What changed in this filing

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Item 1A. Risk Factors

2025-05-08 compared with 2024-11-07 · 36 added, 59 removed, 448 unchanged (17% of the section changed)

37 unchanged sentences

The recent growth of our investments in private label credit and general purpose credit card receivables may not be indicative of our ability to grow such receivables in the future.

Our period-end managed receivables balance for private label credit and general purpose credit card receivables grew to $2,653.8 million at September 30, 2024, from $2,314.6 million at September 30, 2023.

Our period-end managed receivables balance for private label credit and general purpose credit card receivables grew to $2,706.3 million at March 31, 2025, from $2,317.6 million at March 31, 2024.

The amount of such receivables has fluctuated significantly over the course of our operating history.

2 unchanged sentences

Reliance upon relationships with a few large retailers in the private label credit operations may adversely affect our revenues and operating results from these operations.

Our five largest retail partners accounted for over 75% of our outstanding private label credit receivables as of September 30, 2024.

Our five largest retail partners accounted for over 75% of our outstanding private label credit receivables as of December 31, 2024.

Although we are adding new retail partners on a regular basis, it is likely that we will continue to derive a significant portion of this operations’ receivables base and corresponding revenue from a relatively small number of partners in the future.

7 unchanged sentences

Reviews and enforcement actions by regulatory authorities under banking and consumer protection laws and regulations may result in changes to our business practices, may make collection of receivables more difficult or may expose us to the risk of fines, restitution and litigation.

banking and licensing authorities, state regulators having jurisdiction over financial institutions and debt origination and collection and state attorneys general.

Our operations and the operations of the issuing banks through which the credit products we service are originated are subject to the jurisdiction of federal, state and local government authorities, including the SEC, the FDIC, the Office of the Comptroller of the Currency, the FTC, state regulators having jurisdiction over financial institutions and debt origination and collection and state attorneys general.

Our business practices and the practices of issuing banks, including the terms of products, servicing and collection practices, are subject to both periodic and special reviews by these regulatory and enforcement authorities.

18 unchanged sentences

If the banks that originate loans utilizing our technology platform were subject to such a lawsuit, they may elect to terminate their relationships with us voluntarily or at the direction of their regulators, and if they lost the lawsuit, they could be forced to modify or terminate such relationships.

In addition to true lender challenges, a question regarding the applicability of state usury rates may arise when a loan is sold from a bank to a non-bank entity.

Midland Funding, LLC, the U.S.

Court of Appeals for the Second Circuit held that the federal preemption of state usury laws did not extend to the purchaser of a loan issued by a national bank.

In its brief urging the U.S.

Supreme Court to deny certiorari, the U.S.

Solicitor General, joined by the Office of the Comptroller of the Currency ("OCC"), noted that the Second Circuit (Connecticut, New York and Vermont) analysis was incorrect.

On remand, the U.S.

District Court for the Southern District of New York concluded on February 27, 2017, that New York’s state usury law, not Delaware’s state usury law, was applicable and that the plaintiff’s claims under the FDCPA and state unfair and deceptive acts and practices could proceed.

To that end, the court granted Madden’s motion for class certification.

At this time, it is unknown whether Madden will be applied outside of the defaulted debt context in which it arose.

The facts in Madden are not directly applicable to our business, as we do not engage in practices similar to those at issue in Madden.

However, to the extent that the holding in Madden is broadened to cover circumstances applicable to our business, or if other litigation on related theories were brought against us or others and were successful, or we otherwise were found to be the "true lender," we could become subject to state usury limits and state licensing laws, in addition to the state consumer protection laws to which we are already subject, in a greater number of states, loans in such states could be deemed void and unenforceable, and we could be subject to substantial penalties in connection with such loans.

In response to the uncertainty Madden created as to the validity of interest rates of bank-originated loans sold in the secondary market, in May 2020 and June 2020, the OCC and the FDIC, respectively, issued final rules that reaffirmed the "valid when made" doctrine and clarified that when a bank sells, assigns, or otherwise transfers a loan, the interest rates permissible prior to the transfer continue to be permissible following the transfer.

