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2022 ANNUAL REPORT
Corporate Profile
Since 1972, Credit Acceptance has offered financing programs that enable automobile dealers
to sell vehicles to consumers, regardless of their credit history. Our financing programs are offered
through a nationwide network of automobile dealers who benefit from sales of vehicles to
consumers who otherwise could not obtain financing; from repeat and referral sales generated
by these same customers; and from sales to customers responding to advertisements for our
financing programs, but who actually end up qualifying for traditional financing.
Without our financing programs, consumers are often unable to purchase vehicles or they
purchase unreliable ones. Further, as we report to the three national credit reporting agencies,
an important ancillary benefit of our programs is that we provide consumers with an opportunity
to improve their lives by improving their credit score and move on to more traditional sources of
financing. Credit Acceptance is publicly traded on the Nasdaq stock market under the symbol
CACC. For more information, visit CreditAcceptance.com.
We went to a lot of different dealerships and ended up finding
one in Queens. Within an hour, I was approved from Credit
Acceptance, and I was overjoyed. After everything I had been
through, they looked at me and said, ‘“we are going to take
her on, give her an opportunity, give her a chance.” It was
a very easy process. They (Credit Acceptance) accepted
someone who didn’t think they would qualify for anything.
I called (Credit Acceptance) because I had a couple
questions. I wasn’t sure what to expect. Everyone I talked to; I
could literally hear the smile in their voice. It was like they were
happy to hear from me. I felt valued as a person. I didn’t feel
like I was a customer at that point. Those people I talked to, I
wish I could just hug them and thank them for being so kind
to me. I feel like they (Credit Acceptance) saved my life.
– Chandra (Queens, NY)
Shareholder Letter
A message from our Chief Executive Officer
BACK GR OU ND
Credit Acceptance has been in business for over 50 years. We work with independent
and franchise automobile dealers nationwide to enable them to sell vehicles to
consumers who wish to finance their purchase. Our core product has remained
essentially unchanged from Don Foss' initial inspiration, which led him to found the
Company in 1972: we provide auto financing to consumers regardless of their credit
history through a nationwide network of automobile dealers. Dealers can finance any
consumer, regardless of the consumer’s credit history, through Credit Acceptance. This
gives the dealer the ability to sell a vehicle to a consumer who, without us, they might
otherwise have had to turn away.
The auto finance market is large and fragmented, with nearly $1.4 trillion in outstanding
loan balances as of December 31, 2022. We compete with banks, credit unions,
auto finance companies affiliated with auto manufacturers, independent auto finance
companies, and buy here, pay here dealers. Our value proposition in the market is
unique for two reasons. First, consumers are not denied the opportunity to purchase a
vehicle based on their credit history. Second, for most of the vehicle sales we finance,
the dealer shares in the cash flows from the loan.1 Dealers receive 80% of collections
throughout the life of a loan. This compensation plan is a critical element of our success
as it creates an alignment of interests between Credit Acceptance, the dealer, and the
consumer. Through Credit Acceptance, the dealer directly benefits if the consumer’s
loan is repaid and the consumer builds or rebuilds their credit. In turn, consumers are
able to purchase vehicles needed to get to work, attend school, buy fresh groceries, and
access health care; and have an opportunity to build or rebuild their credit. It incentivizes
the dealer to sell a quality vehicle at a price the customer can afford that will last at least
the term of the loan and to help the customer after the sale if there are issues with the
vehicle.
Don Foss learned early in his career as an auto dealer that many individuals could not
acquire vehicles they need due to their lack of credit. Don witnessed traditional lending
sources unfairly misjudge credit-impaired and credit-invisible applicants, assuming the
applicants’ less-than-perfect credit made them undeserving of a second chance. Don
started Credit Acceptance to help those individuals move their lives in a positive direction
by providing them the opportunity to finance a vehicle and establish or reestablish
positive credit history. Don served as our CEO until 2002 and continued to serve on our
Board as Chairman until his retirement in 2017. Don sadly passed away last year on
August 14, 2022, leaving a remarkable legacy. It remains our mission to serve those
individuals he first saw in need.
1 Our company, like most of our competitors, is an indirect auto finance company, which means the financing contract is originated by the
auto dealer and immediately assigned to us in exchange for compensation. The transaction between the dealer and the consumer is not
a loan, but instead something called a retail installment contract. However, for simplicity and to conform to the language commonly used
in the industry and used in our disclosures, I will refer in this letter to retail installment contracts as “loans” and to indirect auto finance
companies as “lenders”.
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2022 ANNUAL REPORT | SHAREHOLDER LETTER2022 ANNUAL REPORT | SHAREHOLDER LETTER Customers we have helped are people like Chandra C. from Queens, a long-time New
Yorker and survivor of the September 11, 2001 terrorist attack. Chandra suffered from
severe health issues which prevented her from driving and taking public transportation.
As a result, Chandra relied heavily on her son for transportation. Misfortune struck
and Chandra’s son was involved in a car accident that totaled his car. Chandra’s son
thankfully escaped the accident without serious physical injury, but they were left without
a car and seemingly no options for finding a replacement. Chandra’s son had no credit
history and needed a co-signer.
Chandra was able to offer little help as she had been the victim of identity theft, which
took a heavy toll on her credit history. Chandra and her son tried tirelessly to purchase
a vehicle, but were time and again denied financing. Their luck changed when they
came across a dealer who—within an hour—helped them finance a car through Credit
Acceptance despite their credit histories. Chandra repaid Credit Acceptance’s faith in her
by making all her payments. We felt honored when Chandra, who helped resuscitate a
coworker who suffered a heart attack on September 11th, referred to us as a “life saver.”
While Chandra’s story is uniquely inspiring, she is not alone. Our potential market is
huge. According to an industry white paper citing Experian® data:
• Approximately 22% (57 million) of adults in the United States have a credit profile
that is considered subprime.
• An additional 14% (35 million) of adults have credit profiles considered near prime.
• 11% (28 million) of adults have no credit score and are considered credit invisible.
• An additional 8% (21 million) of adults have thin credit files or a limited credit history
and are unscorable.
• Only 44% (114 million) of adults have prime credit.
Consistent with Don’s vision, we believe these individuals without prime credit deserve a
chance for a better future.
Credit Acceptance also provides its dealers with a unique opportunity to improve their
financial future. A business relationship with us creates incremental profit for the dealer,
and the potential for incremental repeat and referral business. We have already provided
thousands of dealers with this life-change opportunity and are working hard to grow
those relationships into the future.
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2022 ANNUAL REPORT | SHAREHOLDER LETTER Our dealers are like Randy M., owner of Rob Co. Automotive in Springfield, Tennessee.
As Randy puts it, Rob Co.’s relationship with Credit Acceptance has been a win-win. Our
financing options have allowed him to help consumers in his community who needed
vehicles and, in turn, allowed Rob Co. to grow remarkably in only 7 years. Randy
opened Rob Co. as a dedicated vehicle service facility. His customers asked for the
option to purchase a new vehicle in addition to the opportunity to have their vehicles
serviced. Randy listened and began to sell vehicles, but his ability to help his customers
was constrained. As a family-owned, independent dealership, Rob Co. had limited
financing options for its customers, particularly those without stellar credit histories. After
reading about Credit Acceptance, Randy signed up for our financing programs. Randy
found our financing programs to be fast and easy, and a lifeline during the COVID-19
pandemic. As sales waned during the pandemic, the monthly income from our Portfolio
Program helped Randy cover Rob Co. Automotive’s overhead. Over time, Credit
Acceptance helped Randy’s average monthly sales skyrocket from 5-10 vehicles sold
per month to 30-35, with a personal best of 44 vehicles sold in one month. With access
to our expanded financing programs, Rob Co. now has even more financing options for
prime and near-prime consumers.
HIS TORY
Our business model has been quite successful throughout our history. Before our
initial public offering, we had limited competition and wrote highly profitable business.
After we became publicly traded in 1992, competition intensified, and we struggled for
several years in the mid- to late-1990s. We worked through those challenges and began
focusing on a metric called "Economic Profit." This led to an increased focus on our core
business, and we exited several business lines and geographic locations. This focus has
since guided our success.
Our great team members and culture have allowed us to thrive. Building and enhancing
our culture has been one of our key goals since 2001. Our work environment has
received numerous awards, including being recognized by Fortune magazine in its
annual list of the 100 Best Companies to Work For® for eight of the last nine years.
We have faced and overcome many challenges along the way, most recently the global
pandemic. We transitioned from less than 25% of our team members working remotely
prior to the pandemic to more than 95% of our team members working remotely shortly
after the outset of the pandemic, which led to us adopting a “remote first” strategy to take
advantage of the national talent pool and an increased rate of team member satisfaction.
The pandemic also impacted the competitive market and economic market, and its ripple
effects continue to impact us today.
Since our start, we have focused on the long-term success of the business. With our
focus on economic profit, we have had an even greater focus on investing our capital
wisely, which has consistently allowed us to earn a return on capital well above its cost,
even in years when our loans performed worse than we expected. We have invested
in our core business, and have used excess capital to repurchase stock, buying
approximately 40 million shares from 1999 through 2022. Most notably, we have focused
on applying the many lessons we have learned over the years to improve our product
and our culture. 2022 was no exception.
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2022 ANNUAL REPORT | SHAREHOLDER LETTER2022 ANNUAL REPORT | SHAREHOLDER LETTER TO DAY
We continue to offer a product that provides enormous benefits to our dealers and
their customers, and a culture that attracts talented people around the country to our
Company and enables them to perform to their potential. Highlights of our team and
culture include:
• Our exceptional leaders.
• The executive leadership team includes seven individuals who contributed to
those past successes and two seasoned leaders new to Credit Acceptance.
The team averages 17 years of experience at the Company. I have been with
the Company for over 19 years, primarily as the Chief Financial Officer, and
became the Chief Executive Officer in May 2021. Our Chief Sales Officer,
Chief Analytics Officer, Chief Treasury Officer, Chief Operating Officer, and
Chief People Officer each have been with the Company for over 20 years
and our Chief Legal Officer has been with the Company for over 10 years. To
further enhance our capabilities around engineering and technology, we hired a
new Chief Marketing and Product Officer and a new Chief Technology Officer,
both experienced leaders from outside the Company, in 2022.
• Our senior leadership team, which includes our executives, consists of 33
individuals with an average of 15 years of experience with our Company.
• Our mid-level leadership team consists of 235 individuals with an average of
9 years of experience with our Company. The experience, consistency, and
business knowledge of these leaders are key advantages. Their dedication and
energy have contributed to the Company’s success.
• Our values. We are grounded in our core values of PRIDE: Positive, Respectful,
Insightful, Direct, and Earnest. About ten years ago, our team members were asked
to describe our values and coined the phrase PRIDE. Those values were, and are,
organic to our culture. They are fully integrated into our hiring processes, workplace,
communications, and performance management.
• Our organizational health. We devote a large portion of our time to executing
something we call organizational health—setting clear expectations, managing
performance, providing training, maintaining effective incentive compensation plans,
establishing the right environment, and providing the technology and processes
required for operational excellence. We believe these dimensions position team
members to produce their best work.
• Our environment. 95 percent of our team members considered Credit Acceptance
to be a Great Place to Work® in 2022, according to a survey from the Great Place to
Work Institute.
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2022 ANNUAL REPORT | SHAREHOLDER LETTER Today, consistent with how we addressed past macroeconomic challenges, we are
leveraging our strengths to grow despite the ripple effects of the pandemic as described
in the section entitled “Impact of Business Cycles on our Performance.” And consistent
with our past operating principles, we use Economic Profit as a framework to evaluate
business decisions and strategies, with an objective to maximize Economic Profit
over the long term; we reinvest capital in the business, and we return that capital to
shareholders through share repurchases to the extent we generate capital in excess of
what is needed to fund and invest in the business, as described in the section entitled
“Operating Principles.”
IMPAC T OF B US INE S S C YC LE S ON OU R P ER F OR M AN C E
It is important for shareholders to understand the impact of the external environment on
our performance. Both competitive cycles and economic cycles have affected our results
historically and are likely to do so in the future.
Historically, the auto finance market has been sensitive to changes in access to capital.
When access to capital decreased, competition in our market decreased. We thrived
in such times, as demonstrated by our financial results in late 2007 through 2011 (the
financial crisis triggered by the collapse of the housing market). We withstood the
challenges, outperformed competitors, and positioned the Company to have access
to capital. Conversely, when access to capital increased, competition in our market
generally increased. In such times, we have applied strategies leveraging past lessons
learned and our strengths (e.g., the ability to predict loan performance, deploy risk-
adjusted pricing, monitor loan performance, and execute key functions consistently),
which has allowed us to successfully maintain our business despite the tougher
competition. This is demonstrated by the results we achieved in 2003 through 2007
and 2012 through 2022, when access to capital was readily available and competition
increased. We have consistently maintained a margin of safety in the amount we
advance to dealers, regardless of the cost of capital and the competitive environment.
When volume per dealer has declined, we have generally succeeded in growing the
business by increasing our dealer base.
The competitive environment and economic environment continued to present
challenges for us throughout the majority of 2022. A combination of external events,
however, appears to have led to an increased demand for our product during the second
half of the year: interest rate volatility and concerns about the credit quality of subprime
auto loans constrained the industry's access to capital and increased its cost; vehicle
inventory, while still below pre-pandemic levels, increased, signaling the height of the
vehicle supply shortages may be behind us; and industry reports reflected a return to
a more normal payment status environment with a rising number of consumers falling
behind on payments.
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2022 ANNUAL REPORT | SHAREHOLDER LETTER2022 ANNUAL REPORT | SHAREHOLDER LETTER Economic and Competitive Cycles
Despite the industry challenges in 2022, competition in the market remained strong. The
global pandemic brought an unprecedented challenge to our market. Starting in March
2020, we experienced a decline in the demand for our product as government authorities
placed limits on economic activity in an effort to slow the spread of the virus. Those
limits disrupted the supply chain, which led to a lack of computer chips needed for new
vehicles. That, in turn, created vehicle shortages and drove up vehicle prices, including
for used vehicles, throughout 2020, 2021, and 2022.
The percentage of used loan originations attributable to customers with subprime credit
scores (the primary category of consumer to which our financing programs are made
available by dealers) declined significantly from 2018 to 2022, according to industry
data available from Experian®. Although vehicle values continued to increase from
2021 to 2022, Experian® data shows they increased more modestly than from the prior
period, 2020 to 2021. As I stated earlier, our product allows dealers to make incremental
sales. However, dealers generally make higher profits on higher credit quality and cash
customers. Given limited vehicle inventory and increasing consumer credit scores,
dealers were more likely to sell to higher credit quality and cash customers instead of
those with subprime credit scores who are financing their transactions. This resulted in
reduced demand for our product, beginning in March 2020 through the first half of 2022,
except during periods of government stimulus payments, which had a significant positive
impact on our business.
Starting in the third quarter of 2022, we saw signs suggesting the height of the vehicle
shortage may be behind us. Vehicle inventory held by our dealers increased slightly.
Selling prices of vehicles at auction declined slightly in the third and fourth quarters of
2022. Simultaneously, we experienced year-over-year increased demand for our product
during that time. Our loan unit volume increased in the third quarter of 2022 by 29.3%
compared to the third quarter of 2021, and 25.6% in the fourth quarter of 2022 when
compared to the fourth quarter of 2021. The number of active dealers2 and the average
unit volume per active dealer increased quarter-over-quarter during those periods as
well.
Our loan performance, like others in the industry, significantly exceeded our expectations
during the first quarter of 2022, which was the continuation of a trend that began in the
second half of 2020. Loan performance improved markedly following the distribution
of federal stimulus payments and enhanced unemployment benefits. As a result of the
elevated loan performance sustained over this period, the forecasted profitability of
consumer loans assigned in 2018 through 2020 was significantly better than our initial
estimates.
Loan performance began to moderate in the second quarter of 2022 following a period
of rising inflation, the lapse of federal stimulus payments, and the lapse of enhanced
unemployment benefits.
2 Active dealers are dealers who have received funding for at least one consumer loan during the period.
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2022 ANNUAL REPORT | SHAREHOLDER LETTER As inflation remained elevated in the second half of 2022, industry reports reflected a
rising number of consumers were falling behind on payments. According to Experian®,
the percentage of auto loans 30 days delinquent are near pre-pandemic levels, and the
percentage of auto loans 60 days delinquent surpassed pre-pandemic levels through
year-end of 2022. While our loan performance was below our expectations during the
last three quarters of 2022, the level of underperformance was modest. During 2022, we
reduced our estimate of future cash flows by 0.7% as a result of loan performance.
Presently, we see some signs of economic deterioration. The intensity of competition
appears to have lessened, inflation continues to be elevated, and delinquencies are
increasing. The current competitive and economic cycles have some similarities with
the economic downturn that began to unfold in 2007. 2007 was also a period of intense
competition within our industry. Loans originated during highly competitive periods tend
to perform worse. From April 2008 through October 2009, the national unemployment
rate increased to 10.0% from 5.0%. This combination of events—intense competition,
followed by severe economic deterioration—provided a perfect test of our business
model. While we did experience deterioration in our loan performance, it was modest.
During that time, our adjusted net income per share (diluted) grew 34.3% in 2008
and 48.5% in 2009. In comparison, many of our competitors experienced a much
greater fall-off in their loan performance and reported poor financial results. Because
our competitors have generally targeted low levels of per loan profitability and have
used debt much more extensively than we have, adverse changes in the economic
environment have historically had a much more damaging impact on their results than
on ours.
But unlike the economic downturn beginning in 2007, the unemployment rate as of
December 2022 was low and comparable to pre-pandemic levels. And while the Federal
Reserve continued to raise interest rates throughout 2022 to help combat inflation,
prices remain high, with overall prices up 6.4% year-over-year. New vehicle prices were
up 5.9% year-over-year, down from their peak of 12.6% in May 2022. We continue to
monitor the impact of high inflation on loan performance.
Access To Capital
Supply shortages, government stimulus payments to consumers, and increased
unemployment payments during the pandemic created an imbalance in the supply
and demand relationship leading to higher prices for a broad spectrum of goods and
services. The Federal Reserve sought to combat this decades-high inflation spike,
but interest rate volatility and concerns about the credit quality of subprime auto loans
constrained the industry’s access to capital and increased its cost. The Federal Reserve
increased the federal funds rate multiple times throughout 2022 in an effort to curb
inflation. By the end of 2022, this increased the cost of capital for borrowers.
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2022 ANNUAL REPORT | SHAREHOLDER LETTER2022 ANNUAL REPORT | SHAREHOLDER LETTER We have applied lessons from the past to best position the Company if access to capital
becomes limited. The capital markets became less accessible as 2008 progressed. As
a result, we began to slow originations growth through pricing changes. During 2009,
we continued to slow originations based on the capital we had available. We originated
21.2% less, in dollar volume, than in 2008. While we would have preferred a higher level
of originations, we did not have access to the new capital we would have required on
terms that we found acceptable.
Since 2009, we have taken several steps to improve our position: We have (1)
completed six offerings of senior notes with terms of 5 to 8 years, two series of which
are currently outstanding and which provide us with $800.0 million of long-term-debt
capital; (2) lengthened the terms of certain of our asset-backed financings to over three
years; and (3) increased our revolving credit facilities to $1.6 billion currently from $540.0
million at the end of 2009. We maintain a considerable amount of available borrowing
capacity under our revolving credit facilities at all times and renew these facilities well
before they mature. Although the capital markets have remained volatile, we recently
secured $400.0 million in new asset-backed financing and have $1.5 billion of unused
capacity available.
Lengthening the term of our debt facilities, issuing higher-cost long-term debt, and
keeping available a significant portion of our revolving credit facilities increase our
funding costs and reduce short-term profitability. These steps greatly improve our ability
to fund new loans should capital markets become inaccessible.
OPERATIN G PR INC IPLE S
Economic Profit
We use a financial measure called Economic Profit to evaluate our financial results
and determine profit-sharing for team members. We also use Economic Profit as a
framework to evaluate business decisions and strategies, with an objective to maximize
Economic Profit over the long term. Economic Profit measures how efficiently we utilize
our total capital, both debt and equity, and is a function of the return on capital in excess
of the cost of capital and the amount of capital invested in the business. Economic
Profit differs from net income in that it includes a cost for equity capital. To the extent
we generate capital in excess of what we believe is needed to maximize Economic
Profit, we focus on maximizing Economic Profit per share (diluted) through our share
repurchases approach outlined below. In the "Supplemental Financial Results" section
following this letter, we detail our past Economic Profit and Economic Profit per share
(diluted) performance.
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2022 ANNUAL REPORT | SHAREHOLDER LETTER Investments in the Business
We are investing in our business to make our product more valuable and prepare for
future growth. We increased the size of our Analytics, Product, and Engineering teams
by 57% in 2022, so they now represent 63% of our corporate support team members.
This group of over 600 engineers, product managers, designers, and data scientists,
builds technologies that power our business and provide life-changing opportunities for
our dealers and their customers. By becoming a “remote first” organization, we have
been able to hire throughout the United States and compete for the best talent. I would
like to highlight a couple changes that we believe will make a positive impact.
First, we increased our commitment to engineering and technology to enhance our
product and transform our technology systems to be more dealer- and customer-
focused. The impact of technology on our business is significant. We hired a new Chief
Marketing and Product Officer, Andrew Rostami, in April 2022. Andrew's role is to help
drive future innovation in the ways we interact with and support our customers, both
dealers and consumers, and to study the market to ensure that our customers’ needs
are understood. His role also includes building and maintaining our corporate brand
to increase customer satisfaction and make progress toward our Company goals. To
support these efforts, in October 2022, we hired a Vice President of Product who has 25
years of experience in product management and strategy at both fast-moving start-ups
and large enterprises. We also hired a Vice President of Marketing in September 2022
with almost 20 years of comprehensive marketing experience, including acquisition,
engagement, marketing technology infrastructure, and brand management.
We also hired a new Chief Technology Officer, Ravi Mohan, in October 2022. Ravi
is responsible for the technologies that support our team members, dealers, and
consumers—driving the successful implementation and updates of the tools that grow
the business, as well as providing services and products that help us meet our strategic
Company goals. We expanded our Engineering team by 217 team members and
contractors last year.
Second, through these difficult times, we have remained committed to changing the
lives of our dealers and consumers through our innovative products and solutions. This,
in turn, impacts the lives of team members and shareholders. Our three “Changing
Lives” teams remain focused on improving the experience of dealers, consumers, and
team members. We believe these teams will help us increase our ability to improve the
experience of these three constituents, which will lead to shareholder success.
With regard to our dealers, in 2020, we began piloting enhancements to our financing
programs for consumers with higher credit ratings. These enhancements were rolled out
broadly in the second half of 2021. The Company further enhanced its financing options
for dealers in 2022, in order to provide dealers with more competitive deal structures and
advances and offer more favorable interest rates for qualifying customers.
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2022 ANNUAL REPORT | SHAREHOLDER LETTER2022 ANNUAL REPORT | SHAREHOLDER LETTER With regard to our customers, we focused on the “voice of the customer” by gathering
information from our customers through multiple channels to continue to understand
their evolving needs. We closed the year by piloting a new mobile app for our customers,
and invited all customers to use the app in early 2023. Our customers appeared to be
enthusiastic about the initial invitation, clicking through to access the app at a rate which
significantly exceeded industry benchmarks.
With regard to our team members, we focused on enhancing our remote first work
environment so our team members thrive, and continuing the development of our
leaders and team members to improve engagement and performance. Improving our
culture included a renewed focus on mental health and wellbeing; an emphasis on
purpose and connection; and establishing routine ways for all Company leaders to come
together remotely and in-person.
Share Repurchases
To the extent we generate capital in excess of what’s needed to fund and re-invest in the
business, we will return that capital to shareholders through share repurchases as we
have done in the past. We have used excess capital to repurchase shares when prices
are at or below our estimate of intrinsic value (which is the discounted value of estimated
future cash flows). As long as the share price is at or below our estimate of intrinsic
value, we prefer share repurchases to dividends for several reasons. First, repurchasing
shares below intrinsic value increases the value of the remaining shares. Second,
distributing capital to shareholders through a share repurchase gives shareholders the
option to defer taxes by electing not to sell any of their holdings. A dividend does not
allow shareholders to defer taxes in this manner. Finally, share repurchases enable
shareholders to increase their ownership, receive cash, or do both based on their
individual circumstances and view of the value of a Credit Acceptance share—they do
both if the proportion of shares they sell is smaller than the ownership stake they gain
through the repurchase. A dividend does not provide similar flexibility.
Since beginning our share repurchase program in mid-1999, we have repurchased
approximately 40 million shares at a total cost of $4.8 billion. We actively repurchased
shares in 2021 and 2022 as the pandemic resulted in conditions where we had
significant excess capital and our share price was trading at or below our estimate of
intrinsic value. During 2021, we repurchased approximately 2.9 million shares, which
represented 16.8% of the shares outstanding at the beginning of the year, at a total cost
of $1.5 billion. During 2022, we repurchased approximately 1.5 million shares, which
represented 10.4% of the shares outstanding at the beginning of the year, at a total cost
of $0.8 billion.
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2022 ANNUAL REPORT | SHAREHOLDER LETTER At times, it may appear that we have excess capital, but we won’t be active in
repurchasing our shares. This can occur for several reasons. First, the assessment of
our capital position involves a high degree of judgment. We need to consider future
expected capital needs and the likelihood that this capital will be available. Simply put,
when our debt-to-equity ratio falls below the normal trend line, it doesn’t necessarily
mean we have concluded that we have excess capital. Our first priority is always to
make sure we have enough capital to fund our business, and such assessments are
always made using what we believe are conservative assumptions. Second, we may
have excess capital but conclude our shares are overvalued relative to intrinsic value or
are trading at a level where we believe it’s likely they could be purchased at a lower price
at some point in the future. The assessment of intrinsic value is also highly judgmental.
The final reason we may be inactive in repurchasing shares, when we have excess
capital at a time when the share price is attractive, is that we are in possession of what
we believe to be material information that has not yet been made public. During such
periods, we suspend our share repurchases until the information has been publicly
disclosed.
Unless we disclose a different intention, shareholders should assume we are following
the approach outlined in this section. Our priority is to fund the business. If we conclude
we have excess capital, we will return that capital to shareholders through share
repurchases. If we are inactive for a period, shareholders should not assume that we
believe our shares are overvalued.
LITIGAT ION AN D RE GULATORY M AT T ER S
Shareholders should consider how the litigation and regulatory landscape may impact
their investment in the Company. Since the Company is engaged in active litigation, it is
a topic that I am unable to discuss in this letter in much detail. With that qualification, and
it is a significant one, I will share the following.
First, there are state and federal laws and regulations governing virtually every facet of
the auto finance industry. We have a comprehensive compliance management system to
oversee compliance with those laws. We first documented this system in 2002 and have
enhanced it over time. We believe it is among the best in the industry. Ultimately, we
strive to do what is right and are dedicated to working with dealers to help change lives
of consumers through our product.
Second, we have observed that the regulatory landscape has changed dramatically
over the last several years. Certain regulators are increasingly likely to move toward
enforcement actions or litigation rather than work through perceived differences.
Regulatory expectations are not always communicated clearly, and companies do not
always get credit for strong internal controls. A regulatory environment where laws are
not consistently and fairly applied to regulated entities is challenging.
To manage this risk, we closely follow how agencies, such as the Consumer Financial
Protection Bureau (CFPB or Bureau), state attorneys general, and financial services
regulators, are interpreting the existing laws through their blog posts, circulars, changes
to exam manuals, consent orders, and enforcement actions, and adjust our policies and
procedures as we believe are necessary.
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2022 ANNUAL REPORT | SHAREHOLDER LETTER2022 ANNUAL REPORT | SHAREHOLDER LETTER We support the mission of agencies such as the CFPB, which was created "to
implement and, where applicable, enforce Federal consumer financial law consistently
for the purpose of ensuring all consumers have access to markets for consumer financial
products and services and that markets for consumer financial products and services
are fair, transparent, and competitive.” However, we speak up—and defend ourselves—
where we believe that an agency has overstepped its bounds or has unfairly accused us
of violating the law.
Because we have a matter in active litigation, we must let our court filings speak for
themselves. But we certainly agree with the sentiment expressed by a witness from our
trade association, the American Financial Services Association, who recently observed,
in testimony before a congressional committee, that: “[i]nstead of making a concerted
effort to protect the American consumer, the Bureau has ignored economics, legislation,
bad actors, and its own rulemaking process and instead pursued polices that will limit
consumer credit access. When this occurs, those Americans most in need of financial
help will be the ones hurt.”
Our public disclosures include four pending regulatory matters, with one of those being
in litigation. We have closed six previously disclosed matters since 2014 without any
material changes to the Company. The first of these matters started in mid-2014, which
means we have been subject to almost continuous scrutiny for the last nine years. We
have responded to informational requests on almost every aspect of our business and
produced millions of pages of documents to support those responses.
As I stated above, there isn’t much I can say about the ongoing matters other than that
our intention is to seek common ground where we can and defend ourselves vigorously
when a compromise is unavailable. We take these matters seriously and they have our
full attention.
12
2022 ANNUAL REPORT | SHAREHOLDER LETTER A Final Note
As mentioned earlier, Don Foss, our Founder, our CEO for almost 30 years, and our
Chairman of the Board for 45 years, passed away last year. I was fortunate to be able
to interact with Don during my career here. Don was so different than my preconceived
notion of what a guy, who started with a small, dirt car lot and became one of the largest,
most successful car dealers of all time, would be like. I expected the stereotypical slick,
fast-talking salesman. But instead, he was a quiet, thoughtful, sort of fatherly guy. He
didn’t talk often, but when he did, I made sure to pay attention, as it was generally very
insightful. While he enjoyed the sales process, he was always looking to the future.
He would say, “I was trying to build a business, not sell a car.” This long-term thinking
has been ingrained in the culture of our Company and has greatly contributed to our
success. Don was a wonderful person who touched so many people both individually
and through his businesses. When we were a smaller company, we used to have a
dealer convention and Don was a celebrity to so many. Dealers would stand in line to
have the opportunity to meet him and tell him thanks. Team members adored him as
well. Before he passed, we put a book together with messages from team members that
spanned over 22 pages and was filled with many heartfelt thank yous. He is missed.
Kenneth S. Booth
Chief Executive Officer
March 30, 2023
Certain statements herein are forward-looking statements that are subject to certain risks. Please see “Forward-Looking Statements” on
page 42 of our Annual Report on Form 10-K for the year ended December 31, 2022.
13
2022 ANNUAL REPORT | SHAREHOLDER LETTER2022 ANNUAL REPORT | SHAREHOLDER LETTER KEY OPER AT ING R ES ULT S
At the simplest level, our business success is largely determined by how many loans we
originate and how those loans perform.
Unit Volume
The following table summarizes the growth in number of loans, or unit volume, over the
last 20 years:
Unit volume
Year-to-year change
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Compound annual growth rate 2003 – 2022
61,445
74,154
81,184
91,344
106,693
121,282
111,029
136,813
178,074
190,023
202,250
223,998
298,288
330,710
328,507
373,329
369,805
341,967
268,730
280,467
20.7%
9.5%
12.5%
16.8%
13.7%
−8.5%
23.2%
30.2%
6.7%
6.4%
10.8%
33.2%
10.9%
−0.7%
13.6%
−0.9%
−7.5%
−21.4%
4.4%
8.3%
14
2022 ANNUAL REPORT | SHAREHOLDER LETTER
Unit volume is a function of the number of active dealers and the average volume per
dealer. The following table summarizes the trend in each of these variables over the last
20 years:
Active dealers
Year-to-year change
Unit volume per dealer
Year-to-year change
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
950
1,212
1,759
2,214
2,827
3,264
3,168
3,206
3,998
5,319
6,394
7,247
9,064
10,536
11,551
12,528
13,399
12,690
11,410
11,901
Compound annual growth rate 2003 – 2022
27.6%
45.1%
25.9%
27.7%
15.5%
−2.9%
1.2%
24.7%
33.0%
20.2%
13.3%
25.1%
16.2%
9.6%
8.5%
7.0%
−5.3%
−10.1%
4.3%
14.2%
64.7
61.2
46.2
41.3
37.7
37.2
35.0
42.7
44.5
35.7
31.6
30.9
32.9
31.4
28.4
29.8
27.6
26.9
23.6
23.6
−5.4%
−24.5%
−10.6%
−8.7%
−1.3%
−5.9%
22.0%
4.2%
−19.8%
−11.5%
−2.2%
6.5%
−4.6%
−9.6%
4.9%
−7.4%
−2.5%
−12.3%
0.0%
−5.2%
As the table shows, the gain in unit volume since 2003 has resulted, in most years, from
an increase in the number of active dealers partially offset by a reduction in volume per
dealer. Prior to the pandemic and resulting vehicle shortages, we faced two challenges
in growing unit volume. First, increased competition was making it more difficult to enroll
new dealers and more difficult to retain those who had already enrolled, since they
had more alternatives to choose from. In addition, increased competition was putting
downward pressure on volume per dealer. Second, as the number of active dealers
increased, it became harder to grow at the same rate. The impact of these challenges is
apparent starting in 2017. After strong growth each year from 2011 to 2016, active dealer
growth slowed each year from 2017 to 2019. The number of active dealers declined in
2020 and 2021 as a result of the pandemic and increased modestly during 2022.
15
2022 ANNUAL REPORT | SHAREHOLDER LETTER2022 ANNUAL REPORT | SHAREHOLDER LETTER Loan Performance
The most critical time to correctly assess future loan performance is at loan inception,
since that is when we determine the amount we pay to the dealer.
At loan inception, we use a statistical model to estimate the expected collection rate
for that loan. The statistical model is called a credit scorecard. Most consumer finance
companies use such a tool to forecast the performance of the loans they originate.
Our credit scorecard combines credit bureau data, customer data supplied in the credit
application, vehicle data, dealer data, and data captured from the loan transaction such
as the initial loan term or the amount of the down payment received from the customer.
We developed our first credit scorecard in 1998, which we have revised periodically as
we identified new trends through our evaluation of variances in expected collection rates.
A credit scorecard that is accurate across a population of loans allows us to properly
price new loan originations, which improves the probability that we will realize our
expected returns on capital.
Subsequent to loan inception, we continue to evaluate the expected collection rate for
each loan. Our evaluation becomes more accurate as the loans age, since we use actual
loan performance data in our forecast. By comparing our current expected collection rate
for each loan with the rate we projected at the time of origination, we can assess the
accuracy of that initial forecast.
The following table compares our December 31, 2022 forecast of loan performance with
our initial forecast, segmented by year of origination:
December 31, 2022
forecast
Initial forecast
Variance
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Average
16
73.7%
73.0%
73.6%
70.0%
68.1%
70.4%
79.5%
77.7%
74.7%
73.7%
73.5%
71.7%
65.2%
63.8%
64.7%
65.2%
66.6%
67.8%
66.2%
66.3%
70.3%
72.0%
73.0%
74.0%
71.4%
70.7%
69.7%
71.9%
73.6%
72.5%
71.4%
72.0%
71.8%
67.7%
65.4%
64.0%
63.6%
64.0%
63.4%
66.3%
67.5%
69.3%
1.7%
0.0%
‒0.4%
‒1.4%
‒2.6%
0.7%
7.6%
4.1%
2.2%
2.3%
1.5%
‒0.1%
‒2.5%
‒1.6%
0.7%
1.6%
2.6%
4.4%
‒0.1%
‒1.2%
1.0%
2022 ANNUAL REPORT | SHAREHOLDER LETTER Loan performance can be explained by a combination of internal and external factors.
Internal factors, among other things, include the quality of our origination and collection
processes, the quality of our credit scorecard, and changes in our policies governing
new loan originations. External factors, among other things, include the unemployment
rate, the retail price of gasoline, vehicle wholesale values, and the cost of other required
expenditures (such as for food and energy) that impact consumers. In addition, the level
of competition is thought to impact loan performance through something called adverse
selection.
Adverse selection, as it relates to our market, refers to an inverse correlation between
the number of lenders that are competing for the loan and the accuracy of an empirical
scorecard. Said another way, without any competition it is easier to build a scorecard
that accurately assesses expected collections across a population of loans based on
attributes collected at the time of loan origination. As competition increases, creating an
accurate scorecard becomes more challenging.
To illustrate adverse selection, we will give a simple example. Assume that the scorecard
we use to originate loans is based on a single variable, the amount of the customer’s
down payment, and that the higher the down payment, the higher the expected collection
rate. Assume that for many years, we have no competitors, and we accumulate
performance data indicating that loans with down payments above $1,000 consistently
produce the same average collection rate. Then assume that we begin to compete with
another lender whose scorecard ignores down payment and instead emphasizes the
amount of the customer’s weekly income.
As the new lender begins to originate loans, our mix of loans will be impacted as follows:
We will start to receive loans for borrowers with lower average weekly incomes as the
new lender originates loans for borrowers with higher weekly incomes—i.e., borrowers
whose loans we would have previously originated. Furthermore, since our scorecard
only focuses on down payment, the shift in our borrower mix will not be detected by
our scorecard, and our collection rate expectation will remain unchanged. It is easy
to see that this shift in borrower characteristics will have a negative impact on loan
performance, and that this impact will be missed by our scorecard.
Although the real world is more complex than this simple example—with hundreds
of lenders competing for loans and with each lender using many variables in its
scorecard—adverse selection is something that probably does impact loan performance.
17
2022 ANNUAL REPORT | SHAREHOLDER LETTER2022 ANNUAL REPORT | SHAREHOLDER LETTER Over the 20-year period shown in the table above, our loans have performed on average
100 basis points better than our initial forecasts. Loans originated in eight of the 20
years have yielded actual collection results worse than our initial estimates. What is
noteworthy, however, is that the underperformance was modest. As a result, loans
originated in those eight years were still profitable, even though they performed worse
than we had forecast.
We have understood for many years that expecting to predict the performance of our
loans with exacting precision is not realistic. For this reason, we have made it a priority
to maintain a margin of safety so that, even if our forecasts prove to be optimistic, our
loans, on average, will still be profitable. Because of this approach, we believe we can
withstand a significant deterioration in loan performance and still have an opportunity to
move forward and create significant value for our shareholders.
SUPPL EME N TA L FIN AN CIA L R E SU LTS
GAAP Results
The table below summarizes our results over the last 20 years under accounting
principles generally accepted in the United States of America (GAAP):
GAAP net income
per share (diluted)
Year-to-year change in
GAAP net income per share
Return
on equity1
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0.57
1.40
1.85
1.66
1.76
2.16
4.62
5.67
7.07
8.58
10.54
11.92
14.28
16.31
24.04
29.39
34.57
23.47
59.52
39.32
Compound annual growth rate 2003 – 2022
Average annual return on equity 2003 – 2022
145.6%
32.1%
−10.3%
6.0%
22.7%
113.9%
22.7%
24.7%
21.4%
22.8%
13.1%
19.8%
14.2%
47.4%
22.3%
17.6%
−32.1%
153.6%
−33.9%
23.6%
7.5 %
18.4 %
21.8 %
20.2 %
23.1 %
22.2 %
35.6 %
34.8 %
40.0 %
37.8 %
38.0 %
37.0 %
35.4 %
31.1 %
36.9 %
31.7 %
29.8 %
19.2 %
43.3 %
32.7 %
29.8 %
1 Return on equity is defined as GAAP net income for the applicable period divided by average shareholders’ equity for such period.
18
2022 ANNUAL REPORT | SHAREHOLDER LETTER Over the last 20 years, GAAP net income per share (diluted) has grown at a
compounded annual rate of 23.6%, with an average annual return on equity of 29.8%.
Last year, GAAP net income per share (diluted) decreased 33.9% to $39.32, with
a return on equity of 32.7%. The decrease was primarily due to a change in loan
performance, which moderated in 2022 after significantly exceeding expectations
in 2021 following the distribution of federal stimulus payments and enhanced
unemployment benefits. The “Adjusted Results” section below explains our financial
results after considering the impact of the current expected credit loss (CECL)
accounting standard and other accounting-related items.
Adjusted Results
Our business model is different from that of a typical lender and doesn’t fit neatly into
GAAP. The adoption of CECL at the beginning of 2020 means we have now been
required to use three different GAAP accounting methods over the period we have been
public, even though our business hasn’t materially changed during that time. In 1992,
the year we became a public company, we accounted for our business as a lender to
consumers. In 2005, our external auditors decided we were a lender to dealers, which
required different accounting. CECL is now the latest new methodology we are required
to use. Unfortunately, none of the three GAAP methods results in financial statements
that are consistent with how we think about our business. To solve this problem, we
began reporting adjusted results using an accounting method that we believe is simple
to understand, is consistently presented, and matches the economics of our business. To
explain this method, some additional background is needed.
Most of the automobile dealers we enroll receive two types of payments from us. The
first payment is made at the time of origination. The remaining payments are remitted
over time based on the performance of the loan. The amount we pay at the time of
origination is called an advance; the portion paid over time is called dealer holdback.
The finance charge revenue we recognize over the life of a loan equals the cash we
collect from the loan (i.e., repayments by the consumer), less the amounts we pay to
the dealer (advance + dealer holdback). In other words, the finance charge revenue we
recognize over the life of the loan equals the cash inflows from the loan less the cash
outflows to acquire the loan. This amount, plus a modest amount of revenue from other
sources, less our operating expenses, interest, and taxes, is the sum that will ultimately
be paid to shareholders or reinvested in new assets.
For our adjusted financial results, we recognize finance charge revenue on a level-yield
basis. That is, the amount of finance charge revenue recognized in a given period,
divided by the loan asset, is a constant percentage. Since the future cash flows from
a loan are not known with certainty, we use statistical models to forecast the amount
of cash flows from each loan. Our finance charge revenue is recorded based on these
estimates. As the estimates change, we adjust the yield. This method produces financial
results that we believe are a close approximation of the actual economics of our
business.
19
2022 ANNUAL REPORT | SHAREHOLDER LETTER2022 ANNUAL REPORT | SHAREHOLDER LETTER While our adjusted methodology is simple and closely represents the actual economics
of our business, we do not believe that our GAAP financial results provide sufficient
transparency into the economics of our business. To explain this, we will focus on the
current GAAP methodology as our two prior GAAP methodologies have been discussed
in previous years. As noted earlier, the current required GAAP methodology is called
CECL. Like the adjusted methodology described above, CECL requires a level-yield
approach for recognizing finance charge revenue. However, the yield under CECL is
not the yield that we expect to earn on the loan. Instead, the yield is what we would
earn if every payment were received according to the contractual terms of the loan, a
figure much higher than what we actually expect to earn. Based on this alone, you might
expect CECL to overstate our profitability. But CECL, like any accounting standard,
doesn’t change the total amount of income recorded, it only changes the timing.
Eventually, the true cash profits and the accounting profits need to match.
To arrive at a result that eventually matches the cash profit, CECL requires us to offset
the additional revenue that it causes to be recorded over the life of the loan with an
additional expense in an equivalent amount. The expense is recorded as a provision for
credit losses at the time the loan is originated. Since no revenue has yet been recorded,
this means that under CECL, our financial statements reflect an initial loss on each loan
we originate, a result which does not match the economics of the transaction.
CECL also differs from our adjusted methodology in the way it treats changes in
expected cash flows. As mentioned above, for the adjusted results, we treat those
changes as yield adjustments. In contrast, CECL treats changes in expected cash
flows as a current-period expense (for unfavorable changes) or reversal of expense (for
favorable changes). The combination of the three CECL-required steps—(1) recording a
large expense at loan inception, (2) recording finance charge revenue at a yield higher
than the yield we expect to earn, and (3) recording forecast changes through the income
statement in the current period—can make it difficult to understand the performance of
our business using our GAAP-based financial statements. The floating yield adjustment
in the tables below addresses all three of these issues by eliminating the provision for
credit losses recorded in our GAAP statements and modifying GAAP-based finance
charges so the yield is equal to the one we expect to earn on the loan.
The tables below show net income and net income per share (diluted) for the last 20
years on both a GAAP and an adjusted basis. Besides the floating yield adjustment, the
tables include several other categories of adjustments that are generally less material.
The notable exception is the income tax adjustment in 2017, which reverses the one-
time benefit arising from the 2017 Tax Cuts and Jobs Act. While the benefit recorded
in 2017 represented a real cash savings due to the reduction in income tax rates, we
reversed it for adjusted net income as we prefer to measure the performance of the
business using consistent tax rates. To that end, we calculated adjusted net income
using a 37% tax rate for 2003–2017 and a 23% tax rate for 2018–2022. The other, less-
material adjustments are explained in prior-year CEO shareholder letters.
