5. LOANS RECEIVABLE

Loans receivable consists of the following:



(In millions)	As of September 30, 2013
	Dealer Loans		Purchased Loans		Total
Loans receivable	$	2,110.0	$	244.3	$	2,354.3
Allowance for credit losses		(180.8)		(10.1)		(190.9)
Loans receivable, net	$	1,929.2	$	234.2	$	2,163.4

(In millions)	As of December 31, 2012
	Dealer Loans		Purchased Loans		Total
Loans receivable	$	1,869.4	$	240.5	$	2,109.9
Allowance for credit losses		(167.4)		(9.0)		(176.4)
Loans receivable, net	$	1,702.0	$	231.5	$	1,933.5

A summary of changes in Loans receivable is as follows:



(In millions)	For the Three Months Ended September 30, 2013
	Dealer Loans		Purchased Loans		Total
Balance, beginning of period	$	2,041.4	$	237.1	$	2,278.5
New Consumer Loan assignments (1)		335.3		33.9		369.2
Principal collected on Loans receivable		(299.1)		(31.4)		(330.5)
Accelerated Dealer Holdback payments		10.4		–		10.4
Dealer Holdback payments		27.8		–		27.8
Transfers (2)		(4.6)		4.6		–
Write-offs		(1.6)		–		(1.6)
Recoveries (3)		0.5		0.1		0.6
Net change in other loans		(0.1)		–		(0.1)
Balance, end of period	$	2,110.0	$	244.3	$	2,354.3

(In millions)	For the Three Months Ended September 30, 2012
	Dealer Loans		Purchased Loans		Total
Balance, beginning of period	$	1,736.6	$	241.2	$	1,977.8
New Consumer Loan assignments (1)		293.3		25.3		318.6
Principal collected on Loans receivable		(252.4)		(32.6)		(285.0)
Accelerated Dealer Holdback payments		9.9		–		9.9
Dealer Holdback payments		27.1		–		27.1
Transfers (2)		(5.9)		5.9		–
Write-offs		(1.5)		–		(1.5)
Recoveries (3)		0.6		–		0.6
Balance, end of period	$	1,807.7	$	239.8	$	2,047.5



(In millions)	For the Nine Months Ended September 30, 2013
	Dealer Loans		Purchased Loans		Total
Balance, beginning of period	$	1,869.4	$	240.5	$	2,109.9
New Consumer Loan assignments (1)		1,048.0		90.2		1,138.2
Principal collected on Loans receivable		(908.4)		(100.0)		(1,008.4)
Accelerated Dealer Holdback payments		30.8		–		30.8
Dealer Holdback payments		86.3		–		86.3
Transfers (2)		(13.5)		13.5		–
Write-offs		(4.6)		(0.1)		(4.7)
Recoveries (3)		1.7		0.2		1.9
Net change in other loans		0.3		–		0.3
Balance, end of period	$	2,110.0	$	244.3	$	2,354.3

(In millions)	For the Nine Months Ended September 30, 2012
	Dealer Loans		Purchased Loans		Total
Balance, beginning of period	$	1,506.5	$	246.4	$	1,752.9
New Consumer Loan assignments (1)		968.7		86.0		1,054.7
Principal collected on Loans receivable		(774.4)		(108.2)		(882.6)
Accelerated Dealer Holdback payments		34.1		–		34.1
Dealer Holdback payments		89.7		–		89.7
Transfers (2)		(16.1)		16.1		–
Write-offs		(2.5)		(0.5)		(3.0)
Recoveries (3)		1.7		–		1.7
Balance, end of period	$	1,807.7	$	239.8	$	2,047.5

(1)The Dealer Loans amount represents advances paid to Dealers on Consumer Loans assigned under our Portfolio Program. The Purchased Loans amount represents one-time payments made to Dealers to purchase Consumer Loans assigned under our Purchase Program.

(2)Under our Portfolio Program, certain events may result in Dealers forfeiting their rights to Dealer Holdback. We transfer the Dealer’s outstanding Dealer Loan balance to Purchased Loans in the period this forfeiture occurs.

