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

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. Installment loans are considered delinquent when a customer misses two payments. 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. 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 earned fees and interest) at a level estimated to be adequate to absorb credit losses inherent in the portfolio. The allowance for estimated 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 the Company’s credit services organization and credit access business programs (“CSO programs”) is included in “Accounts payable and accrued expenses” in the consolidated balance sheets. Increases or decreases in the allowance and the liability for estimated losses are reduced by charge-offs and increased by recoveries and recorded as “Consumer loan loss provision” in the consolidated statements of income.

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 and installment loans and are analyzed as current or delinquent.

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 installment loans, 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 or charges off consumer loans once the loan has been classified as delinquent for 60 days. If a loan is estimated to be 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 the loan became delinquent, as defined above. Recoveries on loans previously charged to the allowance, including the sale of delinquent loans to unaffiliated third parties, are credited to the allowance when collected or when sold to a third party.

The components of Company-owned consumer loan portfolio receivables as of June 30, 2015 and 2014 and December 31, 2014 were as follows (dollars in thousands):



	As of			As of			As of
	June 30, 2015			June 30, 2014			December 31, 2014
Short-term loans
Current loans	$	25,573		$	37,131		$	38,492
Delinquent loans	3,519			5,613			4,462
Total consumer loans, gross	29,092			42,744			42,954
Less: allowance for losses	(2,106		)	(3,431		)	(2,736		)
Consumer loans, net	$	26,986		$	39,313		$	40,218

Installment loans
Current loans	$	2,334		$	4,786		$	3,486
Delinquent loans	2,500			2,857			2,575
Total consumer loans, gross	4,834			7,643			6,061
Less: allowance for losses	(1,427		)	(962		)	(1,426		)
Consumer loans, net	$	3,407		$	6,681		$	4,635

Total consumer loans
Current loans	$	27,907		$	41,917		$	41,978
Delinquent loans	6,019			8,470			7,037
Total consumer loans, gross	33,926			50,387			49,015
Less: allowance for losses	(3,533		)	(4,393		)	(4,162		)
Consumer loans, net	$	30,393		$	45,994		$	44,853

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 for the three and six months ended June 30, 2015 and 2014 were as follows (dollars in thousands):



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Short-term loans
Allowance for losses for Company-owned consumer loans:
Balance at beginning of period	$	2,034		$	2,593		$	2,736		$	3,960
Consumer loan loss provision	1,767			5,780			5,073			11,229
Charge-offs	(4,406		)	(5,966		)	(10,121		)	(14,286		)
Recoveries	2,711			1,024			4,418			2,528
Balance at end of period	$	2,106		$	3,431		$	2,106		$	3,431
Liability for third-party lender-owned consumer loans:
Balance at beginning of period	$	215		$	268		$	402		$	272
Consumer loan loss provision	(56		)	172			(243		)	168
Balance at end of period	$	159		$	440		$	159		$	440

Installment loans
Allowance for losses for Company-owned consumer loans:
Balance at beginning of period	$	1,191		$	836		$	1,426		$	951
Consumer loan loss provision	1,965			1,731			3,265			3,653
Charge-offs	(2,007		)	(2,104		)	(3,914		)	(4,711		)
Recoveries	278			499			650			1,069
Balance at end of period	$	1,427		$	962		$	1,427		$	962
Liability for third-party lender-owned consumer loans:
Balance at beginning of period	$	1,026		$	989		$	658		$	758
Consumer loan loss provision	737			166			1,105			397
Balance at end of period	$	1,763		$	1,155		$	1,763		$	1,155

Total consumer loans
Allowance for losses for Company-owned consumer loans:
Balance at beginning of period	$	3,225		$	3,429		$	4,162		$	4,911
Consumer loan loss provision	3,732			7,511			8,338			14,882
Charge-offs	(6,413		)	(8,070		)	(14,035		)	(18,997		)
Recoveries	2,989			1,523			5,068			3,597
Balance at end of period	$	3,533		$	4,393		$	3,533		$	4,393
Liability for third-party lender-owned consumer loans:
Balance at beginning of period	$	1,241		$	1,257		$	1,060		$	1,030
Consumer loan loss provision	681			338			862			565
Balance at end of period	$	1,922		$	1,595		$	1,922		$	1,595

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. The guarantee represents an obligation to purchase specific loans that go into default. Short-term loans that the Company guarantees generally have terms of less than 90 days. Unsecured installment loans that the Company guarantees generally have terms of up to twelve months. Secured installment loans that the Company guarantees have terms of up to 48 months. As of June 30, 2015 and 2014 and December 31, 2014, the amount of consumer loans guaranteed by the Company was $12.9 million, $12.5 million and $9.8 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 $1.9 million, $1.6 million and $1.1 million, as of June 30, 2015 and 2014 and December 31, 2014, respectively, is included in “Accounts payable and accrued expenses” in the accompanying consolidated balance sheets.