20
2022 ANNUAL REPORT | SHAREHOLDER LETTER ($ in millions)
GAAP net
income
Floating yield
adjustment
Senior notes
adjustment
Income tax
adjustment
Other
adjustments
Adjusted net
income
Year-to-year
change
24.7 $
57.3 $
72.6 $
58.6 $
54.9 $
67.2 $
146.3 $
170.1 $
188.0 $
219.7 $
253.1 $
266.2 $
299.7 $
332.8 $
470.2 $
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
574.0 $
(24.4)
656.1 $
0.2
421.0 $
259.2
958.3 $
(142.0)
535.8 $
174.2
Compound annual growth rate 2003 – 2022
1.4
(0.1)
(2.2)
0.4
3.6
13.1
(19.6)
0.5
7.1
$
$
$
$
$
$
$
$
$
— $
(2.5)
(6.0)
12.9
28.1
34.1
$
$
$
$
$
$
$
$
$
$
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
12.5
$
(2.0) $
(2.1) $
5.7
(1.8)
0.1
(1.7)
(1.2)
0.4
(1.8)
(10.4)
(1.3)
(3.5)
(2.3)
(1.0)
(0.8)
1.8
(2.1) $
(102.4)
(2.5) $
(0.8) $
4.0
$
(2.1) $
(2.1) $
7.4
2.9
2.1
12.6
12.2
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
5.6 $
(3.2) $
(7.3) $
4.4 $
4.4 $
2.1 $
0.1 $
0.3 $
0.3 $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
37.4
52.2
63.2
61.7
61.7
82.8
125.0
160.5
194.1
216.2
248.3
271.7
309.8
360.6
399.8
554.5
658.4
686.3
826.8
720.1
39.6%
21.1%
−2.4%
0.0%
34.2%
51.0%
28.4%
20.9%
11.4%
14.8%
9.4%
14.0%
16.4%
10.9%
38.7%
18.7%
4.2%
20.5%
‒12.9%
16.8%
GAAP net
income
per share
(diluted)
Floating yield
adjustment
per share
(diluted)
Senior notes
adjustment
per share
(diluted)
Income tax
adjustment
per share
(diluted)
Other
adjustments
per share
(diluted)
Adjusted
net income
per share
(diluted)
Year-to-year
change
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0.57
1.40
1.85
1.66
1.76
2.16
4.62
5.67
7.07
8.58
10.54
11.92
14.28
16.31
24.04
29.39
34.57
23.47
59.52
39.32
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0.03
—
(0.06)
0.01
0.11
0.42
(0.62)
0.02
0.26
—
(0.11)
(0.27)
0.62
1.37
1.74
(1.25)
0.01
14.45
(8.82)
12.79
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
0.56
(0.10)
(0.10)
(0.11)
(0.13)
(0.04)
0.22
(0.13)
(0.16)
$
$
$
$
$
$
$
$
$
0.13
(0.04)
$
$
— $
(0.05)
(0.04)
0.01
(0.06)
(0.35)
(0.04)
(0.13)
(0.09)
(0.04)
(0.03)
0.09
(5.23)
0.38
0.16
0.12
0.78
0.90
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0.13
(0.09)
(0.18)
0.13
0.15
0.07
0.01
0.01
0.01
—
—
—
—
—
—
—
—
—
—
—
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0.86
1.27
1.61
1.75
1.98
2.66
3.95
5.35
7.30
8.45
10.34
12.17
14.77
17.67
20.44
28.39
34.70
38.26
51.35
52.85
Compound annual growth rate 2003 – 2022
47.7%
26.8%
8.7%
13.1%
34.3%
48.5%
35.4%
36.4%
15.8%
22.4%
17.7%
21.4%
19.6%
15.7%
38.9%
22.2%
10.3%
34.2%
2.9%
24.2%
21
2022 ANNUAL REPORT | SHAREHOLDER LETTER2022 ANNUAL REPORT | SHAREHOLDER LETTER As the second table shows, adjusted net income per share (diluted) increased 2.9%
in 2022. Since 2003, adjusted net income per share (diluted) has increased at a
compounded annual rate of 24.2%. The growth in net income per share (diluted) last
year was attributable to a decrease in our weighted average diluted shares outstanding,
partially offset by a decrease in adjusted net income. Our weighted average diluted
shares outstanding decreased 15.4% primarily due to share repurchases, while adjusted
net income decreased 12.9% primarily due to a decline in the average balance of our
loan portfolio.
Economic Profit
We use a non-GAAP financial measure called Economic Profit to evaluate our financial
results and determine profit-sharing for team members. We also use Economic Profit
as a framework to evaluate business decisions and strategies, with an objective to
maximize Economic Profit over the long term. Economic Profit measures how efficiently
we utilize our total capital, both debt and equity, and is a function of the return on capital
in excess of the cost of capital and the amount of capital invested in the business.
Economic Profit differs from net income in that it includes a cost for equity capital.
The following table summarizes Economic Profit for 2003–2022:1
($ in millions)
Adjusted net
income
Imputed cost
of equity2
Economic
Profit
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Compound annual growth rate 2003 – 2022
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
37.4
52.2
63.2
61.7
61.7
82.8
125.0
160.5
194.1
216.2
248.3
271.7
309.8
360.6
399.8
554.5
658.4
686.3
826.8
720.1
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(34.5)
(34.4)
(34.5)
(29.6)
(27.2)
(35.8)
(45.9)
(47.8)
(51.0)
(56.6)
(75.1)
(87.5)
(93.2)
(113.8)
(142.8)
(214.1)
(225.7)
(215.0)
(252.7)
(243.5)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2.9
17.8
28.7
32.1
34.5
47.0
79.1
112.7
143.1
159.6
173.2
184.2
216.6
246.8
257.0
340.4
432.7
471.3
574.1
476.6
Year-
to-year
change
513.8%
61.2%
11.8%
7.5%
36.2%
68.3%
42.5%
27.0%
11.5%
8.5%
6.4%
17.6%
13.9%
4.1%
32.5%
27.1%
8.9%
21.8%
–17.0%
30.8%
1 See Exhibit A for a reconciliation of the adjusted financial measures to the most directly comparable GAAP financial measures.
2 We determine the imputed cost of equity by using a formula that considers the risk of the business and the risk associated with our use
of debt. The formula is as follows: average equity x {(the average 30-year Treasury rate + 5%) + [(1 – tax rate) x (the average 30-year
Treasury rate + 5% – pre-tax average cost-of-debt rate) x average debt / (average equity + average debt x tax rate)]}.
22
2022 ANNUAL REPORT | SHAREHOLDER LETTER Economic Profit is a function of three variables: the adjusted average amount of capital
invested, the adjusted return on capital, and the adjusted weighted average cost of
capital. The following table summarizes our financial performance in these areas over
the last 20 years:1
($ in millions)
Adjusted average
capital invested
Adjusted return
on capital
Adjusted weighted
average cost of capital
Spread
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
437.5
483.7
523.4
548.5
710.1
975.0
998.7
1,074.2
1,371.1
1,742.8
2,049.2
2,338.1
2,831.9
3,572.0
4,276.4
5,420.9
6,372.2
7,076.0
7,078.4
6,466.1
9.7%
12.3%
13.7%
13.9%
11.9%
11.3%
14.6%
17.7%
16.8%
14.7%
14.1%
13.2%
12.7%
11.9%
11.2%
12.5%
12.7%
11.8%
13.5%
13.2%
9.0%
8.6%
8.3%
8.1%
7.0%
6.4%
6.7%
7.2%
6.4%
5.5%
5.7%
5.3%
5.0%
5.0%
5.2%
6.2%
6.0%
5.2%
5.4%
5.8%
0.7%
3.7%
5.4%
5.8%
4.9%
4.9%
7.9%
10.5%
10.4%
9.2%
8.4%
7.9%
7.7%
6.9%
6.0%
6.3%
6.7%
6.6%
8.1%
7.4%
Compound annual growth rate 2003 – 2022
15.2%
1 See Exhibit A for a reconciliation of the adjusted financial measures to the most directly comparable GAAP financial measures.
From 2003 to 2011, Economic Profit improved as a result of growth in average capital,
higher returns on capital and lower costs of capital. In 2003, our return on capital
was 9.7%. In 2011, as a result of a favorable competitive environment, it was 16.8%.
Since 2011, almost all of the growth in Economic Profit has occurred from increasing
average capital. In each year from 2011 through 2017, the return on capital declined
as competition returned to our market. The trend reversed in 2018 as our return on
capital improved, by 130 basis points, due to a change in the federal tax rate. In 2020,
our return on capital declined by 90 basis points due to the impact of COVID-19 on loan
performance. With hindsight, our downward forecast adjustment recorded in the first
quarter of 2020 was too large. In 2021, much of the 170-basis point improvement in our
return on capital was due to increased collections and improvement in our forecast.
In 2022, Economic Profit decreased as a result of a decline in average capital, a higher
cost of capital and a lower return on capital.
23
2022 ANNUAL REPORT | SHAREHOLDER LETTER2022 ANNUAL REPORT | SHAREHOLDER LETTER
There are several additional points worth mentioning. First, we grew adjusted average
capital each year from 2004 to 2021. The growth was a direct result of our success
in growing the number of active dealers. While variables like volume per dealer and
contract size impact adjusted average capital growth as well, the trend in the number
of active dealers tells us much of what we need to know to understand the trajectory
of our business. Growing the number of active dealers makes future Economic Profit
growth likely. If we are unable to grow the number of active dealers, Economic Profit
growth will likely stall. This is important since in 2020 and 2021, the number of active
dealers declined. While the pandemic and related vehicle shortages contributed to this
decline, the downturn follows a trend of decelerating growth which began in 2017 after
strong growth each year from 2011 to 2016. In 2022, we were once again able to grow
the number of active dealers. However, growth was modest and the number of active
dealers in 2022 was below pre-pandemic levels.
Second, while the return on capital has been volatile, expenses as a percentage of
adjusted average capital have declined for 13 of the last 16 years, to 6.6% in 2022 from
15.1% in 2006. This underscores the importance of growing average capital. As long
as the return on incremental capital invested exceeds the cost of that capital, growing
average capital increases Economic Profit directly. In addition, growing average capital
improves the return on capital by reducing the impact of expenses, since a portion of our
expenses is fixed. The volatility in the return on capital is primarily due to the revenue
component, which moves up and down based on the competitive environment. When
the competitive environment is favorable, we reduce advance rates (the amount we
pay the dealer at loan origination), and that increases our return. When the competitive
environment worsens, the opposite occurs. But growing expenses more slowly
than capital allows us to achieve greater returns in both favorable and unfavorable
environments.
Third, as described previously in the section entitled “Operating Principles”, to the extent
we generate capital in excess of what’s needed to fund and re-invest in the business,
we will return that capital to shareholders through share repurchases. During 2021 and
2022, we used excess capital to actively repurchase shares rather than growing loan
volume through pricing changes at lower profitability. During 2021, we repurchased
approximately 2.9 million shares, which represented 16.8% of the shares outstanding
at the beginning of the year, at a total cost of $1.5 billion. During 2022, we repurchased
approximately 1.5 million shares, which represented 10.4% of the shares outstanding
at the beginning of the year, at a total cost of $0.8 billion. Over the long term, our
share repurchase program has enabled us to grow Economic Profit per share (diluted)
at higher rate than Economic Profit. Likewise, over the long term, we have grown
adjusted net income per share (diluted) at higher rate than adjusted net income. Shares
repurchased during 2021 and 2022 enabled us to minimize the per share impact of the
declines in Economic Profit and adjusted net income in 2022.
24
2022 ANNUAL REPORT | SHAREHOLDER LETTER The following table summarizes Economic Profit per share (diluted) for 2003–2022:1
($ in millions)
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Compound annual growth rate 2003 – 2022
Economic Profit per
share (diluted)
Year-to-year change
in Economic Profit
per share
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0.07
0.43
0.73
0.91
1.11
1.51
2.50
3.76
5.38
6.23
7.21
8.25
10.32
12.09
13.14
17.43
22.80
26.28
35.66
34.98
38.7%
514.3%
69.8%
24.7%
22.0%
36.0%
65.6%
50.4%
43.1%
15.8%
15.7%
14.4%
25.1%
17.2%
8.7%
32.6%
30.8%
15.3%
35.7%
–1.9%
1 See Exhibit A for a reconciliation of the adjusted financial measures to the most directly comparable GAAP financial measures.
Over the last 20 years, Economic Profit per share (diluted) has grown at a compounded
annual rate of 38.7% while Economic Profit has grown at a compounded annual rate of
30.8%. Last year, Economic Profit per share (diluted) declined 1.9% while Economic Profit
declined 17.0%.
25
2022 ANNUAL REPORT | SHAREHOLDER LETTER2022 ANNUAL REPORT | SHAREHOLDER LETTER
EXHIBIT A
Reconciliation of GAAP Financial Results to Non-GAAP Measures
($ in
millions)
GAAP
net
income
Floating
yield
adjustment
Senior
notes
adjustment
Income
tax
adjustment
Other
adjustments
Adjusted
net
income
Imputed
cost of
equity
Economic
Profit
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
24.7
57.3
72.6
58.6
54.9
67.2
146.3
170.1
188.0
219.7
253.1
266.2
299.7
332.8
470.2
574.0
656.1
421.0
958.3
535.8
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1.4
(0.1)
(2.2)
0.4
3.6
13.1
(19.6)
0.5
7.1
—
(2.5)
(6.0)
12.9
28.1
34.1
(24.4)
0.2
259.2
$ (142.0)
$
174.2
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
12.5
(2.0)
(2.1)
(2.1)
(2.5)
(0.8)
4.0
(2.1)
(2.1)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
5.7
(1.8)
0.1
(1.7)
(1.2)
0.4
(1.8)
(10.4)
(1.3)
(3.5)
(2.3)
(1.0)
(0.8)
1.8
(102.4)
7.4
2.9
2.1
12.6
12.2
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
5.6
(3.2)
(7.3)
4.4
4.4
2.1
0.1
0.3
0.3
$
$
$
$
$
$
$
$
$
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
37.4
52.2
63.2
61.7
61.7
82.8
125.0
160.5
194.1
216.2
248.3
271.7
309.8
360.6
399.8
554.5
658.4
686.3
826.8
— $
720.1
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(34.5)
(34.4)
(34.5)
(29.6)
(27.2)
(35.8)
(45.9)
(47.8)
(51.0)
(56.6)
(75.1)
(87.5)
(93.2)
(113.8)
(142.8)
(214.1)
(225.7)
(215.0)
(252.7)
(243.5)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2.9
17.8
28.7
32.1
34.5
47.0
79.1
112.7
143.1
159.6
173.2
184.2
216.6
246.8
257.0
340.4
432.7
471.3
574.1
476.6
26
2022 ANNUAL REPORT | SHAREHOLDER LETTER ($ in
millions)
GAAP
average capital
invested1
Floating
yield
adjustment
Senior
notes
adjustment
Deferred debt
issuance
adjustment2
Income
tax
adjustment
Other
adjustments
Adjusted
average capital
invested
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
430.3
476.5
519.4
548.0
706.1
960.7
983.6
1,057.3
1,346.0
1,715.3
2,024.5
2,324.8
2,792.8
3,513.1
4,200.2
5,425.8
6,399.2
6,874.7
6,914.1
6,302.3
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
7.9
8.7
7.5
5.5
8.2
13.8
13.2
5.2
9.4
11.1
9.9
6.7
7.0
29.6
51.6
80.8
66.2
287.6
243.0
250.8
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
(7.0)
14.7
12.7
10.6
9.7
0.6
5.5
10.8
8.7
$
$
$
$
$
$
$
$
$
1.7
1.8
1.0
2.0
1.7
2.9
2.9
12.2
16.0
16.4
14.8
13.6
17.4
16.6
18.1
22.4
24.7
26.7
29.0
22.8
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
(4.1)
(117.8)
(118.5)
(118.5)
(118.5)
(118.5)
$
$
$
$
$
$
(2.4)
(3.3)
(4.5)
(7.0)
(5.9)
(2.4)
(1.0)
(0.5)
(0.3)
$
$
$
$
$
$
$
$
$
437.5
483.7
523.4
548.5
710.1
975.0
998.7
1,074.2
1,371.1
— $
1,742.8
— $
2,049.2
— $
2,338.1
— $
2,831.9
— $
3,572.0
— $
4,276.4
— $
5,420.9
— $
6,372.2
— $
7,076.0
— $
7,078.4
— $
6,466.1
1 Average capital invested is defined as average debt plus average shareholders’ equity.
2 The deferred debt issuance adjustment reverses the impact of the reclassification of deferred debt issuance costs from other assets to GAAP average debt as a
result of the adoption by the Financial Accounting Standards Board of Accounting Standards Update (ASU) No. 2015-03, as amended by ASU No. 2015-05. The
net effect of this adjustment is to report adjusted average capital on the same basis as reported in historical shareholder letters.
27
2022 ANNUAL REPORT | SHAREHOLDER LETTER2022 ANNUAL REPORT | SHAREHOLDER LETTER GAAP
return
on capital1
Floating
yield
adjustment
Senior
notes
adjustment
Deferred debt
issuance
adjustment2
Income
tax
adjustment
Other
adjustments
Adjusted
return
on capital
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
6.9%
13.5%
15.6%
13.3%
11.0%
9.8%
17.0%
18.9%
16.7%
15.1%
14.5%
13.1%
12.5%
11.3%
13.0%
12.8%
12.6%
8.3%
15.7%
10.6%
0.2%
−0.3%
−0.6%
−0.1%
0.4%
1.2%
−2.2%
0.0%
0.4%
−0.1%
−0.2%
−0.3%
0.4%
0.7%
0.7%
−0.6%
−0.1%
3.3%
−2.5%
2.2%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.5%
−0.1%
−0.1%
−0.1%
−0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
−0.2%
−0.2%
−0.1%
−0.1%
−0.1%
−0.1%
0.0%
−0.1%
0.0%
0.0%
0.0%
−0.1%
0.0%
1.3%
−0.3%
0.0%
−0.3%
−0.2%
0.0%
−0.2%
−1.0%
−0.1%
−0.2%
−0.1%
0.0%
0.0%
0.0%
−2.3%
0.4%
0.2%
0.2%
0.4%
0.4%
1.3%
−0.6%
−1.3%
1.0%
0.7%
0.3%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
9.7%
12.3%
13.7%
13.9%
11.9%
11.3%
14.6%
17.7%
16.8%
14.7%
14.1%
13.2%
12.7%
11.9%
11.2%
12.5%
12.7%
11.8%
13.5%
13.2%
1 Return on capital is defined as net income plus after-tax interest expense divided by average capital.
2 The deferred debt issuance adjustment reverses the impact of the reclassification of deferred debt issuance costs from other assets to GAAP average debt as a
result of the adoption by the Financial Accounting Standards Board of Accounting Standards Update (ASU) No. 2015-03, as amended by ASU No. 2015-05. The
net effect of this adjustment is to report adjusted average capital on the same basis as reported in historical shareholder letters.
28
2022 ANNUAL REPORT | SHAREHOLDER LETTER GAAP
weighted
average cost
of capital1
Floating
yield
adjustment
Senior
notes
adjustment
Deferred debt
issuance
adjustment2
Income
tax
adjustment
Other
adjustments
Adjusted
weighted average
cost of capital3
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
9.0%
8.6%
8.3%
8.1%
7.0%
6.4%
6.7%
7.3%
6.5%
5.6%
5.7%
5.2%
5.0%
4.9%
5.1%
6.3%
6.0%
5.1%
5.3%
5.6%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.1%
0.0%
0.1%
0.1%
0.1%
0.1%
0.2%
0.2%
0.4%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
−0.1%
−0.1%
−0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
−0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
−0.1%
−0.1%
−0.1%
−0.1%
−0.2%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
9.0%
8.6%
8.3%
8.1%
7.0%
6.4%
6.7%
7.2%
6.4%
5.5%
5.7%
5.3%
5.0%
5.0%
5.2%
6.2%
6.0%
5.2%
5.4%
5.8%
1 The weighted average cost of capital includes both a cost of equity and a cost of debt. The cost of equity capital is determined based on
a formula that considers the risk of the business and the risk associated with our use of debt. The formula utilized for determining the cost
of equity capital is as follows: (the average 30-year Treasury rate + 5%) + [(1 – tax rate) x (the average 30-year Treasury rate + 5% – pre-
tax average cost-of-debt rate) x average debt / (average equity + average debt x tax rate)].
2 The deferred debt issuance adjustment reverses the impact of the reclassification of deferred debt issuance costs from other assets to
GAAP average debt as a result of the adoption by the Financial Accounting Standards Board of Accounting Standards Update (ASU) No.
2015-03, as amended by ASU No. 2015-05. The net effect of this adjustment is to report adjusted average capital on the same basis as
reported in historical shareholder letters.
3 The adjusted weighted average cost of capital includes both a cost of adjusted equity and a cost of debt. The cost of adjusted equity
capital is calculated using the same formula as above except that adjusted average equity is used in the calculation instead of average
equity.
29
2022 ANNUAL REPORT | SHAREHOLDER LETTER2022 ANNUAL REPORT | SHAREHOLDER LETTER GAAP net income per
share (diluted)
Non-GAAP
adjustments per
share (diluted)1
Adjusted net
income per share
(diluted)
Imputed cost of equity
per share (diluted)
Economic Profit per
share (diluted)
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0.57
1.40
1.85
1.66
1.76
2.16
4.62
5.67
7.07
8.58
10.54
11.92
14.28
16.31
24.04
29.39
34.57
23.47
59.52
39.32
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0.29
(0.13)
(0.24)
0.09
0.22
0.50
(0.67)
(0.32)
0.23
(0.13)
(0.20)
0.25
0.49
1.36
(3.60)
(1.00)
0.13
14.79
(8.17)
13.53
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0.86
1.27
1.61
1.75
1.98
2.66
3.95
5.35
7.30
8.45
10.34
12.17
14.77
17.67
20.44
28.39
34.70
38.26
51.35
52.85
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(0.79)
(0.84)
(0.88)
(0.84)
(0.87)
(1.15)
(1.45)
(1.59)
(1.92)
(2.22)
(3.13)
(3.92)
(4.45)
(5.58)
(7.30)
(10.96)
(11.90)
(11.98)
(15.69)
(17.87)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0.07
0.43
0.73
0.91
1.11
1.51
2.50
3.76
5.38
6.23
7.21
8.25
10.32
12.09
13.14
17.43
22.80
26.28
35.66
34.98
1 Non-GAAP adjustments per share include a summation of adjustments made to calculate adjusted net income per share. See page 21 for
additional detail on these adjustments.
30
2022 ANNUAL REPORT | SHAREHOLDER LETTER UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ________
Commission file number 000-20202
CREDIT ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
Michigan
38-1999511
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
25505 W. Twelve Mile Road
Southfield, Michigan
(Address of principal executive offices)
48034-8339
(Zip Code)
Registrant’s telephone number, including area code: (248) 353-2700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Stock, $.01 par value
CACC
The Nasdaq Stock Market LLC
Securities registered pursuant to section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☑
Accelerated filer
☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant's executive officers during the relevant recovery period pursuant to § 240.10D-1(b). o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
The aggregate market value of 6,499,700 shares of the registrant’s common stock held by non-affiliates on June 30, 2022 was approximately $3,077.0 million. For purposes of
this computation, all officers, directors and 10% beneficial owners of the registrant are assumed to be affiliates. Such determination should not be deemed an admission that
such officers, directors and beneficial owners are, in fact, affiliates of the registrant.
At February 2, 2023, there were 12,833,388 shares of the registrant’s common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement pertaining to the 2023 Annual Meeting of Shareholders (the “Proxy Statement”) filed pursuant to Regulation 14A are
incorporated herein by reference into Part III of this Annual Report on Form 10-K (this “Form 10-K”).
Page
3
15
24
24
24
24
25
26
27
42
43
95
95
97
97
97
97
97
97
97
98
107
108
Item Description
CREDIT ACCEPTANCE CORPORATION
YEAR ENDED DECEMBER 31, 2022
INDEX TO FORM 10-K
PART I
Business
1.
1A. Risk Factors
1B. Unresolved Staff Comments
2.
Properties
3.
Legal Proceedings
4. Mine Safety Disclosures
5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity
Securities
PART II
[Reserved]
6.
7. Management's Discussion and Analysis of Financial Condition and Results of Operations
7A. Quantitative and Qualitative Disclosures About Market Risk
8.
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
9.
9A. Controls and Procedures
9B. Other Information
9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
10. Directors, Executive Officers, and Corporate Governance
11.
Executive Compensation
PART III
12.
13.
14.
15.
16.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accounting Fees and Services
PART IV
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
2
ITEM 1.
BUSINESS
General
PART I
Since 1972, Credit Acceptance Corporation (referred to as the “Company”, “Credit Acceptance”, “we”, “our” or “us”) has
offered financing programs that enable automobile dealers to sell vehicles to consumers, regardless of their credit history. Our
financing programs are offered through a nationwide network of automobile dealers who benefit from sales of vehicles to
consumers who otherwise could not obtain financing; from repeat and referral sales generated by these same customers; and
from sales to customers responding to advertisements for our financing programs, but who actually end up qualifying for
traditional financing.
Without our financing programs, consumers are often unable to purchase vehicles or they purchase unreliable
ones. Further, as we report to the three national credit reporting agencies, an important ancillary benefit of our programs is that
we provide consumers with an opportunity to improve their lives by improving their credit score and move on to more
traditional sources of financing.
Credit Acceptance was founded to collect retail installment contracts (referred to as “Consumer Loans”) originated by
automobile dealerships owned by Donald Foss, our founder. During the 1980s, we began to market this service to non-affiliated
dealers and, at the same time, began to offer dealers a non-recourse cash payment (referred to as an “advance”) against
anticipated future collections on Consumer Loans serviced for that dealer.
We refer to automobile dealers who participate in our programs and who share our commitment to changing consumers’
lives as “Dealers”. Upon enrollment in our financing programs, the Dealer enters into a Dealer servicing agreement with us that
defines the legal relationship between Credit Acceptance and the Dealer. The Dealer servicing agreement assigns the
responsibilities for administering, servicing, and collecting the amounts due on Consumer Loans from the Dealers to us. We are
an indirect lender from a legal perspective, meaning the Consumer Loan is originated by the Dealer and assigned to us.
The vast majority of the Consumer Loans assigned to us are made to consumers with impaired or limited credit histories.
The following table shows the percentage of Consumer Loans assigned to us with either FICO® scores below 650 or no FICO®
scores:
Consumer Loan Assignment Volume
2022
2021
2020
Percentage of total unit volume with either FICO® scores
below 650 or no FICO® scores
84.8 %
91.0 %
94.9 %
For the Years Ended December 31,
In 2020, we began piloting an option that expanded our financing programs to consumers with higher credit ratings. In the
fourth quarter of 2021, we made this option available to all Dealers. A portion of the reduction in the percentage of total unit
volume with FICO® scores below 650 or no FICO® scores relates to Consumer Loans assigned under this option.
Business Segment Information
We currently operate in one reportable segment which represents our core business of offering Dealers financing programs
and related products and services that enable them to sell vehicles to consumers, regardless of their credit history. For
information regarding our one reportable segment and related entity-wide disclosures, see Note 15 to the consolidated financial
statements contained in Item 8 of this Form 10-K, which is incorporated herein by reference.
3
Principal Business
We offer our Dealers financing programs that enable them to sell vehicles to consumers, regardless of their credit history.
We have two programs: the Portfolio Program and the Purchase Program. Under the Portfolio Program, we advance money to
Dealers (referred to as a “Dealer Loan”) in exchange for the right to service the underlying Consumer Loans. Under the
Purchase Program, we buy the Consumer Loans from the Dealers (referred to as a “Purchased Loan”) and keep all amounts
collected from the consumer. Dealer Loans and Purchased Loans are collectively referred to as “Loans”. The following table
shows the percentage of Consumer Loans assigned to us under each of the programs for each of the last three years:
Unit Volume
Dollar Volume (1)
For the Years Ended December 31,
2020
2021
2022
Portfolio Program Purchase Program Portfolio Program Purchase Program
39.4 %
35.0 %
30.2 %
60.6 %
65.0 %
69.8 %
64.1 %
67.9 %
73.5 %
35.9 %
32.1 %
26.5 %
(1) Represents 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. Payments of Dealer Holdback (as defined below) and accelerated Dealer Holdback are not
included.
Portfolio Program
As payment for the vehicle, the Dealer generally receives the following:
•
•
•
a down payment from the consumer;
a cash advance from us; and
after the advance balance (cash advance and related Dealer Loan fees and costs) has been recovered by us, the cash
from payments made on the Consumer Loan, net of certain collection costs and our servicing fee (“Dealer
Holdback”).
We record the amount advanced to the Dealer as a Dealer Loan, which is classified within Loans receivable in our
consolidated balance sheets. Cash advanced to the Dealer is automatically assigned to the Dealer’s open pool of advances.
Dealers make an election as to how many Consumer Loans (either 50 or 100) will be assigned to an open pool before it is
closed, and subsequent advances are assigned to a new pool. Unless we receive a request from the Dealer to keep a pool open,
we automatically close each pool based on the Dealer’s election. All advances within a Dealer’s pool are secured by the future
collections on the related Consumer Loans assigned to the pool. For Dealers with more than one pool, the pools are cross-
collateralized so the performance of other pools is considered in determining eligibility for Dealer Holdback. We perfect our
security interest with respect to the Dealer Loans by obtaining control or taking possession of the Consumer Loans, which list
us as lien holder on the vehicle title.
The Dealer servicing agreement provides that collections received by us during a calendar month on Consumer Loans
assigned by a Dealer are applied on a pool-by-pool basis as follows:
•
•
•
•
first, to reimburse us for certain collection costs;
second, to pay us our servicing fee, which generally equals 20% of collections;
third, to reduce the aggregate advance balance and to pay any other amounts due from the Dealer to us; and
fourth, to the Dealer as payment of Dealer Holdback.
If the collections on Consumer Loans from a Dealer’s pool are not sufficient to repay the advance balance and any other
amounts due to us, the Dealer will not receive Dealer Holdback. Certain events may also result in Dealers forfeiting their rights
to Dealer Holdback, including becoming inactive before assigning 100 Consumer Loans.
Dealers have an opportunity to receive an accelerated Dealer Holdback payment each time a pool of Consumer Loans is
closed. The amount paid to the Dealer is calculated using a formula that considers the number of Consumer Loans assigned to
the pool and the related forecasted collections and advance balance.
Since typically the combination of the advance and the consumer’s down payment provides the Dealer with a cash profit at
the time of sale, the Dealer’s risk in the Consumer Loan is limited. We cannot demand repayment of the advance from the
Dealer except in the event the Dealer is in default of the Dealer servicing agreement. Advances are made only after the
consumer and Dealer have signed a Consumer Loan contract, we have received the executed Consumer Loan contract and
supporting documentation in either physical or electronic form, and we have approved all of the related stipulations for
funding.
4
For accounting purposes, the transactions described under the Portfolio Program are not considered to be loans to
consumers. Instead, our accounting reflects that of a lender to the Dealer. The classification as a Dealer Loan for accounting
purposes is primarily a result of (1) the Dealer’s financial interest in the Consumer Loan and (2) certain elements of our legal
relationship with the Dealer.
Purchase Program
The Purchase Program differs from our Portfolio Program in that the Dealer receives a one-time payment from us at the
time of assignment to purchase the Consumer Loan instead of a cash advance at the time of assignment and future Dealer
Holdback payments. For accounting purposes, the transactions described under the Purchase Program are considered to be
originated by the Dealer and then purchased by us.
Program Enrollment
Dealers are granted access to our Portfolio Program upon enrollment. Access to the Purchase Program is typically only
granted to Dealers that meet one of the following:
•
•
•
assigned at least 50 Consumer Loans under the Portfolio Program;
franchise dealership; or
independent dealership that meets certain criteria upon enrollment.
Revenue Sources
Credit Acceptance derives its revenues from the following principal sources:
•
•
•
finance charges, which are comprised of: (1) interest income earned on Loans; (2) administrative fees earned from
ancillary products; (3) program fees charged to Dealers under the Portfolio Program; (4) Consumer Loan assignment
fees charged to Dealers; and (5) direct origination costs incurred on Dealer Loans;
premiums earned on the reinsurance of vehicle service contracts; and
other income, which primarily consists of ancillary product profit sharing, remarketing fees, Dealer enrollment fees,
Dealer support products and services, and interest. For additional information, see Note 8 to the consolidated
financial statements contained in Item 8 to this Form 10-K, which is incorporated herein by reference.
The following table sets forth the percent relationship to total revenue of each of these sources:
Percent of Total Revenue
Finance charges
Premiums earned
Other income
Total revenue
For the Years Ended December 31,
2022
2021
2020
92.0 %
3.4 %
4.6 %
100.0 %
93.9 %
3.2 %
2.9 %
100.0 %
93.6 %
3.4 %
3.0 %
100.0 %
5
Operations
Sales and Marketing. Our target market is approximately 60,000 independent and franchised automobile dealers in the
United States. We have market area managers located throughout the United States that market our programs to prospective
Dealers, enroll new Dealers, and support active Dealers. The number of Dealer enrollments and active Dealers for each of the
last three years are presented in the table below:
For the Years Ended December 31,
2020
2021
2022
Dealer Enrollments
Active Dealers (1)
3,413
2,804
3,627
12,690
11,410
11,901
(1) Active Dealers are Dealers who have received funding for at least one Loan during the period.
Once Dealers have enrolled in our programs, the market area managers work closely with the newly enrolled Dealers to
help them successfully launch our programs within their dealerships. Market area managers also provide active Dealers with
ongoing support and consulting focused on improving the Dealers’ success on our programs, including assistance with
increasing the volume and performance of Consumer Loan assignments.
Dealer Servicing Agreement. As a part of the enrollment process, a new Dealer is required to enter into a Dealer servicing
agreement with Credit Acceptance that defines the legal relationship between Credit Acceptance and the Dealer. The Dealer
servicing agreement assigns the responsibilities for administering, servicing, and collecting the amounts due on Consumer
Loans from the Dealers to us. Under the typical Dealer servicing agreement, a Dealer represents that it will only assign
Consumer Loans to us that satisfy criteria established by us, meet certain conditions with respect to their binding nature and the
status of the security interest in the purchased vehicle, and comply with applicable state and federal laws and regulations.
The typical Dealer servicing agreement may be terminated by us or by the Dealer upon written notice. We may terminate
the Dealer servicing agreement immediately in the case of an event of default by the Dealer. Events of default include, among
other things:
•
•
•
the Dealer’s refusal to allow us to audit its records relating to the Consumer Loans assigned to us;
the Dealer, without our consent, is dissolved; merges or consolidates with an entity not affiliated with the Dealer; or
sells a material part of its assets outside the course of its business to an entity not affiliated with the Dealer; or
the appointment of a receiver for, or the bankruptcy or insolvency of, the Dealer.
While a Dealer can cease assigning Consumer Loans to us at any time without terminating the Dealer servicing agreement,
if the Dealer elects to terminate the Dealer servicing agreement or in the event of a default, we have the right to require that the
Dealer immediately pay us:
•
•
•
any unreimbursed collection costs on Dealer Loans;
any unpaid advances and all amounts owed by the Dealer to us; and
a termination fee equal to 15% of the then outstanding amount of the Consumer Loans assigned to us.
Upon receipt of such amounts in full, we reassign the Consumer Loans and our security interest in the financed vehicles to
the Dealer.
In the event of a termination of the Dealer servicing agreement by us, we may continue to service Consumer Loans
assigned by Dealers accepted prior to termination in the normal course of business without charging a termination fee.
Consumer Loan Assignment. Once a Dealer has enrolled in our programs, the Dealer may begin assigning Consumer
Loans to us. For legal purposes, a Consumer Loan is considered to have been assigned to us after the following has occurred:
•
•
the consumer and Dealer have signed a Consumer Loan contract; and
we have received the executed Consumer Loan contract and supporting documentation in either physical or
electronic form.
6
For accounting and financial reporting purposes, a Consumer Loan is considered to have been assigned to us after the
following has occurred:
•
•
the Consumer Loan has been legally assigned to us; and
we have made a funding decision and generally have provided funding to the Dealer in the form of either an advance
under the Portfolio Program or one-time purchase payment under the Purchase Program.
A Consumer Loan is originated by the Dealer when a consumer enters into a contract with a Dealer that sets forth the terms
of the agreement between the consumer and the Dealer for the payment of the purchase price of the vehicle. The amount of the
Consumer Loan consists of the total principal and interest that the consumer is required to pay over the term of the Consumer
Loan. Consumer Loans are written on a contract form provided or approved by us. Although the Dealer is named in the
Consumer Loan contract, the Dealer generally does not have legal ownership of the Consumer Loan for more than a moment
and we, not the Dealer, are listed as lien holder on the vehicle title. Consumers are obligated to make payments on the
Consumer Loan directly to us, and any failure to make such payments will result in our pursuing payment through collection
efforts.
All Consumer Loans submitted to us for assignment are processed through our Credit Approval Processing System
(“CAPS”). CAPS allows Dealers to input a consumer’s credit application and view the response from us via the internet. CAPS
allows Dealers to: (1) receive a quick approval from us; (2) interact with our proprietary credit scoring system to optimize the
structure of each transaction prior to delivery; and (3) create, electronically execute, and print legally compliant Consumer Loan
documents. All responses include the amount of funding (advance for a Dealer Loan or purchase price for a Purchased Loan),
as well as any stipulations required for funding. The amount of funding is determined using a formula which considers a
number of factors including the timing and amount of cash flows expected on the related Consumer Loan and our target
profitability at the time a Consumer Loan is submitted to us for assignment. The estimated future cash flows are determined
based upon our proprietary credit scoring system, which considers numerous variables, including attributes contained in the
consumer’s credit bureau report, data contained in the consumer’s credit application, the structure of the proposed transaction,
vehicle information, and other factors, to calculate a composite credit score that corresponds to an expected collection rate. Our
proprietary credit scoring system forecasts the collection rate based upon the historical performance of Consumer Loans in our
portfolio that share similar characteristics. The performance of our proprietary credit scoring system is evaluated monthly by
comparing projected to actual Consumer Loan performance. Adjustments are made to our proprietary credit scoring system as
necessary. For additional information on adjustments to forecasted collection rates, please see the Critical Accounting
Estimates section in Item 7 of this Form 10-K, which is incorporated herein by reference.
While a Dealer can submit any legally compliant Consumer Loan to us for assignment, the decision whether to provide
funding to the Dealer and the amount of any funding is made solely by us. Through our Dealer Service Center, we perform all
significant functions relating to the processing of the Consumer Loan applications and bear certain costs of Consumer Loan
assignment, including the cost of assessing the adequacy of Consumer Loan documentation, compliance with our underwriting
guidelines, and the cost of verifying employment, residence, and other information provided by the Dealer.
We audit Consumer Loan files for compliance with our underwriting guidelines on a daily basis in order to assess whether
our Dealers are operating in accordance with the terms and conditions of our Dealer servicing agreement. We occasionally
identify breaches of the Dealer servicing agreement and depending upon the circumstances, and at our discretion, we may:
•
•
•
change pricing or charge the Dealer fees for future Consumer Loan assignments;
reassign the Consumer Loans back to the Dealer and require repayment of the related advances and/or purchase
payments; or
terminate our relationship with the Dealer.
Consumer Loans that have been assigned to us can be reassigned back to the Dealer, at the Dealer’s discretion, as follows:
•
•
an individual Consumer Loan may be reassigned within 180 days of assignment. We require repayment of the
related advance or purchase payment and, if requested more than 90 days after assignment, payment of a fee; and
all Consumer Loans assigned under the Portfolio Program may be reassigned through termination of the Dealer
servicing agreement, as described under “Dealer Servicing Agreement,” above.
7
Our business model allows us to share the risk and reward of collecting on the Consumer Loans with the Dealers, more so
with the Portfolio Program than the Purchase Program. Such sharing is intended to motivate the Dealer to assign better quality
Consumer Loans, follow our underwriting guidelines, comply with various legal regulations, meet our credit compliance
requirements, and provide appropriate service and support to the consumer after the sale. In addition, our Dealer Service Center
works closely with Dealers to assist them in resolving any documentation deficiencies or funding stipulations. We believe this
arrangement causes the interests of the Dealer, the consumer, and us to all be aligned.
We measure various criteria for each Dealer against other Dealers in their geographic area as well as the top performing
Dealers. Dealers are assigned a Dealer rating based upon the performance of their Consumer Loans in both the Portfolio and
Purchase Programs as well as other criteria. The Dealer rating is one of the factors used to determine the amount paid to Dealers
as an advance or to acquire a Purchased Loan. We provide each Dealer under the Portfolio Program with a monthly statement
summarizing all activity that occurred on their Consumer Loan assignments.
Servicing. Our largest group of collectors services Consumer Loans that are in the early stages of delinquency. Collection
efforts typically consist of placing a call to the consumer within one day of the missed payment due date, although efforts may
begin later for some segments of accounts. Consumer Loans are segmented into dialing pools by various phone contact profiles
in an effort to efficiently contact the consumer. We utilize text messaging and email as additional means to contact the
consumer. Our collectors work with consumers to attempt to reach a solution that will help them avoid becoming further past
due and get them current where possible.
The decision to repossess a vehicle is based on policy-based criteria. When a Consumer Loan is approved for repossession,
we continue to service the Consumer Loan while it is being assigned to a third party repossession contractor, who works on a
contingency fee basis. Once a vehicle has been repossessed, the consumer can negotiate to redeem the vehicle, whereupon the
vehicle is returned to the consumer in exchange for paying off the Consumer Loan balance; or, where appropriate or if required
by law, the vehicle is returned to the consumer and the Consumer Loan is reinstated in exchange for a payment that reduces or
eliminates the past due balance. If this process is unsuccessful, the vehicle is sold at a wholesale automobile auction. Prior to
sale, the vehicle is typically inspected by a representative at the auction who provides repair and reconditioning
recommendations. Alternatively, our remarketing representatives may inspect the vehicle directly. Our remarketing
representatives then authorize any repair and reconditioning work in order to maximize the net sale proceeds at auction.
If the vehicle sale proceeds are not sufficient to satisfy the balance owing on the Consumer Loan, we may offer the
consumer the opportunity to settle any outstanding balance for less than the amount owed. At this point, the Consumer Loan is
serviced by either: (1) our internal collection team, in the event the consumer is willing to make payments on the full or partial
deficiency balance; or (2) where permitted by law, our external collection team, if it is believed that legal action is required to
reduce the deficiency balance owing on the Consumer Loan. Our external collection team generally assigns Consumer Loans to
third party collection attorneys who work on a contingency fee basis.
Collectors service Consumer Loans through our servicing platform, which consists of the following two systems:
•
The collection system, which assigns Consumer Loans to collectors through a predictive dialer and records all
collection activity, including:
•
•
•
•
•
•
details of past phone conversations with the consumer;
collection letters sent;
promises to pay;
broken promises;
repossession orders; and
collection attorney activity.
•
The servicing system, which maintains a record of all transactions relating to Consumer Loan assignments and is a
primary source of data utilized to:
•
•
•
•
determine the outstanding balance of the Consumer Loans;
forecast future collections;
analyze the profitability of our program; and
evaluate our proprietary credit scoring system.
8
Ancillary Products
We provide Dealers the ability to offer vehicle service contracts to consumers through our relationships with Third Party
Providers (“TPPs”). A vehicle service contract provides the consumer protection by paying for the repair or replacement of
certain components of the vehicle in the event of a mechanical failure. The retail price of the vehicle service contract is included
in the principal balance of the Consumer Loan. The wholesale cost of the vehicle service contract is paid to the TPP, net of an
administrative fee retained by us. We recognize our fee as finance charges on a level-yield basis over the life of the related
Loan. The difference between the wholesale cost and the retail price to the consumer is paid to the Dealer as a commission.
Under the Portfolio Program, the wholesale cost of the vehicle service contract and the commission paid to the Dealer are
charged to the Dealer’s advance balance. TPPs process claims on vehicle service contracts that are underwritten by third party
insurers. We bear the risk of loss for claims on certain vehicle service contracts that are reinsured by us. We market the vehicle
service contracts directly to our Dealers. Our agreement with one of our TPPs allows us to receive profit sharing payments
depending on the performance of the vehicle service contracts.
VSC Re Company (“VSC Re”), our wholly owned subsidiary, is engaged in the business of reinsuring coverage under
vehicle service contracts sold to consumers by Dealers on vehicles financed by us. VSC Re currently reinsures vehicle service
contracts that are offered through one of our TPPs. Vehicle service contract premiums, which represent the selling price of the
vehicle service contract to the consumer, less fees and certain administrative costs, are contributed to trust accounts controlled
by VSC Re. These premiums are used to fund claims covered under the vehicle service contracts. VSC Re is a bankruptcy
remote entity. As such, our exposure to fund claims is limited to the trust assets controlled by VSC Re and our net investment
in VSC Re.
We provide Dealers the ability to offer Guaranteed Asset Protection (“GAP”) to consumers through our relationships with
TPPs. GAP provides the consumer protection by paying the difference between the loan balance and the amount covered by the
consumer’s insurance policy in the event of a total loss of the vehicle due to severe damage or theft. The retail price of GAP is
included in the principal balance of the Consumer Loan. The wholesale cost of GAP is paid to the TPP, net of an administrative
fee retained by us. We recognize our fee as finance charges on a level-yield basis over the life of the related Loan. The
difference between the wholesale cost and the retail price to the consumer is paid to the Dealer as a commission. Under the
Portfolio Program, the wholesale cost of GAP and the commission paid to the Dealer are charged to the Dealer’s advance
balance. TPPs process claims on GAP contracts that are underwritten by third party insurers. Our agreement with one of our
TPPs allow us to receive profit sharing payments depending on the performance of the GAP contracts.
Under our Purchase Program, we provide Dealers that meet certain criteria the ability to offer vehicle service contracts and
GAP to consumers through the Dealers’ relationships with TPPs. The retail price of the vehicle service contract and/or GAP is
included in the principal balance of the Consumer Loan and is paid to the Dealer. Under this arrangement, we do not receive an
administrative fee and the Dealers’ TPPs process claims.
Competition
The market for consumers who do not qualify for conventional automobile financing is large and highly competitive. The
market is currently served by “buy here, pay here” dealerships, banks, captive finance affiliates of automobile manufacturers,
credit unions, and independent finance companies both publicly and privately owned. Many of these companies are much
larger and have greater resources than us. We compete on the basis of the level of service provided by our Dealer Service
Center and sales personnel. In addition, we compete by offering a profitable and efficient method for Dealers to finance
consumers who would be more difficult or less profitable to finance through other methods.