(3)Represents collections received on previously written off Loans.

Contractual net cash flows are comprised of the contractual repayments of the underlying Consumer Loans for Dealer and Purchased Loans, less the related Dealer Holdback payments for Dealer Loans. The difference between the contractual net cash flows and the expected net cash flows is referred to as the nonaccretable difference. This difference is neither accreted into income nor recorded in our balance sheets. We do not believe that the contractual net cash flows of our Loan portfolio are relevant in assessing our financial position. We are contractually owed repayments on many Consumer Loans, primarily those older than 120 months, where we are not forecasting any future net cash flows.

The excess of expected net cash flows over the carrying value of the Loans is referred to as the accretable yield and is recognized on a level-yield basis as finance charge income over the remaining lives of the Loans. A summary of changes in the accretable yield is as follows:



(In millions)	For the Three Months Ended September 30, 2013
	Dealer Loans		Purchased Loans		Total
Balance, beginning of period	$	654.8	$	111.3	$	766.1
New Consumer Loan assignments (1)		138.1		13.7		151.8
Finance charge income		(131.0)		(17.7)		(148.7)
Forecast changes		7.6		1.4		9.0
Transfers (2)		(1.9)		3.4		1.5
Balance, end of period	$	667.6	$	112.1	$	779.7

(In millions)	For the Three Months Ended September 30, 2012
	Dealer Loans		Purchased Loans		Total
Balance, beginning of period	$	581.7	$	119.5	$	701.2
New Consumer Loan assignments (1)		127.7		10.8		138.5
Finance charge income		(117.8)		(19.7)		(137.5)
Forecast changes		6.8		1.3		8.1
Transfers (2)		(2.5)		4.2		1.7
Balance, end of period	$	595.9	$	116.1	$	712.0



(In millions)	For the Nine Months Ended September 30, 2013
	Dealer Loans		Purchased Loans		Total
Balance, beginning of period	$	602.9	$	115.2	$	718.1
New Consumer Loan assignments (1)		437.1		37.0		474.1
Finance charge income		(384.5)		(54.6)		(439.1)
Forecast changes		17.7		5.3		23.0
Transfers (2)		(5.6)		9.2		3.6
Balance, end of period	$	667.6	$	112.1	$	779.7

(In millions)	For the Nine Months Ended September 30, 2012
	Dealer Loans		Purchased Loans		Total
Balance, beginning of period	$	508.0	$	120.1	$	628.1
New Consumer Loan assignments (1)		416.2		38.2		454.4
Finance charge income		(337.3)		(60.3)		(397.6)
Forecast changes		16.3		6.4		22.7
Transfers (2)		(7.3)		11.7		4.4
Balance, end of period	$	595.9	$	116.1	$	712.0

(1)The Dealer Loans amount represents the net cash flows expected at the time of assignment on Consumer Loans assigned under our Portfolio Program, less the related advances paid to Dealers. The Purchased Loans amount represents the net cash flows expected at the time of assignment on Consumer Loans assigned under our Purchase Program, less the related one-time payments made to Dealers.

(2)Under our Portfolio Program, certain events may result in Dealers forfeiting their rights to Dealer Holdback. We transfer the Dealer’s outstanding Dealer Loan balance and related expected future net cash flows to Purchased Loans in the period this forfeiture occurs.

Additional information related to new Consumer Loan assignments is as follows:



(In millions)	For the Three Months Ended September 30, 2013
	Dealer Loans		Purchased Loans		Total
Contractual net cash flows at the time of assignment (1)	$	515.3	$	66.2	$	581.5
Expected net cash flows at the time of assignment (2)		473.4		47.6		521.0
Fair value at the time of assignment (3)		335.3		33.9		369.2

(In millions)	For the Three Months Ended September 30, 2012
	Dealer Loans		Purchased Loans		Total
Contractual net cash flows at the time of assignment (1)	$	454.9	$	50.3	$	505.2
Expected net cash flows at the time of assignment (2)		421.1		36.0		457.1
Fair value at the time of assignment (3)		293.3		25.3		318.6



