LOANS RECEIVABLE

Loans receivable consists of the following:



(In millions)	As of December 31, 2017
	Dealer Loans			Purchased Loans			Total
Loans receivable	$	3,518.1		$	1,530.9		$	5,049.0
Allowance for credit losses	(366.0		)	(63.4		)	(429.4		)
Loans receivable, net	$	3,152.1		$	1,467.5		$	4,619.6

(In millions)	As of December 31, 2016
	Dealer Loans			Purchased Loans			Total
Loans receivable	$	3,209.0		$	998.0		$	4,207.0
Allowance for credit losses	(309.3		)	(11.1		)	(320.4		)
Loans receivable, net	$	2,899.7		$	986.9		$	3,886.6

A summary of changes in Loans receivable is as follows:



(In millions)	For the Year Ended December 31, 2017
	Dealer Loans			Purchased Loans			Total
Balance, beginning of period	$	3,209.0		$	998.0		$	4,207.0
New Consumer Loan assignments (1)	1,968.3			904.8			2,873.1
Principal collected on Loans receivable	(1,729.9		)	(459.6		)	(2,189.5		)
Accelerated Dealer Holdback payments	47.1			—			47.1
Dealer Holdback payments	131.6			—			131.6
Transfers (2)	(93.1		)	93.1			—
Write-offs	(16.4		)	(5.7		)	(22.1		)
Recoveries (3)	1.5			0.3			1.8
Balance, end of period	$	3,518.1		$	1,530.9		$	5,049.0

(In millions)	For the Year Ended December 31, 2016
	Dealer Loans			Purchased Loans			Total
Balance, beginning of period	$	2,823.4		$	521.7		$	3,345.1
New Consumer Loan assignments (1)	1,881.3			754.2			2,635.5
Principal collected on Loans receivable	(1,668.1		)	(287.7		)	(1,955.8		)
Accelerated Dealer Holdback payments	53.6			—			53.6
Dealer Holdback payments	142.0			—			142.0
Transfers (2)	(10.1		)	10.1			—
Write-offs	(14.4		)	(0.4		)	(14.8		)
Recoveries (3)	1.3			0.1			1.4
Balance, end of period	$	3,209.0		$	998.0		$	4,207.0

(In millions)	For the Year Ended December 31, 2015
	Dealer Loans			Purchased Loans			Total
Balance, beginning of period	$	2,389.8		$	330.0		$	2,719.8
New Consumer Loan assignments (1)	1,795.1			371.9			2,167.0
Principal collected on Loans receivable	(1,548.8		)	(190.8		)	(1,739.6		)
Accelerated Dealer Holdback payments	52.6			—			52.6
Dealer Holdback payments	150.1			—			150.1
Transfers (2)	(10.6		)	10.6			—
Write-offs	(6.4		)	(0.2		)	(6.6		)
Recoveries (3)	1.6			0.2			1.8
Balance, end of period	$	2,823.4		$	521.7		$	3,345.1


(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.

During the fourth quarter of 2017, we transferred $89.0 million of Dealer Loans along with the related allowance for credit losses balance of $31.8 million to Purchased Loans. Under our Portfolio Program, certain events may result in Dealers forfeiting their rights to Dealer Holdback. Substantially all of these transfers relate to Dealers where events had occurred in prior periods that met our criteria for forfeiture. However, while we intended to exercise our rights to Dealer Holdback in the period the forfeiture event occurred, we did not exercise our rights for these Dealers until the fourth quarter of 2017. We also enhanced our accounting methodology for transferring Loans. In the fourth quarter of 2017, we began transferring the related allowance for credit losses balance to Purchased Loans. Prior to the fourth quarter of 2017, rather than transferring the related allowance for credit losses balance to Purchased Loans, we reversed the balance through Dealer Loan provision for credit losses and established a new allowance for credit losses in Purchased Loans through Purchased Loan provision for credit losses.