9
Customer and Geographic Concentrations
The following tables provide information regarding the five states that were responsible for the largest dollar volume of
Consumer Loan assignments and the related number of active Dealers during 2022, 2021, and 2020:
(Dollars in millions)
Consumer Loan Assignments
Active Dealers (2)
Dollar Volume (1)
% of Total
Number
% of Total
For the Year Ended December 31, 2022
Michigan
New York
Ohio
Texas
New Jersey
All other states
Total
$
$
353.0
229.8
205.7
205.5
204.0
2,427.3
3,625.3
9.7 %
6.3 %
5.7 %
5.7 %
5.6 %
731
687
832
903
300
67.0 %
100.0 %
8,448
11,901
For the Year Ended December 31, 2021
6.1 %
5.8 %
7.0 %
7.6 %
2.5 %
71.0 %
100.0 %
(Dollars in millions)
Consumer Loan Assignments
Active Dealers (2)
Dollar Volume (1)
% of Total
Number
% of Total
Michigan
New York
Ohio
Texas
Tennessee
All other states
Total
$
$
343.4
218.9
181.5
170.2
162.9
2,090.9
3,167.8
10.8 %
6.9 %
5.7 %
5.4 %
5.1 %
66.1 %
100.0 %
747
709
764
810
458
7,922
11,410
For the Year Ended December 31, 2020
6.5 %
6.2 %
6.7 %
7.1 %
4.0 %
69.5 %
100.0 %
(Dollars in millions)
Consumer Loan Assignments
Active Dealers (2)
Michigan
Ohio
New York
Texas
Tennessee
All other states
Total
Dollar Volume (1)
% of Total
Number
% of Total
$
$
325.2
236.7
234.2
215.9
179.8
2,449.4
3,641.2
8.9 %
6.5 %
6.4 %
5.9 %
4.9 %
67.4 %
775
853
765
927
490
8,880
6.1 %
6.7 %
6.0 %
7.3 %
3.9 %
70.0 %
100.0 %
12,690
100.0 %
(1) Represents 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. Payments of Dealer Holdback and accelerated Dealer Holdback are not included.
(2) Active Dealers are Dealers who have received funding for at least one Loan during the year.
No single Dealer’s Loans receivable balance accounted for more than 10% of total Loans receivable balance as of
December 31, 2022 or 2021.
10
Seasonality
Our business is seasonal with peak Consumer Loan assignments and collections occurring during the first quarter of the
year. This seasonality has a material impact on our interim results, as we are required to recognize a significant provision for
credit losses expense at the time of assignment. For additional information, see Note 2 to the consolidated financial statements
contained in Item 8 of this Form 10-K, which is incorporated herein by reference.
Regulation
Our business is subject to laws and regulations, including the Truth in Lending Act, the Equal Credit Opportunity Act, the
Fair Credit Reporting Act, prohibitions against unfair, deceptive, and abusive acts and practices, and various other state and
federal laws and regulations. These laws and regulations, among other things, require licensing and qualification; limit interest
rates, fees, and other charges associated with the Consumer Loans assigned to us; require specified disclosures by Dealers to
consumers; govern the sale and terms of ancillary products; and define the rights to repossess and sell collateral. Failure to
comply with these laws or regulations could have a material adverse effect on us by, among other things, limiting the
jurisdictions in which we may operate, restricting our ability to realize the value of the collateral securing the Consumer Loans,
making it more costly or burdensome to do business, or resulting in potential liability. The volume of new or modified laws
and regulations has increased in recent years. From time to time, legislation and regulations are enacted which increase the cost
of doing business, limit or expand permissible activities, or affect the competitive balance among financial services
providers. Proposals to change the laws and regulations governing the operations and taxation of financial institutions and
financial services providers are frequently made in the U.S. Congress, in the state legislatures, and by various regulatory
agencies. Such changes in laws and regulations may change our operating environment in substantial and unpredictable ways
and may have a material adverse effect on our business.
We are subject to supervision by the Bureau of Consumer Financial Protection (the “Bureau”). The Bureau has rulemaking
and enforcement authority over certain non-depository institutions, including us. The Bureau is specifically authorized, among
other things, to take actions to prevent companies providing consumer financial products or services and their service providers
from engaging in unfair, deceptive, or abusive acts or practices in connection with consumer financial products and services,
and to issue rules requiring enhanced disclosures or consumer access to information for consumer financial products or
services. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Bureau also
may restrict the use of pre-dispute mandatory arbitration clauses in contracts between covered persons and consumers for a
consumer financial product or service. The Bureau also has authority to interpret, enforce, and issue regulations implementing
enumerated consumer laws, including certain laws that apply to our business. The Dodd-Frank Act and regulations promulgated
thereunder may affect our cost of doing business, may limit or expand our permissible activities, may affect the competitive
balance within our industry and market areas, and could have a material adverse effect on us.
In addition to the Bureau, other state and federal agencies have the ability to regulate aspects of our business. For example,
the Dodd-Frank Act provides a mechanism for state attorneys general to investigate us. Separately, state attorneys general and
certain state regulators have authority under their respective rules and laws, to investigate and/or regulate aspects of our
business. In addition, the Federal Trade Commission has jurisdiction to investigate aspects of our business. We expect that
regulatory investigations of our business by both state and federal agencies will continue and that the results of these
investigations could have a material adverse impact on us.
11
Ongoing Regulatory Matters
Regulatory matters to which we are a party include the following matters, in each case the eventual scope, duration, and
outcome of which we cannot predict at this time.
•
•
On December 1, 2021, we received a subpoena from the Office of the Attorney General for the State of California
seeking documents and information regarding GAP products, GAP product administration, and refunds.
On May 7, 2019, we received a subpoena from the Consumer Frauds and Protection Bureau of the Office of the New
York State Attorney General, relating to the Company’s origination and collection policies and procedures in the state
of New York. On July 30, 2020, we received two additional subpoenas from the Office of the New York State
Attorney General, both from the Consumer Frauds and Protection Bureau and the Investor Protection Bureau, relating
to the Company’s origination and collection policies and procedures in the state of New York and its securitizations.
On August 28, 2020, we were informed that one of the two additional subpoenas was being withdrawn. On November
16, 2020, we received an additional subpoena for documents from the Office of the New York State Attorney General.
On November 19, 2020, the Company received a letter from the Office of the New York State Attorney General
stating that the New York State Attorney General was considering bringing claims against the Company under the
Dodd-Frank Act, New York Executive Law § 63(12), the New York Martin Act and New York General Business Law
§ 349 in connection with the Company’s origination and securitization practices. On December 9, 2020, we responded
to the New York State Attorney General’s letter disputing the assertions contained therein. On December 21, 2020, we
received two additional subpoenas from the Office of the New York State Attorney General, one relating to data and
the other seeking testimony. On February 24 and April 30, 2021, we received additional subpoenas from the Office of
the New York State Attorney General seeking information relating to its investigation. On August 23, 2022, we
received a letter from the Consumer Frauds and Protection Bureau of the Office of the New York State Attorney
General stating that the Office of the New York State Attorney General intended to commence litigation against the
Company asserting violations of New York Executive Law § 63(12) and New York General Business Law §§ 349 and
352 et seq. and applicable federal laws, including but not limited to claims that the Company engaged in unfair and
deceptive trade practices in auto lending, debt collection, and asset-backed securitizations in the State of New York in
violation of the Dodd-Frank Act, New York Executive Law § 63(12), the New York Martin Act and New York
General Business Law § 349, and seeking to obtain injunctive relief, restitution, civil penalties, damages,
disgorgement, reformation, rescission, costs, and such other relief as the court may deem just and proper. On January
4, 2023, the Office of the New York State Attorney General and the Bureau jointly filed a complaint in the United
States District Court for the Southern District of New York alleging that the Company engaged in deceptive practices,
fraud, illegality, and securities fraud in violation of New York Executive Law § 63(12) and New York General
Business Law §§ 349 and 352, and that the Company engaged in deceptive and abusive acts and provided substantial
assistance to a covered person or service provider in violation of the Consumer Financial Protection Act of 2010 (the
“CFPA”), 12 U.S.C. § 5531 and 12 U.S.C. § 5536(a)(1)(B). The complaint seeks injunctive relief, an accounting of all
consumers for whom the Company provided financing, restitution, damages, disgorgement, civil penalties, and
payment of costs. The Company intends to vigorously defend itself in this matter.
12
•
•
•
On April 22, 2019, we received a civil investigative demand from the Bureau seeking, among other things, certain
information relating to the Company’s origination and collection of Consumer Loans, TPPs, and credit reporting. On
May 7, 2020, we received another civil investigative demand from the Bureau seeking additional information relating
to its investigation. The Company raised various objections to the May 7, 2020 civil investigative demand, and on May
26, 2020, we were notified that it was withdrawn. On June 1, 2020, we received another civil investigative demand
that was similar to the May 7, 2020 demand, and which raised many of the same objections. We formally petitioned
the Bureau to modify the June 1, 2020 civil investigative demand. On September 3, 2020, the Director of the Bureau
denied our petition to modify the June 1, 2020 civil investigative demand. On December 23, 2020, we received a civil
investigative demand for investigational hearings in connection with the Bureau’s investigation. The Company
objected to certain portions of the civil investigative demands for hearings and, on January 19, 2021, the Bureau
notified the Company that it had withdrawn such portions from the December 23, 2020 civil investigative demands.
On March 11, 2021, we received another civil investigative demand from the Bureau seeking additional information
relating to its investigation and an investigational hearing. On June 3, 2021, we received another civil investigative
demand from the Bureau seeking additional information relating to its investigation. On December 6, 2021, we
received a Notice and Opportunity to Respond and Advise (“NORA”) letter from the Staff of the Office of
Enforcement (“Staff”) of the Bureau, stating that the Staff was considering whether to recommend that the Bureau take
legal action against the Company for alleged violations of the CFPA in connection with the Company’s consumer loan
origination practices. The NORA letter stated that the Bureau may allege that the Company (i) committed abusive and
unfair acts or practices in violation of 12 U.S.C. § 5531(c) and (d) and 12 U.S.C. § 5536(a)(1)(B) and (ii) substantially
assisted the deceptive acts of others in violation of 12 U.S.C. § 5536 (a)(3). The NORA letter also stated that, in
connection with any action, the Bureau may seek all remedies available under the CFPA, including civil money
penalties, consumer redress, and injunctive relief. On January 18, 2022, the Company responded to the NORA letter
disputing that it had committed any violations. On March 7, 2022, we received another civil investigative demand
from the Bureau seeking additional information relating to its investigation. As noted above, on January 4, 2023, the
Bureau and the Office of the New York State Attorney General jointly filed a complaint in the United States District
Court for the Southern District of New York alleging that the Company engaged in deceptive practices, fraud,
illegality, and securities fraud in violation of New York Executive Law § 63(12) and New York General Business Law
§§ 349 and 352, and that the Company engaged in deceptive and abusive acts and provided substantial assistance to a
covered person or service provider in violation of the CFPA, 12 U.S.C. § 5531 and 12 U.S.C. § 5536(a)(1)(B). The
complaint seeks injunctive relief, an accounting of all consumers for whom the Company provided financing,
restitution, damages, disgorgement, civil penalties, and payment of costs. The Company intends to vigorously defend
itself in this matter.
On March 18, 2016, we received a subpoena from the Attorney General of the State of Maryland, relating to the
Company’s repossession and sale policies and procedures in the state of Maryland. On April 3, 2020, we received a
subpoena from the Attorney General of the State of Maryland relating to the Company’s origination and collection
policies and procedures in the state of Maryland. On August 11, 2020, we received a subpoena from the Attorney
General of the State of Maryland restating most of the requests contained in the March 18, 2016 and April 3, 2020
subpoenas, making additional requests, and expanding the inquiry to include 41 other states (Alabama, Alaska,
Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa,
Kansas, Kentucky, Louisiana, Maine, Michigan, Minnesota, Nebraska, Nevada, New Hampshire, New Jersey, New
Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South
Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, and Wisconsin) and the District of Columbia. Also
on August 11, 2020, we received from the Attorney General of the State of New Jersey a subpoena that is essentially
identical to the August 11, 2020 Maryland subpoena, both as to substance and as to the jurisdictions identified.
On December 9, 2014, we received a civil investigative subpoena from the U.S. Department of Justice pursuant to the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989 directing us to produce certain information
relating to subprime automotive finance and related securitization activities.
In addition, governmental regulations that would deplete the supply of used vehicles, such as environmental protection
regulations governing emissions or fuel consumption, could have a material adverse effect on us.
Our Dealers must also comply with credit and trade practice statutes and regulations. Failure of our Dealers to comply with
these statutes and regulations could result in consumers having rights of rescission and other remedies that could have a
material adverse effect on us.
13
The sale of vehicle service contracts and GAP by Dealers in connection with Consumer Loans assigned to us from Dealers
is also subject to state laws and regulations. As we are the holder of the Consumer Loans that may, in part, finance these
products, some of these state laws and regulations may apply to our servicing and collection of the Consumer Loans. Although
these laws and regulations do not significantly affect our business, there can be no assurance that insurance or other regulatory
authorities in the jurisdictions in which these products are offered by Dealers will not seek to regulate or restrict the operation of
our business in these jurisdictions. Any regulation or restriction of our business in these jurisdictions could materially adversely
affect the income received from these products.
We believe that we maintain all material licenses and permits required for our current operations and are in substantial
compliance with all applicable laws and regulations. Our agreements with Dealers provide that the Dealer shall indemnify us
with respect to any loss or expense we incur as a result of the Dealer’s failure to comply with applicable laws and regulations.
Team Members
Our team members are organized into three operating functions: Originations, Servicing, and Support.
Originations. The originations function includes team members that are responsible for marketing our programs to
prospective Dealers, enrolling new Dealers, and supporting active Dealers. Originations also includes team members
responsible for processing new Consumer Loan assignments.
Servicing. The servicing function includes team members that are responsible for servicing the Consumer Loans. The
majority of these team members are responsible for collection activities on delinquent Consumer Loans.
Support. The support function includes team members that are responsible for engineering, corporate legal and compliance,
human resources, finance, analytics, and marketing and product management.
The table below presents team members by operating function:
Operating Function
2022
2021
2020
Number of Team Members
As of December 31,
Originations
Servicing
Support
Total
505
913
828
2,246
500
895
678
2,073
527
867
639
2,033
As of December 31, 2022, we had 2,246 full- and part-time team members. Our team members have no union affiliations,
and we believe our relationship with our team members is in good standing. We strive to create a work environment that is
pleasant, professional, and free from intimidation, hostility, or other offenses that may interfere with work performance. All
team members complete non-discrimination and anti-harassment training, promoting a safe and inclusive work environment.
The vast majority of our team members work remotely from locations within the United States, with nearly half of our
team members located outside of Michigan. Our Company is highly diverse, as more than half of our team members are
women, and more than half belong to a minority ethnicity. Our team members reflect diversity of nationality, faith, age, and
sexual orientation. We believe that our workplace is naturally diverse and inclusive due to our practices of maintaining open
and transparent communication and fostering a climate in which all team members are welcome to speak up and contribute. We
have a Diversity and Inclusion Committee, chaired by a senior manager, tasked with generating concrete actions that we can
take together to help our communities heal and make our culture and our Company stronger.
We place great importance on listening to our team members, as we believe that “the people doing the work know the most
about it.” We encourage participation in periodic anonymous surveys to gain honest feedback about our workplace from our
team members, and we use this feedback to generate ideas for improvement. Our Company’s culture attracts talented people
and enables them to perform to their potential. We have been honored to receive many workplace awards in recent years.
14
Available Information
Our internet address is creditacceptance.com. We make available free of charge on our internet web site our annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably
practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the
“SEC”).
ITEM 1A.
RISK FACTORS
Industry, Operational and Macroeconomic Risks
Our inability to accurately forecast and estimate the amount and timing of future collections could have a material
adverse effect on results of operations.
The vast majority of the Consumer Loans assigned to us are made to individuals with impaired or limited credit histories.
Consumer Loans made to these individuals generally entail a higher risk of delinquency, default, and repossession, and higher
losses than loans made to consumers with better credit. Since most of our revenue and cash flows from operations are generated
from these Consumer Loans, our ability to accurately forecast Consumer Loan performance is critical to our business and
financial results. At the time of assignment, we forecast future expected cash flows from the Consumer Loan. Based on these
forecasts, which include estimates for wholesale vehicle prices in the event of vehicle repossession and sale, we make an
advance or one-time purchase payment to the related Dealer at a level designed to maximize economic profit, a non-GAAP
financial measure. We continue to forecast the expected collection rate of each Consumer Loan subsequent to assignment.
These forecasts also serve as a critical assumption in our accounting for recognizing finance charge income and determining our
allowance for credit losses. Please see the Critical Accounting Estimates – Finance Charge Revenue & Allowance for Credit
Losses section in Item 7 of this Form 10-K, which is incorporated herein by reference. Actual cash flows from any individual
Consumer Loan are often different from cash flows estimated at the time of assignment. There can be no assurance that our
forecasts will be accurate or that Consumer Loan performance will be as expected. In periods with changing economic
conditions, accurately forecasting the performance of Consumer Loans is more difficult. In the event that our forecasts are not
accurate, our financial position, liquidity, and results of operations could be materially adversely affected.
Due to competition from traditional financing sources and non-traditional lenders, we may not be able to compete
successfully.
The automobile finance market for consumers who do not qualify for conventional automobile financing is large and
highly competitive. The market is served by a variety of companies, including “buy here, pay here” dealerships. The market is
also currently served by banks, captive finance affiliates of automobile manufacturers, credit unions, and independent finance
companies both publicly and privately owned. Many of these companies are much larger and have greater financial resources
than are available to us, and many have long standing relationships with automobile dealerships. Providers of automobile
financing have traditionally competed based on the interest rate charged, the quality of credit accepted, the flexibility of loan
terms offered, and the quality of service provided to dealers and consumers. We may be unable to compete successfully in the
automobile finance market or, due to the intense competition in this market, our results of operations, cash flows, and financial
condition may be adversely affected as we adjust our business in response to competitive pressures. Increasing advance rates on
Loans has the impact of reducing the return on capital we expect to earn on Loans. Additionally, if we are unsuccessful in
maintaining and expanding our relationships with Dealers, we may be unable to accept Consumer Loans in the volume and on
the terms that we anticipate.
An outbreak of contagious disease, such as the COVID-19 pandemic, or other public health emergency could materially
and adversely affect our business, financial condition, liquidity, and results of operations.
The COVID-19 pandemic caused a deterioration in the U.S. economy and our industry, resulted in a period of substantial
economic and financial market turmoil and adversely affected our business. In the early stages of the pandemic, certain state
governments implemented social distancing guidelines, travel bans and restrictions, quarantines, stay-at-home orders, and
shutdowns of non-essential businesses. These actions caused economic hardship in the areas in which they were implemented.
Though such restrictions have lessened, uncertainty remains as to when economic conditions will fully return to normal.
Additionally, the automotive industry experienced many supply chain disruptions, which resulted in low dealer inventories and
elevated used vehicle prices. As a result, we experienced a significant decline in Consumer Loan assignments. While unit
volume for the year ended December 31, 2022 increased from the prior year, it remained below pre-pandemic levels.
15
The ultimate impact of the COVID-19 pandemic, and the potential impact of future contagious-disease outbreaks or other
public health emergencies, are highly uncertain. Disruptions in our workforce, decreases in collections from our consumers,
declines in Consumer Loan assignments, or extended periods of economic or supply chain disruptions resulting from the
COVID-19 pandemic or from future contagious-disease outbreaks or other public health emergencies could cause a material
adverse effect on our financial position, liquidity, and results of operations. Financial market disruptions, as occurred during the
early stages of the COVID-19 outbreak, that occur as a result of contagious-disease outbreaks or other public health
emergencies could reduce our ability to access capital or our consumers’ ability to repay past or future Consumer Loans and
could negatively affect our liquidity and results of operations. The COVID-19 pandemic could continue to, and may materially
—and any future contagious-disease outbreak or other public health emergency could materially—adversely affect our
business, financial condition, liquidity, and results of operations and also intensify the risks described in the other risk factors
disclosed in this Form 10-K.
Reliance on third parties to administer our ancillary product offerings could adversely affect our business and financial
results.
We have relationships with TPPs to administer vehicle service contracts and GAP underwritten by third party insurers and
financed by us. We depend on these TPPs to evaluate and pay claims in an accurate and timely manner. If our relationships with
these TPPs were modified, disrupted, or terminated, we would need to obtain these services from an alternative administrator or
provide them using our internal resources. We may be unable to replace these TPPs with a suitable alternative in a timely and
efficient manner on terms we consider acceptable, or at all. In the event we were unable to effectively administer our ancillary
products offerings, we may need to eliminate or suspend our ancillary product offerings from our future business, we may
experience a decline in the performance of our Consumer Loans, our reputation in the marketplace could be undermined, and
our financial position, liquidity, and results of operations could be adversely affected.
We are dependent on our senior management and the loss of any of these individuals or an inability to hire additional
team members could adversely affect our ability to operate profitably.
Our senior management average 15 years of experience with us. Our success is dependent upon the management and the
leadership skills of this team. In addition, competition from other companies to hire our team members possessing the necessary
skills and experience required could contribute to an increase in team member turnover. The loss of any of these individuals or
an inability to attract and retain additional qualified team members could adversely affect us. There can be no assurance that we
will be able to retain our existing senior management or attract additional qualified team members.
Our reputation is a key asset to our business, and our business may be affected by how we are perceived in the
marketplace.
Our reputation is a key asset to our business. Our ability to attract consumers through our Dealers is highly dependent upon
external perceptions of our level of service, trustworthiness, business practices, and financial condition. Negative publicity
regarding these matters could damage our reputation among existing and potential consumers and Dealers, which could make it
difficult for us to attract new consumers and Dealers and maintain existing Dealers. Adverse developments with respect to our
industry may also, by association, negatively impact our reputation or result in greater regulatory or legislative scrutiny or
litigation against us.
The concentration of our Dealers in several states could adversely affect us.
Dealers are located throughout the United States. During the year ended December 31, 2022, our five largest states
(measured by 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) contained 29.0% of our Dealers. While we
believe we have a diverse geographic presence, for the near term, we expect that significant amounts of Consumer Loan
assignments will continue to be generated by Dealers in these five states due to the number of Dealers in these states and
currently prevailing economic, demographic, regulatory, competitive, and other conditions in these states. Changes to
conditions in these states could lead to an increase in Dealer attrition or a reduction in demand for our service that could
materially adversely affect our financial position, liquidity, and results of operations.
16
Reliance on our outsourced business functions could adversely affect our business.
We outsource certain business functions to third party service providers, which increases our operational complexity and
decreases our control. We rely on these service providers to provide a high level of service and support, which subjects us to
risks associated with inadequate or untimely service. In addition, if these outsourcing arrangements were not renewed or were
terminated or the services provided to us were otherwise disrupted, we would have to obtain these services from an alternative
provider or provide them using our internal resources. We may be unable to replace, or be delayed in replacing these sources
and there is a risk that we would be unable to enter into a similar agreement with an alternate provider on terms that we
consider favorable or in a timely manner. In the future, we may outsource additional business functions. If any of these or other
risks related to outsourcing were realized, our financial position, liquidity, and results of operations could be adversely affected.
Our ability to hire and retain foreign engineering personnel could be hindered by immigration restrictions.
A portion of our engineering team is composed of foreign nationals whose ability to work for us depends on maintaining
the necessary H-1B visas. The H-1B visa category allows U.S. employers to hire qualified foreign nationals to perform services
in specialty occupations that require the attainment of at least a bachelor’s degree or its equivalent. Our ability to hire and retain
these foreign nationals and their ability to remain and work in the United States are affected by various laws and regulations,
including limitations on the number of available H-1B visas, which the U.S. government allocates by lottery. Changes in the
laws or regulations affecting the availability, allocation, and/or cost of H-1B visas, eligibility for the H-1B visa category, or
otherwise affecting the admission or retention of skilled foreign nationals by U.S. employers, or any increase in demand for
H-1B visas relative to the limited supply of those visas, may adversely affect our ability to hire or retain foreign engineering
personnel and may, as a result, increase our operating costs and impair our business operations.
We may be unable to execute our business strategy due to current economic conditions.
Our financial position, liquidity, and results of operations depend on management’s ability to execute our business strategy.
Key factors involved in the execution of our business strategy include achieving our desired Consumer Loan assignment
volume, continued and successful use of CAPS and pricing strategy, the use of effective credit risk management techniques and
servicing strategies, continued investment in technology to support operating efficiency, and continued access to funding and
liquidity sources. Although our pricing strategy is intended to maximize the amount of economic profit we generate, within the
confines of capital and infrastructure constraints, there can be no assurance that this strategy will have its intended effect. Please
see the Consumer Loan Volume section in Item 7 of this Form 10-K, which is incorporated herein by reference. Our failure or
inability to execute any element of our business strategy could materially adversely affect our financial position, liquidity, and
results of operations.
Adverse changes in economic conditions, the automobile or finance industries, or the non-prime consumer market could
adversely affect our financial position, liquidity, and results of operations, the ability of key vendors that we depend on
to supply us with services, and our ability to enter into future financing transactions.
We are subject to general economic conditions which are beyond our control. During periods of economic slowdown or
recession, delinquencies, defaults, repossessions, and losses may increase on our Consumer Loans and Consumer Loan
prepayments may decline. These periods are also typically accompanied by decreased consumer demand for automobiles and
declining values of automobiles securing outstanding Consumer Loans, which weakens collateral coverage and increases the
amount of loss in the event of default. Significant increases in the inventory of used automobiles during periods of economic
recession may also depress the prices at which repossessed automobiles may be sold or delay the timing of these sales.
Additionally, inflation, higher gasoline prices, increased focus on climate-related initiatives and regulation, declining stock
market values, unstable real estate values, resets of adjustable rate mortgages to higher interest rates, increasing unemployment
levels, general availability of consumer credit, or other factors that impact consumer confidence or disposable income could
increase loss frequency and decrease consumer demand for automobiles as well as weaken collateral values of automobiles.
Because our business is focused on consumers who do not qualify for conventional automobile financing, the actual rates of
delinquencies, defaults, repossessions, and losses on our Consumer Loans could be higher than those experienced in the general
automobile finance industry, and could be more dramatically affected by a general economic downturn.
17
We rely on Dealers to originate Consumer Loans for assignment under our programs. High levels of Dealer attrition, due to
a general economic downturn or otherwise, could materially adversely affect our operations. In addition, we rely on vendors to
provide us with services we need to operate our business. Any disruption in our operations due to the untimely or discontinued
supply of these services could substantially adversely affect our operations. Finally, during an economic slowdown or
recession, our servicing costs may increase without a corresponding increase in finance charge revenue. Any sustained period
of increased delinquencies, defaults, repossessions, or losses or increased servicing costs could also materially adversely affect
our financial position, liquidity, and results of operations and our ability to enter into future financing transactions.
Technological advancements or changes to trends in the automobile industry such as new autonomous driving technologies
or car- and ride-sharing programs could decrease consumer demand for automobiles. Decreased consumer demand for
automobiles could negatively impact demand for our financing programs as well as weaken collateral values of automobiles,
which could materially adversely affect our financial position, liquidity, and results of operations.
Natural disasters, climate change, military conflicts, acts of war, terrorist attacks and threats, or the escalation of
military activity in response to terrorist attacks or otherwise may negatively affect our business, financial condition, and
results of operations.
Natural disasters, climate change, military conflicts such as the war in Ukraine, acts of war, terrorist attacks, and the
escalation of military activity in response to terrorist attacks or otherwise may have negative and significant effects, such as
imposition of increased security measures, changes in applicable laws, economic and financial market disruptions, loss of lives,
damage to infrastructure, and job losses. These types of events or developments and their consequences may have an adverse
effect on the economy in general, including diminished liquidity and credit availability, reduced consumer confidence,
disruptions to energy and food supplies, decreased economic growth, higher unemployment rates, increased inflation, and
political and social upheaval. The consequences of these types of events or developments could reduce used-car sales and
demand for our product, impair the performance of our Loan portfolio, limit our access to capital, and intensify other risk
factors disclosed in this Form 10-K, including cybersecurity-related risks. Moreover, the potential for future military conflicts
and terrorist attacks, natural disasters, and escalating effects of climate change, and the national and international responses to
these threats, could affect our business in ways that cannot be predicted. The effect of any of these events, developments, or
threats could have a material adverse effect on our business, financial condition, and results of operations.
Governmental or market responses to climate change and related environmental issues could have a material adverse
effect on our business.
Governments have become increasingly focused on the effects of climate change and related environmental issues. How
governments act to mitigate climate and related environmental risks, as well as associated changes in the behavior and
preferences of businesses and consumers, could have an adverse effect on our business and results of operations. A decline in
demand for gasoline-powered automobiles, such as could occur due to regulatory restrictions or a shift in consumer preference
toward electric vehicles, could decrease the value of gasoline-powered vehicles securing outstanding Consumer Loans, which
would weaken collateral coverage and increase the amount of loss in the event of default. Further, we may be compelled to
change our business practices or our operational processes, and we could have less access to capital or face a higher cost of
capital, because of climate- or environmental-driven changes in applicable law or due to related political, social, or market
pressure. It is possible as well that changes in climate and related environmental risks, perceptions of them, and governmental
responses to them may occur more rapidly than our ability to adapt without disrupting our business which could have a material
adverse effect on our financial position and results of operations.
18
A small number of our shareholders have the ability to significantly influence matters requiring shareholder approval
and such shareholders have interests which may conflict with the interests of our other security holders.
As of December 31, 2022, based on filings made with the SEC and other information made available to us, Allan V. Apple
beneficially owned 24.6% of our common stock, Prescott General Partners, LLC and its affiliates beneficially owned 18.3% of
our common stock, Jill Foss Watson beneficially owned 16.2% of our common stock, and John P. Neary beneficially owned
11.4% of our common stock (representing, collectively, beneficial ownership of 46.8% of our common stock, after taking into
account those shares reported as beneficially owned by more than one of these shareholders). As a result, these shareholders are
able to significantly influence matters presented to shareholders, including the election and removal of directors, the approval of
significant corporate transactions, such as any reclassification, reorganization, merger, consolidation, or sale of all or
substantially all of our assets, and the control of our management and affairs, including executive compensation arrangements.
Their interests may conflict with the interests of our other security holders.
The beneficial ownership reported by Mr. Apple and Mr. Neary includes, in each case, beneficial ownership in their
capacity as trustees of shares held in a trust established by our late founder, Donald Foss, for the benefit of members of Mr.
Foss’s family and representing 11.4% of our common stock as of December 31, 2022. The shares in the trust are subject to the
terms of a shareholder agreement, entered into by Mr. Foss on January 3, 2017. Under the terms of that agreement that became
applicable to the trustees of the trust upon Mr. Foss’s death on August 14, 2022, until the final adjournment of the tenth annual
meeting of shareholders held by the Company after the date of the shareholder agreement, the shares in the trust are to be voted
in accordance with the recommendation of the Company’s Board of Directors with respect to election and removal of directors,
certain routine matters and any other proposal to be submitted to the Company’s shareholders with respect to any extraordinary
transaction providing for the acquisition of all of the Company’s outstanding common stock.
Capital and Liquidity Risks
We may be unable to continue to access or renew funding sources and obtain capital needed to maintain and grow our
business.
We use debt financing to maintain and grow our business. We currently utilize the following primary forms of debt
financing: (1) a revolving secured line of credit; (2) revolving secured warehouse (“Warehouse”) facilities; (3) asset-backed
secured financings (“Term ABS”); and (4) senior notes. We cannot guarantee that the revolving secured line of credit or the
Warehouse facilities will continue to be available beyond their current maturity dates, on acceptable terms, or at all, or that we
will be able to obtain additional financing on acceptable terms or at all. The availability of additional financing will depend on a
variety of factors such as market conditions, the general availability of credit, our financial position, our results of operations,
and the capacity for additional borrowing under our existing financing arrangements. If our various financing alternatives were
to become limited or unavailable, we may be unable to maintain or grow Consumer Loan volume at the level that we anticipate
and our operations could be materially adversely affected.
The terms of our debt limit how we conduct our business.
The agreements that govern our debt contain covenants that restrict our ability to, among other things:
incur and guarantee debt;
pay dividends or make other distributions on or redeem or repurchase our stock;
•
•
• make investments or acquisitions;
•
•
• merge with or into other companies; and
•
create liens on our assets;
sell assets;
enter into transactions with stockholders and other affiliates.
Some of our debt agreements also impose requirements that we maintain specified financial measures not in excess of, or
not below, specified levels. In particular, our revolving credit facility requires, among other things, that we maintain (i) as of the
end of each fiscal quarter, a ratio of consolidated funded debt less unrestricted cash and cash equivalents to consolidated
tangible net worth at or below a specified maximum and (ii) as of the end of each fiscal quarter, a ratio of consolidated income
available for fixed charges for the period of four consecutive fiscal quarters most recently ended to consolidated fixed charges,
as defined in the agreements, for that period of not less than a specified minimum. These covenants limit the manner in which
we can conduct our business and could prevent us from engaging in favorable business activities or financing future operations
and capital needs and impair our ability to successfully execute our strategy and operate our business.
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A breach of any of the covenants in our debt instruments would result in an event of default thereunder if not promptly
cured or waived. Any continuing default would permit the creditors to accelerate the related debt, which could also result in the
acceleration of other debt containing a cross acceleration or cross default provision. In addition, an event of default under our
revolving credit facility would permit the lenders thereunder to terminate all commitments to extend further credit under our
revolving credit facility. Furthermore, if we were unable to repay the amounts due and payable under our revolving credit
facility or other secured debt, the lenders thereunder could cause the collateral agent to proceed against the collateral securing
that debt. In the event our creditors accelerate the repayment of our debt, there can be no assurance that we would have
sufficient assets to repay that debt, and our financial condition, liquidity, and results of operations would suffer.
A violation of the terms of our Term ABS facilities or Warehouse facilities could have a material adverse impact on our
operations.
Under our Term ABS facilities and our Warehouse facilities, (1) we have various obligations and covenants as servicer and
custodian of the Consumer Loans contributed thereto and in our individual capacity and (2) the special purpose subsidiaries to
which we contribute Consumer Loans have various obligations and covenants. A violation of any of these obligations or
covenants by us or the special purpose subsidiaries, respectively, may result in our being unable to obtain additional funding
under our Warehouse facilities, the termination of our servicing rights, and the loss of servicing fees, and may result in amounts
outstanding under our Term ABS financings and our Warehouse facilities becoming immediately due and payable. In addition,
the violation of any financial covenant under our revolving secured line of credit facility is an event of default or termination
event under certain of the Term ABS facilities and our Warehouse facilities. The lack of availability from any or all of these
Term ABS facilities and Warehouse facilities may have a material adverse effect on our financial position, liquidity, and results
of operations.
Our substantial debt could negatively impact our business, prevent us from satisfying our debt obligations, and
adversely affect our financial condition.
We have a substantial amount of debt, which could have negative consequences, including the following:
•
•
•
•
•
•
our ability to obtain additional financing for Consumer Loan assignments, working capital, debt refinancing, or other
purposes could be impaired;
a substantial portion of our cash flows from operations will be dedicated to paying principal and interest on our debt,
reducing funds available for other purposes;
we may be vulnerable to interest rate increases, as some of our borrowings, including those under our revolving
credit facility and Warehouse facilities, bear interest at variable rates;
we could be more vulnerable to adverse developments in our industry or in general economic conditions;
we may be restricted from taking advantage of business opportunities or making strategic acquisitions; and
we may be limited in our flexibility in planning for, or reacting to, changes in our business and the industries in
which we operate.
We may not be able to generate sufficient cash flows to service our outstanding debt and fund operations and may be
forced to take other actions to satisfy our obligations under such debt.
Our ability to make payments of principal and interest on indebtedness will depend in part on our cash flows from
operations, which are subject to economic, financial, competitive, and other factors beyond our control. We cannot assure you
that we will maintain a level of cash flows from operations sufficient to permit us to meet our debt service obligations. If we are
unable to generate sufficient cash flows from operations to service our debt, we may be required to sell assets, refinance all or a
portion of our existing debt, or obtain additional financing. There can be no assurance that any refinancing will be possible or
that any asset sales or additional financing can be completed on acceptable terms or at all.
Interest rate fluctuations may adversely affect our borrowing costs, profitability, and liquidity.
Our profitability may be directly affected by the level of and fluctuations in interest rates, whether caused by changes in
economic conditions or other factors, which affect our borrowing costs. Our profitability and liquidity could be materially
adversely affected during any period of higher interest rates. We monitor the interest rate environment and employ strategies
designed to partially mitigate the impact of increases in interest rates. We can provide no assurance, however, that our strategies
will mitigate the impact of increases in interest rates.
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The phaseout of the London Interbank Offered Rate (“LIBOR”), or the replacement of LIBOR with a different
reference rate, could result in a material adverse effect on our business.
In July 2017, the United Kingdom Financial Conduct Authority, or the FCA (the authority that regulates LIBOR),
announced that it would phase out LIBOR by the end of 2021. The FCA-regulated and authorized administrator of LIBOR
indicated in 2020 that U.S.-dollar LIBOR for certain maturities would continue to be available until the end of June 2023.
During 2022, we entered into amendments for most of our LIBOR-based facilities to transition to alternative benchmark rates.
One of our Warehouse facilities and the corresponding interest rate cap agreement continue to utilize LIBOR as a benchmark
for calculating the applicable interest rates. We plan to transition the remaining LIBOR-based facility and its related interest
rate cap to an alternative benchmark. Any market volatility or disruption or changes in effective interest rates resulting from the
discontinuance or replacement of LIBOR, or any failure to transition our remaining LIBOR-based facility and its related
interest rate cap to an alternative benchmark, could adversely affect our access to the debt, securitization or derivative markets
and increase our costs of funding and hedging. Such market volatility or disruption or higher costs of funding and hedging or
any other similar increases in our cost of capital resulting from the phaseout or replacement of LIBOR could materially
adversely affect our financial position, liquidity, and results of operations.
Alternatives to LIBOR that have been incorporated into our borrowings to date, such as the Bloomberg Short-Term Bank
Yield Index Rate (“BSBY”) and the Secured Overnight Financing Rate (“SOFR”), are relatively new reference rates with
limited histories. The future performance of these alternatives to LIBOR cannot reliably be predicted based on their limited
historical performance. Additionally, any other successor rates to LIBOR or successors to these initial alternatives to LIBOR
may have different characteristics from those of LIBOR and these initial alternatives. As a result, the manner in which and
degree to which the interest rates on our variable-interest-rate debt fluctuate relative to market interest rates may be more
difficult to predict than prior to the phaseout of LIBOR.
Reduction in our credit rating could increase the cost of our funding from, and restrict our access to, the capital markets
and adversely affect our liquidity, financial condition, and results of operations.
Credit rating agencies evaluate us, and their ratings of our debt and creditworthiness are based on a number of factors.
These factors include our financial strength and other factors not entirely within our control, including conditions affecting the
financial services industry generally. As the financial services industry and the financial markets periodically face difficulties,
there can be no assurance that we will maintain our current ratings. Failure to maintain those ratings could, among other things,
adversely limit our access to the capital markets and affect the cost and other terms upon which we are able to obtain financing.
We may incur substantially more debt and other liabilities. This could exacerbate further the risks associated with our
current debt levels.
We may be able to incur substantial additional debt in the future. Although the terms of our debt instruments contain
restrictions on our ability to incur additional debt, these restrictions are subject to exemptions that could permit us to incur a
substantial amount of additional debt. In addition, our debt instruments do not prevent us from incurring liabilities that do not
constitute indebtedness as defined for purposes of those debt instruments. If new debt or other liabilities are added to our
current debt levels, the risks associated with our having substantial debt could intensify.
The conditions of the U.S. and international capital markets may adversely affect lenders with which we have
relationships, causing us to incur additional costs and reducing our sources of liquidity, which may adversely affect our
financial position, liquidity, and results of operations.
Periodically, there has been uncertainty in the global capital markets and the overall economy. Such uncertainty can result
in disruptions in the financial sector and affect lenders with which we have relationships. Disruptions in the financial sector
may increase our exposure to credit risk and adversely affect the ability of lenders to perform under the terms of their lending
arrangements with us. Failure by our lenders to perform under the terms of our lending arrangements could cause us to incur
additional costs that may adversely affect our liquidity, financial condition, and results of operations. There can be no assurance
that future disruptions in the financial sector will not occur that could have similar adverse effects on our business.
21
Technology and Cybersecurity Risks
Our dependence on technology could have a material adverse effect on our business.
All Consumer Loans submitted to us for assignment are processed through our internet-based CAPS application, which
enables our Dealers to interact with our proprietary credit scoring system. Our Consumer Loan servicing platform is also
technology based. We rely on these systems to record and process significant amounts of data quickly and accurately. Our
systems are dependent upon computer and telecommunications equipment, software systems, and internet access. The
temporary or permanent loss of any components of these systems through hardware failures, software errors, operating
malfunctions, the vulnerability of the internet, or otherwise could interrupt our business operations and harm our business.
Our systems, and the equipment, software, and internet access on which they depend, may be subject to cyber attacks,
security breaches, and other cybersecurity incidents. Although the cybersecurity incidents we have experienced to date have not
had a material effect on our business, financial condition, or results of operations, there can be no assurance that cybersecurity
incidents will not have a material adverse effect on us in the future.
We rely on a variety of measures to protect our technology and proprietary information, including copyrights and a
comprehensive information security program. However, these measures may not prevent misappropriation or infringement of
our intellectual property or proprietary information, which would adversely affect us. In addition, our competitors or other third
parties may allege that our systems, processes, or technologies infringe their intellectual property rights.
Our ability to integrate computer and telecommunications technologies into our business is essential to our success.
Computer and telecommunications technologies are evolving rapidly and are characterized by short product life cycles. We may
not be successful in anticipating, managing, or adopting technological changes on a timely basis. While we believe that our
existing information systems are sufficient to meet our current demands and continued expansion, our future growth may
require additional investment in these systems. We cannot assure that adequate capital resources will be available to us at the
appropriate time.
Our use of electronic contracts could impact our ability to perfect our ownership or security interest in Consumer
Loans.
Our systems permit origination and assignment of Consumer Loans in electronic form. We have engaged a TPP to facilitate
the process of creating, establishing control of, and storing electronic contracts in a manner that enables us to perfect our
ownership or security interest in the electronic contracts by satisfying the requirements for “control” of electronic chattel paper
under the Uniform Commercial Code.
Although the law governing the perfection of ownership and security interests in electronic contracts was enacted in 2001,
the statutory requirements for the relevant control arrangements have not been meaningfully tested in court. In addition, market
practices regarding control of electronic contracts are still developing. As a result, there is a risk that the systems employed by
us or any TPP to maintain control of the electronic contracts may not be sufficient as a matter of law to give us a perfected
ownership or security interest in the Consumer Loans evidenced by electronic contracts. In addition, technological failure,
including failure in the security or access restrictions with respect to the systems, and operational failure, such as the failure to
implement and maintain adequate internal controls and procedures, could also affect our ability to obtain or maintain a
perfected ownership or security interest in the Consumer Loans evidenced by electronic contracts (or the priority of such
interests). Our failure or inability to perfect our ownership or security interest in the Consumer Loans could materially
adversely affect our financial position, liquidity, and results of operations.
Failure to properly safeguard confidential consumer and team member information could subject us to liability,
decrease our profitability, and damage our reputation.
In the ordinary course of our business, we collect and store sensitive data, including our proprietary business information
and personally identifiable information of our consumers and team members, on our computer networks. The secure processing,
maintenance, and transmission of this information is critical to our operations and business strategy.
22
If third parties or our team members are able to breach our network security, the network security of a third party that we
share information with, or otherwise misappropriate our consumers’ and team members’ personal information, or if we give
third parties or our team members improper access to our consumers’ and team members’ personal information, we could be
subject to liability. This liability could include identity theft or other similar fraud-related claims. This liability could also
include claims for other misuses or losses of personal information, including for unauthorized marketing purposes. Other
liabilities could include claims alleging misrepresentation of our privacy and data security practices.
We rely on encryption and authentication technology licensed from third parties to provide the security and authentication
necessary to secure online transmission of confidential consumer and team member information. Advances in computer
capabilities, new discoveries in the field of cryptography, or other events or developments may result in a compromise or
breach of the algorithms that we use to protect sensitive consumer transaction data. A party who is able to circumvent our
security measures could misappropriate proprietary information or cause interruptions in our operations. We may be required to
expend capital and other resources to protect against, or alleviate problems caused by, security breaches or other cybersecurity
incidents. Although we have experienced cybersecurity incidents from time to time that have not had a material effect on our
business, financial condition, or results of operations, there can be no assurance that a cyber attack, security breach, or other
cybersecurity incident will not have a material adverse effect on us in the future. Our security measures are designed to protect
against security breaches, but our failure to prevent security breaches could subject us to liability, decrease our profitability, and
damage our reputation.
Legal and Regulatory Risks
Litigation we are involved in from time to time may adversely affect our financial condition, results of operations, and
cash flows.
As a result of the consumer-oriented nature of the industry in which we operate and uncertainties with respect to the
application of various laws and regulations in some circumstances, we are subject to various consumer claims, litigation, and
regulatory investigations seeking damages, fines, and statutory penalties, based upon, among other things, usury, disclosure
inaccuracies, wrongful repossession, violations of bankruptcy stay provisions, certificate of title disputes, fraud, and breach of
contract. As the assignee of Consumer Loans originated by Dealers, we may also be named as a co-defendant in lawsuits filed
by consumers principally against Dealers. We may also have disputes and litigation with Dealers. The claims may allege,
among other theories of liability, that we breached our Dealer servicing agreement. We may also have disputes and litigation
with vendors and other third parties. The claims may allege, among other theories of liability, that we breached a license
agreement or contract. The damages, fines, and penalties that may be claimed by consumers, regulatory agencies, Dealers,
vendors, or other third parties in these types of matters can be substantial. The relief requested by plaintiffs varies but may
include requests for compensatory, statutory, and punitive damages and injunctive relief, and plaintiffs may seek treatment as
purported class actions. A significant judgment against us in connection with any litigation or arbitration could have a material
adverse effect on our financial position, liquidity, and results of operations.
For a description of significant litigation to which we are a party, see Note 16 to the consolidated financial statements
contained in Item 8 of this Form 10-K, which is incorporated herein by reference.
Changes in tax laws and the resolution of uncertain income tax matters could have a material adverse effect on our
results of operations and cash flows from operations.
We are subject to income tax in many of the various jurisdictions in which we operate. Increases in statutory income tax
rates and other adverse changes in applicable law in these jurisdictions could have an adverse effect on our results of operations.
