5. Consumer Loans, Credit Quality Information and Allowances and Liabilities for Estimated Losses on Consumer Loans

The Company's consumer loan portfolio consists of consumer loans the Company originates, guarantees or purchases and includes: short-term loans, which include single payment loans and certain two-payment loans in the United Kingdom (commonly referred to as payday loans) as well as line of credit accounts, and longer-term multi-payment installment loans. Consumer loans provide customers with cash, typically in exchange for a promissory note or other repayment agreement supported, in most cases, by the customer's personal check or authorization to debit the customer's bank account via an electronic transaction for the aggregate amount of the payment due. These transactions result in a receivable or a loan, owed to the Company or a third-party lender that the Company guarantees.

Through the Company's credit services organization programs (the “CSO programs”), the Company provides services related to a third-party lender's consumer loan products in some markets by acting as a credit services organization or credit access business on behalf of consumers in accordance with applicable state laws. Services offered under the CSO programs include credit related services such as arranging loans with independent third-party lenders and assisting in the preparation of loan applications and loan documents. Under the CSO programs, the Company also guarantees consumer loan payment obligations to the third-party lender in the event that the consumer defaults on the loan. A customer who obtains a loan through the CSO programs pays the Company a fee for these credit services, which are recorded as “Consumer loan fees” in the consolidated statement of income.

Although consumer loan transactions may take the form of loans or a line of credit, deferred check deposit transactions or transactions through the Company's CSO programs, the transactions are referred to throughout this discussion as “consumer loans.” Consumer loan fee revenue generated from the Company's consumer loans, CSO programs and related activities for the three and nine months ended September 30, 2012 and 2011 was as follows (dollars in thousands):

The Company monitors the performance of its portfolio of consumer loans 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. In addition, the Company maintains a liability for estimated losses related to loans guaranteed under the CSO programs, which approximates the fair value of the liability and is included in “Accounts payable and accrued expenses” on the consolidated balance sheets.

In determining the allowance or liability for estimated losses on consumer loans, the Company applies a documented systematic methodology. Outstanding loans are divided into discrete groups of short-term loans and installment loans and are analyzed as performing or nonperforming. Single payment and certain two payment loans in the United Kingdom are considered nonperforming as of the payment due date when payment of an amount due has not been made as of that date. Installment loans and line of credit accounts are considered nonperforming if the customer does not make two consecutive payments. The Company allows for normal payment processing time for each of these loans before considering them nonperforming.

Where permitted by law, a customer may choose to renew a loan contract or extend the due date on a short-term loan (excluding a line of credit account) before it is considered nonperforming by agreeing to pay the current finance charge for the right to make a later payment of the outstanding principal balance plus an additional finance charge. The Company began offering extensions on certain of its short-term loans in August 2012, and all references to renewals include both renewals and extensions made by customers to their existing short-term loans. In some instances in the United Kingdom, customers agree to repay a new short-term loan in two payments, and in these cases the Company considers the obligation to make the first payment a new single-payment loan and the obligation to make the second payment a renewal of that loan because the customer pays the finance charge due at the time of each payment, similar to a loan that has been renewed. If a short-term loan is renewed but the customer fails to pay that loan's current finance charge as of its due date (after allowing for normal payment processing time), the unpaid finance charge is reclassified as nonperforming.

The Company does not provide for any grace period when determining the performance status of a consumer loan (other than allowing for normal payment processing time). Nonperforming loans may not be renewed, and if, during its attempt to collect on a nonperforming loan, the Company allows additional time for payment through a payment plan or a promise to pay, it is still considered nonperforming. Nonperforming loans are analyzed by stage of collection. Actual loss experience based on historical loss rates for each discrete group is calculated and adjusted for recent default trends. The required allowance is calculated by applying the resulting adjusted loss rates to each discrete loan group and aggregating the results. 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 Company fully reserves and generally charges off all consumer loans once they have been classified as nonperforming for 60 consecutive days. If a loan is deemed uncollectible before it is fully reserved, it is charged off at that point. All loans included in nonperforming loans have an age of one to 59 days from the date they became nonperforming loans, as defined above. Recoveries on loans previously charged to the allowance are credited to the allowance when collected.

The allowance for losses on consumer loans was $79.2 million, $47.3 million and $63.1 million at September 30, 2012 and 2011 and December 31, 2011, respectively. In connection with its CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders and is required to purchase the loan should a consumer not make payments as required by the contract. The guarantee represents an obligation to purchase specific loans that go into default, which generally have terms of less than 90 days. At September 30, 2012 and 2011 and December 31, 2011, the amount of consumer loans guaranteed by the Company was $55.3 million, $51.2 million and $59.4 million, respectively, representing amounts due under consumer loans originated by third-party lenders under the CSO programs. The estimated fair value of the liability for estimated losses on consumer loans guaranteed by the Company of $3.4 million, $2.5 million and $3.1 million at September 30, 2012 and 2011 and December 31, 2011, respectively, is included in “Accounts payable and accrued expenses” in the accompanying consolidated balance sheets.

