4. Consumer Loans, Credit Quality Information on Consumer Loans, Allowance and Liability for Estimated Losses on Consumer Loans and Guarantees of Consumer Loans

Consumer loan fee revenue generated from consumer loans for the three and nine months ended September 30, 2014 and 2013 was as follows (dollars in thousands):



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
Interest and fees on short-term loans	$	83,361	$	118,775	$	264,483	$	385,548
Interest and fees on line of credit accounts	80,909		50,504		228,840		102,021
Interest and fees on installment loans	65,165		58,284		195,633		152,630
Total consumer loan revenue	$	229,435	$	227,563	$	688,956	$	640,199

Current and Delinquent Consumer Loans

The Company classifies its consumer loans as either current or delinquent. Short-term loans are considered delinquent when payment of an amount due is not made as of the due date. If a line of credit account or installment loan customer misses one payment, that payment is considered delinquent. The Company does not accrue interest on the delinquent payment portion of the loan but does continue to accrue interest on the remaining portion of the loan. If a line of credit account or installment loan customer does not make two consecutive payments, the entire account or loan is classified as delinquent. The Company allows for normal payment processing time before considering a loan delinquent but does not provide for any additional grace period.

The Company generally does not accrue interest on delinquent consumer loans and does not resume accrual of interest on a delinquent loan unless it is returned to current status. In addition, delinquent consumer loans generally may not be renewed, and if, during its attempt to collect on a delinquent consumer loan, the Company allows additional time for payment through a payment plan or a promise to pay, it is still considered delinquent. Generally, all payments received are first applied against accrued but unpaid interest and fees and then against the principal balance of the loan.

Allowance and Liability for Estimated Losses on Consumer Loans

The Company monitors the performance of its consumer loan portfolio and maintains either an allowance or liability for estimated losses on consumer loans (including fees and interest) at a level estimated to be adequate to absorb credit losses inherent in the portfolio. The allowance for losses on the Company’s owned consumer loans reduces the outstanding loan balance in the consolidated balance sheets. The liability for estimated losses related to loans guaranteed under its credit services organization and credit access business programs (“CSO programs”) is initially recorded at fair value and is included in “Accounts payable and accrued expenses” in the consolidated balance sheets.

In determining the allowance or liability for estimated losses on consumer loans, the Company applies a documented systematic methodology. In calculating the allowance or liability for loan losses, outstanding loans are divided into discrete groups of short-term loans, line of credit accounts and installment loans and are analyzed as current or delinquent. Increases in either the allowance or the liability, net of charge-offs and recoveries, are recorded as a “Consumer loan loss provision” in the consolidated statements of income.

The allowance or liability for short-term loans classified as current is based on historical loss rates adjusted for recent default trends for current loans. For delinquent short-term loans, the allowance or liability is based on a six-month rolling average of loss rates by stage of collection. For line of credit accounts and installment loan portfolios, the Company generally uses a migration analysis to estimate losses inherent in the portfolio. The allowance or liability calculation under the migration analysis is based on historical charge-off experience and the loss emergence period, which represents the average amount of time between the first occurrence of a loss event to the charge-off of a loan. The factors the Company considers to assess the adequacy of the allowance or liability include past due performance, historical behavior of monthly vintages, underwriting changes and recent trends in delinquency in the migration analysis.

The Company fully reserves and generally charges off consumer loans once the loan or a portion of the loan has been classified as delinquent for 60 consecutive days. If a loan is deemed uncollectible before it is fully reserved, it is charged off at that point. Consumer loans classified as delinquent generally have an age of one to 59 days from the date any portion of the loan became delinquent, as defined above. Recoveries on loans previously charged to the allowance are credited to the allowance when collected.

The components of Company-owned consumer loan portfolio receivables as of September 30, 2014 and 2013 and December 31, 2013 were as follows (dollars in thousands):



	As of September 30, 2014
	Short-term Loans			Line of Credit Accounts			Installment Loans			Total
Current loans	$	69,389		$	118,329		$	180,650		$	368,368
Delinquent loans:
Delinquent payment amounts^(a)	—			4,335			3,069			7,404
Loans on non-accrual status	24,412			5,611			17,699			47,722
Total delinquent loans	24,412			9,946			20,768			55,126
Total consumer loans, gross	93,801			128,275			201,418			423,494
Less: allowance for losses	(21,065		)	(22,673		)	(31,531		)	(75,269		)
Consumer loans, net	$	72,736		$	105,602		$	169,887		$	348,225
	As of September 30, 2013
	Short-term Loans			Line of Credit Accounts			Installment Loans			Total
Current loans	$	103,320		$	87,554		$	155,100		$	345,974
Delinquent loans:
Delinquent payment amounts^(a)	—			2,242			2,968			5,210
Loans on non-accrual status	41,706			9,810			15,537			67,053
Total delinquent loans	41,706			12,052			18,505			72,263
Total consumer loans, gross	145,026			99,606			173,605			418,237
Less: allowance for losses	(34,829		)	(21,934		)	(33,193		)	(89,956		)
Consumer loans, net	$	110,197		$	77,672		$	140,412		$	328,281
	As of December 31, 2013
	Short-term Loans			Line of Credit Accounts			Installment Loans			Total
Current loans	$	101,379		$	111,822		$	168,221		$	381,422
Delinquent loans:
Delinquent payment amounts^(a)	—			4,146			3,902			8,048
Loans on non-accrual status	29,857			9,834			17,546			57,237
Total delinquent loans	29,857			13,980			21,448			65,285
Total consumer loans, gross	131,236			125,802			189,669			446,707
Less: allowance for losses	(24,425		)	(29,784		)	(33,657		)	(87,866		)
Consumer loans, net	$	106,811		$	96,018		$	156,012		$	358,841


(a)	Represents the delinquent portion of installment and line of credit account balances for customers that have only missed one payment. See “Current and Delinquent Consumer Loans” above for additional information.