In the ordinary course of business, there are transactions and calculations where the ultimate tax determination is uncertain. At
any one time, multiple tax years are subject to audit by various taxing jurisdictions. We provide reserves for potential payments
of tax to various tax authorities related to uncertain tax positions. Please see the Critical Accounting Estimates – Uncertain Tax
Positions section in Item 7 of this Form 10-K, which is incorporated herein by reference. We adjust these liabilities as a result
of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may
result in a payment that is materially different from our current estimate of the tax liabilities. Such payments could have a
material adverse effect on our results of operations and cash flows from operations.
The regulations to which we are or may become subject could result in a material adverse effect on our business.
Reference should be made to Item 1. Business “Regulation” for a discussion of regulatory risk factors.
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ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our headquarters is located in Southfield, Michigan, in an office building we purchased in 1993, which includes
approximately 136,000 square feet of space. We also own a second office building in Southfield that we purchased in 2018,
which includes approximately 297,000 square feet of space. We have a mortgage loan from a commercial bank that is secured
by a first mortgage lien on the second office property. We previously leased office space in Henderson, Nevada. We elected not
to renew that lease, and it expired on December 31, 2022.
The COVID-19 pandemic had a significant impact on our work environment, as the vast majority of our team members
began working remotely. Because our remote operations and processes proved successful early on, we now pursue a “remote
first” strategy to take advantage of the national talent pool and an increased rate of team member satisfaction. While remote
work has become the primary experience for most of our team members, some team members, due to their personal preference
or the nature of their responsibilities, have continued to work primarily in one of our office properties. Additionally, we have
various on-site meetings, events and team building activities for which in-person attendance is encouraged. Therefore, we
continue to have a need for some amount of office space.
As a result of the “remote first” strategy, we have significant excess space in the two office buildings that we own in
Southfield, Michigan. We are actively exploring options to reduce our office space, which could result in the sale or lease of
one or both of our buildings. As there is currently a significant amount of unoccupied office space in Southfield, we believe the
market value of our buildings and improvements, land and land improvements, and office furniture and equipment is
significantly less than their combined carrying value of $38.2 million. If we were to reclassify one or both of these buildings as
held for sale, we would be required to record an impairment charge to reduce the carrying value of the buildings held for sale to
their estimated market value less costs to sell.
ITEM 3.
LEGAL PROCEEDINGS
In the normal course of business and as a result of the consumer-oriented nature of the industry in which we operate, we
and other industry participants are frequently subject to various consumer claims, litigation, and regulatory investigations
seeking damages, fines, and statutory penalties. The claims allege, among other theories of liability, violations of state, federal,
and foreign truth-in-lending, credit availability, credit reporting, consumer protection, warranty, debt collection, insurance, and
other consumer-oriented laws and regulations, including claims seeking damages for alleged physical and mental harm relating
to the repossession and sale of consumers’ vehicles and other debt collection activities. As the assignee of Consumer Loans
originated by Dealers, we may also be named as a co-defendant in lawsuits filed by consumers principally against Dealers. We
may also have disputes and litigation with Dealers. The claims may allege, among other theories of liability, that we breached
our Dealer servicing agreement. We may also have disputes and litigation with vendors and other third parties. The claims may
allege, among other theories of liability, that we breached a license agreement or contract. The damages, fines, and penalties
that may be claimed by consumers, regulatory agencies, Dealers, vendors, or other third parties in these types of matters can be
substantial. The relief requested by plaintiffs varies but may include requests for compensatory, statutory, and punitive damages
and injunctive relief, and plaintiffs may seek treatment as purported class actions. An adverse ultimate disposition in any action
to which we are a party or otherwise subject could have a material adverse impact on our financial position, liquidity, and
results of operations.
For a description of significant litigation to which we are a party, see Note 16 to the consolidated financial statements
contained in Item 8 of this Form 10-K, which is incorporated herein by reference.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
24
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
PART II
Market Information
Our common stock is traded on The Nasdaq Global Select Market® under the symbol “CACC”.
Holders
As of February 2, 2023, we had 84 shareholders of record of our common stock.
Stock Performance Graph
The following graph compares the percentage change in the cumulative total shareholder return on our common stock
during the period beginning January 1, 2018 and ending on December 31, 2022 with the cumulative total return on the
NASDAQ Composite Index and a peer group index based upon approximately 100 companies included in the Dow Jones U.S.
Financial Services Index. The comparison assumes that $100 was invested on January 1, 2018 in our common stock and in the
foregoing indices and assumes the reinvestment of dividends.
Source: Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2022.
Index Data: Copyright NASDAQ OMX, Inc. Used with permission. All rights reserved.
Index Data: Copyright Dow Jones, Inc. Used with permission. All rights reserved.
25
Stock Repurchases
The following table summarizes our stock repurchases for the three months ended December 31, 2022:
ISSUER PURCHASES OF EQUITY SECURITIES
Period
Total Number of
Shares Purchased
Average Price Paid
per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs (1)
Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans or
Programs (1)
October 1 through October 31, 2022
November 1 through November 30, 2022
December 1 through December 31, 2022
— $
—
207,769
207,769 $
—
—
455.68
455.68
—
—
207,769
207,769
365,838
365,838
158,069
(1) On September 28, 2021, our board of directors authorized the repurchase by us from time to time of up to two million shares of our common stock (the
“September 2021 Authorization”). The September 2021 Authorization, which was announced on October 1, 2021, does not have a specified expiration
date. Repurchases under the September 2021 Authorization may be made in the open market, through privately negotiated transactions, through block
trades, pursuant to trading plans adopted in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, or otherwise.
ITEM 6.
[RESERVED]
26
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the consolidated financial statements and related
notes contained in Item 8 of this Form 10-K, which is incorporated herein by reference.
Overview
We offer financing programs that enable automobile dealers to sell vehicles to consumers, regardless of their credit history.
Our financing programs are offered through a nationwide network of automobile dealers who benefit from sales of vehicles to
consumers who otherwise could not obtain financing; from repeat and referral sales generated by these same customers; and
from sales to customers responding to advertisements for our financing programs, but who actually end up qualifying for
traditional financing.
For the year ended December 31, 2022, consolidated net income was $535.8 million, or $39.32 per diluted share, compared
to $958.3 million, or $59.52 per diluted share, for the same period in 2021. The decrease in consolidated net income was
primarily due to an increase in provision for credit losses, a decrease in finance charges, and an increase in operating expenses.
The increase in provision for credit losses was primarily due to a decline in Consumer Loan performance. The decrease in
finance charges was primarily the result of a decrease in the average net Loans receivable balance, which was primarily due to
the principal collected on Loans receivable exceeding the dollar volume of new Consumer Loan assignments. The increase in
operating expenses was primarily related to an increase in the number of team members in our engineering department. Our
results for the year ended December 31, 2022 included:
•
•
•
•
A decrease in forecasted collection rates for Consumer Loans assigned in 2021 and 2022, which decreased forecasted
net cash flows from our loan portfolio by $59.7 million, or 0.7%.
Forecasted profitability per Consumer Loan assignment that significantly exceeded our initial estimates for Consumer
Loans assigned in 2018 through 2020 and was significantly less than our initial estimates for Consumer Loans
assigned in 2022.
An increase in Consumer Loan assignment volume, as unit and dollar volumes increased 4.4% and 14.5%,
respectively, as compared to 2021.
Stock repurchases of approximately 1.5 million shares, which represented 10.4% of the shares outstanding at the
beginning of the year.
For the year ended December 31, 2021, consolidated net income was $958.3 million, or $59.52 per diluted share, compared
to $421.0 million, or $23.47 per diluted share, for the same period in 2020. The increase in consolidated net income was
primarily due to a decrease in provision for credit losses and an increase in finance charges. The decrease in provision for credit
losses was primarily due to an improvement in Consumer Loan performance and a decrease in new Consumer Loan assignment
volume. The increase in finance charges was primarily due to an increase in the average yield on our Loan portfolio, which was
primarily the result of the adoption of the current expected credit loss (“CECL”) accounting standard on January 1, 2020. Our
results for the year ended December 31, 2021 included:
•
•
•
•
An increase in forecasted collection rates for Consumer Loans assigned in 2017 through 2021, which increased
forecasted net cash flows from our loan portfolio by $326.1 million, or 3.4%.
Forecasted profitability per Consumer Loan assignment that exceeded our initial estimate for Consumer Loans
assigned in 2021 and significantly exceeded our initial estimates for Consumer Loans assigned in 2018 through 2020.
A decline in Consumer Loan assignment volume, as unit and dollar volumes declined 21.4% and 13.0%, respectively,
as compared to 2020.
Stock repurchases of approximately 2.9 million shares, which represented 16.8% of the shares outstanding at the
beginning of the year.
27
Critical Success Factors
Critical success factors include our ability to accurately forecast Consumer Loan performance, access capital on acceptable
terms, and maintain or grow Consumer Loan volume at the level and on the terms that we anticipate, with the objective to
maximize economic profit over the long term. Economic profit is a non-GAAP financial measure we use to evaluate our
financial results and determine profit-sharing for team members. We also use economic profit as a framework to evaluate
business decisions and strategies. Economic profit measures how efficiently we utilize our total capital, both debt and equity,
and is a function of the return on capital in excess of the cost of capital and the amount of capital invested in the business.
Consumer Loan Metrics
At the time a Consumer Loan is submitted to us for assignment, we forecast future expected cash flows from the Consumer
Loan. Based on the amount and timing of these forecasts and expected expense levels, an advance or one-time purchase
payment is made to the related Dealer at a price designed to maximize economic profit.
We use a statistical model to estimate the expected collection rate for each Consumer Loan at the time of assignment. We
continue to evaluate the expected collection rate of each Consumer Loan subsequent to assignment. Our evaluation becomes
more accurate as the Consumer Loans age, as we use actual performance data in our forecast. By comparing our current
expected collection rate for each Consumer Loan with the rate we projected at the time of assignment, we are able to assess the
accuracy of our initial forecast. The following table compares our forecast of Consumer Loan collection rates as of
December 31, 2022, with the forecasts as of December 31, 2021, as of December 31, 2020, and at the time of assignment,
segmented by year of assignment:
Consumer Loan
Assignment Year
December 31,
2022
December 31,
2021
December 31,
2020
Initial
Forecast
December 31,
2021
December 31,
2020
Initial
Forecast
Forecasted Collection Percentage as of (1)
Current Forecast Variance from
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
73.5 %
71.7 %
65.2 %
63.8 %
64.7 %
65.2 %
66.6 %
67.8 %
66.2 %
66.3 %
73.4 %
71.5 %
65.1 %
63.6 %
64.4 %
65.1 %
66.5 %
67.9 %
66.5 %
—
73.4 %
71.6 %
65.2 %
63.6 %
64.1 %
64.0 %
64.4 %
64.8 %
—
—
72.0 %
71.8 %
67.7 %
65.4 %
64.0 %
63.6 %
64.0 %
63.4 %
66.3 %
67.5 %
0.1 %
0.2 %
0.1 %
0.2 %
0.3 %
0.1 %
0.1 %
-0.1 %
-0.3 %
—
0.1 %
0.1 %
0.0 %
0.2 %
0.6 %
1.2 %
2.2 %
3.0 %
—
—
1.5 %
-0.1 %
-2.5 %
-1.6 %
0.7 %
1.6 %
2.6 %
4.4 %
-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. 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 2013 and 2018 through 2020 have yielded forecasted collection results significantly better
than our initial estimates, while Consumer Loans assigned in 2015, 2016, and 2022 have yielded forecasted collection results
significantly worse than our initial estimates. For all other assignment years presented, actual results have been close to our
initial estimates.
For the year ended December 31, 2022, forecasted collection rates improved for Consumer Loans assigned in 2014, 2016,
and 2017, declined for Consumer Loans assigned in 2021 and 2022, and were generally consistent with expectations at the start
of the period for all other assignment years presented.
For the year ended December 31, 2021, forecasted collection rates improved for Consumer Loans assigned in 2017 through
2021 and were generally consistent with expectations at the start of the period for all other assignment years presented.
28
The changes in forecasted collection rates impacted forecasted net cash flows (forecasted collections less forecasted Dealer
Holdback payments) as follows:
(In millions)
For the Years Ended December 31,
Increase (Decrease) in Forecasted Net Cash Flows
2022
2021
2020
Dealer Loans
Purchased Loans
Total
$
$
(41.6) $
(18.1)
(59.7) $
87.7 $
238.4
326.1 $
(41.1)
(5.2)
(46.3)
The following table presents information on the average Consumer Loan assignment for each of the last 10 years:
Consumer Loan Assignment Year
Consumer Loan (1)
Advance (2)
Initial Loan Term
(in months)
Average
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
$
15,445 $
15,692
16,354
18,218
20,230
22,158
23,139
24,262
25,632
27,242
7,344
7,492
7,272
7,976
8,746
9,635
10,174
10,656
11,790
12,924
47
47
50
53
55
57
57
59
59
60
(1) Represents the repayments that we were contractually owed on Consumer Loans at the time of assignment, which include both principal and interest.
(2) Represents 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. Payments of Dealer Holdback and accelerated Dealer Holdback are not included.
The profitability of our loans is primarily driven by the amount and timing of the net cash flows we receive from the spread
between the forecasted collection rate and the advance rate, less operating expenses and the cost of capital. Forecasting
collection rates accurately at Loan inception is difficult. With this in mind, we establish advance rates that are intended to allow
us to achieve acceptable levels of profitability, even if collection rates are less than we initially forecast.
29
The following table presents forecasted Consumer Loan collection rates, advance rates, the spread (the forecasted
collection rate less the advance rate), and the percentage of the forecasted collections that had been realized as of December 31,
2022, as well as the forecasted collection rates and spread at the time of assignment. All amounts, unless otherwise noted, are
presented as a percentage of the initial balance of the Consumer Loan (principal + interest). The table includes both Dealer
Loans and Purchased Loans.
Consumer Loan Assignment Year
December 31,
2022
Initial Forecast
Advance % (1)
December 31,
2022
Initial Forecast
% of Forecast
Realized (2)
Forecasted Collection % as of
Spread % as of
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
73.5 %
71.7 %
65.2 %
63.8 %
64.7 %
65.2 %
66.6 %
67.8 %
66.2 %
66.3 %
72.0 %
71.8 %
67.7 %
65.4 %
64.0 %
63.6 %
64.0 %
63.4 %
66.3 %
67.5 %
47.6 %
47.7 %
44.5 %
43.8 %
43.2 %
43.5 %
44.0 %
43.9 %
46.0 %
47.4 %
25.9 %
24.0 %
20.7 %
20.0 %
21.5 %
21.7 %
22.6 %
23.9 %
20.2 %
18.9 %
24.4 %
24.1 %
23.2 %
21.6 %
20.8 %
20.1 %
20.0 %
19.5 %
20.3 %
20.1 %
99.8 %
99.6 %
99.1 %
98.6 %
97.3 %
92.7 %
83.7 %
69.6 %
47.7 %
14.6 %
(1) Represents 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 as a percentage of the initial balance of the Consumer Loans. Payments of Dealer Holdback
and accelerated Dealer Holdback are not included.
(2) Presented as a percentage of total forecasted collections.
The risk of a material change in our forecasted collection rate declines as the Consumer Loans age. For 2018 and prior
Consumer Loan assignments, the risk of a material forecast variance is modest, as we have currently realized in excess of 90%
of the expected collections. Conversely, the forecasted collection rates for more recent Consumer Loan assignments are less
certain as a significant portion of our forecast has not been realized.
The spread between the forecasted collection rate and the advance rate has ranged from 18.9% to 25.9% over the last 10
years. The spreads in 2019 and 2020 were positively impacted by Consumer Loan performance, which has exceeded our initial
estimates by a greater margin than the other years presented. The decrease in the spread from 2021 to 2022 was primarily the
result of the performance of 2022 Consumer Loans, which performed worse than our initial estimates.
30
The following table compares our forecast of Consumer Loan collection rates as of December 31, 2022 with the forecasts
at the time of assignment, for Dealer Loans and Purchased Loans separately:
Dealer Loans
Purchased Loans
Forecasted Collection Percentage
as of (1)
Forecasted Collection Percentage
as of (1)
Consumer Loan Assignment Year
December 31,
2022
Initial
Forecast
Variance
December 31,
2022
Initial
Forecast
Variance
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
73.4 %
71.6 %
64.5 %
63.0 %
64.0 %
64.6 %
66.3 %
67.7 %
66.0 %
65.8 %
72.1 %
71.9 %
67.5 %
65.1 %
63.8 %
63.6 %
63.9 %
63.3 %
66.3 %
67.3 %
1.3 %
-0.3 %
-3.0 %
-2.1 %
0.2 %
1.0 %
2.4 %
4.4 %
-0.3 %
-1.5 %
74.3 %
72.5 %
68.9 %
66.0 %
66.3 %
66.4 %
67.2 %
68.0 %
66.7 %
67.4 %
71.6 %
70.9 %
68.5 %
66.5 %
64.6 %
63.5 %
64.2 %
63.6 %
66.3 %
68.0 %
2.7 %
1.6 %
0.4 %
-0.5 %
1.7 %
2.9 %
3.0 %
4.4 %
0.4 %
-0.6 %
(1) The forecasted collection rates presented for Dealer Loans and Purchased Loans reflect the Consumer Loan classification at the time of assignment.
The forecasted collection rates represent 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.
The following table presents forecasted Consumer Loan collection rates, advance rates, and the spread (the forecasted
collection rate less the advance rate) as of December 31, 2022 for Dealer Loans and Purchased Loans separately. All amounts
are presented as a percentage of the initial balance of the Consumer Loan (principal + interest).
Consumer Loan Assignment Year
Forecasted
Collection %
(1)
Advance %
(1)(2)
Spread %
Forecasted
Collection %
(1)
Advance %
(1)(2)
Spread %
Dealer Loans
Purchased Loans
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
73.4 %
71.6 %
64.5 %
63.0 %
64.0 %
64.6 %
66.3 %
67.7 %
66.0 %
65.8 %
47.2 %
47.2 %
43.4 %
42.1 %
42.1 %
42.7 %
43.1 %
43.0 %
45.1 %
46.4 %
26.2 %
24.4 %
21.1 %
20.9 %
21.9 %
21.9 %
23.2 %
24.7 %
20.9 %
19.4 %
74.3 %
72.5 %
68.9 %
66.0 %
66.3 %
66.4 %
67.2 %
68.0 %
66.7 %
67.4 %
51.5 %
51.8 %
50.2 %
48.6 %
45.8 %
45.2 %
45.6 %
45.5 %
47.7 %
50.1 %
22.8 %
20.7 %
18.7 %
17.4 %
20.5 %
21.2 %
21.6 %
22.5 %
19.0 %
17.3 %
(1) The forecasted collection rates and advance rates presented for Dealer Loans and Purchased Loans reflect the Consumer Loan classification at the time
of assignment.
(2) Represents 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 as a percentage of the initial balance of the Consumer Loans. Payments of Dealer Holdback
and accelerated Dealer Holdback are not included.
Although the advance rate on Purchased Loans is higher as compared to the advance rate on Dealer Loans, Purchased
Loans do not require us to pay Dealer Holdback.
31
The spread on Dealer Loans decreased from 20.9% in 2021 to 19.4% in 2022, primarily as a result of the performance of
the 2022 Consumer Loans in our Dealer Loan portfolio, which performed worse than our initial estimates by a greater margin
than those assigned to us in 2021. The spread on Purchased Loans decreased from 19.0% in 2021 to 17.3% in 2022 primarily as
a result of the performance of the 2022 Consumer Loans in our Purchased Loan portfolio, which performed worse than our
initial estimates, while the performance of the Consumer Loans in our Purchased Loan portfolio assigned during 2021 has
exceeded our initial estimates. Additionally, 2022 Consumer Loans in our Purchased Loan portfolio had a lower initial spread,
primarily due to the advance rate increasing by a greater margin than the initial forecast on 2022 Consumer Loans in our
Purchased Loan portfolio.
Access to Capital
Our strategy for accessing capital on acceptable terms needed to maintain and grow the business is to: (1) maintain
consistent financial performance; (2) maintain modest financial leverage; and (3) maintain multiple funding sources. Our
funded debt to equity ratio was 2.8 to 1 as of December 31, 2022. We currently utilize the following primary forms of debt
financing: (1) a revolving secured line of credit; (2) Warehouse facilities; (3) Term ABS financings; and (4) senior notes.
Consumer Loan Volume
The following table summarizes changes in Consumer Loan assignment volume in each of the last three years as compared
to the same period in the previous year:
For the Year Ended December 31,
Unit Volume
Dollar Volume (1)
Year over Year Percent Change
2020
2021
2022
-7.5 %
-21.4 %
4.4 %
-3.5 %
-13.0 %
14.5 %
(1) Represents 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. Payments of Dealer Holdback and accelerated Dealer Holdback are not included.
Consumer Loan assignment volumes depend on a number of factors including (1) the overall demand for our financing
programs, (2) the amount of capital available to fund new Loans, and (3) our assessment of the volume that our infrastructure
can support. Our pricing strategy is intended to maximize the amount of economic profit we generate, within the confines of
capital and infrastructure constraints.
During 2022, unit and dollar volumes increased 4.4% and 14.5%, respectively, as the number of active Dealers increased
4.3% while average volume per active Dealer remained consistent with prior year. Dollar volume increased more than unit
volume in 2022 due to an increase in the average advance paid per unit. This increase was the result of an increase in the
average size of the Consumer Loans assigned, primarily due to an increase in the average vehicle selling price. The comparable
2021 period reflected a significant decline in unit volume, which we believe was primarily due to low dealer inventories and
elevated used vehicle prices, which we believe were primarily due to the downstream impact of supply chain disruptions in the
automotive industry.
During 2021, unit and dollar volumes decreased 21.4% and 13.0%, respectively, as the number of active Dealers declined
10.1% while average volume per active Dealer decreased 12.3%. We believe that this decline is primarily due to low dealer
inventories and elevated used vehicle prices, which we believe are primarily due to the downstream impact of supply chain
disruptions in the automotive industry. Dollar volume declined less than unit volume during 2021 due to an increase in the
average advance paid per unit. This increase was the result of an increase in the average size of the Consumer Loans assigned
primarily due to an increase in the average vehicle selling price.
32
The following table summarizes the changes in Consumer Loan unit volume and active Dealers:
Consumer Loan unit volume
Active Dealers (1)
Average volume per active Dealer
Consumer Loan unit volume from
Dealers active both periods
Dealers active both periods
Average volume per Dealer active
both periods
Consumer Loan unit volume from
Dealers not active both periods
Dealers not active both periods
Average volume per Dealer not
active both periods
For the Years Ended December 31,
For the Years Ended December 31,
2022
280,467
11,901
23.6
2021
268,730
11,410
23.6
% Change
4.4 %
4.3 %
0.0 %
2021
268,730
11,410
23.6
2020
341,967
12,690
26.9
% Change
-21.4 %
-10.1 %
-12.3 %
250,114
8,691
250,214
8,691
0.0 %
—
249,743
9,196
315,540
9,196
-20.9 %
—
28.8
28.8
0.0 %
27.2
34.3
-20.9 %
30,353
3,210
18,516
2,719
63.9 %
18.1 %
18,987
2,214
26,427
3,494
-28.2 %
-36.6 %
9.5
6.8
39.7 %
8.6
7.6
13.2 %
(1) Active Dealers are Dealers who have received funding for at least one Consumer Loan during the period.
The following table provides additional information on the changes in Consumer Loan unit volume and active Dealers:
Consumer Loan unit volume from
new active Dealers
New active Dealers (1)
Average volume per new active
Dealer
Attrition (2)
For the Years Ended December 31,
For the Years Ended December 31,
2022
2021
% Change
2021
2020
% Change
28,223
2,819
18,267
2,094
54.5 %
34.6 %
18,267
2,094
30,968
2,730
-41.0 %
-23.3 %
10.0
8.7
14.9 %
8.7
11.3
-23.0 %
-6.9 %
-7.7 %
-7.7 %
-8.3 %
(1) New active Dealers are Dealers who enrolled in our program and have received funding for their first Loan from us during the period.
(2) Attrition is measured according to the following formula: decrease in Consumer Loan unit volume from Dealers who have received funding for at least
one Loan during the comparable period of the prior year but did not receive funding for any Loans during the current period divided by prior year
comparable period Consumer Loan unit volume.
Consumer Loans are assigned to us as either Dealer Loans through our Portfolio Program or Purchased Loans through our
Purchase Program. The following table shows the percentage of Consumer Loans assigned to us under each of the programs for
each of the last three years:
Unit Volume
Dollar Volume (1)
For the Years Ended December 31,
2020
2021
2022
Portfolio Program Purchase Program Portfolio Program Purchase Program
39.4 %
35.0 %
30.2 %
35.9 %
32.1 %
26.5 %
64.1 %
67.9 %
73.5 %
60.6 %
65.0 %
69.8 %
(1) Represents 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. Payments of Dealer Holdback and accelerated Dealer Holdback are not included.
As of December 31, 2022 and 2021, the net Dealer Loans receivable balance was 64.7% and 61.3%, respectively, of the
total net Loans receivable balance.
33
Results of Operations
The following is a discussion of our 2022 and 2021 results of operations and income statement data on a consolidated
basis, including year-to-year comparisons between 2022 and 2021. Discussions of 2020 items and year-to-year comparisons
between 2021 and 2020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in Item 7 of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2021.
The net Loan income (finance charge revenue less provision for credit losses expense) that we recognize over the life of a
Loan equals the cash we collect from the underlying Consumer Loan less the cash we pay to the Dealer. We believe the
economics of our business are best exhibited by recognizing net Loan income on a level-yield basis over the life of the Loan
based on expected future net cash flows. We do not believe the CECL methodology we employ under GAAP provides
sufficient transparency into the economics of our business due to its asymmetry requiring us to recognize a significant provision
for credit losses expense at the time of assignment for contractual net cash flows we never expect to realize and to recognize in
subsequent periods finance charge revenue that is significantly in excess of our expected yields. For additional information, see
Note 2 and Note 5 to the consolidated financial statements contained in Item 8 of this Form 10-K, which is incorporated herein
by reference.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
(Dollars in millions, except per share data)
For the Years Ended December 31,
2022
2021
$ Change
% Change
Revenue:
Finance charges
Premiums earned
Other income
Total revenue
Costs and expenses:
Salaries and wages (1)
General and administrative (1)
Sales and marketing (1)
Provision for credit losses
Interest
Provision for claims
Total costs and expenses
Income before provision for income taxes
Provision for income taxes
Net income
Net income per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
$
1,686.3 $
1,742.6 $
(56.3)
62.7
83.4
60.3
53.1
1,832.4
1,856.0
262.0
88.7
75.6
481.4
166.6
46.4
1,120.7
711.7
175.9
218.1
100.3
65.3
8.4
164.2
38.8
595.1
1,260.9
302.6
535.8 $
958.3 $
2.4
30.3
(23.6)
43.9
(11.6)
10.3
473.0
2.4
7.6
525.6
(549.2)
(126.7)
(422.5)
39.50 $
39.32 $
59.57 $
59.52 $
(20.07)
(20.20)
$
$
$
13,563,885
16,085,823
(2,521,938)
13,625,081
16,100,552
(2,475,471)
-3.2 %
4.0 %
57.1 %
-1.3 %
20.1 %
-11.6 %
15.8 %
5,631.0 %
1.5 %
19.6 %
88.3 %
-43.6 %
-41.9 %
-44.1 %
-33.7 %
-33.9 %
-15.7 %
-15.4 %
(1) Operating expenses
$
426.3 $
383.7 $
42.6
11.1 %
34
Finance Charges. The decrease of $56.3 million, or 3.2%, was due to a decline in the average net Loans receivable
balance, partially offset by an increase in the average yield on our Loan portfolio, as follows:
(Dollars in millions)
For the Years Ended December 31,
Average net Loans receivable balance
Average yield on our Loan portfolio
2022
2021
Change
$
6,311.3
$
6,694.9
$
26.7 %
26.0 %
(383.6)
0.7 %
The following table summarizes the impact each component had on the overall decrease in finance charges for the year
ended December 31, 2022:
(In millions)
Impact on finance charges:
Due to a decrease in the average net Loans receivable balance
Due to an increase in the average yield
Total decrease in finance charges
For the Year Ended
December 31, 2022
$
$
(99.8)
43.5
(56.3)
The decrease in the average net Loans receivable balance was primarily due to the principal collected on Loans receivable
exceeding the dollar volume of new Consumer Loan assignments. The average yield on our Loan portfolio for the year ended
December 31, 2022 increased as compared to the same period in 2021 primarily due to the adoption of CECL on January 1,
2020, which requires us to recognize finance charges on new Consumer Loan assignments using effective interest rates based
on contractual future net cash flows, which are significantly in excess of our expected yields.
Other Income. The increase of $30.3 million, or 57.1%, was primarily due to:
•
A $20.4 million increase in ancillary product profit sharing income, primarily due to a decrease in average claim rates
on GAP contracts and $5.9 million of income recognized in 2022 related to an inception-to-date adjustment to
premium recognition timing based on our historical claims experience on GAP contracts.
A $5.6 million increase in remarketing fee income for fees related to the repossession and remarketing of vehicles,
which included $3.1 million of fees charged to dealers in 2022 for repossession activity that occurred from August
2020 through December 2021.
A $5.4 million increase in interest income earned on restricted cash and cash equivalents primarily due to an increase
in benchmark interest rates.
•
•
Operating Expenses. The increase of $42.6 million, or 11.1%, was primarily due to:
•
An increase in salaries and wages expense of $43.9 million, or 20.1%, primarily due to:
▪
▪
An increase of $32.2 million, excluding stock-based compensation expense, primarily related to an increase in the
number of team members in our engineering department.
An increase of $11.7 million in stock-based compensation expense, primarily related to an $11.5 million reversal
of expense during 2021 due to the forfeiture of unvested restricted stock and restricted stock units upon the
retirement of our former Chief Executive Officer in May 2021.
▪
▪
An increase in sales and marketing expense of $10.3 million, or 15.8%, primarily due to a change in the compensation
plan for our sales force in September 2021.
A decrease in general and administrative expense of $11.6 million, or 11.6%, primarily due to a decrease in legal
expenses. Legal expenses during 2021 included a $27.2 million settlement with the Commonwealth of Massachusetts
to settle and fully resolve claims asserted by the Commonwealth of Massachusetts against the Company, while legal
expenses during 2022 included a $12.0 million settlement to settle and fully resolve a previously-disclosed putative
class action lawsuit.
35
Provision for Credit Losses. The increase of $473.0 million, or 5,631.0%, was primarily due to an increase in provision for
credit losses on forecast changes.
We recognize provision for credit losses on new Consumer Loan assignments for contractual net cash flows that are not
expected to be realized at the time of assignment. We also recognize provision for credit losses on forecast changes in the
amount and timing of expected future net cash flows subsequent to assignment. The following table summarizes the provision
for credit losses for each of these components:
(In millions)
For the Years Ended December 31,
Provision for Credit Losses
2022
2021
Change
New Consumer Loan assignments
Forecast changes
Total
$
$
343.7 $
137.7
481.4 $
365.1 $
(356.7)
8.4 $
(21.4)
494.4
473.0
The decrease in provision for credit losses related to new Consumer Loan assignments was due to a decrease in the average
provision for credit losses per Consumer Loan assignment primarily due to a decrease in Purchased Loans as a percentage of
total unit volume, partially offset by a 4.4% increase in Consumer Loan assignment unit volume.
The increase in provision for credit losses related to forecast changes was primarily due to a decline in Consumer Loan
performance during 2022, compared to an improvement in Consumer Loan performance during 2021. During 2022, we reduced
our estimate of future net cash flows by $59.7 million, or 0.7%, to reflect a decline in Consumer Loan performance during the
period. During 2021, we increased our estimate of future net cash flows by $326.1 million, or 3.4%, to reflect improvements in
Consumer Loan performance during the period. The results for 2022 include the impact of forecasting methodology changes
implemented during the first quarter, which upon implementation increased our estimate of future net cash flows by $95.7
million and reduced our provision for credit losses by $70.6 million. The forecasting methodology changes included the
removal of the COVID forecast adjustment (as defined below under “Critical Accounting Estimates—Finance Charge Revenue
& Allowance for Credit Losses”) from our estimate of future net cash flows and an enhancement to our methodology for
forecasting the amount and timing of future net cash flows from our Loan portfolio through the utilization of more recent data
and new forecast variables. For additional information, see Note 5 to the consolidated financial statements contained in Item 8
of this Form 10-K, which is incorporated herein by reference.
Provision for Income Taxes. For the year ended December 31, 2022, the effective income tax rate increased to 24.7% from
24.0% for the year ended December 31, 2021. The increase was primarily due to changes in state and local tax laws that were
enacted during the third quarter of 2022 and non-deductible executive compensation expense. The impact of non-deductible
executive compensation expense on our effective income tax rate increased in magnitude from 2021 to 2022 due to a decrease
in pre-tax income. For additional information, see Note 11 to the consolidated financial statements contained in Item 8 of this
Form 10-K, which is incorporated herein by reference.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these financial statements
requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an ongoing basis, we review our accounting policies, assumptions, estimates, and judgments to
ensure that our financial statements are presented fairly and in accordance with GAAP.
Our significant accounting policies are discussed in Note 2 to the consolidated financial statements contained in Item 8 of
this Form 10-K, which is incorporated herein by reference. We believe that the following accounting estimates are the most
critical to aid in fully understanding and evaluating our reported financial results, and involve a high degree of subjective or
complex judgment, and the use of different estimates or assumptions could produce materially different financial results.
36
Finance Charge Revenue & Allowance for Credit Losses
Nature of Estimates Required. We estimate the amount and timing of future collections and Dealer Holdback payments.
These estimates impact Loans receivable and allowance for credit losses on our balance sheet and finance charges and provision
for credit losses on our income statement.
Assumptions and Approaches Used. On January 1, 2020, we adopted Accounting Standards Update 2016-13, Measurement
of Credit Losses on Financial Instruments, which is known as the current expected credit loss model, or CECL. Prior to the
adoption of CECL on January 1, 2020, we accounted for our Loans as loans acquired with significant credit deterioration. For
additional information regarding the adoption impact of CECL, see Note 2 and Note 5 to the consolidated financial statements
contained in Item 8 of this Form 10-K, which is incorporated herein by reference.
We recognize finance charges under the interest method such that revenue is recognized on a level-yield basis over the life
of the Loan. We calculate finance charges on a monthly basis by applying the effective interest rate of the Loan to the net
carrying amount of the Loan (Loan receivable less the related allowance for credit losses). For Consumer Loans assigned on or
subsequent to January 1, 2020, the effective interest rate is based on contractual future net cash flows. For Consumer Loans
assigned prior to January 1, 2020, the effective interest rate was determined based on expected future net cash flows.
The outstanding balance of the allowance for credit losses of each Loan represents the amount required to reduce the net
carrying amount of Loans (Loans receivable less allowance for credit losses) to the present value of expected future net cash
flows discounted at the effective interest rate. Expected future net cash flows for Dealer Loans are comprised of expected future
collections on the assigned Consumer Loans, less any expected future Dealer Holdback payments. Expected future net cash
flows for Purchased Loans are comprised of expected future collections on the assigned Consumer Loans.
Expected future collections are forecasted for each individual Consumer Loan based on the historical performance of
Consumer Loans with similar characteristics, adjusted for recent trends in payment patterns and economic conditions. Our
forecast of expected future collections includes estimates for prepayments and post-contractual-term cash flows. Unless the
consumer is no longer contractually obligated to pay us, we forecast future collections on each Consumer Loan for a 120 month
period after the origination date. Expected future Dealer Holdback payments are forecasted for each individual Dealer based on
the expected future collections and current advance balance of each Dealer Loan.
We monitor and evaluate Consumer Loan performance on a monthly basis by comparing our current forecasted collection
rates to our initial expectations. We use a statistical model that considers a number of credit quality indicators to estimate the
expected collection rate for each Consumer Loan at the time of assignment. The credit quality indicators considered in our
model include attributes contained in the consumer’s credit bureau report, data contained in the consumer’s credit application,
the structure of the proposed transaction, vehicle information, and other factors. We continue to evaluate the expected collection
rate of each Consumer Loan subsequent to assignment primarily through the monitoring of consumer payment behavior. Our
evaluation becomes more accurate as the Consumer Loans age, as we use actual performance data in our forecast. Since all
known, significant credit quality indicators have already been factored into our forecasts and pricing, we are not able to use any
specific credit quality indicators to predict or explain variances in actual performance from our initial expectations. Any
variances in performance from our initial expectations are the result of Consumer Loans performing differently from historical
Consumer Loans with similar characteristics. We periodically adjust our statistical pricing model for new trends that we
identify through our evaluation of these forecasted collection rate variances.
The COVID-19 pandemic created conditions that increased the level of uncertainty associated with our estimate of the
amount and timing of future net cash flows from our Loan portfolio. During the first quarter of 2020, we applied a subjective
adjustment to our forecasting model to reflect our best estimate of the future impact of the COVID-19 pandemic on future net
cash flows (“COVID forecast adjustment”), which reduced our estimate of future net cash flows by $162.2 million. We
continued to apply the COVID forecast adjustment through the end of 2021, as it continued to represent our best estimate.
During the first quarter of 2022, we determined that we had sufficient Consumer Loan performance experience since the lapse
of federal stimulus payments and enhanced unemployment benefits to refine our estimate of future net cash flows. Accordingly,
during the first quarter of 2022, we removed the COVID forecast adjustment and enhanced our methodology for forecasting the
amount and timing of future net cash flows from our Loan portfolio through the utilization of more recent data and new forecast
variables. Under CECL, changes in the amount and timing of forecasted net cash flows are recorded as a provision for credit
losses in the period of change.
37
The removal of the COVID forecast adjustment and the implementation of the enhanced forecasting methodology during
the first quarter of 2022 impacted forecasted net cash flows and provision for credit losses as follows:
(In millions)
Forecasting Methodology Changes
Removal of COVID forecast adjustment
Implementation of enhanced forecasting methodology
Total
Increase / (Decrease) in
Forecasted Net Cash
Flows
Provision for Credit
Losses
$
$
149.5 $
(53.8)
95.7 $
(118.5)
47.9
(70.6)
Our provision for credit losses for the year ended December 31, 2022, included:
•
•
$343.7 million provision for credit losses on new Consumer Loan assignments, which reduced consolidated net
income by $264.6 million, or $19.42 per diluted share; and
$137.7 million provision for credit losses on forecast changes related to changes in the amount and timing of expected
future net cash flows, which reduced consolidated net income by $106.0 million, or $7.78 per diluted share.
Our provision for credit losses for the year ended December 31, 2021, included:
•
•
$365.1 million provision for credit losses on new Consumer Loan assignments, which reduced consolidated net
income by $281.1 million, or $17.46 per diluted share; and
$356.7 million reversal of provision for credit losses on forecast changes related to changes in the amount and timing
of expected future net cash flows, which increased consolidated net income by $274.7 million, or $17.06 per diluted
share.
Key Factors. Variances in the amount and timing of future net cash flows from current estimates could materially impact
earnings in future periods. A 1% decline in the forecasted future net cash flows on Loans as of December 31, 2022 would have
reduced 2022 consolidated net income by approximately $45.9 million.
During periods of economic slowdown or recession, delinquencies, defaults, repossessions, and losses may increase on our
Consumer Loans, and Consumer Loan prepayments may decline. These periods are also typically accompanied by decreased
consumer demand for automobiles and declining values of automobiles securing outstanding Consumer Loans, which weakens
collateral coverage and increases the amount of a loss in the event of default. Significant increases in the inventory of used
automobiles during periods of economic recession may also depress the prices at which repossessed automobiles may be sold or
delay the timing of these sales. Additionally, higher gasoline prices, increased focus on climate-related initiatives and
regulation, declining stock market values, unstable real estate values, resets of adjustable rate mortgages to higher interest rates,
increasing unemployment levels, general availability of consumer credit, or other factors that impact consumer confidence or
disposable income could increase loss frequency and decrease consumer demand for automobiles as well as weaken collateral
values of automobiles. Because our business is focused on consumers who do not qualify for conventional automobile
financing, the actual rates of delinquencies, defaults, repossessions, and losses on our Consumer Loans could be higher than
those experienced in the general automobile finance industry and could be more dramatically affected by a general economic
downturn.
Premiums Earned
Nature of Estimates Required. We estimate the pattern of future claims on vehicle service contracts. These estimates
impact accounts payable and accrued liabilities on our balance sheet and premiums earned on our income statement.
Assumptions and Approaches Used. Premiums from the reinsurance of vehicle service contracts are recognized over the
life of the policy in proportion to the expected costs of servicing those contracts. Expected costs are determined based on our
historical claims experience. In developing our cost expectations, we stratify our historical claims experience into groupings
based on contractual term, as this characteristic has led to different patterns of cost incurrence in the past. We will continue to
update our analysis of historical costs under the vehicle service contract program as appropriate, including the consideration of
other characteristics that may have led to different patterns of cost incurrence, and revise our revenue recognition timing for any
changes in the pattern of our expected costs as they are identified.
Key Factors. Variances in the pattern of future claims from our current estimates would impact the timing of premiums
recognized in future periods. A 10% change in premiums earned for the year ended December 31, 2022 would have affected
2022 consolidated net income by approximately $4.8 million.
38
Contingencies
Nature of Estimates Required. We estimate the likelihood of adverse judgments against us and any resulting damages,
fines, or statutory penalties owed. These estimates impact accounts payable and accrued liabilities on our balance sheet and are
general and administrative expenses on our income statement.
Assumptions and Approaches Used. With assistance from our legal counsel, we determine if the likelihood of an adverse
judgment for various claims, litigation, and regulatory investigations is remote, reasonably possible, or probable. To the extent
we believe an adverse judgment is probable and the amount of the judgment is estimable, we recognize a liability. For
information regarding current actions to which we are a party, see Note 16 to the consolidated financial statements contained in
Item 8 of this Form 10-K, which is incorporated herein by reference.
Key Factors. Negative variances in the ultimate disposition of claims and litigation outstanding from current estimates
could result in additional expense in future periods.
Uncertain Tax Positions
Nature of Estimates Required. We estimate the impact of an uncertain income tax position on the income tax return. These
estimates impact income taxes receivable and accounts payable and accrued liabilities on our balance sheet and provision for
income taxes on our income statement.
Assumptions and Approaches Used. We follow a two-step approach for recognizing uncertain tax positions. First, we
evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more-likely-than-not
that the position will be sustained upon examination, including resolution of related appeals or litigation processes, if any.
Second, for positions that we determine are more-likely-than-not to be sustained, we recognize the tax benefit as the largest
benefit that has a greater than 50% likelihood of being sustained. We establish a reserve for uncertain tax positions liability that
is comprised of unrecognized tax benefits and related interest. We adjust this liability in the period in which an uncertain tax
position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position, or
more information becomes available.
Key Factors. To the extent we prevail in matters for which a liability has been established or are required to pay amounts in
excess of our established liability, our effective income tax rate in future periods could be materially affected.
Liquidity and Capital Resources
We need capital to maintain and grow our business. Our primary sources of capital are cash flows from operating activities,
collections of Consumer Loans, and borrowings under: (1) a revolving secured line of credit; (2) Warehouse facilities; (3) Term
ABS financings; and (4) senior notes. There are various restrictive covenants to which we are subject under each financing
arrangement, and we were in compliance with those covenants as of December 31, 2022. For information regarding these
financings and the covenants included in the related documents, see Note 9 to the consolidated financial statements contained in
Item 8 of this Form 10-K, which is incorporated herein by reference.
On June 16, 2022, we completed a $350.0 million Term ABS financing, which was used to repay outstanding indebtedness
and for general corporate purposes. The financing has an expected annualized cost of approximately 5.4% (including the initial
purchasers’ fees and other costs), and it will revolve for 24 months, after which it will amortize based upon the cash flows on
the contributed Loans.
On June 16, 2022, we extended the date on which our $300.0 million Warehouse Facility IV will cease to revolve from
November 17, 2023 to May 20, 2025.
On June 22, 2022, we extended the maturity of our revolving secured line of credit facility from June 22, 2024 to June 22,
2025. Prior to this amendment, the amount of the facility was set to decrease by $35.0 million on June 22, 2022; however, this
amendment increased the amount of the facility by $10.0 million, resulting in a net decrease of $25.0 million, from $435.0
million to $410.0 million. As previously reported, the amount of the facility will further decrease by $25.0 million on June 22,
2023. Additionally, this amendment removed the covenant that required us to maintain consolidated net income of not less than
$1 for the two most recently ended fiscal quarters.
39
On August 12, 2022, we extended by three years the $500.0 million Term ABS financing that we entered into on August 28,
2019 and to which we refer as Term ABS 2019-2. Under the amendment effecting the extension, the date on which the
financing will cease to revolve has been extended from August 15, 2022 to August 15, 2025. The amendment has also increased
the interest rate under the financing from 3.13% to 5.15%.
On November 3, 2022, we completed a $389.9 million Term ABS financing, which was used to repay outstanding
indebtedness and for general corporate purposes. The financing has an expected annualized cost of approximately 8.5%
(including the initial purchasers’ fees and other costs), and it will revolve for 24 months, after which it will amortize based upon
the cash flows on the contributed Loans.
On December 15, 2022, we completed a $200.0 million Term ABS financing, which was used to repay outstanding
indebtedness. The financing will bear interest at SOFR plus 235 basis points, and it will revolve for 36 months, after which it
will amortize based upon the cash flows on the contributed Loans.
On December 27, 2022, we increased the financing amount on Warehouse Facility V from $125.0 million to $200.0 million
and extended the date on which the facility will cease to revolve from December 18, 2023 to December 29, 2025. The maturity
of the facility was also extended from December 16, 2025 to December 27, 2027. The interest rate on borrowings under the
facility has been increased from SOFR plus 235 basis points to SOFR plus 245 basis points.
On December 27, 2022, we extended the $100.0 million Term ABS financing that we entered into on January 29, 2021 and
to which we refer as Term ABS 2021-1. Under the amendment effecting the extension, the date on which the financing will
cease to revolve has been extended from February 15, 2023 to December 16, 2024. The amendment also increased the interest
rate under the financing from SOFR plus 208.5 basis points to SOFR plus 220 basis points.