The components of Company-owned consumer loan portfolio receivables at September 30, 2012 and 2011 and December 31, 2011 were as follows (dollars in thousands):

	As of September 30, 2012
		Short-term Loans		Installment Loans		Total
Performing loans	$	163,758	$	98,262	$	262,020
Nonperforming loans		57,317		16,734		74,051
Total consumer loans, gross		221,075		114,996		336,071
Less: Allowance for losses		(52,015)		(27,231)		(79,246)
Consumer loans, net	$	169,060	$	87,765	$	256,825

	As of September 30, 2011
		Short-term Loans		Installment Loans		Total
Performing loans	$	137,439	$	44,534	$	181,973
Nonperforming loans		50,268		6,736		57,004
Total consumer loans, gross		187,707		51,270		238,977
Less: Allowance for losses		(38,969)		(8,366)		(47,335)
Consumer loans, net	$	148,738	$	42,904	$	191,642

	As of December 31, 2011
		Short-term Loans		Installment Loans		Total
Performing loans	$	157,056	$	59,146	$	216,202
Nonperforming loans		59,148		10,500		69,648
Total consumer loans, gross		216,204		69,646		285,850
Less: Allowance for losses		(50,129)		(12,943)		(63,072)
Consumer loans, net	$	166,075	$	56,703	$	222,778

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 during the three and nine months ended September 30, 2012 and 2011 were as follows (dollars in thousands):

	Three Months Ended September 30, 2012
	Short-term Loans		Installment Loans		MLOC^(a)		Total

Allowance for losses for Company-owned consumer loans:
Balance at beginning of period	$	50,652	$	19,919	$	-	$	70,571
Consumer loan loss provision		60,502		23,155		-		83,657
Charge-offs		(72,098)		(17,635)		-		(89,733)
Recoveries		12,959		1,792		-		14,751
Balance at end of period	$	52,015	$	27,231	$	-	$	79,246

Liability for third-party lender-owned consumer loans:
Balance at beginning of period	$	2,417	$	378	$	-	$	2,795
Increase in liability		618		24		-		642
Balance at end of period	$	3,035	$	402	$	-	$	3,437

	Three Months Ended September 30, 2011
	Short-term Loans		Installment Loans		MLOC^(a)		Total

Allowance for losses for Company-owned consumer loans:
Balance at beginning of period	$	31,196	$	6,015	$	-	$	37,211
Consumer loan loss provision		50,330		9,896		-		60,226
Charge-offs		(50,254)		(7,944)		-		(58,198)
Recoveries		7,697		399		-		8,096
Balance at end of period	$	38,969	$	8,366	$	-	$	47,335

Liability for third-party lender-owned consumer loans:
Balance at beginning of period	$	1,852	$	285	$	-	$	2,137
Increase in liability		262		88		-		350
Balance at end of period	$	2,114	$	373	$	-	$	2,487

		Nine Months Ended September 30, 2012
		Short-term Loans		Installment Loans		MLOC^(a)		Total

	Allowance for losses for Company-owned consumer loans:
	Balance at beginning of period	$	50,129	$	12,943	$	-	$	63,072
	Consumer loan loss provision		164,415		54,289		-		218,704
	Charge-offs		(194,667)		(44,178)		-		(238,845)
	Recoveries		32,138		4,177		-		36,315
	Balance at end of period	$	52,015	$	27,231	$	-	$	79,246

	Liability for third-party lender-owned consumer loans:
	Balance at beginning of period	$	2,617	$	445	$	-	$	3,062
	Increase (decrease) in liability		418		(43)		-		375
	Balance at end of period	$	3,035	$	402	$	-	$	3,437

		Nine Months Ended September 30, 2011
		Short-term Loans		Installment Loans		MLOC^(a)		Total

	Allowance for losses for Company-owned consumer loans:
	Balance at beginning of period	$	34,455	$	2,988	$	1,510	$	38,953
	Consumer loan loss provision		124,490		21,757		(691)		145,556
	Charge-offs		(142,055)		(17,200)		(1,571)		(160,826)
	Recoveries		22,079		821		752		23,652
	Balance at end of period	$	38,969	$	8,366	$	-	$	47,335

	Liability for third-party lender-owned consumer loans:
	Balance at beginning of period	$	2,610	$	228	$	-	$	2,838
	(Decrease) increase in liability		(496)		145		-		(351)
	Balance at end of period	$	2,114	$	373	$	-	$	2,487
^(a)a a a	Represents micro line of credit ("MLOC") receivables, which are participation interests in receivables acquired from a third-party lender. The Company stopped providing MLOC services on behalf of a third-party lender in October 2010 when the lender discontinued offering MLOC advances.