
one
 payment qualify as troubled debt restructurings (“TDRs”).
 
The following table details by class of receivable, the number and amount of modified loans, including TDRs that have been re-aged, as of
December 31, 2019
and
December 31, 2018
:
 
   
As of
 
   
December 31, 2019
   
December 31, 2018
 
   
Point-of-sale
   
Direct-to-consumer
   
Point-of-sale
   
Direct-to-consumer
 
Number of TDRs
   
10,682
     
14,553
     
6,095
     
3,584
 
Number of TDRs that have been re-aged
   
2,788
     
2,854
     
2,759
     
1,111
 
Amount of TDRs on non-accrual status (in thousands)
  $
14,468
    $
13,037
    $
4,885
    $
1,942
 
Amount of TDRs on non-accrual status above that have been re-aged (in thousands)
  $
5,118
    $
3,104
    $
3,782
    $
955
 
Carrying value of TDRs (in thousands)
  $
8,864
    $
7,312
    $
3,333
    $
1,363
 
TDRs - Performing (carrying value, in thousands)*
  $
6,754
    $
6,106
    $
2,525
    $
1,191
 
TDRs - Nonperforming (carrying value, in thousands)*
  $
2,110
    $
1,206
    $
808
    $
172
 
*“TDRs - Performing” include accounts that are current on all amounts owed, while “TDRs - Nonperforming” include all accounts with past due amounts owed.
 
Given that the above TDRs have a high reserve rate prior to modification as TDRs, we do
not
separately reserve or impair these receivables outside of our general reserve process.
 
The Company modified
31,409
and
21,997
accounts in the amount of
$43.3
million and
$33.2
 million during the
twelve
month periods ended
December 31, 2019
 and
December 31, 2018
, respectively, that qualified as TDRs. The following table details by class of receivable, the number of accounts and balance of loans that completed a modification (including those that were classified as TDRs) within the prior
twelve
months and subsequently defaulted.
 
   
Twelve Months Ended
 
   
December 31, 2019
   
December 31, 2018
 
   
Point-of-sale
   
Direct-to-consumer
   
Point-of-sale
   
Direct-to-consumer
 
Number of accounts
   
2,835
     
3,339
     
6,903
     
5,415
 
Loan balance at time of charge off (in thousands)
  $
4,397
    $
3,545
    $
9,634
    $
4,963
 
 
Property at Cost, Net of Depreciation
 
We capitalize costs related to internal development and implementation of software used in our operating activities in accordance with applicable accounting literature. These capitalized costs consist almost exclusively of fees paid to
third
-party consultants to develop code and install and test software specific to our needs and to customize purchased software to maximize its benefit to us.
 
We record our property at cost less accumulated depreciation or amortization. We compute depreciation expense using the straight-line method over the estimated useful lives of our assets, which are approximately
5
years for furniture, fixtures and equipment, and
3
years for computers and software. We amortize leasehold improvements over the shorter of their estimated useful lives or the terms of their respective underlying leases.
 
We periodically review our property to determine if it is impaired. We incurred
no
impairment costs in
2019
and
no
 impairment costs in
2018
.
 
Investment in Equity-Method Investee
 
We account for an investment using the equity method of accounting if we have the ability to exercise significant influence, but
not
control, over the investee. Significant influence is generally deemed to exist based on ownership interest, although other factors, such as representation on an investee’s board of managers, specific voting and veto rights held by each investor and the effects of commercial arrangements, are considered in determining whether equity method accounting is appropriate. We record our interests in the income of our equity-method investee within the equity in income of equity-method investee category on our consolidated statements of operations.
 
We use the equity method for our
66.7%
investment in a limited liability company formed in
2004
to acquire a portfolio of credit card receivables. We account for this investment using the equity method of accounting due to specific voting and veto rights held by each investor, which do
not
allow us to control this investee.
 
We evaluate our investments in the equity-method investee for impairment each quarter by comparing the carrying amount of the investment to its fair value. Because
no
active market exists for the investee’s limited liability company membership interests, we evaluate our investment for impairment based on our evaluation of the fair value of the equity-method investee’s net assets relative to its carrying value. If we ever were to determine that the carrying value of our investment in the equity-method investee was greater than its fair value, we would write the investment down to its fair value.
 
