Description of Our Business

12 Months Ended

Dec. 31, 2011

Description of Our Business [Abstract]

Description of Our Business

1. Description of Our Business

Our accompanying consolidated financial statements include the accounts of CompuCredit Holdings Corporation and those entities we control, principally our majority-owned subsidiaries. We are a provider of various credit and related financial services and products to or associated with the financially underserved consumer credit market-a market represented by credit risks that regulators classify as “sub-prime.” As discussed further below, we reflect our continuing and certain now-discontinued business lines within five reportable segments:  Credit Cards; Investments in Previously Charged-Off Receivables; Retail Micro-Loans; Auto Finance; and Internet Micro-Loans. See also Note 4, “Segment Reporting,” for further details.

Our current business includes the collection of portfolios of credit card receivables underlying now-closed credit card accounts within our Credit Cards segment. We previously marketed these accounts in connection with and acquired receivables underlying the accounts from third-party financial institutions generally in daily transactions, and we also purchased portfolios of credit card receivables underlying open credit card accounts from third-party financial institutions. Given the global financial crisis arising in 2008 and given our own liquidity challenges that arose from that crisis, we worked with our third-party financial institution partners to close substantially all of the credit card accounts underlying our credit card receivables portfolios in 2009. The only open credit card accounts underlying our credit card receivables are those generated through our balance transfer program within our Investments in Previously Charged-Off Receivables segment in both the U.S. and the U.K. and through credit card product offerings in the U.K. Several of our portfolios of credit card receivables underlying now-closed accounts are encumbered by non-recourse structured financings, and for some of these portfolios, our only remaining economic interest is the servicing compensation that we receive as an offset against our servicing costs given that the likely future collections on the portfolios are insufficient to allow for full repayment of the financings. We have been successful in one instance in partnering with another financing partner to purchase the debt underlying one such portfolio at a discounted purchase price, and we are pursuing other similar transactions. Beyond these activities within our Credit Cards segment, we are applying the experiences and infrastructure associated with our historic credit card offerings to other credit product offerings, including merchant and private label credit.  Lastly, our Credit Cards segment is engaged in limited investment activities in ancillary finance, technology and other generally non-controlled entities as it seeks to build new products and relationships that could allow for greater utilization of its infrastructure. One such investment was a lending arrangement to a start-up coal strip mine operation located in the state of Alabama, and in late 2011, the lending arrangement was modified to give us a controlling interest in the entity, resulting in its consolidation onto our financial statements as of December 31, 2011.

Additionally, through our Investment in Previously Charged-Off Receivable segment, we have been active for many years and are active currently in purchasing and collecting previously charged-off receivables from third parties and our equity method investees, as well as previously charged-off receivables that we have owned or serviced within our other segment operations. Our portfolio of previously charged-off receivables held is comprised principally of normal delinquency charged-off accounts, charged-off accounts associated with Chapter 13 Bankruptcy-related debt, and charged-off accounts acquired through our Investments in Previously Charged-Off Receivables segment's balance transfer program prior to such time as credit cards are issued relating to the program's underlying accounts (at which time the credit card activity becomes reportable within our Credit Cards segment).

Within our Auto Finance segment, our CAR subsidiary operations are in the business of purchasing and/or servicing auto loans from or for a pre-qualified network of dealers in the buy-here, pay-here used car business; essentially our CAR operations provide a financing source to buy-here, pay-here used car dealerships as our operations stand ready to purchase the dealerships' ongoing originated auto loans at a discount and with dealer holdbacks that provide protections and returns to our CAR operations for the risks that they assume in purchasing the dealers' auto loans. Also within our Auto Finance segment, we are collecting on a couple of portfolios of auto finance receivables that we previously originated through franchised and independent auto dealers in connection with prior business activities.

The last of our current product and service offerings includes a limited test portfolio of small-balance (generally less than $500), short-term loans that we originate over the Internet in the U.S. and to which we refer as “micro-loans.” The results of our continuing U.S. Internet micro-loan testing are reported within our Internet Micro-Loans segment. In accordance with applicable accounting literature, we classified the net assets and liabilities of our MEM business operations as held for sale on our December 31, 2010 consolidated balance sheet, and we have classified our MEM business operations as discontinued operations within our consolidated statements of operations for all periods presented. On April 1, 2011, we completed the sale of these operations for $195.0 million. We received net pre-tax proceeds of $170.5 million after the purchase of minority shares and other transaction-related expenditures, and inclusive of MEM's excess working capital that was returned to us prior to completion of the transaction under the terms of the sales contract.  The sale resulted in a gain (net of related sales expenditures) of $106.0 million which is included as a component of discontinued operations on our consolidated statement of operations for the year ended December 31, 2011.

We also entered into a contract and completed a transaction to dispose of our Retail Micro-Loans segment during 2011.  In accordance with applicable accounting literature, we have classified this segment's business operations as discontinued operations within our consolidated statements of operations for all periods presented. The sales transactions was completed in October 2011 with a subsidiary of Advance America, Cash Advance Centers, Inc. for $46.2 million, comprised of a $45.6 million contract amount and a now final working capital adjustment of approximately $0.6 million. Together with another $9.5 million of excess working capital we received immediately prior to completion of the transaction under its terms, and net of transaction-related expenditures, our final net pre-tax proceeds approximated $53.3 million and resulted in a gain (net of related sales expenditures) of $5.1 million which is included as a component of discontinued operations on our consolidated statement of operations for the year ended December 31, 2011.

In connection with our consideration of a potential spin-off of our U.S. and U.K. micro-loan businesses, one of our subsidiaries, Purpose Financial Holdings, Inc., filed a Form 10 Registration Statement and a related Information Statement with the SEC on January 4, 2010 and amended the Form 10 Registration Statement and related Information Statement in response to SEC comments most recently on November 30, 2010.  On April 13, 2011, we formally requested the withdrawal of this registration statement due to the completion of our MEM sale.