3. 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 consumer loans owned by the Company reduces the outstanding loan balance in the consolidated balance sheets. The liability for estimated losses related to loans guaranteed under the Company’s 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 increased by charge-offs and decreased by recoveries, and the net change is 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 uses a migration analysis to estimate losses inherent in the portfolio once an adequate period of time has elapsed in order for the Company to generate a meaningful indication of performance history. 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 in determining 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. Prior to the establishment of an indicative migration analysis, the Company estimates future losses for its installment loans based on the historical charge-off experience of the total portfolio on a static pool basis.

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, 2016 and 2015 and December 31, 2015 were as follows (dollars in thousands):



	As of			As of			As of
	June 30, 2016			June 30, 2015			December 31, 2015
Short-term loans
Current loans	$	23,726		$	25,573		$	26,304
Delinquent loans	2,539			3,519			2,723
Total consumer loans, gross	26,265			29,092			29,027
Less: Allowance for losses	(1,350		)	(2,106		)	(1,651		)
Consumer loans, net	$	24,915		$	26,986		$	27,376

Installment loans
Current loans	$	1,563		$	2,334		$	2,027
Delinquent loans	1,706			2,500			3,133
Total consumer loans, gross	3,269			4,834			5,160
Less: Allowance for losses	(958		)	(1,427		)	(1,245		)
Consumer loans, net	$	2,311		$	3,407		$	3,915

Total Company-owned consumer loans
Current loans	$	25,289		$	27,907		$	28,331
Delinquent loans	4,245			6,019			5,856
Total consumer loans, gross	29,534			33,926			34,187
Less: Allowance for losses	(2,308		)	(3,533		)	(2,896		)
Consumer loans, net	$	27,226		$	30,393		$	31,291

Changes in the allowance for losses for Company-owned consumer loans and the liability for estimated losses on the Company’s guarantees of third-party lender-owned consumer loans through the CSO programs for the three and six months ended June 30, 2016 and 2015 were as follows (dollars in thousands):



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Short-term loans
Allowance for losses for Company-owned consumer loans:
Balance at beginning of period	$	1,164		$	2,034		$	1,651		$	2,736
Consumer loan loss provision	2,319			1,767			4,692			5,073
Charge-offs	(2,657		)	(4,406		)	(6,228		)	(10,121		)
Recoveries	524			2,711			1,235			4,418
Balance at end of period	$	1,350		$	2,106		$	1,350		$	2,106
Liability for third-party lender-owned consumer loans:
Balance at beginning of period	$	26		$	215		$	30		$	402
Consumer loan loss provision	1			(56		)	(3		)	(243		)
Balance at end of period	$	27		$	159		$	27		$	159

Installment loans
Allowance for losses for Company-owned consumer loans:
Balance at beginning of period	$	1,087		$	1,191		$	1,245		$	1,426
Consumer loan loss provision	1,413			1,965			4,449			3,265
Charge-offs	(2,223		)	(2,007		)	(5,781		)	(3,914		)
Recoveries	681			278			1,045			650
Balance at end of period	$	958		$	1,427		$	958		$	1,427
Liability for third-party lender-owned consumer loans:
Balance at beginning of period	$	494		$	1,026		$	1,956		$	658
Consumer loan loss provision	(181		)	737			(1,643		)	1,105
Balance at end of period	$	313		$	1,763		$	313		$	1,763

Total consumer loans
Allowance for losses for Company-owned consumer loans:
Balance at beginning of period	$	2,251		$	3,225		$	2,896		$	4,162
Consumer loan loss provision ^(a)	3,732			3,732			9,141			8,338
Charge-offs	(4,880		)	(6,413		)	(12,009		)	(14,035		)
Recoveries	1,205			2,989			2,280			5,068
Balance at end of period	$	2,308		$	3,533		$	2,308		$	3,533
Liability for third-party lender-owned consumer loans:
Balance at beginning of period	$	520		$	1,241		$	1,986		$	1,060
Consumer loan loss provision ^(a)	(180		)	681			(1,646		)	862
Balance at end of period	$	340		$	1,922		$	340		$	1,922


^(a)	The sum of the consumer loan loss provision related to the allowance for losses for Company-owned consumer loans and the consumer loan loss provision related to the liability for third-party lender-owned consumer equals the consumer loan loss provision presented on the consolidated statements of income for the respective time periods.

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 the remaining outstanding installment loans that are secured by a customer’s vehicle, which the Company ceased offering in the latter half of 2015. The guarantee represents an obligation to purchase specific loans that go into default.

Short-term loans that the Company guarantees generally have terms of 45 days or less. Unsecured installment loans that the Company guarantees generally have terms of up to twelve months. Secured installment loans that the Company guarantees, which the Company ceased offering in the latter half of 2015, have remaining terms of up to 23 months. As of June 30, 2016 and 2015 and December 31, 2015, the amount of consumer loans guaranteed by the Company, excluding unearned CSO fees, was $7.4 million, $12.9 million and $11.1 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 $0.3 million, $1.9 million and $2.0 million, as of June 30, 2016 and 2015 and December 31, 2015, respectively, is included in “Accounts payable and accrued expenses” in the accompanying consolidated balance sheets.