Cash and cash equivalents decreased to $7.7 million as of December 31, 2022 from $23.3 million as of December 31, 2021.
As of December 31, 2022 and December 31, 2021, we had $1,554.1 million and $1,532.4 million, respectively, in unused and
available lines of credit. As of December 31, 2022 and December 31, 2021, we had $4,590.7 million and $4,616.3 million,
respectively, of total balance sheet indebtedness.
A summary as of December 31, 2022 of our material financial obligations requiring future repayments is as follows:
(In millions)
Payments Due as of December 31, 2022
In less than
12 months
In 12 months
or more
Total
Long-term debt, including current maturities (1)
$
1,507.9 $
3,108.6 $
4,616.5
Dealer Holdback (2)
Operating lease obligations (3)
Purchase obligations (4)
Total financial obligations
215.7
0.7
2.7
741.5
0.7
7.1
957.2
1.4
9.8
$
1,727.0 $
3,857.9 $
5,584.9
(1) The amounts presented consist solely of principal and do not reflect deferred debt issuance costs of $22.4 million and unamortized debt discount of
$3.4 million. We are also obligated to make interest payments at the applicable interest rates, as discussed in Note 9 to the consolidated financial
statements contained in Item 8 of this Form 10-K, which is incorporated herein by reference. Based on the actual principal amounts outstanding under
our revolving secured line of credit, our Warehouse facilities, our Term ABS financings, and our senior notes as of December 31, 2022, the forecasted
principal amounts outstanding on all other debt, and the actual interest rates in effect as of December 31, 2022, interest is expected to be approximately
$164.5 million during 2023; $145.7 million during 2024; and $99.9 million during 2025 and thereafter.
(2) We have contractual obligations to pay Dealer Holdback to our Dealers. Payments of Dealer Holdback are contingent upon the receipt of consumer
payments and the repayment of advances. The amounts presented represent our forecast as of December 31, 2022.
(3) A lease liability of $1.3 million is recognized within accounts payable and accrued liabilities in our consolidated balance sheets.
(4) Purchase obligations consist primarily of contractual obligations related to our information system and facility needs.
Based upon anticipated cash flows, management believes that cash flows from operations and our various financing
alternatives will provide sufficient financing for debt maturities and for future operations. Our ability to borrow funds may be
impacted by economic and financial market conditions. If the various financing alternatives were to become limited or
unavailable to us, our operations and liquidity could be materially and adversely affected.
40
Market Risk
We are exposed primarily to market risks associated with movements in interest rates. Our policies and procedures prohibit
the use of financial instruments for speculative purposes. A discussion of our accounting policies for derivative instruments is
included in Note 2 to the consolidated financial statements contained in Item 8 of this Form 10-K, which is incorporated herein
by reference.
Interest Rate Risk. We rely on various sources of financing, some of which contain floating rates of interest and expose us
to risks associated with increases in interest rates. We manage such risk primarily by entering into interest rate cap agreements.
As of December 31, 2022, we had $30.9 million of floating rate debt outstanding on our revolving secured line of credit,
without interest rate protection. For every 100-basis-point increase in interest rates on our revolving secured line of credit,
annual after-tax earnings would decrease by approximately $0.2 million, assuming we maintain a level amount of floating rate
debt.
As of December 31, 2022, we had interest rate cap agreements outstanding to manage the interest rate risk on Warehouse
Facility II, Warehouse Facility IV, Warehouse Facility V and Warehouse Facility VIII. However, as of December 31, 2022,
there was no floating rate debt outstanding under these facilities.
As of December 31, 2022, we did not have a balance outstanding under Warehouse Facility VI, which does not have
interest rate protection.
As of December 31, 2022, we had $100.0 million in floating rate debt outstanding under Term ABS 2021-1, which was
covered by an interest rate cap with a cap rate of 5.50% on the underlying benchmark rate. For every 100-basis-point increase
in interest rates on Term ABS 2021-1 up to the cap rate of 5.50%, annual after-tax earnings would decrease by approximately
$0.8 million, assuming we maintain a level amount of floating rate debt.
As of December 31, 2022, we had $200.0 million in floating rate debt outstanding under Term ABS 2022-2, which was
covered by an interest rate cap with a cap rate of 6.50% on the underlying benchmark rate. For every 100-basis-point increase
in interest rates on Term ABS 2022-2 up to the cap rate of 6.50%, annual after-tax earnings would decrease by approximately
$1.5 million, assuming we maintain a level amount of floating rate debt.
New Accounting Update Not Yet Adopted
See Note 2 to the consolidated financial statements contained in Item 8 of this Form 10-K, which is incorporated herein by
reference, for information concerning the following new accounting update and the impact of the implementation of this update
on our financial statements:
•
Troubled Debt Restructurings and Vintage Disclosures.
41
Forward-Looking Statements
We make forward-looking statements in this report and may make such statements in future filings with the SEC. We may
also make forward-looking statements in our press releases or other public or shareholder communications. Our forward-
looking statements are subject to risks and uncertainties and include information about our expectations and possible or
assumed future results of operations. When we use any of the words “may,” “will,” “should,” “believe,” “expect,” “anticipate,”
“assume,” “forecast,” “estimate,” “intend,” “plan,” “target,” or similar expressions, we are making forward-looking statements.
We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995 for all of our forward-looking statements. These forward-looking statements represent our outlook only as
of the date of this report. While we believe that our forward-looking statements are reasonable, actual results could differ
materially since the statements are based on our current expectations, which are subject to risks and uncertainties. Factors that
might cause such a difference include, but are not limited to, the factors set forth in Item 1A of this Form 10-K, which is
incorporated herein by reference, and the risks and uncertainties discussed elsewhere in this Form 10-K and in our other reports
filed or furnished from time to time with the SEC.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by Item 7A is incorporated herein by reference from the information in Item 7 under the caption
“Market Risk” in this Form 10-K.
42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248)
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Income for the years ended December 31, 2022, 2021, and 2020
Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021, and 2020
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2022, 2021, and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021, and 2020
Notes to Consolidated Financial Statements
Page
44
47
48
49
50
51
52
43
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Credit Acceptance Corporation
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Credit Acceptance Corporation (a Michigan corporation)
and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income,
comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022,
and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting
principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in
the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”), and our report dated February 10, 2023 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
Allowance for Credit Losses, Provision for Credit Losses and Finance Charge Revenue
The Company offers financing programs to a network of automobile dealers (“Dealers”) who enter into retail installment
contracts directly with consumers (“Consumer Loans”). The Company has two programs, the Portfolio Program and the
Purchase Program. Under the Portfolio Program, the Company advances money to Dealers (“Dealer Loans”) in exchange for
the right to service the underlying Consumer Loans. Under the Purchase Program, the Company buys the Consumer Loan from
the Dealers (“Purchased Loans”) and keeps all amounts collected from the consumer. Dealer Loans and Purchased Loans,
collectively referred to as “Loans”, are presented as Loans receivable in the consolidated balance sheets.
44
As described further in note 2 and note 5 to the financial statements, on January 1, 2020 (the “Adoption Date”), the Company
adopted Financial Accounting Standards Board Accounting Standard Codification (“ASC”) 326, Financial Instruments, which
is also known as the current expected credit loss model (“CECL”). The Loans outstanding at December 31, 2019 qualified for
transition relief and were accounted for as purchased financial assets with credit deterioration (“PCD Method”).
For the Loans accounted for under the PCD Method, the Company calculated an effective interest rate based on expected future
net cash flows at the Adoption Date.
Loans originated after December 31, 2019, did not qualify for the PCD Method and are accounted for as originated financial
assets (“Originated Method”). At the time of assignment, the Company (1) calculates the effective interest rate based on
contractual future net cash flows; (2) records a Loan receivable equal to the advance paid to the Dealer under the Portfolio
Program or purchase price paid to the Dealer under the Purchase Program; and (3) records an allowance for credit losses equal
to the difference between the initial Loan receivable balance and the present value of expected future net cash flows discounted
at the effective interest rate. The initial allowance for credit losses is recognized as a provision for credit losses in the
consolidated statements of income.
In each subsequent period, the Company adjusts the allowance for credit losses for Loans accounted for under the PCD and
Originated Methods, so that the net carrying amount of each Loan equals the present value of expected future net cash flows
discounted at the effective interest rate. The adjustment to the allowance for credit losses is recognized as either a provision for
credit losses or a reversal of provision for credit losses in the consolidated statements of income.
During the first quarter of 2022, the Company enhanced their methodology for forecasting the amount and timing of future net
cash flows through the utilization of more recent data and new forecast variables. As a result, the Company removed the
COVID-19 adjustment that was included in their estimate of future net cash flows during 2020 and 2021.
For Loans accounted for under the PCD Method, finance charge revenue is computed using the effective interest rate that was
calculated on the Adoption Date based on expected future net cash flows. For Loans accounted for under the Originated
Method, finance charge revenue is computed using the effective interest rate that was calculated upon assignment based on
contractual future net cash flows.
We identified the allowance for credit losses, provision for credit losses and finance change revenue, which are recorded based
on subjective models, as a critical audit matter.
The principal consideration for our determination that the allowance for credit losses, provision for credit losses and finance
charge revenue is a critical audit matter is the high degree of subjectivity that is involved in evaluating the reasonableness of
management’s estimate, including assumptions used in the models that derive the expected future cash flows. The models used
in the computation of the expected future cash flows are internally developed and determine the amount and timing of expected
future cash flows for both the initial forecast and the current forecast.
Our audit procedures related to the allowance for credit losses, provision for credit losses and finance charge revenue included
the following, among others:
We tested the design and operating effectiveness of relevant controls related to the models, including controls over the
development and validation of the models, the completeness and accuracy of information used in the models, management
review controls over the models and segregation of duties for maintaining the models.
With the assistance of an internal specialist, we assessed the reasonableness of the methodology used in the enhancement of the
models that support or compute the expected future cash flows, including removal of the COVID-19 adjustment. We
recomputed the initial and current forecast of expected future cash flows for a sample of Loans utilizing the new variables. We
tested the underlying data including Loan balances and other characteristics included on the Consumer Loan documents and
collections for that sample. We assessed the reasonableness of the timing of the expected future cash flows based on historical
cash flows. We analyzed the historical forecasts against actual cash flows to evaluate if management has the ability to predict
initial and current forecasts of future cash flows.
We sampled new Loans during 2022 and confirmed the balance with the Dealer and/or agreed to the Consumer Loan
documents for completeness and accuracy. We sampled collections received during 2022 to verify completeness, accuracy, and
application to the appropriate Loans. We recalculated the effective interest rate for a sample of Loans based on the contractual
cash flows less estimated dealer holdback or we agreed to the prior year rate, based on the applicable method described above.
45
We recomputed the present value of expected future net cash flows discounted at the effective interest rate and the initial
provision for credit losses for a sample of new Consumer Loan assignments.
We selected a sample of Loans to recompute the provision for credit losses, allowance for credit losses and finance charge
revenue for the year-ended December 31, 2022. For the sample tested, we also recomputed the estimated dealer holdback, if
applicable.
We also assessed the correlation of changes in the allowance for credit losses to collections for a sample of Loans. We analyzed
the forecast enhancement in 2022 on the same sample of Loans.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2005.
Southfield, Michigan
February 10, 2023
46
CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share data)
ASSETS:
Cash and cash equivalents
Restricted cash and cash equivalents
Restricted securities available for sale
Loans receivable
Allowance for credit losses
Loans receivable, net
Property and equipment, net
Income taxes receivable
Other assets
Total Assets
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Liabilities:
Accounts payable and accrued liabilities
Revolving secured line of credit
Secured financing
Senior notes
Mortgage note
Deferred income taxes, net
Income taxes payable
Total Liabilities
Commitments and Contingencies - See Note 16
Shareholders’ Equity:
As of December 31,
2022
2021
$
7.7 $
410.0
72.3
23.3
410.9
62.1
9,165.5
9,349.8
(2,867.8)
(3,013.5)
6,297.7
6,336.3
51.4
8.7
56.9
57.3
109.2
51.8
$
6,904.7 $
7,050.9
$
260.8 $
30.9
3,756.4
794.5
8.9
426.7
2.5
175.0
2.6
3,811.5
792.5
9.7
435.2
0.2
5,280.7
5,226.7
Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued
—
—
Common stock, $.01 par value, 80,000,000 shares authorized, 12,756,885 and
14,145,888 shares issued and outstanding as of December 31, 2022 and
December 31, 2021, respectively
Paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
0.1
245.7
0.1
197.2
1,381.1
1,626.7
(2.9)
0.2
1,624.0
1,824.2
$
6,904.7 $
7,050.9
See accompanying notes to consolidated financial statements.
47
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share data)
Revenue:
Finance charges
Premiums earned
Other income
Total revenue
Costs and expenses:
Salaries and wages
General and administrative
Sales and marketing
Provision for credit losses
Interest
Provision for claims
Loss on extinguishment of debt
Total costs and expenses
Income before provision for income taxes
Provision for income taxes
Net income
Net income per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
For the Years Ended December 31,
2022
2021
2020
$
1,686.3 $
1,742.6 $
1,562.4
62.7
83.4
60.3
53.1
57.3
49.6
1,832.4
1,856.0
1,669.3
262.0
88.7
75.6
481.4
166.6
46.4
—
1,120.7
711.7
175.9
218.1
100.3
65.3
8.4
164.2
38.8
—
595.1
1,260.9
302.6
535.8 $
958.3 $
186.5
69.6
69.5
556.9
192.0
37.9
7.4
1,119.8
549.5
128.5
421.0
39.50 $
39.32 $
59.57 $
59.52 $
23.57
23.47
$
$
$
13,563,885
16,085,823
17,858,935
13,625,081
16,100,552
17,935,779
See accompanying notes to consolidated financial statements.
48
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
Net income
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities, net of tax
Other comprehensive income (loss)
Comprehensive income
For the Years Ended December 31,
2022
2021
2020
$
535.8 $
958.3 $
421.0
(3.1)
(3.1)
(1.4)
(1.4)
0.8
0.8
$
532.7 $
956.9 $
421.8
See accompanying notes to consolidated financial statements.
49
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in millions)
Common Stock
Balance, January 1, 2020
18,352,779 $
0.2 $
157.7 $
2,196.6 $
0.8 $
2,355.3
Number
Amount
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
Net income
Other comprehensive income
Stock-based compensation
Forfeiture of restricted stock
awards
—
—
—
(152)
Repurchase of common stock (1,282,166)
Restricted stock units
converted to common stock
21,971
Balance, December 31, 2020
17,092,432
Net income
Other comprehensive loss
Stock-based compensation
Forfeiture of restricted stock
awards
—
—
—
(109,085)
Repurchase of common stock (2,884,126)
Restricted stock units
converted to common stock
Stock options exercised
11,416
35,251
Balance, December 31, 2021
14,145,888
Net income
Other comprehensive loss
Stock-based compensation
—
—
—
Repurchase of common stock (1,491,481)
Restricted stock units
converted to common stock
57,928
—
—
—
—
—
—
0.2
—
—
—
—
—
—
6.2
—
421.0
—
—
—
(2.0)
(478.8)
—
161.9
—
—
24.8
—
—
2,138.8
958.3
—
—
—
(0.1)
(1.3)
(1,470.4)
—
—
0.1
—
—
—
—
—
—
11.8
197.2
—
—
36.5
—
—
1,626.7
535.8
—
—
(3.1)
(781.4)
—
—
—
0.8
—
—
—
—
1.6
—
(1.4)
—
—
—
—
—
0.2
—
(3.1)
—
—
—
421.0
0.8
6.2
—
(480.8)
—
2,302.5
958.3
(1.4)
24.8
—
(1,471.8)
—
11.8
1,824.2
535.8
(3.1)
36.5
(784.5)
—
Stock options exercised
Balance, December 31, 2022
44,550
12,756,885 $
—
0.1 $
15.1
245.7 $
—
1,381.1 $
—
(2.9) $
15.1
1,624.0
See accompanying notes to consolidated financial statements.
50
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Cash Flows From Operating Activities:
Net income
Adjustments to reconcile cash provided by operating activities:
For the Years Ended December 31,
2022
2021
2020
$
535.8 $
958.3 $
421.0
Provision for credit losses
Depreciation
Amortization
Provision (credit) for deferred income taxes
Stock-based compensation
Loss on extinguishment of debt
Other
Change in operating assets and liabilities:
Increase (decrease) in accounts payable and accrued liabilities
Decrease (increase) in income taxes receivable
Increase in income taxes payable
Decrease (increase) in other assets
Net cash provided by operating activities
Cash Flows From Investing Activities:
Purchases of restricted securities available for sale
Proceeds from sale of restricted securities available for sale
Maturities of restricted securities available for sale
Principal collected on Loans receivable
Advances to Dealers
Purchases of Consumer Loans
Accelerated payments of Dealer Holdback
Payments of Dealer Holdback
Purchases of property and equipment
Net cash provided by (used in) investing activities
Cash Flows From Financing Activities:
Borrowings under revolving secured line of credit
Repayments under revolving secured line of credit
Proceeds from secured financing
Repayments of secured financing
Repayment of senior notes
Payments of debt issuance costs and debt extinguishment costs
Repurchase of common stock
Proceeds from stock options exercised
Other
Net cash used in financing activities
481.4
9.0
16.6
(7.7)
36.5
—
0.3
67.9
100.5
2.3
(3.9)
8.4
9.7
16.6
44.7
24.8
—
(0.4)
(10.7)
37.8
—
(19.8)
1,238.7
1,069.4
(50.1)
11.1
24.3
3,413.3
(2,530.0)
(1,095.3)
(44.2)
(186.6)
(3.1)
(460.6)
6,622.6
(6,594.3)
1,541.9
(1,599.2)
—
(12.5)
(784.5)
15.1
16.3
(794.6)
(38.8)
22.2
18.3
3,808.5
(2,059.0)
(1,108.8)
(44.1)
(153.4)
(7.6)
437.3
1,562.6
(1,655.9)
1,830.8
(1,729.0)
—
(16.4)
(1,471.8)
11.8
(0.8)
(1,468.7)
556.9
8.8
15.0
68.3
6.2
7.4
(0.7)
(18.4)
(80.8)
—
1.5
985.2
(43.2)
24.8
13.0
3,170.1
(2,207.8)
(1,433.4)
(45.9)
(142.6)
(8.5)
(673.5)
5,376.0
(5,280.1)
2,800.2
(2,427.2)
(401.8)
(18.7)
(480.8)
—
(0.8)
(433.2)
Net increase (decrease) in cash and cash equivalents and restricted cash
and cash equivalents
Cash and cash equivalents and restricted cash and cash equivalents,
beginning of period
Cash and cash equivalents and restricted cash and cash equivalents, end
of period
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest
Cash paid during the period for income taxes, net of refunds
(16.5)
38.0
(121.5)
434.2
396.2
517.7
417.7 $
434.2 $
396.2
147.3 $
72.7 $
149.4 $
213.2 $
191.6
141.5
$
$
$
See accompanying notes to consolidated financial statements.
51
1.
DESCRIPTION OF BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Principal Business. Since 1972, Credit Acceptance Corporation (referred to as the “Company”, “Credit Acceptance”, “we”,
“our” or “us”) has offered financing programs that enable automobile dealers to sell vehicles to consumers, regardless of their
credit history. Our financing programs are offered through a nationwide network of automobile dealers who benefit from sales
of vehicles to consumers who otherwise could not obtain financing; from repeat and referral sales generated by these same
customers; and from sales to customers responding to advertisements for our financing programs, but who actually end up
qualifying for traditional financing.
Without our financing programs, consumers are often unable to purchase vehicles or they purchase unreliable ones.
Further, as we report to the three national credit reporting agencies, an important ancillary benefit of our programs is that we
provide consumers with an opportunity to improve their lives by improving their credit score and move on to more traditional
sources of financing.
We refer to automobile dealers who participate in our programs and who share our commitment to changing consumers’
lives as “Dealers”. Upon enrollment in our financing programs, the Dealer enters into a Dealer servicing agreement with us that
defines the legal relationship between Credit Acceptance and the Dealer. The Dealer servicing agreement assigns the
responsibilities for administering, servicing, and collecting the amounts due on retail installment contracts (referred to as
“Consumer Loans”) from the Dealers to us. We are an indirect lender from a legal perspective, meaning the Consumer Loan is
originated by the Dealer and assigned to us.
The vast majority of the Consumer Loans assigned to us are made to consumers with impaired or limited credit histories.
The following table shows the percentage of Consumer Loans assigned to us with either FICO® scores below 650 or no FICO®
scores:
Consumer Loan Assignment Volume
2022
2021
2020
Percentage of total unit volume with either FICO® scores
below 650 or no FICO® scores
84.8 %
91.0 %
94.9 %
For the Years Ended December 31,
In 2020, we began piloting an option that expanded our financing programs to consumers with higher credit ratings. In the
fourth quarter of 2021, we made this option available to all Dealers. A portion of the reduction in the percentage of total unit
volume with FICO® scores below 650 or no FICO® scores relates to Consumer Loans assigned under this option.
We have two programs: the Portfolio Program and the Purchase Program. Under the Portfolio Program, we advance money
to Dealers (referred to as a “Dealer Loan”) in exchange for the right to service the underlying Consumer Loans. Under the
Purchase Program, we buy the Consumer Loans from the Dealers (referred to as a “Purchased Loan”) and keep all amounts
collected from the consumer. Dealer Loans and Purchased Loans are collectively referred to as “Loans”. The following table
shows the percentage of Consumer Loans assigned to us as Dealer Loans and Purchased Loans for each of the last three years:
For the Years Ended December 31,
2020
2021
2022
Unit Volume
Dollar Volume (1)
Dealer Loans
64.1 %
67.9 %
73.5 %
Purchased Loans
35.9 %
32.1 %
26.5 %
Dealer Loans
60.6 %
65.0 %
69.8 %
Purchased Loans
39.4 %
35.0 %
30.2 %
(1) Represents 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. Payments of Dealer Holdback (as defined below) and accelerated Dealer Holdback are not
included.
Portfolio Program
As payment for the vehicle, the Dealer generally receives the following:
•
•
•
a down payment from the consumer;
a non-recourse cash payment (“advance”) from us; and
after the advance balance (cash advance and related Dealer Loan fees and costs) has been recovered by us, the cash
from payments made on the Consumer Loan, net of certain collection costs and our servicing fee (“Dealer
Holdback”).
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
We record the amount advanced to the Dealer as a Dealer Loan, which is classified within Loans receivable in our
consolidated balance sheets. Cash advanced to the Dealer is automatically assigned to the Dealer’s open pool of advances.
Dealers make an election as to how many Consumer Loans (either 50 or 100) will be assigned to an open pool before it is
closed, and subsequent advances are assigned to a new pool. Unless we receive a request from the Dealer to keep a pool open,
we automatically close each pool based on the Dealer’s election. All advances within a Dealer’s pool are secured by the future
collections on the related Consumer Loans assigned to the pool. For Dealers with more than one pool, the pools are cross-
collateralized so the performance of other pools is considered in determining eligibility for Dealer Holdback. We perfect our
security interest with respect to the Dealer Loans by obtaining control or taking possession of the Consumer Loans, which list
us as lien holder on the vehicle title.
The Dealer servicing agreement provides that collections received by us during a calendar month on Consumer Loans
assigned by a Dealer are applied on a pool-by-pool basis as follows:
•
•
•
•
first, to reimburse us for certain collection costs;
second, to pay us our servicing fee, which generally equals 20% of collections;
third, to reduce the aggregate advance balance and to pay any other amounts due from the Dealer to us; and
fourth, to the Dealer as payment of Dealer Holdback.
If the collections on Consumer Loans from a Dealer’s pool are not sufficient to repay the advance balance and any other
amounts due to us, the Dealer will not receive Dealer Holdback. Certain events may also result in Dealers forfeiting their rights
to Dealer Holdback, including becoming inactive before assigning 100 Consumer Loans.
Dealers have an opportunity to receive an accelerated Dealer Holdback payment each time a pool of Consumer Loans is
closed. The amount paid to the Dealer is calculated using a formula that considers the number of Consumer Loans assigned to
the pool and the related forecasted collections and advance balance.
Since typically the combination of the advance and the consumer’s down payment provides the Dealer with a cash profit at
the time of sale, the Dealer’s risk in the Consumer Loan is limited. We cannot demand repayment of the advance from the
Dealer except in the event the Dealer is in default of the Dealer servicing agreement. Advances are made only after the
consumer and Dealer have signed a Consumer Loan contract, we have received the executed Consumer Loan contract and
supporting documentation in either physical or electronic form, and we have approved all of the related stipulations for
funding.
For accounting purposes, the transactions described under the Portfolio Program are not considered to be loans to
consumers. Instead, our accounting reflects that of a lender to the Dealer. The classification as a Dealer Loan for accounting
purposes is primarily a result of (1) the Dealer’s financial interest in the Consumer Loan and (2) certain elements of our legal
relationship with the Dealer.
Purchase Program
The Purchase Program differs from our Portfolio Program in that the Dealer receives a one-time payment from us at the
time of assignment to purchase the Consumer Loan instead of a cash advance at the time of assignment and future Dealer
Holdback payments. For accounting purposes, the transactions described under the Purchase Program are considered to be
originated by the Dealer and then purchased by us.
Program Enrollment
Dealers are granted access to our Portfolio Program upon enrollment. Access to the Purchase Program is typically only
granted to Dealers that meet one of the following:
•
•
•
assigned at least 50 Consumer Loans under the Portfolio Program;
franchise dealership; or
independent dealership that meets certain criteria upon enrollment.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include our accounts and our wholly owned subsidiaries. All significant
intercompany transactions have been eliminated. Our primary subsidiaries as of December 31, 2022 are: Buyer’s Vehicle
Protection Plan, Inc. (“BVPP”), Vehicle Remarketing Services, Inc. (“VRS”), VSC Re Company (“VSC Re”), CAC Warehouse
Funding LLC II, CAC Warehouse Funding LLC IV, CAC Warehouse Funding LLC V, CAC Warehouse Funding LLC VI,
CAC Warehouse Funding LLC VIII, Credit Acceptance Funding LLC 2019-2, Credit Acceptance Funding LLC 2019-3, Credit
Acceptance Funding LLC 2020-1, Credit Acceptance Funding LLC 2020-2, Credit Acceptance Funding LLC 2020-3, Credit
Acceptance Funding LLC 2021-1, Credit Acceptance Funding LLC 2021-2, Credit Acceptance Funding LLC 2021-3, Credit
Acceptance Funding LLC 2021-4, Credit Acceptance Funding LLC 2022-1, Credit Acceptance Funding LLC 2022-2, and
Credit Acceptance Funding LLC 2022-3.
Business Segment Information
We currently operate in one reportable segment which represents our core business of offering financing programs that
enable Dealers to sell vehicles to consumers regardless of their credit history. For information regarding our one reportable
segment and related entity wide disclosures, see Note 15 to the consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The accounts which are subject to significant estimation include the allowance for credit
losses, finance charge revenue, premiums earned, contingencies, and uncertain tax positions. Actual results could materially
differ from those estimates.
Cash and Cash Equivalents and Restricted Cash and Cash Equivalents
Cash equivalents consist of readily marketable securities with original maturities at the date of acquisition of three months
or less. As of December 31, 2022 and 2021, we had $7.1 million and $22.9 million, respectively, in cash and cash equivalents
that were not insured by the Federal Deposit Insurance Corporation (“FDIC”).
Restricted cash and cash equivalents consist of cash pledged as collateral for secured financings and cash held in a trust for
future vehicle service contract claims. As of December 31, 2022 and 2021, we had $406.5 million and $407.9 million,
respectively, in restricted cash and cash equivalents that were not insured by the FDIC.
The following table provides a reconciliation of cash and cash equivalents and restricted cash and cash equivalents reported
in our consolidated balance sheets to the total shown in our consolidated statements of cash flows:
(In millions)
As of December 31,
2022
2021
2020
Cash and cash equivalents
Restricted cash and cash equivalents
Total cash and cash equivalents and restricted cash and cash
equivalents
$
$
7.7 $
410.0
23.3 $
410.9
417.7 $
434.2 $
16.0
380.2
396.2
Restricted Securities Available for Sale
Restricted securities available for sale consist of amounts held in a trust for future vehicle service contract claims. We
determine the appropriate classification of our investments in debt securities at the time of purchase and reevaluate such
determinations at each balance sheet date. Debt securities for which we do not have the intent or ability to hold to maturity are
classified as available for sale, and stated at fair value with unrealized gains and losses, net of income taxes included in the
determination of comprehensive income and reported as a component of shareholders’ equity.
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Loans Receivable and Allowance for Credit Losses
Consumer Loan Assignment. For legal purposes, a Consumer Loan is considered to have been assigned to us after the
following has occurred:
•
•
the consumer and Dealer have signed a Consumer Loan contract; and
we have received the executed Consumer Loan contract and supporting documentation in either physical or
electronic form.
For accounting and financial reporting purposes, a Consumer Loan is considered to have been assigned to us after the
following has occurred:
•
•
the Consumer Loan has been legally assigned to us; and
we have made a funding decision and generally have provided funding to the Dealer in the form of either an advance
under the Portfolio Program or one-time purchase payment under the Purchase Program.
Portfolio Segments and Classes. Our Loan portfolio consists of two portfolio segments: Dealer Loans and Purchased
Loans. Our determination is based on the following:
•
• We have two financing programs: the Portfolio Program and the Purchase Program. We are considered to be a
lender to our Dealers for Consumer Loans assigned under the Portfolio Program and a purchaser of Consumer Loans
assigned under the Purchase Program.
The Portfolio Program and the Purchase Program have different levels of risk in relation to credit losses. Under the
Portfolio Program, the impact of negative variances in Consumer Loan performance is mitigated by Dealer
Holdback and the cross-collateralization of Consumer Loan assignments. Under the Purchase Program, we are
impacted by the full amount of negative variances in Consumer Loan performance.
Our business model is narrowly focused on Consumer Loan assignments from one industry with expected cash
flows that are significantly lower than the contractual cash flows owed to us due to credit quality. We do not believe
that it is meaningful to disaggregate our Loan portfolio beyond the Dealer Loans and Purchased Loans portfolio
segments.
•
Each portfolio segment consists of one class of Consumer Loan assignments, which is Consumer Loans originated by
Dealers to finance purchases of vehicles and related ancillary products by consumers with impaired or limited credit histories.
Our determination is based on the following:
•
All of the Consumer Loans assigned to us have similar risk characteristics in relation to the categorization of
borrowers, type of financing receivable, industry sector, and type of collateral.
• We only accept Consumer Loan assignments from Dealers located within the United States.
Recognition and Measurement Policies. On January 1, 2020, we adopted Accounting Standards Update 2016-13,
Measurement of Credit Losses on Financial Instruments, which is known as the current expected credit loss model, or CECL.
Loans outstanding prior to the adoption date qualified for transition relief and are accounted for as purchased financial assets
with credit deterioration (“PCD Method”).
Under the PCD Method, on January 1, 2020, we:
•
•
calculated an effective interest rate based on expected future net cash flows; and
increased the Loans receivable and the related allowance for credit losses balances by the present value of the
difference between contractual future net cash flows and expected future net cash flows discounted at the effective
interest rate. This “gross-up” did not impact the net carrying amount of Loans (Loans receivable less allowance for
credit losses) or consolidated net income.
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Under the PCD Method, for each reporting period subsequent to the adoption of CECL, we:
•
•
recognize finance charge revenue using the effective interest rate that was calculated on the adoption date based on
expected future net cash flows; and
adjust the allowance for credit losses so that the net carrying amount of each Loan equals the present value of
expected future net cash flows discounted at the effective interest rate. The adjustment to the allowance for credit
losses is recognized as either provision for credit losses expense or a reversal of provision for credit losses expense.
Consumer Loans assigned to us on or subsequent to January 1, 2020 do not qualify for the PCD Method and are accounted
for as originated financial assets (“Originated Method”). While the cash flows we expect to collect at the time of assignment are
significantly lower than the contractual cash flows owed to us due to credit quality, our Loans do not qualify for the PCD
Method because the assignment of the Consumer Loan to us occurs a moment after the Consumer Loan is originated by the
Dealer, so “a more-than-insignificant deterioration in credit quality since origination” has not occurred at the time of
assignment. In addition, Dealer Loans also do not qualify for the PCD Method because Consumer Loans assigned to us under
the Portfolio Program are considered to be advances under Dealer Loans originated by us rather than Consumer Loans
purchased by us.
Under the Originated Method, at the time of assignment, we:
•
•
•
calculate the effective interest rate based on contractual future net cash flows;
record a Loan receivable equal to the advance paid to the Dealer under the Portfolio Program or purchase price paid
to the Dealer under the Purchase Program; and
record an allowance for credit losses equal to the difference between the initial Loan receivable balance and the
present value of expected future net cash flows discounted at the effective interest rate. The initial allowance for
credit losses is recognized as provision for credit losses expense.
The effective interest rate and initial allowance for credit losses are significantly higher for Consumer Loans assigned
under the Purchase Program than for Consumer Loans assigned under the Portfolio Program, as contractual net cash flows
exceed expected net cash flows by a significantly greater margin under the Purchase Program. Under the Purchase Program, we
retain all contractual collections that exceed our initial expectations. Under the Portfolio Program, contractual collections that
exceed our initial expectations are substantially offset by additional Dealer Holdback payments.
Under the Originated Method, for each reporting period subsequent to assignment, we:
•
•
recognize finance charge revenue using the effective interest rate that was calculated at the time of assignment based
on contractual future net cash flows; and
adjust the allowance for credit losses so that the net carrying amount of each Loan equals the present value of
expected future net cash flows discounted at the effective interest rate. The adjustment to the allowance for credit
losses is recognized as either provision for credit losses expense or a reversal of provision for credit losses expense.
Loans Receivable. Amounts advanced to Dealers for Consumer Loans assigned under the Portfolio Program are recorded
as Dealer Loans and are aggregated by Dealer for purposes of recognizing revenue and measuring credit losses. Amounts paid
to Dealers for Consumer Loans assigned under the Purchase Program are recorded as Purchased Loans and, for purposes of
recognizing revenue and measuring credit losses, are:
•
•
not aggregated, if assigned on or subsequent to January 1, 2020; or
aggregated into pools based on the month of purchase, if assigned prior to January 1, 2020.
The outstanding balance of each Loan included in Loans receivable is comprised of the following:
•
•
•
•
•
•
•
•
•
cash paid to the Dealer (or to third party ancillary product providers on the Dealer’s behalf) for the Consumer Loan
assignment (advance under the Portfolio Program or one-time purchase payment under the Purchase Program);
finance charges;
Dealer Holdback payments;
accelerated Dealer Holdback payments;
recoveries;
transfers in;
less: collections (net of certain collection costs);
less: write-offs; and
less: transfers out.
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
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 the related allowance for credit losses balance to Purchased Loans in the
period this forfeiture occurs. We aggregate these Purchased Loans by Dealer for purposes of recognizing revenue and
measuring credit losses.
Allowance for Credit Losses. The outstanding balance of the allowance for credit losses of each Loan represents the
amount required to reduce net carrying amount of Loans (Loans receivable less allowance for credit losses) to the present value
of expected future net cash flows discounted at the effective interest rate. Expected future net cash flows for Dealer Loans are
comprised of expected future collections on the assigned Consumer Loans, less any expected future Dealer Holdback payments.
Expected future net cash flows for Purchased Loans are comprised of expected future collections on the assigned Consumer
Loans.
Expected future collections are forecasted for each individual Consumer Loan based on the historical performance of
Consumer Loans with similar characteristics, adjusted for recent trends in payment patterns and economic conditions. Our
forecast of expected future collections includes estimates for prepayments and post-contractual-term cash flows. Unless the
consumer is no longer contractually obligated to pay us, we forecast future collections on each Consumer Loan for a 120 month
period after the origination date. Expected future Dealer Holdback payments are forecasted for each individual Dealer based on
the expected future collections and current advance balance of each Dealer Loan.
We fully write off the outstanding balances of a Loan and the related allowance for credit losses once we are no longer
forecasting any expected future net cash flows on the Loan. Under our partial write-off policy, we write off the amount of the
outstanding balances of a Loan and the related allowance for credit losses, if any, that exceeds 200% of the present value of
expected future net cash flows on the Loan, as we deem this amount to be uncollectable.
Credit Quality. The vast majority of the Consumer Loans assigned to us are made to individuals with impaired or limited
credit histories. Consumer Loans made to these individuals generally entail a higher risk of delinquency, default, and
repossession and higher losses than loans made to consumers with better credit. Since most of our revenue and cash flows are
generated from these Consumer Loans, our ability to accurately forecast Consumer Loan performance is critical to our business
and financial results. At the time a Consumer Loan is submitted to us for assignment, we forecast future expected cash flows
from the Consumer Loan. Based on these forecasts, an advance or one-time purchase payment is made to the related Dealer at a
price designed to maximize our economic profit, a non-GAAP financial measure that considers our return on capital, our cost of
capital, and the amount of capital invested.
We monitor and evaluate the credit quality of Consumer Loans on a monthly basis by comparing our current forecasted
collection rates to our initial expectations. We use a statistical model that considers a number of credit quality indicators to
estimate the expected collection rate for each Consumer Loan at the time of assignment. The credit quality indicators
considered in our model include attributes contained in the consumer’s credit bureau report, data contained in the consumer’s
credit application, the structure of the proposed transaction, vehicle information, and other factors. We continue to evaluate the
expected collection rate of each Consumer Loan subsequent to assignment primarily through the monitoring of consumer
payment behavior. Our evaluation becomes more accurate as the Consumer Loans age, as we use actual performance data in our
forecast. Since all known, significant credit quality indicators have already been factored into our forecasts and pricing, we are
not able to use any specific credit quality indicators to predict or explain variances in actual performance from our initial
expectations. Any variances in performance from our initial expectations are the result of Consumer Loans performing
differently from historical Consumer Loans with similar characteristics. We periodically adjust our statistical pricing model for
new trends that we identify through our evaluation of these forecasted collection rate variances.
When overall forecasted collection rates underperform our initial expectations, the decline in forecasted collections has a
more adverse impact on the profitability of the Purchased Loans than on the profitability of the Dealer Loans. For Purchased
Loans, the decline in forecasted collections is absorbed entirely by us. For Dealer Loans, the decline in the forecasted
collections is substantially offset by a decline in forecasted payments of Dealer Holdback.
Methodology Changes. On January 1, 2020, we adopted CECL, which changed our accounting policies for Loans. During
the first quarter of 2020, we reduced forecasted collection rates to reflect the estimated long-term impact of COVID-19 on
Consumer Loan performance. During the first quarter of 2022, we removed the COVID-19 forecast adjustment (as defined in
Note 5) from our estimate of future net cash flows and enhanced our methodology for forecasting the amount and timing of
future net cash flows from our Loan portfolio through the utilization of more recent data and new forecast variables. For
additional information, see Note 5. For the three year period ended December 31, 2022, we did not make any other
methodology changes for Loans that had a material impact on our financial statements.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Property and Equipment
Purchases of property and equipment are recorded at cost. Depreciation is provided on a straight-line basis over the
estimated useful life of the asset. Estimated useful lives are generally as follows: buildings – 40 years, building improvements –
10 years, data processing equipment – 3 years, software – 5 years, office furniture and equipment – 7 years, and leasehold
improvements – the lesser of the lease term or 7 years. The cost of assets sold or retired and the related accumulated
depreciation are removed from the balance sheet at the time of disposition and any resulting gain or loss is included in
operations. Maintenance, repairs, and minor replacements are charged to operations as incurred; major replacements and
improvements are capitalized. We evaluate long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Costs incurred during the application development stage of software developed for internal use are capitalized and
generally depreciated on a straight-line basis over five years. Costs incurred to maintain existing software are expensed as
incurred. For additional information regarding our property and equipment, see Note 6 to the consolidated financial statements.
Deferred Debt Issuance Costs
Deferred debt issuance costs associated with secured financings and senior notes are included as a deduction from the
carrying amount of the related debt liability, and deferred debt issuance costs associated with our revolving secured line of
credit are included in other assets. Expenses associated with the issuance of debt instruments are capitalized and amortized as
interest expense over the term of the debt instrument using the effective interest method for asset-backed secured financings
(“Term ABS”) and senior notes and the straight-line method for lines of credit and revolving secured warehouse (“Warehouse”)
facilities. For additional information regarding deferred debt issuance costs, see Note 9 to the consolidated financial statements.
Derivative Instruments
We rely on various sources of financing, some of which contain floating rates of interest and expose us to risks associated
with increases in interest rates. We manage such risk primarily by entering into interest rate cap agreements (“derivative
instruments”). These derivative instruments are not designated as hedges, and changes in their fair value increase or decrease
interest expense.
We recognize derivative instruments as either other assets or accounts payable and accrued liabilities on our consolidated
balance sheets. For additional information regarding our derivative instruments, see Note 10 to the consolidated financial
statements.
Finance Charges
Sources of Revenue. Finance charges is comprised of: (1) interest income earned on Loans; (2) administrative fees earned
from ancillary products; (3) program fees charged to Dealers under the Portfolio Program; (4) Consumer Loan assignment fees
charged to Dealers; and (5) direct origination costs incurred on Dealer Loans.
We provide Dealers the ability to offer vehicle service contracts to consumers through our relationships with Third Party
Providers (“TPPs”). A vehicle service contract provides the consumer protection by paying for the repair or replacement of
certain components of the vehicle in the event of a mechanical failure. The retail price of the vehicle service contract is included
in the principal balance of the Consumer Loan. The wholesale cost of the vehicle service contract is paid to the TPP, net of an
administrative fee retained by us. The difference between the wholesale cost and the retail price to the consumer is paid to the
Dealer as a commission. Under the Portfolio Program, the wholesale cost of the vehicle service contract and the commission
paid to the Dealer are charged to the Dealer’s advance balance. TPPs process claims on vehicle service contracts that are
underwritten by third party insurers. We bear the risk of loss for claims on certain vehicle service contracts that are reinsured by
us. We market the vehicle service contracts directly to our Dealers.
We provide Dealers the ability to offer Guaranteed Asset Protection (“GAP”) to consumers through our relationships with
TPPs. GAP provides the consumer protection by paying the difference between the loan balance and the amount covered by the
consumer’s insurance policy in the event of a total loss of the vehicle due to severe damage or theft. The retail price of GAP is
included in the principal balance of the Consumer Loan. The wholesale cost of GAP is paid to the TPP, net of an administrative
fee retained by us. The difference between the wholesale cost and the retail price to the consumer is paid to the Dealer as a
commission. Under the Portfolio Program, the wholesale cost of GAP and the commission paid to the Dealer are charged to the
Dealer’s advance balance. TPPs process claims on GAP contracts that are underwritten by third party insurers.
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Program fees represent monthly fees charged to Dealers for access to our Credit Approval Processing System (“CAPS”);
administration, servicing, and collection services offered by us; documentation related to or affecting our program; and all
tangible and intangible property owned by Credit Acceptance. We charge a monthly fee of $599 to Dealers participating in our
Portfolio Program and we collect it from future Dealer Holdback payments.
Recognition Policy. We recognize finance charges under the interest method such that revenue is recognized on a level-
yield basis over the life of the Loan. We calculate finance charges on a monthly basis by applying the effective interest rate of
the Loan to the net carrying amount of the Loan (Loan receivable less the related allowance for credit losses). For Consumer
Loans assigned on or subsequent to January 1, 2020, the effective interest rate is based on contractual future net cash flows. For
Consumer Loans assigned prior to January 1, 2020, the effective interest rate was determined based on expected future net cash
flows.
We report the change in the present value of credit losses attributable to the passage of time as a reduction to finance
charges. Accordingly, we allocate finance charges recognized on each Loan between the Loan receivable and the related
allowance for credit losses. The amount of finance charges allocated to the Loan receivable is equal to the effective interest rate
applied to the Loans receivable balance. The reduction of finance charges allocated to the allowance for credit losses is equal to
the effective interest rate applied to the allowance for credit losses balance.
Reinsurance
VSC Re, our wholly owned subsidiary, is engaged in the business of reinsuring coverage under vehicle service contracts
sold to consumers by Dealers on vehicles financed by us. VSC Re currently reinsures vehicle service contracts that are offered
through one of our TPPs. Vehicle service contract premiums, which represent the selling price of the vehicle service contract to
the consumer, less fees and certain administrative costs, are contributed to a trust account controlled by VSC Re. These
premiums are used to fund claims covered under the vehicle service contracts. VSC Re is a bankruptcy remote entity. As such,
our exposure to fund claims is limited to the trust assets controlled by VSC Re and our net investment in VSC Re.
Premiums from the reinsurance of vehicle service contracts are recognized over the life of the policy in proportion to
expected costs of servicing those contracts. Expected costs are determined based on our historical claims experience. Claims are
expensed through a provision for claims in the period the claim was incurred. Capitalized acquisition costs are comprised of
premium taxes and are amortized as general and administrative expense over the life of the contracts in proportion to premiums
earned.
We have consolidated the trust within our financial statements based on our determination of the following:
• We have a variable interest in the trust. We have a residual interest in the assets of the trust, which is variable in
nature, given that it increases or decreases based upon the actual loss experience of the related service contracts. In
addition, VSC Re is required to absorb any losses in excess of the trust’s assets.
The trust is a variable interest entity. The trust has insufficient equity at risk as no parties to the trust were required
to contribute assets that provide them with any ownership interest.
•
• We are the primary beneficiary of the trust. We control the amount of premiums written and placed in the trust
through Consumer Loan assignments under our Programs, which is the activity that most significantly impacts the
economic performance of the trust. We have the right to receive benefits from the trust that could potentially be
significant. In addition, VSC Re has the obligation to absorb losses of the trust that could potentially be significant.
Stock-Based Compensation Plans
We have stock-based compensation plans for team members and non-employee directors, which are described more fully
in Note 14 to the consolidated financial statements. We apply a fair-value-based measurement method in accounting for stock-
based compensation plans and recognize stock-based compensation expense over the requisite service period of the grant as
salaries and wages expense.