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 outstanding balance of Loans receivable, net 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 Year Ended December 31, 2017
	Dealer Loans			Purchased Loans			Total
Balance, beginning of period	$	982.6		$	348.1		$	1,330.7
New Consumer Loan assignments (1)	803.0			377.9			1,180.9
Accretion (2)	(766.6		)	(253.6		)	(1,020.2		)
Provision for credit losses	103.4			25.9			129.3
Forecast changes	(5.6		)	41.7			36.1
Transfers (3)	(28.2		)	36.9			8.7
Balance, end of period	$	1,088.6		$	576.9		$	1,665.5

(In millions)	For the Year Ended December 31, 2016
	Dealer Loans			Purchased Loans			Total
Balance, beginning of period	$	874.2		$	198.6		$	1,072.8
New Consumer Loan assignments (1)	782.6			284.7			1,067.3
Accretion (2)	(723.8		)	(159.5		)	(883.3		)
Provision for credit losses	87.3			2.9			90.2
Forecast changes	(35.4		)	15.3			(20.1		)
Transfers (3)	(2.3		)	6.1			3.8
Balance, end of period	$	982.6		$	348.1		$	1,330.7

(In millions)	For the Year Ended December 31, 2015
	Dealer Loans			Purchased Loans			Total
Balance, beginning of period	$	725.2		$	136.5		$	861.7
New Consumer Loan assignments (1)	743.7			138.4			882.1
Accretion (2)	(637.2		)	(102.7		)	(739.9		)
Provision for credit losses	41.8			(0.3		)	41.5
Forecast changes	3.6			20.3			23.9
Transfers (3)	(2.9		)	6.4			3.5
Balance, end of period	$	874.2		$	198.6		$	1,072.8


(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)	Represents finance charges excluding the amortization of deferred direct origination costs for Dealer Loans.


(3)	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 Year Ended December 31, 2017
	Dealer Loans		Purchased Loans		Total
Contractual net cash flows at the time of assignment (1)	$	3,131.6	$	1,973.7	$	5,105.3
Expected net cash flows at the time of assignment (2)	2,771.3		1,282.7		4,054.0
Fair value at the time of assignment (3)	1,968.3		904.8		2,873.1

(In millions)	For the Year Ended December 31, 2016
	Dealer Loans		Purchased Loans		Total
Contractual net cash flows at the time of assignment (1)	$	2,997.0	$	1,553.2	$	4,550.2
Expected net cash flows at the time of assignment (2)	2,663.9		1,038.9		3,702.8
Fair value at the time of assignment (3)	1,881.3		754.2		2,635.5

(In millions)	For the Year Ended December 31, 2015
	Dealer Loans		Purchased Loans		Total
Contractual net cash flows at the time of assignment (1)	$	2,821.4	$	741.1	$	3,562.5
Expected net cash flows at the time of assignment (2)	2,538.8		510.3		3,049.1
Fair value at the time of assignment (3)	1,795.1		371.9		2,167.0

(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 2 to the consolidated financial statements. The following table compares our forecast of Consumer Loan collection rates as of December 31, 2017, with the forecasts as of December 31, 2016, as of December 31, 2015, and at the time of assignment, segmented by year of assignment:



	Forecasted Collection Percentage as of (1)								Current Forecast Variance from
Consumer Loan Assignment Year	December 31, 2017		December 31, 2016		December 31, 2015		Initial Forecast		December 31, 2016		December 31, 2015		Initial Forecast
2008	70.5	%	70.4	%	70.3	%	69.7	%	0.1	%	0.2	%	0.8	%
2009	79.5	%	79.4	%	79.4	%	71.9	%	0.1	%	0.1	%	7.6	%
2010	77.6	%	77.6	%	77.4	%	73.6	%	0.0	%	0.2	%	4.0	%
2011	74.7	%	74.7	%	74.2	%	72.5	%	0.0	%	0.5	%	2.2	%
2012	73.8	%	73.7	%	73.2	%	71.4	%	0.1	%	0.6	%	2.4	%
2013	73.5	%	73.4	%	73.4	%	72.0	%	0.1	%	0.1	%	1.5	%
2014	71.7	%	71.8	%	72.6	%	71.8	%	-0.1	%	-0.9	%	-0.1	%
2015	65.5	%	66.1	%	67.8	%	67.7	%	-0.6	%	-2.3	%	-2.2	%
2016	64.8	%	65.1	%	—		65.4	%	-0.3	%	—		-0.6	%
2017	65.6	%	—		—		64.0	%	—		—		1.6	%

(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. Forecasted collection rates are negatively impacted by canceled Consumer Loans as the contractual amount owed is not removed from the denominator for purposes of computing forecasted collection rates in the table.

Consumer Loans assigned in 2009 through 2013 and 2017 have yielded forecasted collection results materially better than our initial estimates, while Consumer Loans assigned in 2015 have yielded forecasted collection results materially worse than our initial estimates. For Consumer Loans assigned in 2008, 2014 and 2016, actual results have been very close to our initial estimates.