Prepaid Expenses and Other Assets
 
Prepaid expenses and other assets include amounts paid to 
third
 parties for marketing and other services as well as amounts owed to us by 
third
 parties. Prepaid amounts are expensed as the underlying related services are performed.  Also included are (
1
) commissions paid associated with our various office leases which we amortize into expense over the lease terms, (
2
) ongoing deferred costs associated with service contracts and (
3
) investments in consumer finance technology platforms carried at the lower of cost or market valuation.
 
Accounts Payable and Accrued Expenses
 
Accounts payable and accrued expenses reflect both the billed and unbilled amounts owed at the end of a period for services rendered. Commencing in
July 2019,
accounts payable and accrued expenses includes payments owed under a deferred payment program started with an unrelated
third
-party for a portion of our marketing expenditures. As a result of this agreement, we were able to extend the payment terms associated with our growing marketing spend between
10
-
37
months. Also included within accounts payable and accrued expenses are amounts which
may
be payable in respect of
one
of our portfolios.
 
Revenue Recognition and Revenue from Contracts with Customers
 
Consumer Loans, Including Past Due Fees
 
Consumer loans, including past due fees reflect interest income, including finance charges, and late fees on loans in accordance with the terms of the related customer agreements. Premiums, discounts and merchant fees paid or received associated with an installment or auto loan are generally deferred and amortized over the average life of the related loans using the effective interest method. Finance charges and fees, net of amounts that we consider uncollectible, are included in loans, interest and fees receivable and revenue when the fees are earned based upon the contractual terms of the loans.
 
Fees and Related Income on Earning Assets
 
Fees and related income on earning assets primarily include: (
1
) fees associated with the credit products, including the receivables underlying our U.S. point-of-sale finance and direct-to-consumer platform, and our legacy credit card receivables; (
2
) changes in the fair value of loans, interest and fees receivable recorded at fair value; (
3
) changes in fair value of notes payable associated with structured financings recorded at fair value; and (
4
) gains or losses associated with our investments in securities. 
 
We assess fees on credit card accounts underlying our credit card receivables according to the terms of the related cardholder agreements and, except for annual membership fees, we recognize these fees as income when they are charged to the customers’ accounts. We accrete annual membership fees associated with our credit card receivables into income on a straight-line basis over the cardholder privilege period which is generally
12
months. Similarly, fees on our other credit products are recognized when earned, which coincides with the time they are charged to the customer’s account. Fees and related income on earning assets, net of amounts that we consider uncollectible, are included in loans, interest and fees receivable and revenue when the fees are earned based upon the contractual terms of the loans.
 
The components (in thousands) of our fees and related income on earning assets are as follows:
 
   
Year Ended December 31,
 
   
2019
   
2018
 
Fees on credit products
  $
68,639
    $
25,694
 
Changes in fair value of loans, interest and fees receivable recorded at fair value
   
1,251
     
606
 
Changes in fair value of notes payable associated with structured financings recorded at fair value
   
1,731
     
3,589
 
Other
   
(474
)    
103
 
Total fees and related income on earning assets
  $
71,147
    $
29,992
 
 
The above changes in the fair value of loans, interest and fees receivable recorded at fair value category exclude the impact of current period charge offs associated with these receivables which are separately stated in Net losses upon impairment of loans, interest and fees receivable recorded at fair value on our consolidated statements of operations. See Note
6,
“Fair Values of Assets and Liabilities,” for further discussion of these receivables and their effects on our consolidated statements of operations.
 
Other income
 
Other income includes revenues associated with ancillary product offerings and interchange revenues.  We recognize these fees as income in the period earned. Included in Other income for
2019
is
$105.9
million associated with reductions in accruals related to
one
of our portfolios. The accrual was based upon our estimate of the amount that
may
be claimed by customers and was based upon several factors including customer claims volume, average claim amount and a determination of the amount, if any, which
may
be offered to resolve such claims. The assumptions used in the accrual estimate were subjective, mainly due to uncertainty associated with future claims volumes and the resolution costs, if any, per claim. As of 
December 31, 2019,
we had
no
reserves associated with this matter. For
2018,
Other income also includes the receipt of 
£34
million (approximately
$42.9
 million) in settlement of litigation, resulting in income recognition of approximately
$36.2
million after adjusting for amounts previously recorded.  
 