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Employee Benefit Plan
We sponsor a 401(k) plan that covers substantially all of our team members. We offer matching contributions to the 401(k)
plan based on each enrolled team members’ eligible annual gross pay (subject to statutory limitations). Our matching
contribution rate is equal to 100% of the first 4% participants contribute and an additional 50% of the next 2% participants
contribute, for a maximum matching contribution of 5% of each participant’s eligible annual gross pay. For the years ended
December 31, 2022, 2021 and 2020, we recognized compensation expense of $8.5 million, $7.5 million, and $7.2 million,
respectively, for our matching contributions to the plan.
Income Taxes
Provisions for federal, state, and foreign income taxes are calculated on reported pre-tax earnings based on current tax law
and also include, in the current period, the cumulative effect of any changes in tax rates from those used previously in
determining deferred tax assets and liabilities. Such provisions differ from the amounts currently receivable or payable because
certain items of income and expense are recognized in different time periods for financial reporting purposes than for income
tax purposes.
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and
liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or
recovered.
We follow a two-step approach for recognizing uncertain tax positions. First, we evaluate the tax position for recognition
by determining if the weight of available evidence indicates it is more-likely-than-not that the position will be sustained upon
examination, including resolution of related appeals or litigation processes, if any. Second, for positions that we determine are
more-likely-than-not to be sustained, we recognize the tax benefit as the largest benefit that has a greater than 50% likelihood of
being sustained. We establish a reserve for uncertain tax positions liability that is comprised of unrecognized tax benefits and
related interest. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require
periodic adjustments and which may not accurately anticipate actual outcomes. We recognize interest and penalties related to
uncertain tax positions in provision for income taxes. For additional information regarding our income taxes, see Note 11 to the
consolidated financial statements.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expenses were $1.0 million for the year ended December 31, 2022,
$0.3 million for the year ended December 31, 2021, and $0.1 million for the year ended December 31, 2020.
New Accounting Update Not Yet Adopted
Troubled Debt Restructurings and Vintage Disclosures. In March 2022, the Financial Accounting Standards Board issued
Accounting Standards Update (“ASU”) 2022-02, which intends to improve the usefulness of information provided to investors
about certain loan refinancings, restructurings, and write-offs. ASU 2022-02 is effective for fiscal years, and interim periods,
beginning after December 15, 2022. The adoption of ASU 2022-02 will expand our write-off disclosures.
Reclassification
Certain amounts from prior periods have been reclassified to conform to the current presentation.
Subsequent Events
We have evaluated events and transactions occurring subsequent to the consolidated balance sheet date of December 31,
2022 for items that could potentially be recognized or disclosed in these financial statements. We did not identify any items
which would require disclosure in or adjustment to the consolidated financial statements.
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for
which it is practicable to estimate their value.
Cash and Cash Equivalents and Restricted Cash and Cash Equivalents. The carrying amounts approximate their fair value
due to the short maturity of these instruments.
Restricted Securities Available for Sale. The fair value of U.S. Government and agency securities and corporate bonds is
based on quoted market values in active markets. For asset-backed securities, mortgage-backed securities, and commercial
paper we use model-based valuation techniques for which all significant assumptions are observable in the market.
Loans Receivable, net. The fair value is determined by calculating the present value of expected future net cash flows
estimated by us by utilizing the discount rate used to calculate the value of our Loans under our non-GAAP floating yield
methodology.
Revolving Secured Line of Credit. The fair value is determined by calculating the present value of the debt instrument
based on current rates for debt with a similar risk profile and maturity.
Secured Financing. The fair value of certain Term ABS financings is determined using quoted market prices in an active
market. For our warehouse facilities and certain other Term ABS financings, the fair values are determined by calculating the
present value of each debt instrument based on current rates for debt with similar risk profiles and maturities.
Senior Notes. The fair value is determined using quoted market prices in an active market.
Mortgage Note. The fair value is determined by calculating the present value of the debt instrument based on current rates
for debt with a similar risk profile and maturity.
A comparison of the carrying amount and estimated fair value of these financial instruments is as follows:
(In millions)
Assets
As of December 31,
2022
2021
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
Cash and cash equivalents
$
7.7 $
7.7 $
23.3 $
Restricted cash and cash equivalents
Restricted securities available for sale
Loans receivable, net
Liabilities
410.0
72.3
6,297.7
410.0
72.3
6,767.9
410.9
62.1
6,336.3
Revolving secured line of credit
$
30.9 $
30.9 $
2.6 $
Secured financing
Senior notes
Mortgage note
3,756.4
794.5
8.9
3,581.9
759.0
8.9
3,811.5
792.5
9.7
23.3
410.9
62.1
6,580.4
2.6
3,832.1
825.8
9.7
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined
based on assumptions that market participants would use in pricing an asset or liability. We group assets and liabilities at fair
value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions
used to determine fair value. These levels are:
Level 1 Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2 Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar
instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions
are observable in the market.
Level 3 Valuation is generated from model-based techniques that use at least one significant assumption not observable in the
market. These unobservable assumptions reflect estimates or assumptions that market participants would use in pricing
the asset or liability.
The following table provides the level of measurement used to determine the fair value for each of our financial
instruments measured or disclosed at fair value:
(In millions)
Assets
As of December 31, 2022
Level 1
Level 2
Level 3
Total Fair Value
Cash and cash equivalents (1)
$
7.7 $
— $
— $
Restricted cash and cash equivalents (1)
Restricted securities available for sale (2)
Loans receivable, net (1)
410.0
58.7
—
Liabilities
Revolving secured line of credit (1)
$
— $
Secured financing (1)
Senior notes (1)
Mortgage note (1)
2,781.8
759.0
—
—
13.6
—
30.9 $
800.1
8.9
—
—
6,767.9
— $
—
—
—
7.7
410.0
72.3
6,767.9
30.9
3,581.9
759.0
8.9
(In millions)
Assets
As of December 31, 2021
Level 1
Level 2
Level 3
Total Fair Value
Cash and cash equivalents (1)
Restricted cash and cash equivalents (1)
$
Restricted securities available for sale (2)
Loans receivable, net (1)
Liabilities
23.3 $
410.9
49.0
—
— $
—
13.1
—
— $
—
—
6,580.4
Revolving secured line of credit (1)
$
— $
2.6 $
— $
Secured financing (1)
Senior notes (1)
Mortgage note (1)
3,231.9
825.8
—
600.2
—
9.7
—
—
—
23.3
410.9
62.1
6,580.4
2.6
3,832.1
825.8
9.7
(1) Measured at amortized cost with fair value disclosed.
(2) Measured at fair value on a recurring basis.
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
4. RESTRICTED SECURITIES AVAILABLE FOR SALE
Restricted securities available for sale consist of the following:
(In millions)
As of December 31, 2022
Amortized
Cost
Gross Unrealized
Gains
Gross Unrealized
Losses
Estimated
Fair Value
Corporate bonds
U.S. Government and agency securities
Asset-backed securities
Mortgage-backed securities
Total restricted securities available
for sale
(In millions)
Corporate bonds
U.S. Government and agency securities
Asset-backed securities
Mortgage-backed securities
Total restricted securities available
for sale
$
$
$
$
32.6 $
— $
29.5
13.8
0.2
—
—
—
76.1 $
— $
(1.7) $
(1.7)
(0.4)
—
(3.8) $
As of December 31, 2021
Amortized
Cost
Gross Unrealized
Gains
Gross Unrealized
Losses
Estimated
Fair Value
27.3 $
0.3 $
21.5
12.9
0.3
0.2
—
—
62.0 $
0.5 $
(0.2) $
(0.1)
(0.1)
—
(0.4) $
30.9
27.8
13.4
0.2
72.3
27.4
21.6
12.8
0.3
62.1
The fair value and gross unrealized losses for restricted securities available for sale, aggregated by investment category and
length of time that individual securities have been in a continuous unrealized loss position, are as follows:
(In millions)
Securities Available for Sale with Gross Unrealized Losses as of December 31, 2022
Less than 12 Months
12 Months or More
Estimated
Fair Value
Gross
Unrealized
Losses
Estimated
Fair Value
Gross
Unrealized
Losses
Total
Estimated
Fair Value
Total Gross
Unrealized
Losses
Corporate bonds
$
15.1 $
(0.6) $
13.3 $
(1.1) $
28.4 $
U.S. Government and agency securities
Asset-backed securities
Mortgage-backed securities
Total restricted securities available
18.0
6.6
0.3
(0.8)
(0.1)
—
9.2
4.4
—
(0.9)
(0.3)
—
27.2
11.0
0.3
(1.7)
(1.7)
(0.4)
—
for sale
$
40.0 $
(1.5) $
26.9 $
(2.3) $
66.9 $
(3.8)
(In millions)
Securities Available for Sale with Gross Unrealized Losses as of December 31, 2021
Less than 12 Months
12 Months or More
Estimated
Fair Value
Gross
Unrealized
Losses
Estimated
Fair Value
Gross
Unrealized
Losses
Total
Estimated
Fair Value
Total Gross
Unrealized
Losses
Corporate bonds
$
15.0 $
(0.2) $
1.3 $
— $
16.3 $
U.S. Government and agency securities
Asset-backed securities
Mortgage-backed securities
Total restricted securities available
10.1
8.4
—
(0.1)
(0.1)
—
—
—
—
—
—
—
10.1
8.4
—
(0.2)
(0.1)
(0.1)
—
for sale
$
33.5 $
(0.4) $
1.3 $
— $
34.8 $
(0.4)
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
The cost and estimated fair values of debt securities by contractual maturity were as follows (securities with multiple
maturity dates are classified in the period of final maturity). Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
(In millions)
As of December 31,
Contractual Maturity
Amortized Cost
Estimated Fair Value
Amortized Cost
Estimated Fair Value
2022
2021
Within one year
Over one year to five years
Over five years to ten years
Over ten years
Total restricted securities available
for sale
5.
LOANS RECEIVABLE
$
$
4.0 $
3.9 $
2.9 $
66.4
5.6
0.1
63.0
5.3
0.1
56.9
2.1
0.1
76.1 $
72.3 $
62.0 $
3.0
57.0
2.0
0.1
62.1
Loans receivable and allowance for credit losses consist of the following:
(In millions)
Loans receivable
Allowance for credit losses
Loans receivable, net
(In millions)
Loans receivable
Allowance for credit losses
Loans receivable, net
As of December 31, 2022
Dealer Loans
Purchased Loans
Total
6,074.8 $
(2,000.0)
4,074.8 $
3,090.7 $
(867.8)
2,222.9 $
9,165.5
(2,867.8)
6,297.7
As of December 31, 2021
Dealer Loans
Purchased Loans
Total
5,655.1 $
(1,767.8)
3,887.3 $
3,694.7 $
(1,245.7)
2,449.0 $
9,349.8
(3,013.5)
6,336.3
$
$
$
$
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
A summary of changes in Loans receivable and allowance for credit losses is as follows:
(In millions)
For the Year Ended December 31, 2022
Loans Receivable
Purchased
Loans
Dealer
Loans
Total
Allowance for Credit Losses
Purchased
Loans
Dealer
Loans
Total
Loans Receivable, Net
Purchased
Loans
Dealer
Loans
Total
Balance, beginning of
period
$ 5,655.1 $ 3,694.7 $ 9,349.8 $ (1,767.8) $ (1,245.7) $ (3,013.5) $ 3,887.3 $ 2,449.0 $ 6,336.3
Finance charges
1,391.0
997.8
2,388.8
(442.4)
(260.1)
(702.5)
948.6
737.7
1,686.3
Collections (2)
(3,237.5)
(1,871.9)
(5,109.4)
2,530.0
1,095.3
3,625.3
Provision for credit
losses
New Consumer Loan
assignments (1)
Accelerated Dealer
Holdback payments
Dealer Holdback
payments
Transfers (3)
Write-offs
Recoveries (4)
Deferral of Loan
origination costs
—
—
—
(240.4)
(241.0)
(481.4)
(240.4)
(241.0)
(481.4)
44.2
—
44.2
186.6
(72.1)
—
72.1
186.6
—
—
—
—
—
18.3
—
—
—
—
(18.3)
—
—
—
—
—
(433.4)
(900.4)
(1,333.8)
433.4
900.4
1,333.8
1.1
9.8
3.1
—
4.2
9.8
(1.1)
(3.1)
(4.2)
—
—
—
2,530.0
1,095.3
3,625.3
(3,237.5)
(1,871.9)
(5,109.4)
44.2
—
44.2
186.6
(53.8)
—
—
9.8
—
53.8
—
—
—
186.6
—
—
—
9.8
Balance, end of period
$ 6,074.8 $ 3,090.7 $ 9,165.5 $ (2,000.0) $
(867.8) $ (2,867.8) $ 4,074.8 $ 2,222.9 $ 6,297.7
(In millions)
For the Year Ended December 31, 2021
Loans Receivable
Purchased
Loans
Dealer
Loans
Total
Allowance for Credit Losses
Purchased
Loans
Dealer
Loans
Total
Loans Receivable, Net
Purchased
Loans
Dealer
Loans
Total
Balance, beginning of
period
$ 5,869.6 $ 4,255.2 $ 10,124.8 $ (1,702.1) $ (1,634.8) $ (3,336.9) $ 4,167.5 $ 2,620.4 $ 6,787.9
Finance charges
1,385.1
1,117.9
2,503.0
(413.8)
(346.6)
(760.4)
971.3
771.3
1,742.6
—
—
—
28.2
(36.6)
(8.4)
28.2
(36.6)
(8.4)
Provision for credit
losses
New Consumer Loan
assignments (1)
Collections (2)
(3,464.6)
(2,095.1)
(5,559.7)
2,059.0
1,108.8
3,167.8
Accelerated Dealer
Holdback payments
Dealer Holdback
payments
Transfers (3)
Write-offs
Recoveries (4)
Deferral of Loan
origination costs
44.1
153.4
(115.7)
(286.2)
1.8
8.6
—
—
—
—
35.5
—
—
—
—
(35.5)
—
—
—
—
—
—
—
115.7
44.1
153.4
—
(810.3)
(1,096.5)
286.2
810.3
1,096.5
2.5
—
4.3
8.6
(1.8)
(2.5)
(4.3)
—
—
—
2,059.0
1,108.8
3,167.8
(3,464.6)
(2,095.1)
(5,559.7)
44.1
—
44.1
153.4
(80.2)
—
—
8.6
—
80.2
—
—
—
153.4
—
—
—
8.6
Balance, end of period
$ 5,655.1 $ 3,694.7 $ 9,349.8 $ (1,767.8) $ (1,245.7) $ (3,013.5) $ 3,887.3 $ 2,449.0 $ 6,336.3
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(In millions)
For the Year Ended December 31, 2020
Loans Receivable
Purchased
Loans
Dealer
Loans
Total
Allowance for Credit Losses
Purchased
Loans
Dealer
Loans
Total
Loans Receivable, Net
Purchased
Loans
Dealer
Loans
Total
Balance, beginning of
period
$ 4,623.3 $ 2,597.9 $ 7,221.2 $ (428.0) $
(108.0) $ (536.0) $ 4,195.3 $ 2,489.9 $ 6,685.2
Adoption of CECL (5)
940.2
1,523.4
2,463.6
(940.2)
(1,523.4)
(2,463.6)
—
—
—
Finance charges
1,313.9
991.0
2,304.9
(368.0)
(374.5)
(742.5)
945.9
616.5
1,562.4
Provision for credit
losses
New Consumer Loan
assignments (1)
—
—
—
(239.7)
(317.2)
(556.9)
(239.7)
(317.2)
(556.9)
Collections (2)
(3,059.1)
(1,682.3)
(4,741.4)
2,207.8
1,433.4
3,641.2
Accelerated Dealer
Holdback payments
Dealer Holdback
payments
Transfers (3)
Write-offs
Recoveries (4)
Deferral of Loan
origination costs
45.9
142.6
(119.8)
(235.1)
1.0
8.9
—
—
119.8
45.9
142.6
—
1.8
—
2.8
8.9
—
—
—
—
39.7
(1.0)
—
—
—
—
(39.7)
729.8
(1.8)
—
—
—
—
—
964.9
(2.8)
2,207.8
1,433.4
3,641.2
(3,059.1)
(1,682.3)
(4,741.4)
45.9
—
45.9
142.6
(80.1)
—
—
8.9
—
80.1
—
—
—
142.6
—
—
—
8.9
—
—
—
(729.8)
(964.9)
235.1
Balance, end of period
$ 5,869.6 $ 4,255.2 $ 10,124.8 $ (1,702.1) $ (1,634.8) $ (3,336.9) $ 4,167.5 $ 2,620.4 $ 6,787.9
(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) Represents repayments that we collected on Consumer Loans assigned under our programs.
(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 allowance for credit losses balance to Purchased Loans in the period this forfeiture occurs.
(4) The Dealer Loans amount represents net cash flows received (collections less any related Dealer Holdback payments) on Dealer Loans that were
previously written off in full. The Purchased Loans amount represents collections received on Purchased Loans that were previously written off in full.
(5) Represents the gross-up of Loans receivable and allowance for credit losses on January 1, 2020 upon the adoption of CECL for the present value of the
difference between contractual future net cash flows and expected future net cash flows discounted at the effective interest rate.
We recognize provision for credit losses on new Consumer Loan assignments for contractual net cash flows that were not
expected to be realized at the time of assignment. We also recognize provision for credit losses on forecast changes in the
amount and timing of expected future net cash flows subsequent to assignment. The following table summarizes the provision
for credit losses for each of these components:
(In millions)
For the Year Ended December 31, 2022
Provision for Credit Losses
Dealer Loans
Purchased Loans
Total
New Consumer Loan assignments
Forecast changes
Total
(In millions)
Provision for Credit Losses
New Consumer Loan assignments
Forecast changes
Total
154.8 $
85.6
240.4 $
188.9 $
52.1
241.0 $
343.7
137.7
481.4
For the Year Ended December 31, 2021
Dealer Loans
Purchased Loans
Total
153.1 $
(181.3)
(28.2) $
212.0 $
(175.4)
36.6 $
365.1
(356.7)
8.4
$
$
$
$
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(In millions)
For the Year Ended December 31, 2020
Provision for Credit Losses
Dealer Loans
Purchased Loans
Total
New Consumer Loan assignments
Forecast changes
Total
$
$
209.7 $
308.9 $
30.0
8.3
239.7 $
317.2 $
518.6
38.3
556.9
The net Loan income (finance charge revenue less provision for credit losses expense) that we will recognize over the life
of a Loan equals the cash we collect from the underlying Consumer Loan less the cash we pay to the Dealer. Under CECL, we
are required to recognize a significant provision for credit losses expense at the time of assignment for contractual net cash
flows we never expect to realize and to recognize in subsequent periods finance charge revenue that is significantly in excess of
our expected yields. Additional information related to new Consumer Loan assignments is as follows:
(In millions)
For the Year Ended December 31, 2022
New Consumer Loan Assignments
Dealer Loans
Purchased Loans
Total
Contractual net cash flows at the time of assignment (1)
Expected net cash flows at the time of assignment (2)
Loans receivable at the time of assignment (3)
Provision for credit losses expense at the time of assignment
Expected future finance charges at the time of assignment (4)
Expected net Loan income at the time of assignment (5)
(In millions)
New Consumer Loan Assignments
Contractual net cash flows at the time of assignment (1)
Expected net cash flows at the time of assignment (2)
Loans receivable at the time of assignment (3)
Provision for credit losses expense at the time of assignment
Expected future finance charges at the time of assignment (4)
Expected net Loan income at the time of assignment (5)
(In millions)
New Consumer Loan Assignments
Contractual net cash flows at the time of assignment (1)
Expected net cash flows at the time of assignment (2)
Loans receivable at the time of assignment (3)
Provision for credit losses expense at the time of assignment
Expected future finance charges at the time of assignment (4)
Expected net Loan income at the time of assignment (5)
$
$
$
$
$
$
$
$
$
3,874.4 $
3,516.1
2,530.0
(154.8) $
1,140.9
986.1 $
2,185.9 $
1,497.0
1,095.3
(188.9) $
590.6
401.7 $
6,060.3
5,013.1
3,625.3
(343.7)
1,731.5
1,387.8
For the Year Ended December 31, 2021
Dealer Loans
Purchased Loans
Total
3,202.5 $
2,880.9
2,059.0
(153.1) $
975.0
821.9 $
2,324.1 $
1,549.1
1,108.8
(212.0) $
652.3
440.3 $
5,526.6
4,430.0
3,167.8
(365.1)
1,627.3
1,262.2
For the Year Ended December 31, 2020
Dealer Loans
Purchased Loans
Total
3,506.9 $
3,113.4
2,207.8
(209.7) $
1,115.3
905.6 $
3,151.2 $
2,018.2
1,433.4
(308.9) $
893.7
584.8 $
6,658.1
5,131.6
3,641.2
(518.6)
2,009.0
1,490.4
(1) The Dealer Loans amount represents 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 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 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 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.
(4) Represents revenue that is expected to be recognized on a level-yield basis over the lives of the Loans.
(5) Represents the amount that expected net cash flows at the time of assignment (2) exceed Loans receivable at the time of assignment (3).
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
A summary of changes in expected future net cash flows is as follows:
(In millions)
For the Year Ended December 31, 2022
Expected Future Net Cash Flows
Dealer Loans
Purchased Loans
Total
Balance, beginning of period
New Consumer Loan assignments (1)
Realized net cash flows (2)
Forecast changes
Transfers (3)
Balance, end of period
(In millions)
Expected Future Net Cash Flows
Balance, beginning of period
New Consumer Loan assignments (1)
Realized net cash flows (2)
Forecast changes
Transfers (3)
Balance, end of period
(In millions)
Expected Future Net Cash Flows
Balance, beginning of period
New Consumer Loan assignments (1)
Realized net cash flows (2)
Forecast changes
Transfers (3)
Balance, end of period
$
$
$
$
$
$
5,249.7 $
3,516.1
(3,006.7)
(41.6)
(79.6)
5,637.9 $
3,698.6 $
1,497.0
(1,871.9)
(18.1)
89.9
3,395.5 $
8,948.3
5,013.1
(4,878.6)
(59.7)
10.3
9,033.4
For the Year Ended December 31, 2021
Dealer Loans
Purchased Loans
Total
5,664.3 $
2,880.9
(3,267.1)
87.7
(116.1)
5,249.7 $
3,880.1 $
1,549.1
(2,095.1)
238.4
126.1
3,698.6 $
9,544.4
4,430.0
(5,362.2)
326.1
10.0
8,948.3
For the Year Ended December 31, 2020
Dealer Loans
Purchased Loans
Total
5,577.0 $
3,113.4
(2,870.6)
(41.1)
(114.4)
5,664.3 $
3,428.2 $
2,018.2
(1,682.3)
(5.2)
121.2
3,880.1 $
9,005.2
5,131.6
(4,552.9)
(46.3)
6.8
9,544.4
(1) The Dealer Loans amount represents 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 repayments that we expected
to collect at the time of assignment on Consumer Loans assigned under our Purchase Program.
(2) The Dealer Loans amount represents repayments that we collected on Consumer Loans assigned under our Portfolio Program, less the Dealer Holdback
and Accelerated Dealer Holdback payments that we made. Purchased Loans amount represents repayments that we collected on Consumer Loans
assigned under our Purchase Program.
(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, related allowance for credit losses balance, and related expected future net cash flows to Purchased Loans in the period this
forfeiture occurs.
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
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 prior forecasted collection rates and 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, 2022, with the forecasts as of
December 31, 2021, as of December 31, 2020, and at the time of assignment, segmented by year of assignment:
Consumer Loan
Assignment Year
December 31,
2022
December 31,
2021
December 31,
2020
Initial
Forecast
December 31,
2021
December 31,
2020
Initial
Forecast
Forecasted Collection Percentage as of (1)
Current Forecast Variance from
Total Loans as of December 31, 2022
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
73.5 %
71.7 %
65.2 %
63.8 %
64.7 %
65.2 %
66.6 %
67.8 %
66.2 %
73.4 %
71.5 %
65.1 %
63.6 %
64.4 %
65.1 %
66.5 %
67.9 %
66.5 %
66.3 %
—
73.4 %
71.6 %
65.2 %
63.6 %
64.1 %
64.0 %
64.4 %
64.8 %
—
—
72.0 %
71.8 %
67.7 %
65.4 %
64.0 %
63.6 %
64.0 %
63.4 %
66.3 %
67.5 %
0.1 %
0.2 %
0.1 %
0.2 %
0.3 %
0.1 %
0.1 %
-0.1 %
-0.3 %
—
0.1 %
0.1 %
0.0 %
0.2 %
0.6 %
1.2 %
2.2 %
3.0 %
—
—
1.5 %
-0.1 %
-2.5 %
-1.6 %
0.7 %
1.6 %
2.6 %
4.4 %
-0.1 %
-1.2 %
Forecasted Collection Percentage as of (1) (2)
Current Forecast Variance from
Dealer Loans as of December 31, 2022
Consumer Loan
Assignment Year
December 31,
2022
December 31,
2021
December 31,
2020
Initial
Forecast
December 31,
2021
December 31,
2020
Initial
Forecast
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
73.4 %
71.6 %
64.5 %
63.0 %
64.0 %
64.6 %
66.3 %
67.7 %
66.0 %
65.8 %
73.3 %
71.4 %
64.4 %
62.8 %
63.8 %
64.6 %
66.2 %
67.6 %
66.2 %
—
73.4 %
71.5 %
64.5 %
62.8 %
63.4 %
63.5 %
64.1 %
64.5 %
—
—
72.1 %
71.9 %
67.5 %
65.1 %
63.8 %
63.6 %
63.9 %
63.3 %
66.3 %
67.3 %
0.1 %
0.2 %
0.1 %
0.2 %
0.2 %
0.0 %
0.1 %
0.1 %
-0.2 %
—
0.0 %
0.1 %
0.0 %
0.2 %
0.6 %
1.1 %
2.2 %
3.2 %
—
—
1.3 %
-0.3 %
-3.0 %
-2.1 %
0.2 %
1.0 %
2.4 %
4.4 %
-0.3 %
-1.5 %
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Forecasted Collection Percentage as of (1) (2)
Current Forecast Variance from
Purchased Loans as of December 31, 2022
Consumer Loan
Assignment Year
December 31,
2022
December 31,
2021
December 31,
2020
Initial
Forecast
December 31,
2021
December 31,
2020
Initial
Forecast
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
74.3 %
72.5 %
68.9 %
66.0 %
66.3 %
66.4 %
67.2 %
68.0 %
66.7 %
67.4 %
74.2 %
72.4 %
68.9 %
65.8 %
66.0 %
66.4 %
67.2 %
68.4 %
67.1 %
—
74.3 %
72.4 %
68.8 %
65.8 %
65.6 %
65.1 %
65.1 %
65.4 %
—
—
71.6 %
70.9 %
68.5 %
66.5 %
64.6 %
63.5 %
64.2 %
63.6 %
66.3 %
68.0 %
0.1 %
0.1 %
0.0 %
0.2 %
0.3 %
0.0 %
0.0 %
-0.4 %
-0.4 %
—
0.0 %
0.1 %
0.1 %
0.2 %
0.7 %
1.3 %
2.1 %
2.6 %
—
—
2.7 %
1.6 %
0.4 %
-0.5 %
1.7 %
2.9 %
3.0 %
4.4 %
0.4 %
-0.6 %
(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.
(2) The forecasted collection rates presented for Dealer Loans and Purchased Loans reflect the Consumer Loan classification at the time of assignment.
We evaluate and adjust the expected collection rate of each Consumer Loan subsequent to assignment primarily through
the monitoring of consumer payment behavior. The following table summarizes the past-due status of Consumer Loan
assignments as of December 31, 2022 and December 31, 2021, segmented by year of assignment:
(In millions)
Total Loans as of December 31, 2022 (1) (2)
Consumer Loan Assignment Year
2017 and prior
2018
2019
2020
2021
2022
(In millions)
Consumer Loan Assignment Year
2017 and prior
2018
2019
2020
2021
2022
$
$
$
$
Pre-term Consumer Loans (3)
Current (5)
Past Due
11-90 Days
Past Due
Over 90 Days
Post-term
Consumer Loans
(4)
Total
16.1 $
142.8
446.5
732.6
1,209.1
3,036.1
5,583.2 $
9.6 $
71.7
214.0
332.8
480.4
631.1
1,739.6 $
42.2 $
197.5
411.9
421.1
398.8
158.8
1,630.3 $
167.7 $
37.3
6.5
0.9
—
—
212.4 $
235.6
449.3
1,078.9
1,487.4
2,088.3
3,826.0
9,165.5
Dealer Loans as of December 31, 2022 (1)
Pre-term Consumer Loans (3)
Current (5)
Past Due
11-90 Days
Past Due
Over 90 Days
Post-term
Consumer Loans
(4)
Total
7.7 $
71.5
215.2
461.6
836.1
2,258.6
3,850.7 $
4.5 $
34.3
100.7
204.6
324.8
467.1
1,136.0 $
20.4 $
97.3
196.9
259.4
268.0
116.8
958.8 $
103.1 $
21.3
4.2
0.7
—
—
129.3 $
135.7
224.4
517.0
926.3
1,428.9
2,842.5
6,074.8
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(In millions)
Purchased Loans as of December 31, 2022 (2)
Consumer Loan Assignment Year
2017 and prior
2018
2019
2020
2021
2022
(In millions)
Consumer Loan Assignment Year
2016 and prior
2017
2018
2019
2020
2021
(In millions)
Consumer Loan Assignment Year
2016 and prior
2017
2018
2019
2020
2021
(In millions)
Consumer Loan Assignment Year
2016 and prior
2017
2018
2019
2020
2021
Pre-term Consumer Loans (3)
Current (5)
Past Due
11-90 Days
Past Due
Over 90 Days
Post-term
Consumer Loans
(4)
Total
8.4 $
71.3
231.3
271.0
373.0
777.5
1,732.5 $
5.1 $
37.4
113.3
128.2
155.6
164.0
603.6 $
21.8 $
100.2
215.0
161.7
130.8
42.0
671.5 $
64.6 $
16.0
2.3
0.2
—
—
83.1 $
99.9
224.9
561.9
561.1
659.4
983.5
3,090.7
Total Loans as of December 31, 2021 (1) (2)
Pre-term Consumer Loans (3)
Current (5)
Past Due
11-90 Days
Past Due
Over 90 Days
Post-term
Consumer Loans
(4)
Total
7.4 $
93.4
452.4
1,085.4
1,586.4
2,555.5
5,780.5 $
3.4 $
35.0
169.9
410.7
538.6
554.5
1,712.1 $
38.6 $
155.7
395.1
580.8
405.5
121.7
1,697.4 $
117.5 $
34.5
6.7
1.1
—
—
159.8 $
166.9
318.6
1,024.1
2,078.0
2,530.5
3,231.7
9,349.8
Dealer Loans as of December 31, 2021 (1)
Pre-term Consumer Loans (3)
Current (5)
Past Due
11-90 Days
Past Due
Over 90 Days
Post-term
Consumer Loans
(4)
Total
2.5 $
44.9
228.7
530.7
1,025.5
1,800.5
3,632.8 $
1.1 $
16.8
84.0
194.2
337.9
382.8
1,016.8 $
12.8 $
75.2
195.9
276.3
254.0
82.4
896.6 $
82.2 $
21.8
4.2
0.7
—
—
108.9 $
98.6
158.7
512.8
1,001.9
1,617.4
2,265.7
5,655.1
Purchased Loans as of December 31, 2021 (2)
Pre-term Consumer Loans (3)
Current (5)
Past Due
11-90 Days
Past Due
Over 90 Days
Post-term
Consumer Loans
(4)
Total
4.9 $
48.5
223.7
554.7
560.9
755.0
2,147.7 $
2.3 $
18.2
85.9
216.5
200.7
171.7
695.3 $
25.8 $
80.5
199.2
304.5
151.5
39.3
800.8 $
35.3 $
12.7
2.5
0.4
—
—
50.9 $
68.3
159.9
511.3
1,076.1
913.1
966.0
3,694.7
$
$
$
$
$
$
$
$
(1) As Consumer Loans are aggregated by Dealer for purposes of recognizing revenue and measuring credit losses, the Dealer Loan amount was estimated
by allocating the balance of each Dealer Loan to the underlying Consumer Loans based on the forecasted future collections of each Consumer Loan.
(2) As certain Consumer Loans are aggregated by Dealer or month of purchase for purposes of recognizing revenue and measuring credit losses, the
Purchased Loan amount was estimated by allocating the balance of certain Purchased Loans to the underlying Consumer Loans based on the forecasted
future collections of each Consumer Loan.
(3) Represents the Loan balance attributable to Consumer Loans outstanding within their initial loan terms.
(4) Represents the Loan balance attributable to Consumer Loans outstanding beyond their initial loan terms.
(5) We consider a Consumer Loan to be current for purposes of forecasting expected collection rates if contractual repayments are less than 11 days past
due.
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
The COVID-19 pandemic created conditions that increased the level of uncertainty associated with our estimate of the
amount and timing of future net cash flows from our Loan portfolio. During the first quarter of 2020, we applied a subjective
adjustment to our forecasting model to reflect our best estimate of the future impact of the COVID-19 pandemic on future net
cash flows (“COVID forecast adjustment”), which reduced our estimate of future net cash flows by $162.2 million. We continued
to apply the COVID forecast adjustment through the end of 2021, as it continued to represent our best estimate. During the first
quarter of 2022, we determined that we had sufficient Consumer Loan performance experience since the lapse of federal stimulus
payments and enhanced unemployment benefits to refine our estimate of future net cash flows. Accordingly, during the first
quarter of 2022, we removed the COVID forecast adjustment and enhanced our methodology for forecasting the amount and
timing of future net cash flows from our Loan portfolio through the utilization of more recent data and new forecast variables.
Under CECL, changes in the amount and timing of forecasted net cash flows are recorded as a provision for credit losses in the
period of change.
The removal of the COVID forecast adjustment and the implementation of the enhanced forecasting methodology during the
first quarter of 2022 impacted forecasted net cash flows and provision for credit losses as follows:
(In millions)
Forecasting Methodology Changes
Removal of COVID forecast adjustment
Implementation of enhanced forecasting methodology
Total
6.
PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
(In millions)
Land and land improvements
Building and improvements
Data processing equipment and software
Office furniture and equipment
Leasehold improvements
Total property and equipment
Increase / (Decrease) in
Forecasted Net Cash
Flows
Provision for Credit
Losses
$
149.5 $
(53.8)
95.7
(118.5)
47.9
(70.6)
As of December 31,
2022
2021
$
2.9 $
58.8
47.2
3.0
—
111.9
(60.5)
51.4 $
2.9
59.1
46.5
3.4
0.7
112.6
(55.3)
57.3
Less: Accumulated depreciation on property and equipment
Total property and equipment, net
$
As the vast majority of our team members now work remotely, we have significant excess space in the two office buildings
that we own. We are actively exploring options to reduce our office space, which could result in the sale or lease of one or both
of our buildings. As there is currently a significant amount of unoccupied office space, we believe the market value of our
buildings and improvements, land and land improvements, and office furniture and equipment is significantly less than their
combined carrying value. If we were to reclassify one or both of these buildings as held for sale, we would be required to record
an impairment charge to reduce their carrying value to their estimated market value less costs to sell.
Depreciation expense on property and equipment was $9.0 million, $9.7 million, and $8.8 million for the years ended
December 31, 2022, 2021, and 2020, respectively.
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
7.
REINSURANCE
A summary of reinsurance activity is as follows:
(In millions)
For the Years Ended December 31,
2022
2021
2020
Net assumed written premiums
$
72.5 $
56.4 $
Net premiums earned
Provision for claims
Amortization of capitalized acquisition costs
62.7
46.4
1.5
60.3
38.8
1.4
The trust assets and related reinsurance liabilities are as follows:
(In millions)
Trust assets
Trust assets
Unearned premium
Claims reserve (1)
As of December 31,
Balance Sheet location
2022
2021
Restricted cash and cash equivalents
$
0.4 $
Restricted securities available for sale
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities
72.3
54.4
3.1
61.7
57.3
37.9
1.4
0.3
62.1
44.6
2.4
(1) The claims reserve represents our liability for incurred-but-not-reported claims and is estimated based on historical claims experience.
The following tables present information about incurred and paid claims development for the five-year period ended
December 31, 2022:
(Dollars in millions)
Cumulative Incurred Claims
As of December 31, 2022
Incident Year
2018
2019
2020
2021
2022
Claims Reserve
As of December 31,
$
25.8 $
25.7 $
25.8 $
25.8 $
25.8 $
30.1
30.2
37.7
30.2
37.6
38.9
30.2
37.7
39.2
46.0
$
178.9 $
Cumulative Paid Claims
As of December 31,
—
—
—
—
3.1
3.1
Cumulative
Number of
Reported
Claims
22,310
24,422
28,208
28,829
29,205
132,974
2018
2019
2020
2021
2022
$
24.2 $
25.7 $
25.8 $
25.8 $
28.3
30.2
35.4
30.2
37.6
36.5
25.8
30.2
37.7
39.2
42.9
$
175.8
2018
2019
2020
2021
2022
Total
(In millions)
Incident Year
2018
2019
2020
2021
2022
Total
Claim Age (Years)
Payout Percentage
1
93.5 %
2
3
4
5
6.3 %
0.2 %
— %
— %
Average Annual Percentage Payout of Incurred Claims by Age
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
8.
OTHER INCOME
Other income consists of the following:
(In millions)
Ancillary product profit sharing
Remarketing fees
Interest
Dealer enrollment fees
Dealer support products and services
Other
Total
For the Years Ended December 31,
2022
2021
2020
$
$
60.6 $
13.4
6.6
1.7
1.2
(0.1)
83.4 $
40.2 $
7.8
1.2
1.9
1.3
0.7
53.1 $
33.5
7.1
2.9
3.0
1.9
1.2
49.6
Ancillary product profit sharing consists of payments received from TPPs based upon the performance of vehicle service
contracts and GAP contracts, and is recognized as income over the life of the vehicle service contracts and GAP contracts.
Remarketing fees consist of fees retained from the sale of repossessed vehicles by Vehicle Remarketing Services, Inc.
(“VRS”), our wholly owned subsidiary that is responsible for remarketing vehicles for Credit Acceptance. VRS coordinates
vehicle repossessions with a nationwide network of repossession contractors, the redemption of the vehicles by the consumers,
and the sale of the vehicles through a nationwide network of vehicle auctions. VRS recognizes income from the retained fees at
the time of the sale and does not retain a fee if a repossessed vehicle is redeemed by the consumer prior to the sale.
Interest consists of income earned on cash and cash equivalents, restricted cash and cash equivalents, and restricted
securities available for sale. Interest income is generally recognized over time as it is earned. Interest income on restricted
securities available for sale is recognized over the life of the underlying financial instruments using the interest method.
Dealer enrollment fees consist of fees from Dealers that enrolled in our Portfolio Program prior to August 5, 2019.
Depending on the enrollment option selected by the Dealer, Dealers may have enrolled by paying us an upfront, one-time fee of
$9,850, or by agreeing to allow us to retain 50% of their accelerated Dealer Holdback payment(s) on the first 100 Consumer
Loan assignments. A portion of the $9,850 upfront, one-time fee was considered to be a Dealer enrollment fee, which was
amortized on a straight-line basis over the estimated life of the Dealer relationship. In the case of Dealers that enrolled by
agreeing to allow us to retain 50% of their accelerated Dealer Holdback payment(s) on the first 100 Consumer Loan
assignments, the 50% portion we retain is considered to be a Dealer enrollment fee. We do not recognize any of this Dealer
enrollment fee until the Dealer has met the eligibility requirements to receive the accelerated Dealer Holdback payment(s) and
the amount(s) of the payment(s), if any, have been calculated. Once the accelerated Dealer Holdback payment(s) have been
calculated, we defer the 50% portion that we keep and recognize it on a straight-line basis over the remaining estimated life of
the Dealer relationship. Beginning August 5, 2019, Dealers enroll in our Portfolio Program without incurring an enrollment fee.
Dealer support products and services consist of income earned from products and services provided to Dealers to assist
with their operations, including sales and marketing, purchasing supplies and materials, and acquiring vehicle inventory.
Income is recognized in the period the product or service is provided.
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
The following table disaggregates our other income by major source of income and timing of the revenue recognition:
(In millions)
For the Year Ended December 31, 2022
Ancillary
product
profit sharing
Remarketing
fees
Interest
Dealer
enrollment
fees
Dealer
support
products and
services
Other
Total Other
Income
$
$
$
$
60.6 $
—
60.6 $
— $
13.4
13.4 $
60.6 $
—
60.6 $
— $
13.4
13.4 $
6.6 $
—
6.6 $
6.6 $
—
6.6 $
— $
1.7
1.7 $
1.7 $
—
1.7 $
— $
1.2
1.2 $
(0.1) $
—
(0.1) $
— $
1.2
1.2 $
— $
(0.1)
(0.1) $
67.1
16.3
83.4
68.9
14.5
83.4
Source of income
Third Party Providers
Dealers
Total
Timing of revenue recognition
Over time
At a point in time
Total
9.
DEBT
Debt consists of the following:
(In millions)
As of December 31, 2022
Principal
Outstanding
Unamortized Debt
Issuance Costs
Unamortized
Discount
Carrying
Amount
Revolving secured line of credit (1)
$
30.9 $
— $
Secured financing (2)
Senior notes
Mortgage note
Total debt
3,776.7
800.0
8.9
(16.9)
(5.5)
—
— $
(3.4)
—
—
30.9
3,756.4
794.5
8.9
$
4,616.5 $
(22.4) $
(3.4) $
4,590.7
(In millions)
As of December 31, 2021
Revolving secured line of credit (1)
Secured financing (2)
Senior notes
Mortgage note
Total debt
Principal
Outstanding
Unamortized Debt
Issuance Costs
Unamortized
Discount
Carrying
Amount
$
$
2.6 $
3,830.4
800.0
9.7
4,642.7 $
— $
(18.9)
(7.5)
—
(26.4) $
— $
—
—
—
— $
2.6
3,811.5
792.5
9.7
4,616.3
(1) Excludes deferred debt issuance costs of $3.9 million and $3.6 million as of December 31, 2022 and December 31, 2021, respectively, which are
included in other assets.
(2) Warehouse facilities and Term ABS.
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
General information for each of our financing transactions in place as of December 31, 2022 is as follows:
(Dollars in millions)
Financings
Wholly Owned Subsidiary
Maturity Date
Financing
Amount
Interest Rate Basis as of December 31,
2022
06/22/25
$ 410.0 (1)
At our option, either the
Bloomberg Short-Term Bank
Yield Index rate (BSBY) plus
187.5 basis points or the prime
rate plus 87.5 basis points
04/30/24 (3)
$ 400.0
LIBOR plus 175 basis points (4)
05/20/25 (3)
$ 300.0
The Secured Overnight
Financing Rate (SOFR) plus
221.4 basis points (4)
12/29/25 (5)
$ 200.0
SOFR plus 245 basis points (4)
09/30/24 (3)
$
75.0
09/01/24 (3)
$ 200.0
BSBY plus 200 basis points
SOFR plus 201.4 basis points
(4)
08/15/25 (6)
$ 500.0
Fixed rate
11/15/21 (3)
$ 351.7
Fixed rate
02/15/22 (3)
$ 500.0
Fixed rate
07/15/22 (3)
$ 481.8
Fixed rate
10/17/22 (3)
$ 600.0
Fixed rate
12/16/24 (6)
$ 100.0
SOFR plus 220 basis points (4)
02/15/23 (3)
$ 500.0
Fixed rate
05/15/23 (3)
$ 450.0
Fixed rate
10/16/23 (3)
$ 250.1
Fixed rate
06/17/24 (3)
$ 350.0
Fixed rate
12/15/25 (6)
$ 200.0
SOFR plus 235 basis points (4)
Revolving Secured
Line of Credit
Warehouse Facility II (2)
Warehouse Facility IV (2)
Warehouse Facility V (2)
Warehouse Facility VI (2)
Warehouse Facility VIII (2)
Term ABS 2019-2 (2)
Term ABS 2019-3 (2)
Term ABS 2020-1 (2)
Term ABS 2020-2 (2)
Term ABS 2020-3 (2)
Term ABS 2021-1 (2)
Term ABS 2021-2 (2)
Term ABS 2021-3 (2)
Term ABS 2021-4 (2)
Term ABS 2022-1 (2)
Term ABS 2022-2 (2)
Term ABS 2022-3 (2)
2024 Senior Notes
2026 Senior Notes
Mortgage Note (2)
n/a
CAC Warehouse Funding
LLC II
CAC Warehouse Funding
LLC IV
CAC Warehouse Funding
LLC V
CAC Warehouse Funding
LLC VI
CAC Warehouse Funding
LLC VIII
Credit Acceptance
Funding LLC 2019-2
Credit Acceptance
Funding LLC 2019-3
Credit Acceptance
Funding LLC 2020-1
Credit Acceptance
Funding LLC 2020-2
Credit Acceptance
Funding LLC 2020-3
Credit Acceptance
Funding LLC 2021-1
Credit Acceptance
Funding LLC 2021-2
Credit Acceptance
Funding LLC 2021-3
Credit Acceptance
Funding LLC 2021-4
Credit Acceptance
Funding LLC 2022-1
Credit Acceptance
Funding LLC 2022-2
Credit Acceptance
Funding LLC 2022-3
10/15/24 (3)
$ 389.9
n/a
n/a
12/31/24
03/15/26
Chapter 4 Properties, LLC
08/06/28
$ 400.0
$ 400.0
$
9.0
Fixed rate
Fixed rate
Fixed rate
BSBY plus 150 basis points
(1) The amount of the facility will decrease by $25.0 million on June 22, 2023.
(2) Financing made available only to a specified subsidiary of the Company.
(3) Represents the revolving maturity date. The outstanding balance will amortize after the revolving maturity date based on the cash flows of the pledged
assets.
Interest rate cap agreements are in place to limit the exposure to increasing interest rates.