For the year ended December 31, 2017, forecasted collection rates improved for Consumer Loans assigned in 2017, declined for Consumer Loans assigned in 2015 and 2016 and were generally consistent with expectations at the start of the period for all other assignment years presented.

For the year ended December 31, 2016, forecasted collection rates improved for Consumer Loans assigned in 2010 through 2012, declined for Consumer Loans assigned in 2014 and 2015 and were generally consistent with expectations at the start of the period for all other assignment years presented.

In addition to the statistical model used to forecast collection rates, we use a model to forecast the timing of future net cash flows. During the fourth quarter of 2017, we updated our net cash flow timing model to incorporate more recent data. The revised forecast resulted in an expected cash flow stream with a lower net present value as compared to the prior forecast, as less cash flows are expected in earlier periods and more cash flows are expected in later periods.

The reduction in net present value was primarily the result of a change in the expected timing of cash flows from longer-term Consumer Loans. Due to our limited historical experience with longer-term Consumer Loans, our prior model relied on extrapolations from the historical performance of shorter-term Consumer Loans to predict the timing of future net cash flows on longer-term Consumer Loans. We now have additional historical experience on these longer-term loans which we used to refine our estimate.

The revision to our net cash flow timing forecast does not impact the amount of undiscounted net cash flows we expect to receive. As a result, the dollar amount of future net portfolio revenue (finance charges less provision for credit losses) is not impacted by the revision. However, the revision does impact the period in which those net revenues will be recorded as a portion of the impact of the revised timing estimate was recorded as a current period expense and a portion was recorded as a yield adjustment. For the fourth quarter of 2017, the revision increased provision for credit losses by $41.6 million, reduced finance charge revenue by $7.3 million and reduced net income by $30.8 million. The revision reduced the yield on our loan portfolio by 90 basis points, which will impact the timing of revenue recognition in future periods.

During the fourth quarter of 2016, we enhanced our methodology for forecasting the amount and timing of future collections on Consumer Loans through the utilization of more recent data and new forecast variables. Implementation of the enhanced forecasting methodology as of October 31, 2016 did not have a material impact on provision for credit losses or net income, however it did reduce forecasted net cash flows by $1.8 million, all of which related to Dealer Loans. The implementation also decreased the forecasted collection rates for Consumer Loans assigned in 2015 and 2016 and increased the forecasted collection rates for Consumer Loans assigned in 2011 through 2013.

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 amounts 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 December 31, 2017
	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	$	755.2	$	472.7	$	1,227.9	$	2,762.9		$	1,058.2		$	3,821.1
Allowance for credit losses	—		—		—		(366.0		)	(63.4		)	(429.4		)
Loans receivable, net	$	755.2	$	472.7	$	1,227.9	$	2,396.9		$	994.8		$	3,391.7

(In millions)	As of December 31, 2016
	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	$	1,002.2	$	705.8	$	1,708.0	$	2,206.8		$	292.2		$	2,499.0
Allowance for credit losses	—		—		—		(309.3		)	(11.1		)	(320.4		)
Loans receivable, net	$	1,002.2	$	705.8	$	1,708.0	$	1,897.5		$	281.1		$	2,178.6

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



(In millions)	For the Year Ended December 31, 2017
	Dealer Loans			Purchased Loans			Total
Balance, beginning of period	$	309.3		$	11.1		$	320.4
Provision for credit losses	103.4			25.9			129.3
Transfers (1)	(31.8		)	31.8			—
Write-offs	(16.4		)	(5.7		)	(22.1		)
Recoveries (2)	1.5			0.3			1.8
Balance, end of period	$	366.0		$	63.4		$	429.4

(In millions)	For the Year Ended December 31, 2016
	Dealer Loans			Purchased Loans			Total
Balance, beginning of period	$	235.1		$	8.5		$	243.6
Provision for credit losses	87.3			2.9			90.2
Write-offs	(14.4		)	(0.4		)	(14.8		)
Recoveries (2)	1.3			0.1			1.4
Balance, end of period	$	309.3		$	11.1		$	320.4

(In millions)	For the Year Ended December 31, 2015
	Dealer Loans			Purchased Loans			Total
Balance, beginning of period	$	198.1		$	8.8		$	206.9
Provision for credit losses	41.8			(0.3		)	41.5
Write-offs	(6.4		)	(0.2		)	(6.6		)
Recoveries (2)	1.6			0.2			1.8
Balance, end of period	$	235.1		$	8.5		$	243.6


(1)	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. Beginning in the fourth quarter of 2017, we also transfer the related allowance for credit losses balance to Purchased Loans in the period this forfeiture occurs.


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