Revenue from Contracts with Customers
 
In the
first
quarter of
2018
, we adopted Accounting Standards Update (“ASU”)
No.
2014
-
09,
“Revenue from Contracts with Customers” under the modified retrospective transition method. There was
no
material change in the timing of revenue recognition upon adoption. The majority of our revenue is earned from financial instruments and is
not
included within the scope of this standard. We have determined that revenue from contracts with customers would primarily consist of interchange revenues in our Credit and Other Investments segment and servicing revenue and other customer-related fees in both our Credit and Other Investments segment and our Auto Finance segment. Servicing revenue is generated by meeting contractual performance obligations related to the collection of amounts due on receivables, and is settled with the customer net of our fee. Revenue from these contracts with customers is included as a component of Other income on our consolidated statements of operations. Service charges and other customer related fees are earned from customers based on the occurrence of specific services that do
not
result in an ongoing obligation beyond what has already been rendered. Components (in thousands) of our revenue from contracts with customers is as follows:
 
   
Credit and
     
 
 
   
 
 
For the Year ended December 31, 2019
 
Other Investments
   
Auto Finance
   
Total
 
Interchange revenues, net (1)
  $
8,495
    $
    $
8,495
 
Servicing income
   
857
     
929
     
1,786
 
Service charges and other customer related fees
   
3,407
     
66
     
3,473
 
Total revenue from contracts with customers
  $
12,759
    $
995
    $
13,754
 
(
1
) Interchange revenue is presented net of customer reward expense.
 
 
   
Credit and
     
 
 
   
 
 
For the Year ended December 31, 2018
 
Other Investments
   
Auto Finance
   
Total
 
Interchange revenues, net (1)
  $
2,881
    $
    $
2,881
 
Servicing income
   
947
     
1,022
     
1,969
 
Service charges and other customer related fees
   
637
     
69
     
706
 
Total revenue from contracts with customers
  $
4,465
    $
1,091
    $
5,556
 
(
1
) Interchange revenue is presented net of customer reward expense.
 
Card and Loan Servicing Expenses
 
Card and loan servicing costs primarily include collections and customer service expenses. Within this category of expenses are personnel, service bureau, cardholder correspondence and other direct costs associated with our collections and customer service efforts. Card and loan servicing costs also include outsourced collections and customer service expenses. We expense card and loan servicing costs as we incur them, with the exception of prepaid costs, which we expense over respective service periods.
 
Marketing and Solicitation Expenses
 
We expense product solicitation costs, including printing, credit bureaus, list processing, telemarketing, postage, and internet marketing fees, as we incur these costs or expend resources. 
 
Recent Accounting Pronouncements
 
In 
June 2016,
the FASB issued ASU
2016
-
13,
Measurement of Credit Losses on Financial Instruments. The guidance requires an assessment of credit losses based on expected rather than incurred losses (known as the current expected credit loss model). This generally will result in the recognition of allowances for losses earlier than under current accounting guidance for trade and other receivables, held to maturity debt securities and other instruments. The FASB has added several technical amendments (ASU
2018
-
19,
2019
-
04,
2019
-
10
and
2019
-
11
) to clarify technical aspects of the guidance and applicability to specific financial instruments or transactions. In
May 2019
the FASB issued ASU
2019
-
05
which allows entities to measure assets in the scope of ASC
326
-
20,
except held to maturity securities, using the fair value option when they adopt the new credit impairment standard. The election can be made on an instrument by instrument basis. The standard will be adopted on a prospective basis with a cumulative-effect adjustment to retained earnings as of the beginning of the
first
reporting period in which the guidance is effective. ASU
2016
-
13
(and ASU
2019
-
05
) was initially effective for annual and interim periods beginning after
December 15, 2019,
with early adoption permitted. The FASB recently delayed the effective date of this standard until annual and interim periods beginning after
December 15, 2022
for non-accelerated and smaller reporting company filers, with early adoption permitted for smaller reporting companies (among others). We are currently in the process of reviewing accounting interpretations, including the recently added fair value option, expected data requirements and necessary changes to our loss estimation methods, processes and systems. This standard is expected to result in an increase to our allowance for loan losses (unless the fair value option is elected) given the change to expected losses for the estimated life of the financial asset. If the fair value option is elected for some or all of our eligible receivables, we would expect an increase in the recorded value of the assets but more potential volatility as these receivables are remeasured each period. The extent of the financial statement impact will depend on the asset quality of the portfolio, and economic conditions and forecasts at adoption.
 