(In millions)	For the Nine Months Ended September 30, 2013
	Dealer Loans		Purchased Loans		Total
Contractual net cash flows at the time of assignment (1)	$	1,604.0	$	176.0	$	1,780.0
Expected net cash flows at the time of assignment (2)		1,485.1		127.2		1,612.3
Fair value at the time of assignment (3)		1,048.0		90.2		1,138.2

(In millions)	For the Nine Months Ended September 30, 2012
	Dealer Loans		Purchased Loans		Total
Contractual net cash flows at the time of assignment (1)	$	1,496.0	$	173.2	$	1,669.2
Expected net cash flows at the time of assignment (2)		1,384.9		124.2		1,509.1
Fair value at the time of assignment (3)		968.7		86.0		1,054.7

(1)The Dealer Loans amount represents the repayments that we were contractually owed at the time of assignment on Consumer Loans assigned under our Portfolio Program, less the related Dealer Holdback payments that we would be required to make if we collected all of the contractual repayments. The Purchased Loans amount represents the repayments that we were contractually owed at the time of assignment on Consumer Loans assigned under our Purchase Program.

(2)The Dealer Loans amount represents the repayments that we expected to collect at the time of assignment on Consumer Loans assigned under our Portfolio Program, less the related Dealer Holdback payments that we expected to make. The Purchased Loans amount represents the repayments that we expected to collect at the time of assignment on Consumer Loans assigned under our Purchase Program.

(3)The Dealer Loans amount represents advances paid to Dealers on Consumer Loans assigned under our Portfolio Program. The Purchased Loans amount represents one-time payments made to Dealers to purchase Consumer Loans assigned under our Purchase Program.

Credit Quality

We monitor and evaluate the credit quality of Consumer Loans assigned under our Portfolio and Purchase Programs on a monthly basis by comparing our current forecasted collection rates to our initial expectations. For additional information regarding credit quality, see Note 3 to the consolidated financial statements. The following table compares our forecast of Consumer Loan collection rates as of September 30, 2013, with the forecasts as of June 30, 2013, as of December 31, 2012, and at the time of assignment, segmented by year of assignment:



	Forecasted Collection Percentage as of (1)								Variance in Forecasted Collection Percentage from
Consumer Loan Assignment Year	September 30, 2013		June 30, 2013		December 31, 2012		Initial Forecast		June 30, 2013		December 31, 2012		Initial Forecast
2004	73.0	%	73.0	%	73.0	%	73.0	%	0.0	%	0.0	%	0.0	%
2005	73.7	%	73.7	%	73.6	%	74.0	%	0.0	%	0.1	%	(0.3)	%
2006	70.0	%	70.0	%	69.9	%	71.4	%	0.0	%	0.1	%	(1.4)	%
2007	67.9	%	67.9	%	68.0	%	70.7	%	0.0	%	(0.1)	%	(2.8)	%
2008	70.1	%	70.1	%	70.3	%	69.7	%	0.0	%	(0.2)	%	0.4	%
2009	79.2	%	79.2	%	79.5	%	71.9	%	0.0	%	(0.3)	%	7.3	%
2010	77.0	%	77.0	%	77.3	%	73.6	%	0.0	%	(0.3)	%	3.4	%
2011	74.1	%	74.2	%	74.1	%	72.5	%	(0.1)	%	0.0	%	1.6	%
2012	73.5	%	73.4	%	72.2	%	71.4	%	0.1	%	1.3	%	2.1	%
2013 (2)	73.2	%	73.1	%	–		72.0	%	0.1	%	–		1.2	%

(1)	Represents the total forecasted collections we expect to collect on the Consumer Loans as a percentage of the repayments that we were contractually owed on the Consumer Loans at the time of assignment. Contractual repayments include both principal and interest.