(4)
(5) Represents the revolving maturity date. The outstanding balance will amortize after the revolving maturity date and any amounts remaining on
December 27, 2027 will be due on that date.
(6) Represents the revolving maturity date. The Company has the option to redeem and retire the indebtedness after the revolving maturity date. If we do
not elect this option, the outstanding balance will amortize based on the cash flows of the pledged assets.
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Additional information related to the amounts outstanding on each facility is as follows:
(In millions)
Revolving Secured Line of Credit
Maximum outstanding principal balance
Average outstanding principal balance
Warehouse Facility II
Maximum outstanding principal balance
Average outstanding principal balance
Warehouse Facility IV
Maximum outstanding principal balance
Average outstanding principal balance
Warehouse Facility V
Maximum outstanding principal balance
Average outstanding principal balance
Warehouse Facility VI
Maximum outstanding principal balance
Average outstanding principal balance
Warehouse Facility VIII
Maximum outstanding principal balance
Average outstanding principal balance
For the Years Ended December 31,
2022
2021
$
$
$
$
$
$
379.7 $
133.4
201.0 $
83.0
43.8 $
4.3
— $
—
50.0 $
23.1
48.2 $
4.7
229.0
29.1
201.0
18.8
—
—
—
—
—
—
—
—
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Dollars in millions)
Revolving Secured Line of Credit
Principal balance outstanding
Amount available for borrowing (1)
Interest rate
Warehouse Facility II
Principal balance outstanding
Amount available for borrowing (1)
Loans pledged as collateral
Restricted cash and cash equivalents pledged as collateral
Interest rate
Warehouse Facility IV
Principal balance outstanding
Amount available for borrowing (1)
Loans pledged as collateral
Restricted cash and cash equivalents pledged as collateral
Interest rate
Warehouse Facility V
Principal balance outstanding
Amount available for borrowing (1)
Loans pledged as collateral
Restricted cash and cash equivalents pledged as collateral
Interest rate
Warehouse Facility VI
Principal balance outstanding
Amount available for borrowing (1)
Loans pledged as collateral
Restricted cash and cash equivalents pledged as collateral
Interest rate
Warehouse Facility VIII
Principal balance outstanding
Amount available for borrowing (1)
Loans pledged as collateral
Restricted cash and cash equivalents pledged as collateral
Interest rate
Term ABS 2019-1
Principal balance outstanding
Loans pledged as collateral
Restricted cash and cash equivalents pledged as collateral
Interest rate
Term ABS 2019-2
Principal balance outstanding
Loans pledged as collateral
Restricted cash and cash equivalents pledged as collateral
Interest rate
Term ABS 2019-3
Principal balance outstanding
Loans pledged as collateral
Restricted cash and cash equivalents pledged as collateral
Interest rate
(1) Availability may be limited by the amount of assets pledged as collateral.
78
$
$
$
$
$
$
$
$
As of December 31,
2022
2021
$
$
$
$
$
$
$
$
30.9
379.1
6.25 %
—
400.0
—
1.0
— %
—
300.0
—
1.0
— %
—
200.0
—
1.0
— %
—
75.0
—
—
— %
—
200.0
—
—
— %
—
—
—
— %
500.0
627.5
51.0
2.6
432.4
1.98 %
—
400.0
—
1.0
— %
—
300.0
—
1.0
— %
—
125.0
—
1.0
— %
—
75.0
—
—
— %
—
200.0
—
—
— %
124.6
292.4
31.8
3.86 %
500.0
582.1
50.7
5.15 %
3.13 %
$
64.4
$
200.9
24.5
3.00 %
323.9
382.9
36.5
2.58 %
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Dollars in millions)
Term ABS 2020-1
Principal balance outstanding
Loans pledged as collateral
Restricted cash and cash equivalents pledged as collateral
Interest rate
Term ABS 2020-2
Principal balance outstanding
Loans pledged as collateral
Restricted cash and cash equivalents pledged as collateral
Interest rate
Term ABS 2020-3
Principal balance outstanding
Loans pledged as collateral
Restricted cash and cash equivalents pledged as collateral
Interest rate
Term ABS 2021-1
Principal balance outstanding
Loans pledged as collateral
Restricted cash and cash equivalents pledged as collateral
Interest rate
Term ABS 2021-2
Principal balance outstanding
Loans pledged as collateral
Restricted cash and cash equivalents pledged as collateral
Interest rate
Term ABS 2021-3
Principal balance outstanding
Loans pledged as collateral
Restricted cash and cash equivalents pledged as collateral
Interest rate
Term ABS 2021-4
Principal balance outstanding
Loans pledged as collateral
Restricted cash and cash equivalents pledged as collateral
Interest rate
Term ABS 2022-1
Balance outstanding
Loans pledged as collateral
Restricted cash and cash equivalents pledged as collateral
Interest rate
Term ABS 2022-2
Balance outstanding
Loans pledged as collateral
Restricted cash and cash equivalents pledged as collateral
Interest rate
79
$
$
$
$
$
$
$
$
$
As of December 31,
2022
2021
$
$
$
$
$
$
$
$
$
144.6
362.5
38.8
2.51 %
307.0
452.0
43.9
1.81 %
520.7
655.1
53.9
1.47 %
100.0
115.0
8.5
6.52 %
500.0
572.9
44.5
1.12 %
450.0
519.9
38.8
1.14 %
250.1
278.5
21.8
1.44 %
350.0
434.7
27.7
5.03 %
200.0
229.3
25.6
6.65 %
500.0
591.6
51.9
2.18 %
481.8
579.5
50.1
1.65 %
600.0
688.1
58.4
1.44 %
100.0
143.7
10.2
2.10 %
500.0
618.7
49.2
1.12 %
450.0
619.8
46.5
1.14 %
250.1
281.2
22.1
1.44 %
—
—
—
— %
—
—
—
— %
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(Dollars in millions)
Term ABS 2022-3
Balance outstanding
Loans pledged as collateral
Restricted cash and cash equivalents pledged as collateral
Interest rate
2024 Senior Notes
Principal balance outstanding
Interest rate
2026 Senior Notes
Principal balance outstanding
Interest rate
Mortgage Note
Principal balance outstanding
Interest rate
Revolving Secured Line of Credit Facility
As of December 31,
2022
2021
$
$
$
$
389.9
429.2
27.6
7.68 %
400.0
5.125 %
400.0
6.625 %
8.9
5.46 %
—
—
—
— %
400.0
5.125 %
400.0
6.625 %
9.7
1.60 %
$
$
$
$
We have a $410.0 million revolving secured line of credit facility with a commercial bank syndicate. The amount of the
facility will decrease by $25.0 million on June 23, 2023. Borrowings under the revolving secured line of credit facility,
including any letters of credit issued under the facility, are subject to a borrowing-base limitation. This limitation equals 80% of
the value of Loans, as defined in the agreement, less a hedging reserve (not exceeding $1.0 million), and the amount of other
debt secured by the collateral which secures the revolving secured line of credit facility. Borrowings under the revolving
secured line of credit facility agreement are secured by a lien on most of our assets.
Warehouse Facilities
We have five Warehouse facilities with total borrowing capacity of $1,175.0 million. Each of the facilities is with a
different lender or group of lenders. Under each Warehouse facility, we can contribute Loans to our wholly owned subsidiaries
in return for cash and an increase in the value of our equity in each subsidiary. In turn, each subsidiary pledges the Loans as
collateral to lenders to secure financing that will fund the cash portion of the purchase price of the Loans. The financing
provided to each subsidiary under the applicable facility is generally limited to the lesser of 80% of the value of the contributed
Loans, as defined in the agreements, plus the restricted cash and cash equivalents pledged as collateral on such Loans or the
facility limit.
The financings create indebtedness for which the subsidiaries are liable and which is secured by all the assets of each
subsidiary. Such indebtedness is non-recourse to us, even though we are consolidated for financial reporting purposes with the
subsidiaries. Because the subsidiaries are organized as legal entities separate from us, their assets (including the contributed
Loans) are not available to our creditors.
The subsidiaries pay us a monthly servicing fee equal to either 4% or 6%, depending upon the facility, of the collections
received with respect to the contributed Loans. The servicing fee is paid out of the collections. Except for the servicing fee and
holdback payments due to Dealers, if a facility is amortizing, we do not have any rights in any portion of such collections until
all outstanding principal, accrued and unpaid interest, fees, and other related costs have been paid in full. If a facility is not
amortizing, the applicable subsidiary is entitled to any collections remaining after the payment of interest, certain other
transaction expenses, and any amounts necessary to satisfy the borrowing base requirements of the facility.
80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Term ABS Financings
We have wholly owned subsidiaries (the “Funding LLCs”) that have completed secured financing transactions with
qualified institutional investors or lenders. In connection with these transactions, we contributed Loans on an arms-length basis
to each Funding LLC for cash and the sole membership interest in that Funding LLC. In turn, each Funding LLC, other than of
the Funding LLCs for the Term ABS 2019-2, 2021-1, and 2022-2 financings, contributed the Loans to the respective trusts that
issued notes to qualified institutional investors. The Funding LLCs for the Term ABS 2019-2, 2021-1, and 2022-2 financings
pledged the Loans to their respective lenders. The Term ABS 2019-3, 2020-1, 2020-2, 2020-3, 2021-2, 2021-3, and 2021-4
financings each consist of three classes of notes, while the Term ABS 2022-1 and Term ABS 2022-3 financings consist of four
classes of notes.
Each Term ABS financing at the time of issuance has a specified revolving period during which we are likely to contribute
additional Loans to the applicable Funding LLC. Each Funding LLC (other than the Funding LLCs of the Term ABS 2019-2,
2021-1, and 2022-2 financings) will then contribute the Loans to its respective trust. At the end of the applicable revolving
period, the debt outstanding under each financing will begin to amortize.
The Term ABS financings create indebtedness for which the applicable trust or Funding LLC is liable and which is secured
by all the assets of the applicable trust or Funding LLC. Such indebtedness is non-recourse to us, even though we are
consolidated for financial reporting purposes with the trusts and the Funding LLCs. Because the Funding LLCs are organized as
legal entities separate from us, their assets (including the contributed Loans) are not available to our creditors. We receive a
monthly servicing fee on each financing equal to either 4% or 6%, depending upon the financing, of the collections received
with respect to the contributed Loans. The fee is paid out of the collections. Except for the servicing fee and Dealer Holdback
payments due to Dealers, if a facility is amortizing, we do not have any rights in any portion of such collections until all
outstanding principal, accrued and unpaid interest, fees, and other related costs have been paid in full. If a facility is not
amortizing, the applicable subsidiary may be entitled to retain any collections remaining after payment of interest, certain other
transaction expenses, and any amounts necessary to satisfy the borrowing base requirements of the facility. However, in our
capacity as servicer of the Loans, we have a limited right to exercise a “clean-up call” option to purchase Loans from the
Funding LLCs and/or the trusts under certain specified circumstances. For those Funding LLCs with a trust, when the trust’s
underlying indebtedness is paid in full, either through collections or through a prepayment of the indebtedness, the trust is to
pay any remaining collections over to its Funding LLC as the sole beneficiary of the trust. For all Funding LLCs, after the
indebtedness is paid in full, any remaining collections will ultimately be available to be distributed to us as the sole member of
the respective Funding LLC.
The table below sets forth certain additional details regarding the outstanding Term ABS financings:
(Dollars in millions)
Term ABS Financings
Close Date
Net Book Value of Loans
Contributed at Closing
Term ABS 2019-2
Term ABS 2019-3
Term ABS 2020-1
Term ABS 2020-2
Term ABS 2020-3
Term ABS 2021-1
Term ABS 2021-2
Term ABS 2021-3
Term ABS 2021-4
Term ABS 2022-1
Term ABS 2022-2
Term ABS 2022-3
August 28, 2019
November 21, 2019
$
February 20, 2020
July 23, 2020
October 22, 2020
January 29, 2021
February 18, 2021
May 20, 2021
October 28, 2021
June 16, 2022
December 15, 2022
November 3, 2022
625.1
439.6
625.1
602.3
750.1
125.1
625.1
562.6
312.6
437.6
250.1
500.1
Revolving Period
Through August 15, 2025
Through November 15, 2021
Through February 15, 2022
Through July 15, 2022
Through October 17, 2022
Through December 16, 2024
Through February 15, 2023
Through May 15, 2023
Through October 16, 2023
Through June 17, 2024
Through December 15, 2025
Through October 15, 2024
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Senior Notes
On December 18, 2019, we issued $400.0 million aggregate principal amount of 5.125% senior notes due 2024 (the “2024
senior notes”). The 2024 senior notes were issued pursuant to an indenture, dated as of December 18, 2019, among the
Company, as issuer, the Company’s subsidiaries Buyers Vehicle Protection Plan, Inc. and Vehicle Remarketing Services, Inc.,
as guarantors (collectively, the “Guarantors”), and U.S. Bank National Association, as trustee.
The 2024 senior notes mature on December 31, 2024 and bear interest at a rate of 5.125% per annum, computed on the
basis of a 360-day year composed of twelve 30-day months and payable semi-annually on June 30 and December 31 of each
year, beginning on June 30, 2020. We used a portion of the net proceeds from the 2024 senior notes to repurchase or redeem all
of the $300.0 million outstanding principal amount of our 6.125% senior notes due 2021 (the “2021 senior notes”), of which
$148.2 million was repurchased on December 18, 2019 and the remaining $151.8 million was redeemed on January 17, 2020.
We used the remaining net proceeds from the 2024 senior notes, together with borrowings under our revolving credit facility
and cash on hand to the extent available, to redeem in full the $250.0 million outstanding principal amount of our 7.375%
senior notes due 2023 (the “2023 senior notes”) on March 15, 2020. During the fourth quarter of 2019, we recognized a pre-tax
loss on extinguishment of debt of $1.8 million related to the repurchase of the 2021 senior notes in the fourth quarter of 2019
and the irrevocable notice given in December 2019 for the redemption of the remaining 2021 senior notes in the first quarter of
2020. During the first quarter of 2020, we recognized a pre-tax loss on extinguishment of debt of $7.4 million related to the
redemption of the 2023 senior notes.
On March 7, 2019, we issued $400.0 million aggregate principal amount of 6.625% senior notes due 2026 (the “2026
senior notes”). The 2026 senior notes were issued pursuant to an indenture, dated as of March 7, 2019, among the Company, as
issuer, the Guarantors, and U.S. Bank National Association, as trustee.
The 2026 senior notes mature on March 15, 2026 and bear interest at a rate of 6.625% per annum, computed on the basis of
a 360-day year composed of twelve 30-day months and payable semi-annually on March 15 and September 15 of each year,
beginning on September 15, 2019. We used the net proceeds from the offering of the 2026 senior notes for general corporate
purposes, including repayment of outstanding borrowings under our revolving secured line of credit facility.
The 2024 senior notes and 2026 senior notes (the “senior notes”) are guaranteed on a senior basis by the Guarantors, which
are also guarantors of obligations under our revolving secured line of credit facility. Other existing and future subsidiaries of
ours may become guarantors of the senior notes in the future. The indentures for the senior notes provide for a guarantor of the
senior notes to be released from its obligations under its guarantee of the senior notes under specified circumstances.
Mortgage Note
We have a $9.0 million mortgage note with a commercial bank that is secured by a first mortgage lien on a building
acquired by us and an assignment of all leases, rents, revenues, and profits under all present and future leases of the building.
The note matures on August 6, 2028, and bears interest at BSBY plus 150 basis points.
Principal Debt Maturities
The scheduled principal maturities of our debt as of December 31, 2022 are as follows:
(In millions)
Year
2023
2024
2025
2026
2027
Thereafter
Total
Revolving
Secured Line of
Credit Facility
$
— $
—
30.9
—
—
—
Warehouse
Facilities
Term ABS
Financings (1)
Senior Notes
Mortgage Note
Total
— $
—
—
—
—
—
1,507.4 $
878.2
1,142.4
248.7
—
—
— $
400.0
—
400.0
—
—
0.5 $
0.6
0.6
0.7
0.7
5.8
1,507.9
1,278.8
1,173.9
649.4
0.7
5.8
$
30.9 $
— $
3,776.7 $
800.0 $
8.9 $
4,616.5
(1) The principal maturities of the Term ABS transactions are estimated based on forecasted collections.
82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Debt Covenants
As of December 31, 2022, we were in compliance with our covenants under the revolving secured line of credit facility and
our Warehouse facilities, including those that require the maintenance of certain financial ratios and other financial
conditions. These covenants require a minimum ratio of (1) our net earnings, adjusted for specified items, before income taxes,
depreciation, amortization, and fixed charges to (2) our fixed charges, as defined in the agreements. These covenants also limit
the maximum ratio of our funded debt less unrestricted cash and cash equivalents to tangible net worth. Additionally, for one of
our Warehouse facilities, we must maintain consolidated net income, as defined in the agreement, of not less than $1 for the two
most recently ended fiscal quarters. Some of these covenants may indirectly limit the repurchase of common stock or payment
of dividends on common stock. Our Warehouse facilities also contain covenants that measure the performance of the
contributed assets.
Our Term ABS financings also contain covenants that measure the performance of the contributed assets. As of
December 31, 2022, we were in compliance with all such covenants. As of the end of the year, we were also in compliance with
our covenants under the senior notes indentures.
10.
DERIVATIVE AND HEDGING INSTRUMENTS
Interest Rate Caps. We utilize interest rate cap agreements to manage the interest rate risk on certain secured
financings. The following tables provide the terms of our interest rate cap agreements that were in effect as of December 31,
2022 and 2021:
(Dollars in millions)
As of December 31, 2022
Facility Amount
Facility Name
Purpose
$
400.0
Warehouse Facility II
Cap Floating Rate
300.0 Warehouse Facility IV
Cap Floating Rate
200.0 Warehouse Facility V
Cap Floating Rate
Start
07/2022
07/2019
12/2020
07/2023
01/2026
End
Notional
Cap Interest Rate (1)
12/2023
$
205.0
200.0 Warehouse Facility VIII
Cap Floating Rate
Cap Floating Rate
08/2019
09/2022
08/2023
09/2025
100.0
200.0
Term ABS 2021-1
Cap Floating Rate
Term ABS 2022-2
Cap Floating Rate
02/2021
12/2022
06/2024
06/2024
175.0
94.0
116.7
83.3
200.0
100.0
200.0
6.50 %
6.50 %
5.50 %
5.50 %
5.50 %
5.50 %
6.50 %
(Dollars in millions)
As of December 31, 2021
Facility Amount
Facility Name
Purpose
$
400.0 Warehouse Facility II
Cap Floating Rate
300.0 Warehouse Facility IV
Cap Floating Rate
125.0 Warehouse Facility V
Cap Floating Rate
200.0 Warehouse Facility VIII
Cap Floating Rate
100.0
Term ABS 2021-1
Cap Floating Rate
Start
12/2020
07/2019
12/2020
08/2019
02/2021
End
Notional
Cap Interest Rate (1)
07/2022
$
205.0
07/2023
01/2026
08/2023
06/2024
300.0
94.0
200.0
100.0
5.50 %
6.50 %
5.50 %
5.50 %
5.50 %
(1) Rate excludes the spread over the corresponding benchmark rate.
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
The interest rate caps have not been designated as hedging instruments. As of December 31, 2022 and 2021, the interest
rate caps had a fair value of $2.0 million and $0.2 million, respectively. The increase in fair value from December 31, 2021 was
the result of an increase in market rates.
Information related to the effect of derivative instruments not designated as hedging instruments on our consolidated
statements of income for the years ended December 31, 2022, 2021, and 2020 is as follows:
(In millions)
Derivatives Not Designated as
Hedging Instruments
Amount of (Income) Loss
Recognized in Income on Derivatives
For the Years Ended December 31,
Location
2022
2021
2020
Interest rate caps
Interest expense
$
(1.0) $
(0.1) $
—
11.
INCOME TAXES
Income Tax Provision
The income tax provision consists of the following:
(In millions)
For the Years Ended December 31,
2022
2021
2020
Income before provision for income taxes:
$
711.7 $
1,260.9 $
549.5
Current provision for income taxes:
Federal
State
Deferred provision for income taxes:
Federal
State
Interest and penalties expense:
Interest
Penalties
152.7
28.5
181.2
(10.8)
3.1
(7.7)
2.4
—
2.4
217.9
38.6
256.5
36.7
7.9
44.6
1.5
—
1.5
53.8
6.6
60.4
57.3
11.0
68.3
(0.2)
—
(0.2)
Provision for income taxes
$
175.9 $
302.6 $
128.5
84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Deferred Taxes
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax
liabilities consist of the following:
(In millions)
Deferred tax assets:
Allowance for credit losses
Stock-based compensation
Deferred state net operating loss
Other, net
Total deferred tax assets
Deferred tax liabilities:
Valuation of Loans receivable
Deferred Loan origination costs
Other, net
Total deferred tax liabilities
Net deferred tax liability
As of December 31,
2022
2021
$
693.5 $
18.3
4.7
12.2
728.7
1,140.4
1.6
13.4
1,155.4
$
426.7 $
721.8
16.3
2.1
10.9
751.1
1,169.6
1.6
15.1
1,186.3
435.2
The deferred state net operating loss tax asset arising from the operating loss carryforward for state income tax purposes is
expected to expire at various times beginning in 2034, if not utilized. We do not anticipate expiration of the net operating loss
carryforwards prior to their utilization.
Effective Income Tax Rate
A reconciliation of the U.S. federal statutory income tax rate to our effective income tax rate is as follows:
U.S. federal statutory income tax rate
State and local income taxes
Excess tax benefits from stock-based compensation plans
Other
Effective income tax rate
State and local income taxes
For the Years Ended December 31,
2022
2021
2020
21.0 %
3.8 %
-0.8 %
0.7 %
24.7 %
21.0 %
3.0 %
-0.3 %
0.3 %
24.0 %
21.0 %
2.7 %
-0.5 %
0.2 %
23.4 %
The increase in our state and local income tax rate from 2021 to 2022 was primarily due to changes in state and local tax
laws that were enacted during the third quarter of 2022, which are expected to increase our long-term effective income tax rate
by approximately 20 basis points. The enactment of these tax law changes increased our effective income tax rate by
approximately 60 basis points basis points for the year ended December 31, 2022, of which 50 basis points related to the impact
of tax law changes that are effective for future periods and 10 basis points related to the impact of tax law changes that were
effective retroactively to the beginning of 2022.
The increase in our state and local income tax rate from 2020 to 2021 was primarily the result of the settlement of an
uncertain tax position for state income taxes during 2020.
85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Excess tax benefits from stock-based compensation
We recognize an excess tax benefit or tax deficiency when the deduction for the stock-based compensation expense of a
stock award for tax purposes differs from the cumulative stock-based compensation expense recognized in the financial
statements. The excess tax benefit or tax deficiency is recognized in provision for income taxes in the period in which the
amount of the deduction is determined, which is when restricted stock vests, restricted stock units are converted to common
stock, or stock options are exercised. Excess tax benefits reduce our effective income tax rate, while tax deficiencies increase
our effective income tax rate. The impact of excess tax benefits on our effective income tax rate for the year ended December
31, 2022 increased from the same period in 2021 primarily due to an increase in the number of restricted stock units that were
converted to common stock during 2022 due to the timing of long-term stock award grants.
Other
Other items impacting our effective income tax rate primarily consist of non-deductible executive compensation expense.
The impact of non-deductible executive compensation expense on our effective income tax rate for year ended December 31,
2022 increased in magnitude from the same period in 2021 primarily due to a decrease in pre-tax income.
Unrecognized Tax Benefits
The following table is a summary of changes in gross unrecognized tax benefits:
(In millions)
Unrecognized tax benefits at January 1,
$
Additions for tax positions of the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Reductions as a result of a lapse of the statute of limitations
Unrecognized tax benefits at December 31,
$
For the Years Ended December 31,
2022
2021
2020
49.4 $
14.5
—
—
—
(6.8)
57.1 $
41.8 $
13.4
0.9
—
—
(6.7)
49.4 $
41.7
10.2
0.1
—
(4.6)
(5.6)
41.8
The total amount of gross unrecognized tax benefits that, if recognized, would favorably affect our effective income tax
rate in future periods was $57.1 million as of December 31, 2022. As of December 31, 2022, it is not possible to reasonably
estimate the expected change to the total amount of unrecognized tax benefits in the next twelve months. Accrued interest
related to uncertain tax positions was $13.2 million and $10.8 million as of December 31, 2022 and 2021, respectively.
We are subject to income tax in federal, state, and local jurisdictions. We are generally no longer subject to tax
examinations on federal returns filed for years prior to 2019 and state and local returns filed for years prior to 2015.
12.
NET INCOME PER SHARE
Basic net income per share has been computed by dividing net income by the basic number of weighted average shares
outstanding. Diluted net income per share has been computed by dividing net income by the diluted number of weighted
average shares outstanding using the treasury stock method. The share effect is as follows:
Weighted average shares outstanding:
Common shares
Vested restricted stock units
Basic number of weighted average shares outstanding
Dilutive effect of restricted stock, restricted stock units, and
stock options
For the Years Ended December 31,
2022
2021
2020
13,197,912
365,973
13,563,885
15,727,140
358,683
16,085,823
17,544,837
314,098
17,858,935
61,196
14,729
76,844
Dilutive number of weighted average shares outstanding
13,625,081
16,100,552
17,935,779
86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
The following outstanding stock awards were excluded from the computation of diluted net income per share because their
inclusion would have been anti-dilutive:
Stock options
Restricted stock units
Total
13.
STOCK REPURCHASES
For the Years Ended December 31,
2022
2021
2020
189,465
2,827
192,292
349,222
—
349,222
—
—
—
The following table summarizes our stock repurchases for the years ended December 31, 2022, 2021, and 2020:
(Dollars in millions)
For the Years Ended December 31,
2022
2021
2020
Stock Repurchases
Number of
Shares
Repurchased
Open Market (1)
1,467,481 $
Other (2)
Total
24,000
1,491,481 $
Cost
773.0
11.5
784.5
Number of
Shares
Repurchased
Cost
Number of
Shares
Repurchased
2,877,060 $
1,469.1
1,267,103 $
7,066
2.7
15,063
2,884,126 $
1,471.8
1,282,166 $
Cost
474.3
6.5
480.8
(1) Represents repurchases under authorizations by the board of directors for the repurchase of shares by us from time to time in the open market through
privately negotiated transactions, through block trades, pursuant to trading plans adopted in accordance with Rule 10b5-1 under the Securities
Exchange Act of 1934, or otherwise. On September 28, 2021, the board of directors authorized the repurchase of up to two million shares of our
common stock in addition to the board’s prior authorizations. As of December 31, 2022, we had authorization to repurchase 158,069 shares of our
common stock.
(2) Represents shares of common stock released to us by team members as payment of tax withholdings upon the vesting of restricted stock and restricted
stock units and the conversion of restricted stock units to common stock.
14. STOCK-BASED COMPENSATION PLANS
Pursuant to our Amended and Restated Incentive Compensation Plan (the “Incentive Plan”), at any time prior to April 12,
2031, we can grant stock-based awards in the form of restricted stock, restricted stock units, and stock options to team
members, officers, directors, and contractors. On April 12, 2021, our board of directors approved an amendment to the
Incentive Plan, subject to shareholder approval, increasing the number of shares authorized for issuance by 750,000 shares, to
2,750,000 shares. Shareholder approval was received at our annual meeting of shareholders on July 21, 2021. The shares
available for future grants under the Incentive Plan totaled 215,271 as of December 31, 2022.
Stock option grants
We grant time-based stock options to team members and directors in accordance with the Incentive Plan. Based on the
terms of individual stock option grant agreements, the stock options:
•
•
vest and become exercisable in three or four equal annual installments beginning on the first anniversary of the date
on which the options were granted, based on continuous employment or service, and
expire either six or ten years from the date of the grant.
From December 2020 through June 2021, we granted 770,500 stock options, subject to shareholder approval of an
amendment to the Incentive Plan (“Shareholder Approval”). Under GAAP, if a stock award is subject to shareholder approval,
it is not considered granted for accounting purposes until that approval is received. Shareholder Approval was received at our
annual meeting of shareholders on July 21, 2021. Accordingly, the accounting grant date of the 770,500 previously-awarded
stock options is July 21, 2021, and no expense was recognized for those stock options prior to that date.
87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
A summary of the stock option activity under the Incentive Plan for the year ended December 31, 2022, is presented below:
Stock Options
Outstanding as of December 31, 2021
Granted
Exercised
Forfeited
Outstanding as of December 31, 2022
Exercisable as of December 31, 2022
Unvested as of December 31, 2022
Number of Stock
Options
Weighted Average
Exercise Price Per
Share
Aggregate Intrinsic
Value (1)
(in millions)
Weighted Average
Remaining
Contractual Term
(in years)
705,749 $
67,000
(44,550)
(46,125)
682,074 $
244,454 $
437,620 $
350.74
501.50
340.35
363.75
365.34 $
344.89 $
376.77 $
77.4
31.8
45.6
4.9
4.5
5.1
(1) The intrinsic value of stock options is the amount by which the market price of the stock as of December 31, 2022 exceeded the exercise price of the
options.
The grant-date weighted average fair value of stock options granted in 2022 was $501.50 per share. The total intrinsic
value of stock options exercised during 2022 was $9.9 million. Net cash proceeds from the exercise of stock options in 2022
was $15.1 million.
We estimated the fair value of each stock option on the date of grant using a Black-Scholes valuation model with the
following assumptions:
Valuation Assumptions
Risk-free interest rate
Expected stock price volatility
Expected life of stock options (in years)
Restricted Stock Units
2022
1.5% - 4.4%
38.0% - 41.0%
3.5
-
4.0
We grant performance-based and time-based restricted stock units to team members and directors in accordance with the
Incentive Plan. The grant-date fair value per share is estimated to equal the market price of our common stock on the date of
grant. Each restricted stock unit represents and has a value equal to one share of common stock. Based on the terms of
individual restricted stock unit grant agreements, restricted stock units vest under one of the following methods:
•
•
•
•
For our former Chief Executive Officer, over a period of ten years, based on continuous employment and the
cumulative improvement in our annual adjusted economic profit.
For certain team members, over a period of three or four years, based on continuous employment.
For certain team members, over a period of one to four years, based on continuous employment and the compounded
annual growth rate in our adjusted net income per diluted share, a non-GAAP financial measure.
For certain directors, over a period of five years, based upon the compounded annual growth rate in our adjusted net
income per diluted share, a non-GAAP financial measure.
88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
A summary of the restricted stock unit (“RSU”) activity under the Incentive Plan for the year ended December 31, 2022, is
presented below:
Restricted Stock Units
Outstanding as of December 31, 2021
Granted
Converted
Forfeited
Outstanding as of December 31, 2022 (1)
Vested as of December 31, 2022
Number of Restricted
Stock Units
Weighted Average
Grant-Date Fair
Value Per Share
Aggregate Intrinsic
Value (2)
(in millions)
Weighted Average
Remaining
Contractual Term
(in years)
376,835 $
22,867
(57,928)
(546)
341,228 $
312,872 $
143.70
488.27
126.25
437.63
169.28 $
142.40 $
161.9
148.4
1.6
1.4
(1) No RSUs outstanding at December 31, 2022 were convertible to shares of common stock.
(2) The intrinsic value of RSUs is measured by applying the closing stock price as of December 31, 2022 to the applicable number of units.
The grant-date weighted average fair value of RSUs granted in 2022, 2021, and 2020 was $488.27, $366.07, and $436.89,
respectively. The total intrinsic value of RSUs converted to common stock during 2022, 2021, and 2020 was $27.5 million,
$7.9 million, and $7.6 million, respectively. During 2021, we recognized a $3.0 million reversal of stock-based compensation
expense due to the forfeiture of 31,000 unvested RSUs upon the retirement of our former Chief Executive Officer in May 2021.
Restricted Stock
Prior to 2020, we granted performance-based and time-based shares of restricted stock to team members in accordance with
the Incentive Plan. As of December 31, 2022, there were no unvested shares of restricted stock. During 2021, we recognized an
$8.5 million reversal of stock-based compensation expense due to the forfeiture of 109,000 shares of unvested restricted stock
upon the retirement of our former Chief Executive Officer in May 2021.
Stock-based compensation expense
Stock-based compensation expense consists of the following:
(In millions)
Stock options
Restricted stock units
Restricted stock
Total
For the Years Ended December 31,
2022
2021
2020
$
$
33.8 $
2.7
—
36.5 $
33.7 $
(1.1)
(7.8)
24.8 $
—
4.2
2.0
6.2
Assuming performance targets are achieved in the periods currently estimated, we expect to recognize the remaining
expense for stock-based awards outstanding as of December 31, 2022 over a weighted average period of 1.2 years, as follows:
(In millions)
For the Years Ended December 31,
Stock Options
Restricted
Stock Units
Restricted Stock
Total Projected
Expense
2023
2024
2025
2026
Total
$
$
34.4 $
3.5 $
— $
34.3
5.2
1.2
2.8
2.2
1.5
—
—
—
75.1 $
10.0 $
— $
37.9
37.1
7.4
2.7
85.1
89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
15.
BUSINESS SEGMENT AND OTHER INFORMATION
Business Segment Overview
We identify operating segments as components of our business for which separate financial information is regularly
evaluated by the chief operating decision-maker (“CODM”) in making decisions regarding resource allocation and assessing
performance. We periodically review and redefine our segment reporting as internal management reporting practices evolve and
the components of our business change. Currently, the CODM reviews consolidated financial statements and metrics to allocate
resources and assess performance. Thus, we have determined that we operate in one reportable operating segment. The
consolidated financial statements reflect the financial results of our one reportable operating segment.
Geographic Information
For the three years ended December 31, 2022, 2021, and 2020, all of our revenues were derived from the United States. As
of December 31, 2022 and 2021, all of our long-lived assets were located in the United States.
Products and Services Information
Our primary product consists of financing programs that enable Dealers to sell vehicles to consumers, regardless of their
credit history. We also provide Dealers the ability to offer ancillary products on vehicles financed by us.
Major Customer Information
We did not have any Dealers that provided 10% or more of our revenue during 2022, 2021, or 2020. Additionally, no
single Dealer’s Loans receivable balance accounted for more than 10% of total Loans receivable as of December 31, 2022 or
2021.
16.
COMMITMENTS AND CONTINGENCIES
Litigation and Other Legal Matters
In the normal course of business and as a result of the consumer-oriented nature of the industry in which we operate, we
and other industry participants are frequently subject to various consumer claims, litigation, and regulatory investigations
seeking damages, fines, and statutory penalties. The claims allege, among other theories of liability, violations of state, federal
and foreign truth-in-lending, credit availability, credit reporting, consumer protection, warranty, debt collection, insurance, and
other consumer-oriented laws and regulations, including claims seeking damages for alleged physical and mental harm relating
to the repossession and sale of consumers’ vehicles and other debt collection activities. As the assignee of Consumer Loans
originated by Dealers, we may also be named as a co-defendant in lawsuits filed by consumers principally against Dealers. We
may also have disputes and litigation with Dealers. The claims may allege, among other theories of liability, that we breached
our Dealer servicing agreement. We may also have disputes and litigation with vendors and other third parties. The claims may
allege, among other theories of liability, that we breached a license agreement or contract. The damages, fines, and penalties
that may be claimed by consumers, regulatory agencies, Dealers, vendors, or other third parties in these types of matters can be
substantial. The relief requested by plaintiffs varies but may include requests for compensatory, statutory, and punitive damages
and injunctive relief, and plaintiffs may seek treatment as purported class actions. Current actions to which we are a party
include the following matters.
On December 1, 2021, we received a subpoena from the Office of the Attorney General for the State of California seeking
documents and information regarding GAP products, GAP product administration, and refunds. We are cooperating with this
inquiry and cannot predict the eventual scope, duration, or outcome at this time. As a result, we are unable to estimate the
reasonably possible loss or range of reasonably possible loss arising from this investigation.
90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
On May 7, 2019, we received a subpoena from the Consumer Frauds and Protection Bureau of the Office of the New York
State Attorney General, relating to the Company’s origination and collection policies and procedures in the state of New York.
On July 30, 2020, we received two additional subpoenas from the Office of the New York State Attorney General, both from
the Consumer Frauds and Protection Bureau and the Investor Protection Bureau, relating to the Company’s origination and
collection policies and procedures in the state of New York and its securitizations. On August 28, 2020, we were informed that
one of the two additional subpoenas was being withdrawn. On November 16, 2020, we received an additional subpoena for
documents from the Office of the New York State Attorney General. On November 19, 2020, the Company received a letter
from the Office of the New York State Attorney General stating that the New York State Attorney General was considering
bringing claims against the Company under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank
Act”), New York Executive Law § 63(12), the New York Martin Act, and New York General Business Law § 349 in
connection with the Company’s origination and securitization practices. On December 9, 2020, we responded to the New York
State Attorney General’s letter disputing the assertions contained therein. On December 21, 2020, we received two additional
subpoenas from the Office of the New York State Attorney General, one relating to data and the other seeking testimony. On
February 24 and April 30, 2021, we received additional subpoenas from the Office of the New York State Attorney General
seeking information relating to its investigation. On August 23, 2022, we received a letter from the Consumer Frauds and
Protection Bureau of the Office of the New York State Attorney General stating that the Office of the New York State Attorney
General intended to commence litigation against the Company asserting violations of New York Executive Law § 63(12) and
New York General Business Law §§ 349 and 352 et seq. and applicable federal laws, including but not limited to claims that
the Company engaged in unfair and deceptive trade practices in auto lending, debt collection and asset-backed securitizations in
the State of New York in violation of the Dodd-Frank Act, New York Executive Law § 63(12), the New York Martin Act and
New York General Business Law § 349, and seeking to obtain injunctive relief, restitution, civil penalties, damages,
disgorgement, reformation, rescission, costs and such other relief as the court may deem just and proper. On January 4, 2023,
the Office of the New York State Attorney General and the Bureau of Consumer Financial Protection (“Bureau”) jointly filed a
complaint in the United States District Court for the Southern District of New York alleging that the Company engaged in
deceptive practices, fraud, illegality, and securities fraud in violation of New York Executive Law § 63(12) and New York
General Business Law §§ 349 and 352, and that the Company engaged in deceptive and abusive acts and provided substantial
assistance to a covered person or service provider in violation of the Consumer Financial Protection Act of 2010 (the “CFPA”),
12 U.S.C. § 5531 and 12 U.S.C. § 5536(a)(1)(B). The complaint seeks injunctive relief, an accounting of all consumers for
whom the Company provided financing, restitution, damages, disgorgement, civil penalties, and payment of costs. We cannot
predict the eventual scope, duration, or outcome of this lawsuit at this time. As a result, we are unable to estimate the
reasonably possible loss or range of reasonably possible loss arising from this litigation. The Company intends to vigorously
defend itself in this matter.
91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
On April 22, 2019, we received a civil investigative demand from the Bureau seeking, among other things, certain
information relating to the Company’s origination and collection of Consumer Loans, TPPs, and credit reporting. On May 7,
2020, we received another civil investigative demand from the Bureau seeking additional information relating to its
investigation. The Company raised various objections to the May 7, 2020 civil investigative demand, and on May 26, 2020, we
were notified that it was withdrawn. On June 1, 2020, we received another civil investigative demand that was similar to the
May 7, 2020 demand, and which raised many of the same objections. We formally petitioned the Bureau to modify the June 1,
2020 civil investigative demand. On September 3, 2020, the Director of the Bureau denied our petition to modify the June 1,
2020 civil investigative demand. On December 23, 2020, we received a civil investigative demand for investigational hearings
in connection with the Bureau’s investigation. The Company objected to certain portions of the civil investigative demands for
hearings and, on January 19, 2021, the Bureau notified the Company that it had withdrawn such portions from the December
23, 2020 civil investigative demands. On March 11, 2021, we received another civil investigative demand from the Bureau
seeking additional information relating to its investigation and an investigational hearing. On June 3, 2021, we received another
civil investigative demand from the Bureau seeking additional information relating to its investigation. On December 6, 2021,
we received a Notice and Opportunity to Respond and Advise (“NORA”) letter from the Staff of the Office of Enforcement
(“Staff”) of the Bureau, stating that the Staff was considering whether to recommend that the Bureau take legal action against
the Company for alleged violations of the CFPA in connection with the Company’s consumer loan origination practices. The
NORA letter stated that the Bureau may allege that the Company (i) committed abusive and unfair acts or practices in violation
of 12 U.S.C. § 5531(c) and (d) and 12 U.S.C. § 5536(a)(1)(B) and (ii) substantially assisted the deceptive acts of others in
violation of 12 U.S.C. § 5536 (a)(3). The NORA letter also stated that, in connection with any action, the Bureau may seek all
remedies available under the CFPA, including civil money penalties, consumer redress, and injunctive relief. On January 18,
2022, the Company responded to the NORA letter disputing that it had committed any violations. On March 7, 2022, we
received another civil investigative demand from the Bureau seeking additional information relating to its investigation. As
noted above, on January 4, 2023, the Bureau and the Office of the New York State Attorney General jointly filed a complaint in
the United States District Court for the Southern District of New York alleging that the Company engaged in deceptive
practices, fraud, illegality, and securities fraud in violation of New York Executive Law § 63(12) and New York General
Business Law §§ 349 and 352, and that the Company engaged in deceptive and abusive acts and provided substantial assistance
to a covered person or service provider in violation of the CFPA, 12 U.S.C. § 5531 and 12 U.S.C. § 5536(a)(1)(B). The
complaint seeks injunctive relief, an accounting of all consumers for whom the Company provided financing, restitution,
damages, disgorgement, civil penalties, and payment of costs. We cannot predict the eventual scope, duration, or outcome of
the lawsuit at this time. As a result, we are unable to estimate the reasonably possible loss or range of reasonably possible loss
arising from this lawsuit. The Company intends to vigorously defend itself in this matter.
On March 18, 2016, we received a subpoena from the Attorney General of the State of Maryland, relating to the
Company’s repossession and sale policies and procedures in the state of Maryland. On April 3, 2020, we received a subpoena
from the Attorney General of the State of Maryland relating to the Company’s origination and collection policies and
procedures in the state of Maryland. On August 11, 2020, we received a subpoena from the Attorney General of the State of
Maryland restating most of the requests contained in the March 18, 2016 and April 3, 2020 subpoenas, making additional
requests, and expanding the inquiry to include 41 other states (Alabama, Alaska, Arizona, Arkansas, California, Colorado,
Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan,
Minnesota, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma,
Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington,
and Wisconsin) and the District of Columbia. Also on August 11, 2020, we received from the Attorney General of the State of
New Jersey a subpoena that is essentially identical to the August 11, 2020 Maryland subpoena, both as to substance and as to
the jurisdictions identified. We are cooperating with these investigations and cannot predict their eventual scope, duration or
outcome at this time. As a result, we are unable to estimate the reasonably possible loss or range of reasonably possible loss
arising from these investigations.
On December 9, 2014, we received a civil investigative subpoena from the U.S. Department of Justice pursuant to the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989 directing us to produce certain information relating to
subprime automotive finance and related securitization activities. We have cooperated with the inquiry, but cannot predict the
eventual scope, duration, or outcome at this time. As a result, we are unable to estimate the reasonably possible loss or range of
reasonably possible loss arising from this investigation.
An adverse ultimate disposition in any action to which we are a party or otherwise subject could have a material adverse
impact on our financial position, liquidity, and results of operations.
92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Litigation Resolved during 2022
On October 2, 2020, a shareholder filed a putative class action complaint against the Company, its Chief Executive Officer
(now former Chief Executive Officer), and its Chief Financial Officer (now Chief Executive Officer) in the United States
District Court for the Eastern District of Michigan, Southern Division, alleging violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5, promulgated thereunder, based on alleged false and/or misleading statements
or omissions regarding the Company and its business, and seeking class certification, unspecified damages plus interest and
attorney and expert witness fees, and other costs on behalf of a purported class consisting of all persons and entities (subject to
specified exceptions) that purchased or otherwise acquired Credit Acceptance common stock from November 1, 2019 through
August 28, 2020. On May 28, 2021, the court issued an opinion and order appointing lead plaintiffs and lead counsel. On July
22, 2021, the lead plaintiffs filed an amended complaint asserting similar violations, seeking similar relief, and expanding the
putative class to include all persons and entities (subject to specified exceptions) that purchased or otherwise acquired Credit
Acceptance common stock from May 4, 2018 through August 28, 2020. On June 14, 2022, the Company reached an agreement
in principle to settle this putative class action. The agreement in principle contemplated an aggregate cash payment by the
Company of $12.0 million, all of which was recognized during the second quarter of 2022, to settle claims brought on behalf of
all persons and entities that purchased or otherwise acquired Credit Acceptance common stock from May 4, 2018 through
August 28, 2020. On August 24, 2022, the parties executed and filed with the court a definitive stipulation and agreement of
settlement, referred to herein as the settlement agreement, which was consistent with the agreement in principle and provides
for a full release of all claims against all defendants, including the Company and its officers. The settlement agreement provides
that the defendants expressly deny any liability, wrongdoing, or responsibility. On October 17, 2022, the Company wired the
$12.0 million payment to a settlement administrator as provided for in the settlement agreement. On December 12, 2022, the
court issued an opinion and order granting lead plaintiffs’ motion for final approval of the settlement and plan of allocation. On
December 16, 2022, the court entered a final order and judgment consistent with the settlement agreement, including dismissal
with prejudice of all claims asserted against the Company and its officers.