In 
February 2016, 
the FASB issued ASU 
No.
 
2016
-
02,
 Leases, along with subsequent guidance, which requires lessees to recognize assets and liabilities for most leases and changes certain aspects of current lessor accounting, among other things. We adopted these standards using a modified retrospective transition approach for leases existing at, or entered into after,
January 1, 2019
and did
not
restate the comparative periods presented in the Consolidated Financial Statements upon adoption.
 
ASU
2016
-
02
provides a number of optional practical expedients and policy elections in transition. We elected the ‘package of practical expedients’ under which we did
not
reassess prior conclusions about lease identification, lease classification and initial direct costs. We did
not
elect the use-of-hindsight or the practical expedient pertaining to land easements, the latter
not
being applicable to us. We also elected the short-term lease recognition exemption for all leases that qualify, meaning we do
not
recognize right-of-use assets or lease liabilities for these short term leases. 
 
Upon adoption, we recognized additional lease liabilities of
$30.2
million and a corresponding right-of-use asset of
$18.6
million with a
$0.6
million cumulative effect on our opening retained deficit. The impact of our status as a lessor in the sublease arrangements we maintain did
not
result in a material change upon adoption. See Note
8,
"Leases" for additional disclosure.     
 
Subsequent Events
 
We evaluate subsequent events that occur after our consolidated balance sheet date but before our consolidated financial statements are issued. There are
two
types of subsequent events: (
1
) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements; and (
2
) nonrecognized, or those that provide evidence with respect to conditions that did
not
exist at the date of the balance sheet but arose subsequent to that date. We have evaluated subsequent events occurring after
December 31, 2019
,
and based on our evaluation we did
not
identify any recognized or nonrecognized subsequent events that would have required further adjustments to our consolidated financial statements other than the development described below.
 
As of
January 1, 2020,
we have elected the fair value option to account for certain loans receivable associated with our point-of-sale and direct-to-consumer platform that were originated on or after
January 1, 2020 (
the "Fair Value Receivables"). We believe the use of fair value for these receivables more closely approximates the true economics of these receivables, better matching the yields and corresponding charge-offs. We believe the fair value option also enables us to report GAAP net income that provides increased transparency into our profitability and asset quality. Receivables acquired prior to
January 1, 2020 
will continue to be accounted for in our
2020
 and subsequent financial statements at amortized cost, net. We will estimate the Fair Value Receivables using a discounted cash flow model, which considers various factors such as expected yields on consumer receivables, customer default rates, the timing of expected payments, estimated costs to service the portfolio, interest rates, and valuations of comparable portfolios. As a result of this fair value adoption, our loans, interest and fees receivable acquired subsequent to
January 1, 2020 
will be carried at fair value with changes in fair value recognized directly in earnings, and certain fee billings (such as annual membership fees and merchant fees) and origination costs associated with these receivables will
no
longer be deferred. We will reevaluate the fair value of our Fair Value Receivables at the end of each quarter.
 
On
January 30, 2020,
the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-
19
outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In
March 2020,
the WHO classified the COVID-
19
outbreak as a pandemic, based on the rapid increase in exposure globally.
 
The full impact of the COVID-
19
outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the magnitude of the effect the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the global situation on its financial condition, liquidity, operations, industry, and workforce. Given the daily evolution of the COVID-
19
outbreak and the global responses to curb its spread, it is premature for the Company to estimate the effects of the COVID-
19
outbreak on its results of operations, financial condition, or liquidity for fiscal year
2020.