(2)

The forecasted collection rate for 2013 Consumer Loans as of September 30, 2013 includes both Consumer Loans that were in our portfolio as of June 30, 2013 and Consumer Loans assigned during the most recent quarter. The following table provides forecasted collection rates for each of these segments:



	Forecasted Collection Percentage as of
2013 Consumer Loan Assignment Period	September 30, 2013	June 30, 2013	Variance
January 1, 2013 through June 30, 2013	73.9%	73.1%	0.8%
July 1, 2013 through September 30, 2013	71.8%	-	-

Advances paid to Dealers on Consumer Loans assigned under our Portfolio Program and one-time payments made to Dealers to purchase Consumer Loans assigned under our Purchase Program are aggregated into pools for purposes of recognizing revenue and evaluating impairment. As a result of this aggregation, we are not able to segment the carrying value of the majority of our Loan portfolio by year of assignment. We are able to segment our Loan portfolio by the performance of the Loan pools. Performance considers both the amount and timing of expected net cash flows and is measured by comparing the balance of the Loan pool to the discounted value of the expected future net cash flows of each Loan pool using the yield established at the time of assignment. The following table segments our Loan portfolio by the performance of the Loan pools:



(In millions)	As of September 30, 2013
	Loan Pool Performance Meets or Exceeds Initial Estimates								Loan Pool Performance Less than Initial Estimates
	Dealer Loans		Purchased Loans			Total			Dealer Loans			Purchased Loans			Total
Loans receivable	$	658.5		$	207.1		$	865.6		$	1,451.5		$	37.2		$	1,488.7
Allowance for credit losses		–			–			–			(180.8)			(10.1)			(190.9)
Loans receivable, net	$	658.5		$	207.1		$	865.6		$	1,270.7		$	27.1		$	1,297.8

(In millions)	As of December 31, 2012
	Loan Pool Performance Meets or Exceeds Initial Estimates								Loan Pool Performance Less than Initial Estimates
	Dealer Loans		Purchased Loans			Total			Dealer Loans			Purchased Loans			Total
Loans receivable	$	564.1		$	205.8		$	769.9		$	1,305.3		$	34.7		$	1,340.0
Allowance for credit losses		–			–			–			(167.4)			(9.0)			(176.4)
Loans receivable, net	$	564.1		$	205.8		$	769.9		$	1,137.9		$	25.7		$	1,163.6

A summary of changes in the allowance for credit losses is as follows:



(In millions)	For the Three Months Ended September 30, 2013
	Dealer Loans		Purchased Loans		Total
Balance, beginning of period	$	175.5	$	10.3	$	185.8
Provision for credit losses		6.4		(0.3)		6.1
Write-offs		(1.6)		–		(1.6)
Recoveries (1)		0.5		0.1		0.6
Balance, end of period	$	180.8	$	10.1	$	190.9

(In millions)	For the Three Months Ended September 30, 2012
	Dealer Loans		Purchased Loans		Total
Balance, beginning of period	$	152.0	$	9.9	$	161.9
Provision for credit losses		10.2		(0.4)		9.8
Write-offs		(1.5)		–		(1.5)
Recoveries (1)		0.6		–		0.6
Balance, end of period	$	161.3	$	9.5	$	170.8



(In millions)	For the Nine Months Ended September 30, 2013
	Dealer Loans		Purchased Loans		Total
Balance, beginning of period	$	167.4	$	9.0	$	176.4
Provision for credit losses		16.3		1.0		17.3
Write-offs		(4.6)		(0.1)		(4.7)
Recoveries (1)		1.7		0.2		1.9
Balance, end of period	$	180.8	$	10.1	$	190.9

(In millions)	For the Nine Months Ended September 30, 2012
	Dealer Loans		Purchased Loans		Total
Balance, beginning of period	$	141.7	$	12.6	$	154.3
Provision for credit losses		20.4		(2.6)		17.8
Write-offs		(2.5)		(0.5)		(3.0)
Recoveries (1)		1.7		–		1.7
Balance, end of period	$	161.3	$	9.5	$	170.8

(1) Represents collections received on previously written off Loans.

During the second quarter of 2013, we enhanced our methodology for forecasting future collections on Loans through the utilization of more recent data, different segmentations and new forecast variables. Implementation of the enhanced forecasting methodology increased the provision for credit losses by $3.0 million for the second quarter of 2013, of which $1.2 million related to Dealer Loans and $1.8 million related to Purchased Loans.