Changes in the allowance for losses for the Company-owned loans and the liability for estimated losses on the Company’s guarantees of third-party lender-owned loans through the CSO programs during the three and nine months ended September 30, 2014 and 2013 were as follows (dollars in thousands):



	Three Months Ended September 30, 2014
	Short-term Loans			Line of Credit Accounts			Installment Loans			Total
Allowance for losses for Company-owned consumer loans:
Balance at beginning of period	$	21,679		$	21,578		$	28,930		$	72,187
Consumer loan loss provision	25,709			25,913			30,555			82,177
Charge-offs	(33,387		)	(29,842		)	(34,843		)	(98,072		)
Recoveries	7,064			5,024			6,889			18,977
Balance at end of period	$	21,065		$	22,673		$	31,531		$	75,269
Liability for third-party lender-owned consumer loans:
Balance at beginning of period	$	2,021		$	—		$	1,155		$	3,176
Decrease in liability	(128		)	—			(516		)	(644		)
Balance at end of period	$	1,893		$	—		$	639		$	2,532
	Three Months Ended September 30, 2013
	Short-term Loans			Line of Credit Accounts			Installment Loans			Total
Allowance for losses for Company-owned consumer loans:
Balance at beginning of period	$	42,068		$	10,649		$	27,146		$	79,863
Consumer loan loss provision	42,032			25,140			32,738			99,910
Charge-offs	(58,862		)	(15,414		)	(30,762		)	(105,038		)
Recoveries	9,591			1,559			4,071			15,221
Balance at end of period	$	34,829		$	21,934		$	33,193		$	89,956
Liability for third-party lender-owned consumer loans:
Balance at beginning of period	$	2,439		$	—		$	608		$	3,047
(Decrease) increase in liability	(226		)	—			9			(217		)
Balance at end of period	$	2,213		$	—		$	617		$	2,830



	Nine Months Ended September 30, 2014
	Short-term Loans			Line of Credit Accounts			Installment Loans			Total
Allowance for losses for Company-owned consumer loans:
Balance at beginning of period	$	24,425		$	29,784		$	33,657		$	87,866
Consumer loan loss provision	73,392			71,074			85,804			230,270
Charge-offs	(102,846		)	(90,984		)	(106,733		)	(300,563		)
Recoveries	26,094			12,799			18,803			57,696
Balance at end of period	$	21,065		$	22,673		$	31,531		$	75,269
Liability for third-party lender-owned consumer loans:
Balance at beginning of period	$	2,322		$	—		$	758		$	3,080
Decrease in liability	(429		)	—			(119		)	(548		)
Balance at end of period	$	1,893		$	—		$	639		$	2,532
	Nine Months Ended September 30, 2013
	Short-term Loans			Line of Credit Accounts			Installment Loans			Total
Allowance for losses for Company-owned consumer loans:
Balance at beginning of period	$	45,982		$	11,107		$	28,614		$	85,703
Consumer loan loss provision	130,624			41,612			80,206			252,442
Charge-offs	(172,504		)	(35,490		)	(86,237		)	(294,231		)
Recoveries	30,727			4,705			10,610			46,042
Balance at end of period	$	34,829		$	21,934		$	33,193		$	89,956
Liability for third-party lender-owned consumer loans:
Balance at beginning of period	$	2,934		$	—		$	564		$	3,498
(Decrease) increase in liability	(721		)	—			53			(668		)
Balance at end of period	$	2,213		$	—		$	617		$	2,830

Guarantees of Consumer Loans

In connection with its CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for short-term loans, unsecured installment loans and installment loans that are secured by a customer’s vehicle and is required to purchase any defaulted loans it has guaranteed. The guarantee represents an obligation to purchase specific loans that go into default. Short-term loans that are guaranteed generally have terms of less than 90 days. Unsecured installment loans that are guaranteed generally have terms of up to eight months. Loans secured by a customer’s vehicle, which are included in the Company’s installment loan portfolio, that are guaranteed typically have available terms of up to 60 months. As of September 30, 2014 and 2013 and December 31, 2013, the amount of consumer loans guaranteed by the Company was $47.3 million, $50.1 million and $59.0 million, respectively, representing amounts due under consumer loans originated by third-party lenders under the CSO programs. The liability for estimated losses on consumer loans guaranteed by the Company of $2.5 million, $2.8 million and $3.1 million, as of September 30, 2014 and 2013 and December 31, 2013, respectively, is included in “Accounts payable and accrued expenses” in the accompanying consolidated balance sheets.