Regulatory Matter Resolved during 2021
On December 4, 2014, we received a civil investigative demand from the Office of the Attorney General of the
Commonwealth of Massachusetts relating to the origination and collection of non-prime auto loans in Massachusetts. On
November 20, 2017, we received a second civil investigative demand from the Office of the Attorney General seeking updated
information on its original civil investigative demand, additional information related to the Company’s origination and
collection of Consumer Loans, and information regarding securitization activities. In connection with this inquiry, we were
informed by representatives of the Office of the Attorney General that it believed that the Company may have engaged in unfair
and deceptive acts or practices related to the origination and collection of auto loans, which may have caused some of the
Company’s representations and warranties contained in securitization documents to be inaccurate. On July 22, 2020, we
received a third civil investigative demand from the Office of the Attorney General seeking updates on previously produced
data and additional information related to the Company’s origination of Consumer Loans. On August 30, 2020, we were served
with a complaint, filed by the Attorney General in Massachusetts Superior Court in Suffolk County, alleging that the Company
engaged in unfair and deceptive trade practices in subprime auto lending, debt collection and asset-backed securitizations in the
Commonwealth of Massachusetts, in violation of the Massachusetts Consumer Protection Law, M.G.L. c. 93A. The complaint
sought injunctive relief, restitution, disgorgement, civil penalties and payment of the Commonwealth’s attorney’s fees and
costs. On March 15, 2021, the court entered an order denying a motion by the Company to dismiss four of the Commonwealth’s
seven claims and granting in part and denying in part a motion by the Commonwealth for partial summary judgment on three of
its claims. On April 27, 2021, the Company and the Commonwealth reached an agreement in principle to settle this lawsuit,
and, as a result, we estimated a probable loss of $27.2 million, all of which was recognized as a contingent loss during the first
quarter of 2021. On September 1, 2021, we entered into a settlement agreement with the Office of the Attorney General,
reflecting the parties’ agreement to settle and fully resolve the claims asserted against us. We made a payment in the total
amount of $27.2 million to an independent trust for purposes of making payments to provide relief for eligible Massachusetts
consumers, paying costs of implementation of the agreement and paying the Attorney General’s costs of investigation, and to
pay up to $95,000 to cover costs and expenses incurred by an independent trustee for management of the independent trust.
93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONCLUDED)
Lease Commitments
We lease office equipment and, until December 31, 2022, we also leased office space. We expect that, in the normal course
of business, leases will be renewed or replaced by other leases. Total rental expense on all operating leases was $1.3 million for
2022, $1.4 million for 2021, and $1.7 million for 2020. Contingent rentals under the operating leases were insignificant. Our
total minimum future lease commitments under operating leases as of December 31, 2022 are as follows:
(In millions)
2023
2024
2025
2026
2027
Total
Year
Minimum Future
Lease Commitments
$
$
0.7
0.6
0.1
—
—
1.4
94
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
(a) Disclosure Controls and Procedures. Our management, with the participation of our principal executive and principal
financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the
period covered by this report. Based on such evaluation, our principal executive and principal financial officer has concluded
that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing,
and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the
Exchange Act and are effective in ensuring that information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Internal Control Over Financial Reporting. There have not been any changes in our internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended
December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
Management’s Report on Internal Control over Financial Reporting.
We are responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and
procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that our receipts and expenditures
are being made only in accordance with authorizations of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of our assets that could have a material effect on our consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In
addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.
We assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this
assessment, we used the criteria set forth in the 2013 Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, we believe that as of December 31,
2022, our internal control over financial reporting is effective based on those criteria.
Our independent registered public accounting firm, Grant Thornton LLP, audited our internal control over financial
reporting as of December 31, 2022, and their attestation report dated February 10, 2023 expressed an unqualified opinion on our
internal control over financial reporting and is included in this Item 9A.
95
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Credit Acceptance Corporation
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Credit Acceptance Corporation (a Michigan corporation) and
subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based
on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2022, and our
report dated February 10, 2023 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Southfield, Michigan
February 10, 2023
96
ITEM 9B.
OTHER INFORMATION
None.
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information is contained under the captions “Proposal #1 – Election of Directors” (excluding the “Report of the Audit
Committee”) and, if required, “Delinquent Section 16(a) Reports” in the Proxy Statement and is incorporated herein by
reference.
ITEM 11.
EXECUTIVE COMPENSATION
Information is contained under the caption “Compensation of Executive Officers and Directors” in the Proxy Statement and
is incorporated herein by reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information is contained under the caption “Common Stock Ownership of Certain Beneficial Owners and Management” in
the Proxy Statement and is incorporated herein by reference.
Our Amended and Restated Incentive Compensation Plan (the “Incentive Plan”), which was approved by shareholders on
July 21, 2021, provides for the granting of restricted stock, restricted stock units, and stock options to team members, officers,
and directors.
The following table sets forth (1) the number of shares of common stock to be issued upon the exercise of outstanding
stock options or restricted stock units, (2) the weighted average exercise price of outstanding options, if applicable, and (3) the
number of shares remaining available for future issuance, as of December 31, 2022:
Plan category
Equity compensation plan approved by
shareholders:
Incentive Plan
Equity Compensation Plan Information
Number of shares to be issued
upon exercise of outstanding
options, warrants and rights
Weighted-average exercise price
of outstanding options (a)
Number of shares
remaining available for future
issuance under equity
compensation plans (b)
1,023,302 $
365.34
215,271
(a) The weighted average exercise price in this column does not take into account restricted stock units that are outstanding under the Incentive Plan,
which have no exercise price.
(b) For additional information regarding our equity compensation plans, including grants of restricted stock units, see Note 14 to the consolidated financial
statements contained in Item 8 of this Form 10-K, which is incorporated herein by reference.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information is contained under the caption “Certain Relationships and Transactions” and “Proposal #1 – Election of
Directors – Meetings and Committees of the Board of Directors” in the Proxy Statement and is incorporated herein by
reference.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Information is contained under the caption “Independent Accountants” in the Proxy Statement and is incorporated herein
by reference.
97
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1)
The following consolidated financial statements of the Company and notes thereto and the Report of
Independent Registered Public Accounting Firm are contained in Item 8 — Financial Statements and
Supplementary Data of this Form 10-K, which is incorporated herein by reference.
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
— Consolidated Balance Sheets as of December 31, 2022 and 2021
— Consolidated Statements of Income for the years ended December 31, 2022, 2021, and 2020
— Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021, and 2020
— Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2022, 2021, and 2020
— Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021, and 2020
Notes to Consolidated Financial Statements
Financial statement schedules have been omitted because they are not applicable or are not required or the
information required to be set forth therein is included in the consolidated financial statements or notes thereto.
The exhibits filed in response to Item 601 of Regulation S-K are listed in the Exhibit Index below.
(2)
(3)
98
Exhibit No.
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
EXHIBIT INDEX
Description
Articles of Incorporation, as amended July 1, 1997 (incorporated by reference to Exhibit 3(a)(1) to the
Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997).
Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on
Form 8-K filed March 7, 2022).
Description of Common Stock of Credit Acceptance Corporation (incorporated by reference to Exhibit 4.1 to
the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022).
Amended and Restated Intercreditor Agreement, dated as of February 1, 2010, among Credit Acceptance
Corporation, the other Grantors party thereto, representatives of the Secured Parties thereunder, and Comerica
Bank, as administrative agent under the Original Credit Agreement (as defined therein) and as collateral agent
(incorporated by reference to Exhibit 4(g)(6) to the Company’s Current Report on Form 8-K filed February 5,
2010).
Amended and Restated Sale and Contribution Agreement dated as of April 5, 2013, between the Company
and CAC Warehouse Funding LLC IV (incorporated by reference to Exhibit 4.85 to the Company’s Current
Report on Form 8-K filed April 5, 2013).
First Amendment to Amended and Restated Sale and Contribution Agreement, dated as of December 4, 2013,
between the Company and CAC Warehouse Funding LLC IV (incorporated by reference to Exhibit 4.107 to
the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013).
Sixth Amended and Restated Credit Agreement, dated as of June 23, 2014, among the Company, the Banks
signatory thereto, and Comerica Bank, as agent for the Banks (incorporated by reference to Exhibit 4.124 to
the Company’s Current Report on Form 8-K filed June 25, 2014).
Loan and Security Agreement, dated as of September 15, 2014, among the Company, CAC Warehouse
Funding LLC V, Fifth Third Bank, and Systems & Services Technologies, Inc. (incorporated by reference to
Exhibit 4.127 to the Company’s Current Report on Form 8-K filed September 18, 2014).
Backup Servicing Agreement, dated as of September 15, 2014, among the Company, CAC Warehouse
Funding LLC V, Fifth Third Bank, and Systems & Services Technologies, Inc. (incorporated by reference to
Exhibit 4.128 to the Company’s Current Report on Form 8-K filed September 18, 2014).
Contribution Agreement, dated as of September 15, 2014, between the Company and CAC Warehouse
Funding LLC V (incorporated by reference to Exhibit 4.129 to the Company’s Current Report on Form 8-K
filed September 18, 2014).
Indenture dated as of March 30, 2015, among the Company, the Guarantors named therein, and U.S. Bank
National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on
Form 8-K filed March 31, 2015).
First Amendment to the Sixth Amended and Restated Credit Agreement, dated as of June 11, 2015, among
the Company, the Banks which are parties thereto from time to time, and Comerica Bank (incorporated by
reference to Exhibit 4.74 to the Company’s Current Report on Form 8-K filed June 16, 2015).
First Amendment to Loan and Security Agreement, dated as of June 11, 2015, among the Company, CAC
Warehouse Funding LLC V, Fifth Third Bank, and Systems & Services Technologies, Inc. (incorporated by
reference to Exhibit 4.75 to the Company’s Current Report on Form 8-K filed June 16, 2015).
Loan and Security Agreement dated as of September 30, 2015, among the Company, CAC Warehouse
Funding LLC VI, and Flagstar Bank, FSB (incorporated by reference to Exhibit 4.82 to the Company’s
Current Report on Form 8-K filed October 5, 2015).
Contribution Agreement, dated as of September 30, 2015, between the Company and CAC Warehouse
Funding LLC VI (incorporated by reference to Exhibit 4.83 to the Company’s Current Report on Form 8-K
filed October 5, 2015).
Second Amendment to the Sixth Amended and Restated Credit Agreement, dated as of June 15, 2016, among
the Company, the Banks signatory thereto, and Comerica Bank, as agent for the Banks (incorporated by
reference to Exhibit 4.76 to the Company’s Current Report on Form 8-K filed June 20, 2016).
Second Amendment to Loan and Security Agreement, dated as of August 18, 2016, among the Company,
CAC Warehouse Funding LLC V, Fifth Third Bank, and Systems & Services Technologies, Inc.
(incorporated by reference to Exhibit 4.79 to the Company’s Current Report on Form 8-K filed August 23,
2016).
First Amendment to Contribution Agreement, dated as of August 18, 2016, between the Company and CAC
Warehouse Funding LLC V (incorporated by reference to Exhibit 4.80 to the Company’s Current Report on
Form 8-K filed August 23, 2016).
Third Amendment to Sixth Amended and Restated Credit Agreement and Extension Agreement, dated as of
June 28, 2017, among the Company, the Banks signatory thereto, and Comerica Bank, as agent for the Banks
(incorporated by reference to Exhibit 4.80 to the Company’s Current Report on Form 8-K filed June 30,
2017).
99
4.18
4.19
4.20
4.21
4.22
4.23
4.24
4.25
4.26
4.27
4.28
4.29
4.30
4.31
4.32
4.33
4.34
First Amendment to Loan and Security Agreement, dated as of July 18, 2017, among the Company, CAC
Warehouse Funding LLC VI, and Flagstar Bank, fsb (incorporated by reference to Exhibit 4.87 to the
Company’s Current Report on Form 8-K filed July 21, 2017).
New Bank Addendum, dated October 19, 2017 to the Sixth Amended and Restated Credit Acceptance
Corporation Credit Agreement dated as of October 19, 2017, among the Company, each of the financial
institutions parties thereto, and Comerica Bank, as agent (incorporated by reference to Exhibit 4.94 to the
Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017).
Assignment Agreement, dated October 19, 2017, among the Company, the Banks signatory thereto, and
Comerica Bank, as agent, under the Sixth Amended and Restated Credit Acceptance Corporation Credit
Agreement dated as of June 23, 2014 (incorporated by reference to Exhibit 4.95 to the Company’s Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 2017).
Amended and Restated Loan and Security Agreement dated as of May 10, 2018 among the Company, CAC
Warehouse Funding LLC IV, the lenders from time to time party thereto, Bank of Montreal, BMO Capital
Markets Corp., and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.86 to the
Company’s Current Report on Form 8-K filed May 15, 2018).
Fourth Amendment to Sixth Amended and Restated Credit Agreement dated as of June 27, 2018 among the
Company, the Banks which are parties thereto from time to time, and Comerica Bank as Administrative Agent
and Collateral Agent for the Banks (incorporated by reference to Exhibit 4.94 to the Company’s Current
Report on Form 8-K filed June 28, 2018).
Third Amendment to Loan and Security Agreement, dated as of August 15, 2018, among the Company, CAC
Warehouse Funding LLC V, Fifth Third Bank, and Systems & Services Technologies, Inc. (incorporated by
reference to Exhibit 4.95 to the Company’s Current Report on Form 8-K filed August 17, 2018).
Indenture, dated as of March 7, 2019, among Credit Acceptance Corporation, the Guarantors named therein,
and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.99 to the Company’s
Current Report on Form 8-K filed March 8, 2019).
Registration Rights Agreement, dated March 7, 2019, among Credit Acceptance Corporation, Buyers Vehicle
Protection Plan, Inc., Vehicle Remarketing Services, Inc., and the representative of the initial purchasers of
Credit Acceptance Corporation’s 6.625% Senior Notes due 2026 (incorporated by reference to Exhibit 4.100
to the Company’s Current Report on Form 8-K filed March 8, 2019).
Fifth Amendment to Sixth Amended and Restated Credit Agreement, dated as of June 24, 2019, among the
Company, Comerica Bank, and the other banks signatory thereto and Comerica Bank, as administrative agent
for the banks (incorporated by reference to Exhibit 4.101 to the Company’s Current Report on Form 8-K filed
June 26, 2019).
Fourth Amendment to Loan Security Agreement, dated as of July 16, 2019, among the Company, CAC
Warehouse Funding LLC V, and Fifth Third Bank (incorporated by reference to Exhibit 4.103 to the
Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019).
Second Amendment to Loan and Security Agreement, dated as of July 25, 2019, among the Company, CAC
Warehouse Funding LLC VI, and Flagstar Bank, FSB (incorporated by reference to Exhibit 4.105 to the
Company’s Current Report on Form 8-K filed July 26, 2019).
Loan and Security Agreement, dated as of July 26, 2019, among the Company, CAC Warehouse Funding
LLC VIII, the lenders from time to time party thereto, Citizens Bank N.A., and Wells Fargo Bank, National
Association (incorporated by reference to Exhibit 4.106 to the Company’s Current Report on Form 8-K filed
July 29, 2019).
Sale and Contribution Agreement, dated as of July 26, 2019, between the Company and CAC Warehouse
Funding LLC VIII (incorporated by reference to Exhibit 4.107 to the Company’s Current Report on Form 8-K
filed July 29, 2019).
Backup Servicing Agreement, dated as of July 26, 2019, among the Company, CAC Warehouse Funding LLC
VIII, Citizens Bank, N.A., and Wells Fargo Bank, National Association (incorporated by reference to Exhibit
4.108 to the Company’s Current Report on Form 8-K filed July 29, 2019).
First Amendment to Amended and Restated Loan and Security Agreement, dated as of July 26, 2019, among
the Company, CAC Warehouse Funding LLC IV, Bank of Montreal, Citizens Bank, N.A., BMO Capital
Markets Corp., and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.110 to
the Company’s Current Report on Form 8-K filed July 29, 2019).
Amended and Restated Backup Servicing Agreement, dated as of July 26, 2019, among the Company, CAC
Warehouse Funding LLC IV, Bank of Montreal, BMO Capital Markets Corp., and Wells Fargo Bank,
National Association (incorporated by reference to Exhibit 4.111 to the Company’s Current Report on Form
8-K filed July 29, 2019).
Loan and Security Agreement, dated as of August 28, 2019, among the Company, Credit Acceptance Funding
LLC 2019-2, and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.112 to the
Company’s Current Report on Form 8-K filed September 4, 2019).
100
4.35
4.36
4.37
4.38
4.39
4.40
4.41
4.42
4.43
4.44
4.45
4.46
4.47
4.48
4.49
4.50
4.51
Backup Servicing Agreement, dated as of August 28, 2019, among the Company, Credit Acceptance Funding
LLC 2019-2, and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.113 to the
Company’s Current Report on Form 8-K filed September 4, 2019).
Sale and Contribution Agreement, dated as of August 28, 2019, between the Company and Credit Acceptance
Funding LLC 2019-2 (incorporated by reference to Exhibit 4.114 to the Company’s Current Report on Form
8-K filed September 4, 2019).
Second Amended and Restated Backup Servicing Agreement, dated as of August 16, 2019, among the
Company, CAC Warehouse Funding LLC II, and Wells Fargo Bank, National Association (incorporated by
reference to Exhibit 4.117 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2019).
Indenture dated as of November 21, 2019, between Credit Acceptance Auto Loan Trust 2019-3 and Wells
Fargo Bank, National Association (incorporated by reference to Exhibit 4.118 to the Company’s Current
Report on Form 8-K filed November 26, 2019).
Sale and Servicing Agreement, dated as of November 21, 2019, among the Company, Credit Acceptance
Auto Loan Trust 2019-3, Credit Acceptance Funding LLC 2019-3, and Wells Fargo Bank, National
Association (incorporated by reference to Exhibit 4.119 to the Company’s Current Report on Form 8-K filed
November 26, 2019).
Backup Servicing Agreement, dated as of November 21, 2019, among the Company, Credit Acceptance
Funding LLC 2019-3, Credit Acceptance Auto Loan Trust 2019-3, and Wells Fargo Bank, National
Association (incorporated by reference to Exhibit 4.120 to the Company’s Current Report on Form 8-K filed
November 26, 2019).
Amended and Restated Trust Agreement, dated as of November 21, 2019, among Credit Acceptance Funding
LLC 2019-3 and U.S. Bank Trust National Association (incorporated by reference to Exhibit 4.121 to the
Company’s Current Report on Form 8-K filed November 26, 2019).
Sale and Contribution Agreement, dated as of November 21, 2019, between the Company and Credit
Acceptance Funding LLC 2019-3 (incorporated by reference to Exhibit 4.122 to the Company’s Current
Report on Form 8-K filed November 26, 2019).
Indenture, dated as of December 18, 2019, among the Company, the Guarantors named therein, and U.S.
Bank National Association, as trustee (incorporated by reference to Exhibit 4.124 to the Company’s Current
Report on Form 8-K filed December 18, 2019).
Indenture, dated as of February 20, 2020, between Credit Acceptance Auto Loan Trust 2020-1 and Wells
Fargo Bank, National Association (incorporated by reference to Exhibit 4.107 to the Company’s Current
Report on Form 8-K filed February 24, 2020).
Sale and Servicing Agreement, dated as of February 20, 2020, among the Company, Credit Acceptance Auto
Loan Trust 2020-1, Credit Acceptance Funding LLC 2020-1, and Wells Fargo Bank, National Association
(incorporated by reference to Exhibit 4.108 to the Company’s Current Report on Form 8-K filed February 24,
2020).
Backup Servicing Agreement, dated as of February 20, 2020, among the Company, Credit Acceptance
Funding LLC 2020-1, Credit Acceptance Auto Loan Trust 2020-1, and Wells Fargo Bank, National
Association (incorporated by reference to Exhibit 4.109 to the Company’s Current Report on Form 8-K filed
February 24, 2020).
Amended and Restated Trust Agreement, dated as of February 20, 2020, among Credit Acceptance Funding
LLC 2020-1, each of the initial members of the Board of Trustees of the Trust, and U.S. Bank Trust National
Association (incorporated by reference to Exhibit 4.110 to the Company’s Current Report on Form 8-K filed
February 24, 2020).
Sale and Contribution Agreement, dated as of February 20, 2020, between the Company and Credit
Acceptance Funding LLC 2020-1 (incorporated by reference to Exhibit 4.111 to the Company’s Current
Report on Form 8-K filed February 24, 2020).
Sixth Amendment to Sixth Amended and Restated Credit Agreement, dated as of June 30, 2020, by and
among the Company, Comerica Bank, and the other banks signatory thereto and Comerica Bank, as
administrative agent for the banks (incorporated by reference to Exhibit 4.115 to the Company’s Current
Report on Form 8-K filed July 1, 2020).
Indenture, dated as of July 23, 2020, between Credit Acceptance Auto Loan Trust 2020-2 and Wells Fargo
Bank, National Association (incorporated by reference to Exhibit 4.116 to the Company’s Current Report on
Form 8-K filed July 28, 2020).
Sale and Servicing Agreement, dated as of July 23, 2020, among the Company, Credit Acceptance Auto Loan
Trust 2020-2, Credit Acceptance Funding LLC 2020-2, and Wells Fargo Bank, National Association
(incorporated by reference to Exhibit 4.117 to the Company’s Current Report on Form 8-K filed July 28,
2020).
101
4.52
4.53
4.54
4.55
4.56
4.57
4.58
4.59
4.60
4.61
4.62
4.63
4.64
4.65
4.66
4.67
Backup Servicing Agreement, dated as of July 23, 2020, among the Company, Credit Acceptance Funding
LLC 2020-2, Credit Acceptance Auto Loan Trust 2020-2, and Wells Fargo Bank, National Association
(incorporated by reference to Exhibit 4.118 to the Company’s Current Report on Form 8-K filed July 28,
2020).
Amended and Restated Trust Agreement, dated as of July 23, 2020, among Credit Acceptance Funding LLC
2020-2, each of the members of the Board of Trustees of the Trust, and U.S. Bank Trust National Association
(incorporated by reference to Exhibit 4.119 to the Company’s Current Report on Form 8-K filed July 28,
2020).
Sale and Contribution Agreement, dated as of July 23, 2020, between the Company and Credit Acceptance
Funding LLC 2020-2 (incorporated by reference to Exhibit 4.120 to the Company’s Current Report on Form
8-K filed July 28, 2020).
Indenture, dated as of October 22, 2020, between Credit Acceptance Auto Loan Trust 2020-3 and Wells
Fargo Bank, National Association (incorporated by reference to Exhibit 4.122 to the Company’s Current
Report on Form 8-K filed October 27, 2020).
Sale and Servicing Agreement, dated as of October 22, 2020, among the Company, Credit Acceptance Auto
Loan Trust 2020-3, Credit Acceptance Funding LLC 2020-3, and Wells Fargo Bank, National Association
(incorporated by reference to Exhibit 4.123 to the Company’s Current Report on Form 8-K filed October 27,
2020).
Backup Servicing Agreement, dated as of October 22, 2020, among the Company, Credit Acceptance
Funding LLC 2020-3, Credit Acceptance Auto Loan Trust 2020-3, and Wells Fargo Bank, National
Association (incorporated by reference to Exhibit 4.124 to the Company’s Current Report on Form 8-K filed
October 27, 2020).
Amended and Restated Trust Agreement, dated as of October 22, 2020, among Credit Acceptance Funding
LLC 2020-3, each of the members of the Board of Trustees of the Trust, and U.S. Bank Trust National
Association (incorporated by reference to Exhibit 4.125 to the Company’s Current Report on Form 8-K filed
October 27, 2020).
Sale and Contribution Agreement, dated as of October 22, 2020, between the Company and Credit
Acceptance Funding LLC 2020-3 (incorporated by reference to Exhibit 4.126 to the Company’s Current
Report on Form 8-K filed October 27, 2020).
Fifth Amendment to Loan and Security Agreement, dated as of December 16, 2020 among the Company,
CAC Warehouse Funding LLC V, and Fifth Third Bank, National Association (incorporated by reference to
Exhibit 4.129 to the Company’s Current Report on Form 8-K filed December 18, 2020).
Seventh Amendment to Sixth Amended and Restated Credit Agreement and Extension Agreement, dated as
of December 15, 2020, by and among the Company, Comerica Bank, and the other banks signatory thereto
and Comerica Bank, as administrative agent for the banks (incorporated by reference to Exhibit 4.128 to the
Company’s Current Report on Form 8-K filed December 18, 2020).
Loan and Security Agreement dated as of January 29, 2021 among the Company, Credit Acceptance Funding
LLC 2021-1, Fifth Third Bank, National Association, and Systems and Services Technologies, Inc.
(incorporated by reference to Exhibit 4.130 to the Company’s Current Report on Form 8-K filed February 4,
2021).
Backup Servicing Agreement dated as of January 29, 2021, among the Company, Credit Acceptance Funding
LLC 2021-1, Fifth Third Bank, National Association, and Systems and Services Technologies, Inc.
(incorporated by reference to Exhibit 4.131 to the Company’s Current Report on Form 8-K filed February 4,
2021).
Sale and Contribution Agreement dated as of January 29, 2021, between the Company and Credit Acceptance
Funding LLC 2021-1 (incorporated by reference to Exhibit 4.132 to the Company’s Current Report on Form
8-K filed February 4, 2021).
Second Amendment to Amended and Restated Loan and Security Agreement dated as of January 29, 2021,
among the Company, CAC Warehouse Funding LLC IV, and Bank of Montreal (incorporated by reference to
Exhibit 4.134 to the Company’s Current Report on Form 8-K filed February 4, 2021).
Indenture dated as of February 18, 2021, between Credit Acceptance Auto Loan Trust 2021-2 and Wells
Fargo Bank, National Association (incorporated by reference to Exhibit 4.103 to the Company’s Current
Report on Form 8-K filed February 24, 2021).
Sale and Servicing Agreement dated as of February 18, 2021 among the Company, Credit Acceptance Auto
Loan Trust 2021-2, Credit Acceptance Funding LLC 2021-2, and Wells Fargo Bank, National Association
(incorporated by reference to Exhibit 4.104 to the Company’s Current Report on Form 8-K filed February 24,
2021).
102
4.68
4.69
4.70
4.71
4.72
4.73
4.74
4.75
4.76
4.77
4.78
4.79
4.80
4.81
4.82
4.83
Backup Servicing Agreement dated as of February 18, 2021, among the Company, Credit Acceptance
Funding LLC 2021-2, Credit Acceptance Auto Loan Trust 2021-2, and Wells Fargo Bank, National
Association (incorporated by reference to Exhibit 4.105 to the Company’s Current Report on Form 8-K filed
February 24, 2021).
Amended and Restated Trust Agreement dated as of February 18, 2021, between Credit Acceptance Funding
LLC 2021-2 and U.S. Bank Trust National Association (incorporated by reference to Exhibit 4.106 to the
Company’s Current Report on Form 8-K filed February 24, 2021).
Sale and Contribution Agreement dated as of February 18, 2021, between the Company and Credit
Acceptance Funding LLC 2021-2 (incorporated by reference to Exhibit 4.107 to the Company’s Current
Report on Form 8-K filed February 24, 2021).
Sixth Amendment to Loan and Security Agreement, dated as of March 22, 2021, by and among the Company,
CAC Warehouse Funding LLC V, and Fifth Third Bank, National Association (incorporated by reference to
Exhibit 4.109 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2021).
First Amendment to Loan and Security Agreement, dated as of March 22, 2021, by and among the Company,
Credit Acceptance Funding LLC 2021-1, and Fifth Third Bank, National Association (incorporated by
reference to Exhibit 4.109 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2021).
Sale and Servicing Agreement dated as of May 20, 2021 among the Company, Credit Acceptance Auto Loan
Trust 2021-3, Credit Acceptance Funding LLC 2021-3, and Wells Fargo Bank, National Association
(incorporated by reference to Exhibit 4.112 to the Company’s Current Report on Form 8-K filed May 26,
2021).
Backup Servicing Agreement dated as of May 20, 2021, among the Company, Credit Acceptance Funding
LLC 2021-3, Credit Acceptance Auto Loan Trust 2021-3, and Wells Fargo Bank, National Association
(incorporated by reference to Exhibit 4.113 to the Company’s Current Report on Form 8-K filed May 26,
2021).
Amended and Restated Trust Agreement dated as of May 20, 2021, between Credit Acceptance Funding LLC
2021-3 and U.S. Bank Trust National Association (incorporated by reference to Exhibit 4.114 to the
Company’s Current Report on Form 8-K filed May 26, 2021).
Sale and Contribution Agreement dated as of May 20, 2021, between the Company and Credit Acceptance
Funding LLC 2021-3 (incorporated by reference to Exhibit 4.115 to the Company’s Current Report on Form
8-K filed May 26, 2021).
Seventh Amended and Restated Loan and Security Agreement, dated as of April 30, 2021, among the
Company, CAC Warehouse Funding LLC II, the lenders from time to time party thereto, and Wells Fargo
Bank, National Association (incorporated by reference to Exhibit 4.117 to the Company’s Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2021).
Fifth Amended and Restated Sale and Contribution Agreement, dated as of April 30, 2021, between the
Company and CAC Warehouse Funding LLC II (incorporated by reference to Exhibit 4.118 to the
Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021).
First Amendment to the Loan and Security Agreement, dated as of September 1, 2021, among the Company,
CAC Warehouse Funding LLC VIII, Citizens Bank N.A.. and Wells Fargo Bank, National Association
(incorporated by reference to Exhibit 4.119 to the Company’s Current Report on Form 8-K filed September 8,
2021).
Eighth Amendment to Sixth Amended and Restated Credit Agreement and Extension Agreement, dated as of
October 6, 2021, by and among the Company, Comerica Bank, and the other banks signatory thereto and
Comerica Bank, as administrative agent for the banks (incorporated by reference to Exhibit 4.120 to the
Company’s Current Report on Form 8-K filed October 12, 2021).
Third Amendment to Loan and Security Agreement dated as of October 15, 2021 among the Company, CAC
Warehouse Funding Corporation VI, and Flagstar Bank, FSB (incorporated by reference to Exhibit 4.121 to
the Company’s Current Report on Form 8-K filed October 21, 2021).
Indenture dated as of October 28, 2021, between Credit Acceptance Auto Loan Trust 2021-4 and Wells Fargo
Bank, National Association (incorporated by reference to Exhibit 4.122 to the Company’s Current Report on
Form 8-K filed November 2, 2021).
Sale and Servicing Agreement dated as of October 28, 2021 among the Company, Credit Acceptance Auto
Loan Trust 2021-4, Credit Acceptance Funding LLC 2021-4, and Wells Fargo Bank, National Association
(incorporated by reference to Exhibit 4.123 to the Company’s Current Report on Form 8-K filed November 2,
2021).
103
4.84
4.85
4.86
4.87
4.88
4.89
4.90
4.91
4.92
4.93
4.94
4.95
4.96
4.97
4.98
Backup Servicing Agreement dated as of October 28, 2021, among the Company, Credit Acceptance Funding
LLC 2021-4, Credit Acceptance Auto Loan Trust 2021-4, and Wells Fargo Bank, National Association
(incorporated by reference to Exhibit 4.124 to the Company’s Current Report on Form 8-K filed November 2,
2021).
Amended and Restated Trust Agreement dated as of October 28, 2021, between Credit Acceptance Funding
LLC 2021-4 and U.S. Bank Trust National Association (incorporated by reference to Exhibit 4.125 to the
Company’s Current Report on Form 8-K filed November 2, 2021).
Sale and Contribution Agreement dated as of October 28, 2021, between the Company and Credit Acceptance
Funding LLC 2021-4 (incorporated by reference to Exhibit 4.126 to the Company’s Current Report on Form
8-K filed November 2, 2021).
Indenture dated as of May 20, 2021, between Credit Acceptance Auto Loan Trust 2021-3 and Wells Fargo
Bank, National Association (incorporated by reference to Exhibit 4.111 to the Company’s Current Report on
Form 8-K filed May 26, 2021).
Indenture dated as of June 16, 2022, between Credit Acceptance Auto Loan Trust 2022-1 and Computershare
Trust Company, N.A. (incorporated by reference to Exhibit 4.94 to the Company’s Current Report on Form 8-
K filed June 23, 2022).
Sale and Servicing Agreement, dated as of June 16, 2022, among the Company, Credit Acceptance Auto Loan
Trust 2022-1, Credit Acceptance Funding LLC 2022-1, and Computershare Trust Company, N.A.
(incorporated by reference to Exhibit 4.95 to the Company’s Current Report on Form 8-K filed June 23,
2022).
Backup Servicing Agreement, dated as of June 16, 2022, among the Company, Credit Acceptance Funding
LLC 2022-1, Credit Acceptance Auto Loan Trust 2022-1, and Computershare Trust Company, N.A.
(incorporated by reference to Exhibit 4.96 to the Company’s Current Report on Form 8-K filed June 23,
2022).
Amended and Restated Trust Agreement, dated as of June 16, 2022, among Credit Acceptance Funding LLC
2022-1, each of the initial members of the Board of Trustees of the Trust and U.S. Bank Trust National
Association (incorporated by reference to Exhibit 4.97 to the Company’s Current Report on Form 8-K filed
June 23, 2022).
Sale and Contribution Agreement, dated as of June 16, 2022, between the Company and Credit Acceptance
Funding LLC 2022-1 (incorporated by reference to Exhibit 4.98 to the Company’s Current Report on Form 8-
K filed June 23, 2022).
Third Amendment to the Amended and Restated Loan and Security Agreement, dated as of June 16, 2022,
among the Company, CAC Warehouse Funding LLC IV, Bank of Montreal, BMO Capital Markets Corp., and
Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.100 to the Company’s
Current Report on Form 8-K filed June 23, 2022).
Ninth Amendment to the Sixth Amended and Restated Credit Agreement and Extension Agreement, dated as
of June 22, 2022, by and among the Company, Comerica Bank and the other banks signatory thereto and
Comerica Bank, as administrative agent for the banks (incorporated by reference to Exhibit 4.101 to the
Company’s Current Report on Form 8-K filed June 23, 2022).
Amendment No. 1 to Loan and Security Agreement and Backup Servicing Agreement, dated as of August 12,
2022, by and among the Company, Credit Acceptance Funding LLC 2019-2, and Wells Fargo Bank, National
Association (incorporated by reference to Exhibit 4.102 to the Company’s Current Report on Form 8-K filed
August 17, 2022).
Second Amendment to Loan and Security Agreement, dated as of July 22, 2022, by and among Credit
Acceptance Corporation, CAC Warehouse Funding LLC VIII, Citizens Bank, N.A., and Wells Fargo Bank,
National Association (incorporated by reference to Exhibit 4.103 to the Company’s Quarterly Report on Form
10-Q for the quarterly period ended September 30, 2022).
Seventh Amendment to Loan and Security Agreement, dated as of July 28, 2022, by and among Credit
Acceptance Corporation, CAC Warehouse Funding LLC V and Fifth Third Bank, National Association
(incorporated by reference to Exhibit 4.104 to the Company’s Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2022).
Second Amendment to Loan and Security Agreement, dated as of July 28, 2022, by and among Credit
Acceptance Corporation, Credit Acceptance Funding LLC 2021-1 and Fifth Third Bank, National Association
(incorporated by reference to Exhibit 4.105 to the Company’s Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2022).
104
4.99
4.100
4.101
4.102
4.103
4.104
4.105
4.106
4.107
4.108
4.109
4.110
10.1
10.2
Indenture dated as of November 3, 2022, between Credit Acceptance Auto Loan Trust 2022-3 and
Computershare Trust Company, N.A. (incorporated by reference to Exhibit 4.106 to the Company’s Current
Report on Form 8-K filed November 9, 2022).
Sale and Servicing Agreement, dated as of November 3, 2022, among the Company, Credit Acceptance Auto
Loan Trust 2022-3, Credit Acceptance Funding LLC 2022-3, and Computershare Trust Company, N.A.
(incorporated by reference to Exhibit 4.107 to the Company’s Current Report on Form 8-K filed November 9,
2022).
Backup Servicing Agreement, dated as of November 3, 2022, among the Company, Credit Acceptance Auto
Loan Trust 2022-3, Credit Acceptance Funding LLC 2022-3, and Computershare Trust Company, N.A.
(incorporated by reference to Exhibit 4.108 to the Company’s Current Report on Form 8-K filed November 9,
2022).
Amended and Restated Trust Agreement, dated as of November 3, 2022, between Credit Acceptance Funding
LLC 2022-3, each of the initial members of the Board of Trustees of the Trust, and U.S. Bank Trust National
Association (incorporated by reference to Exhibit 4.109 to the Company’s Current Report on Form 8-K filed
November 9, 2022).
Sale and Contribution Agreement, dated as of November 3, 2022, between the Company and Credit
Acceptance Funding LLC 2022-3 (incorporated by reference to Exhibit 4.110 to the Company’s Current
Report on Form 8-K filed November 9, 2022).
Loan and Security Agreement, dated as of December 15, 2022, among the Company, Credit Acceptance
Funding LLC 2022-2, Bank of Montreal, BMO Capital Markets Corp., and Computershare Trust Company,
N.A. (incorporated by reference to Exhibit 4.112 to the Company’s Current Report on Form 8-K filed
December 21, 2022).
Backup Servicing Agreement, dated as of December 15, 2022, by and among the Company, Credit
Acceptance Funding LLC 2022-2, Bank of Montreal, BMO Capital Markets Corp., and Computershare Trust
Company, N.A. (incorporated by reference to Exhibit 4.113 to the Company’s Current Report on Form 8-K
filed December 21, 2022).
Amended and Restated Intercreditor Agreement, dated December 15, 2022, among the Company, CAC
Warehouse Funding LLC II, CAC Warehouse Funding LLC IV, CAC Warehouse Funding LLC V, CAC
Warehouse Funding LLC VI, CAC Warehouse Funding LLC VIII, Credit Acceptance Funding LLC 2022-3,
Credit Acceptance Funding LLC 2022-2, Credit Acceptance Funding LLC 2022-1, Credit Acceptance
Funding LLC 2021-4, Credit Acceptance Funding LLC 2021-3, Credit Acceptance Funding LLC 2021-2,
Credit Acceptance Funding LLC 2021-1, Credit Acceptance Funding LLC 2020-3, Credit Acceptance
Funding LLC 2020-2, Credit Acceptance Funding LLC 2020-1, Credit Acceptance Funding LLC 2019-3,
Credit Acceptance Funding LLC 2019-2, Credit Acceptance Auto Loan Trust 2022-3, Credit Acceptance
Auto Loan Trust 2022-1, Credit Acceptance Auto Loan Trust 2021-4, Credit Acceptance Auto Loan Trust
2021-3, Credit Acceptance Auto Loan Trust 2021-2, Credit Acceptance Auto Loan Trust 2020-3, Credit
Acceptance Auto Loan Trust 2020-2, Credit Acceptance Auto Loan Trust 2020-1, Credit Acceptance Auto
Loan Trust 2019-3, Computershare Trust Company, N.A., Fifth Third Bank, National Association, Bank of
Montreal, Wells Fargo Bank, National Association, Flagstar Bank, FSB, Citizens Bank, N.A., and Comerica
Bank (incorporated by reference to Exhibit 4.114 to the Company’s Current Report on Form 8-K filed
December 21, 2022).
Sale and Contribution Agreement, dated as of December 15, 2022, between the Company and Credit
Acceptance Funding LLC 2022-2 (incorporated by reference to Exhibit 4.115 to the Company’s Current
Report on Form 8-K filed December 21, 2022).
Eighth Amendment to Loan and Security Agreement, dated as of December 27, 2022, by and among the
Company, CAC Warehouse Funding LLC V, and Fifth Third Bank, National Association (incorporated by
reference to Exhibit 4.116 to the Company’s Current Report on Form 8-K filed January 3, 2023).
Third Amendment to Loan and Security Agreement, dated as of December 27, 2022, by and among the
Company, Credit Acceptance Funding LLC 2021-1, and Fifth Third Bank, National Association (incorporated
by reference to Exhibit 4.117 to the Company’s Current Report on Form 8-K filed January 3, 2023).
Amendment No.1 to Letter Agreement dated November 15, 2022, by and among Chapter 4 Properties LLC
and Comerica Bank.
Form of Restricted Stock Grant Agreement (incorporated by reference to Exhibit 10(q)(4) to the Company’s
Current Report on Form 8-K filed February 28, 2007).*
Credit Acceptance Corporation Amended and Restated Incentive Compensation Plan, as amended, April 6,
2009 (incorporated by reference to Annex A to the Company’s Definitive Proxy Statement on Schedule 14A
filed April 10, 2009).*
105
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
21
23
31.1
32.1
Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10(q)(11) to the
Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009).*
Form of Board of Directors Restricted Stock Unit Award Agreement (incorporated by reference to
Exhibit 10(q)(12) to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September
30, 2009).*
Restricted Stock Unit Award Agreement, dated March 26, 2012, between the Company and Brett A. Roberts
(incorporated by reference to Exhibit 10.16 to the Company’s Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2012).*
Restricted Stock Award Agreement, dated March 26, 2012, between the Company and Brett A. Roberts
(incorporated by reference to Exhibit 10.17 to the Company’s Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2012).*
Credit Acceptance Corporation Amended and Restated Incentive Compensation Plan, as amended, March 26,
2012 (incorporated by reference to Annex A to the Company’s Definitive Proxy Statement on Schedule 14A
filed April 5, 2012).*
Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013).*
Shareholder Agreement, dated as of January 3, 2017, between the Company and Donald A. Foss
(incorporated by reference to Exhibit 10.18 to the Company’s Current Report on Form 8-K filed January 4,
2017).*
Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.19 to the
Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017).*
Amendment to Shareholder Agreement dated September 15, 2017, between the Company and Donald A. Foss
(incorporated by reference to Exhibit 10.19 to the Company’s Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2017).*
Amendment to Shareholder Agreement dated November 29, 2017, between the Company and Donald A.
Foss.*
Form of Director Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.13 to the
Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019).*
Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.14 to the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2020).*
Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.15 to the Company’s
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021).*
Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.17 to the Company’s
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021).*
Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.18 to the Company’s
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021).*
Settlement Agreement and Assurance of Discontinuance with the Commonwealth of Massachusetts
(incorporated by reference to Exhibit 10.19 to the Company’s Current Report on Form 8-K filed September 1,
2021).
Credit Acceptance Corporation Amended and Restated Incentive Compensation Plan (incorporated by
reference to Annex A to the Company’s definitive proxy statement on Schedule 14A filed June 10, 2021).*
List of Credit Acceptance Corporation subsidiaries.
Consent of Grant Thornton LLP.
Certification of principal executive officer and principal financial officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act.
Certification of principal executive officer and principal financial officer, pursuant to 18 U.S.C. Section 1350,
as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101(SCH)
101(CAL)
101(DEF)
101(LAB)
101(PRE)
104
Inline XBRL Taxonomy Extension Schema Document.
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
Inline XBRL Taxonomy Extension Definition Linkbase Document.
Inline XBRL Taxonomy Label Linkbase Document.
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
Cover Page Interactive Data File (included in the Exhibit 101 Inline XBRL Document Set).
*
Management contract or compensatory plan or arrangement.
106
Other instruments, notes, or extracts from agreements defining the rights of holders of long-term debt of the Company or its
subsidiaries have not been filed because (i) in each case the total amount of long-term debt permitted thereunder does not
exceed 10% of the Company’s consolidated assets and (ii) the Company hereby agrees that it will furnish such instruments,
notes, and extracts to the Securities and Exchange Commission upon its request.
Amendments and modifications to other exhibits previously filed have been omitted when in the opinion of the registrant such
exhibits as amended or modified are no longer material or, in certain instances, are no longer required to be filed as exhibits.
ITEM 16.
FORM 10-K SUMMARY
None.
107
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CREDIT ACCEPTANCE CORPORATION
By:
/s/ KENNETH S. BOOTH
Kenneth S. Booth
Chief Executive Officer
Date:
February 10, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on February 10, 2023 on behalf of the registrant and in the capacities indicated.
Signature
Title
/s/ KENNETH S. BOOTH
Kenneth S. Booth
Chief Executive Officer and Director
(Principal Executive Officer and Principal Financial Officer)
/s/ JAY D. MARTIN
Jay D. Martin
Senior Vice President, Finance and Accounting
(Principal Accounting Officer)
/s/ THOMAS N. TRYFOROS
Chair of the Board and Lead Director
Thomas N. Tryforos
/s/ GLENDA J. FLANAGAN
Director
Glenda J. Flanagan
/s/ VINAYAK R. HEGDE
Vinayak R. Hegde
Director
/s/ SCOTT J. VASSALLUZZO
Director
Scott J. Vassalluzzo
108
Board of Directors
Other Information
Corporate Headquarters
25505 West Twelve Mile Road
Southfield, MI 48034
(248) 353-2700
Transfer Agent and Registrar
Computershare Trust Company, N.A.
211 Quality Circle, Suite 210
College Station, TX 77845
(781) 575-3120
Corporate Counsel
Skadden, Arps, Slate, Meagher & Flom LLP
Chicago, IL
Certified Public Accountants
Grant Thornton LLP
Southfield, MI
Stock Listing
Nasdaq symbol: CACC
Investor Relations
Information requests should be directed to:
Douglas W. Busk
(248) 353-2700 Ext. 4432
Annual Meeting of
Shareholders
June 2, 2023
8:00 a.m.
Corporate Headquarters
25505 West Twelve Mile Road
Southfield, MI 48034
Shareholders may obtain, without charge, a
copy of the Company’s Annual Report on
Form 10-K, as filed with the Securities and
Exchange Commission, by writing the Investor
Relations Department at the corporate
headquarters address or by accessing our
investor information on the Company’s website
at CreditAcceptance.com.
Kenneth S. Booth
Chief Executive Officer and President
Credit Acceptance Corporation
Thomas N. Tryforos
Chair of the Board of Directors
Private Investor
Glenda J. Flanagan
Executive Vice President and
Chief Financial Officer
Healthy America, LLC
Vinayak R. Hegde
Chief Marketing Officer
Consumer Group, T-Mobile US, Inc.
Scott J. Vassalluzzo
Managing Member
Prescott General Partners LLC
Executive Officers
Kenneth S. Booth
Chief Executive Officer and President
Douglas W. Busk
Chief Treasury Officer
Erin J. Kerber
Chief Legal Officer, Chief Compliance Officer
and Secretary
Jonathan L. Lum
Chief Operating Officer
Ravi Mohan
Chief Technology Officer
Andrew K. Rostami
Chief Marketing and Product Officer
Wendy A. Rummler
Chief People Officer
Arthur L. Smith
Chief Analytics Officer
Daniel A. Ulatowski
Chief Sales Officer
25505 West Twelve Mile Road
Southfield, MI 48034
CreditAcceptance.com
248.353.2700