In the summer of 2020, a number of state attorneys general filed suits against the OCC and the FDIC, challenging these "valid when made" rules.

In February 2022, the U.S.

District Court for the Northern District of California entered two orders granting summary judgement in favor of the OCC and the FDIC.

The court held that the bank regulators had the power to issue the rules reaffirming the "valid when made" doctrine.

Although the practical consequences of Madden have diminished since the initial ruling, uncertainty remains in this area of law.

The CFPB recently issued a final rule regarding credit card late fees, which represents a significant departure from the rules that are currently in effect.

Absent a successful legal challenge, we expect the rule would have an adverse impact on our business, results of operations and financial condition for at least the short term and, depending on the effectiveness of our actions taken in response to the rule, potentially over the long term.

In March 2024, the CFPB published a final rule that would significantly reduce the safe harbor amount for late fees that credit card issuers are authorized to charge.

This rule is currently on hold, pending litigation.

The rule, if implemented, would:

(i) decrease the safe harbor amount for credit card late fees to $8 and eliminate a higher safe harbor dollar amount for subsequent late payments;

and (ii) eliminate the annual inflation adjustments that currently exist for the late fee safe harbor dollar amounts.

The "safe harbor" dollar amounts referenced in the CFPB’s rulemaking refer to the amounts that credit card issuers may charge as late fees under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the "CARD Act") without reference to the issuer’s cost to collect.

Under the CARD Act, these safe harbor amounts, since their initial implementation, have been subject to annual adjustment based on changes in the Consumer Price Index, and the safe harbor amounts are currently set at $30 for an initial late fee and $41 for subsequent late fees incurred in one of the next six billing cycles.

Accordingly, the $8 safe harbor amount on late fees (and the elimination of the annual inflation-based adjustment thereto) would represent a significant decrease from the current safe harbor amounts.

The final rule was slated to become effective on May 14, 2024, subject to any court-imposed injunction resulting from litigation.

Shortly after the final rule was published, a lawsuit was filed in U.S.

District Court for the Northern District of Texas (Ft.

Worth Division) by the U.S.

Chamber of Commerce, the American Bankers Association and various other parties, challenging the rule and seeking a preliminary injunction enjoining the rule from becoming effective during the pendency of the litigation.

The lawsuit asserts that the rule would ultimately harm those consumers the CFPB is charged with protecting and seeks to have the rule vacated on various grounds, including that the CFPB (i) violated the CARD Act by preventing issuers from collecting reasonable and proportional late fees when cardholders do not pay their bills on time, and (ii) violated the Administrative Procedure Act by promulgating a final rule that is arbitrary and capricious, relying on inappropriate, incomplete and non-public data.

An injunction against implementation was entered on May 10, 2024.

Assuming these legal challenges are not successful and the CFPB’s final rule becomes effective, this rule would represent an approximately 75% reduction in the amount of late fees that may be charged under the CARD Act safe harbor.

We have already executed on a number of strategies designed to limit the impact of the final rule on us and we continue to evaluate various other mitigating strategies, but it may not be feasible for us to fully implement these strategies in the short term, and these efforts ultimately may not be successful even if and when fully implemented.

Moreover, the final rule (and certain of our mitigating strategies) may present other risks and adverse impacts to our business, results of operations and financial condition, which could include, without limitation, the loss of customers due to tightened underwriting standards or negative customer response to higher rates and fees, impacts to customer payment behavior due to decreased incentives to pay, further regulatory action in response to mitigating strategies that may be employed by us or other credit card issuers, adverse impacts to or disputes with our brand partners, strategic non-renewals of certain brand partner relationships that cease to be profitable, and balance sheet impairments, including of goodwill, long-lived assets and other prepaid or intangible assets.

We support banks that market general purpose credit cards and certain other credit products directly to consumers.

52 unchanged sentences

These include the risks that we will not be able to integrate and operate successfully new businesses, that we will have to incur substantial indebtedness and increase our leverage in order to pay for the acquisitions, that we will be exposed to, and have to comply with, different regulatory regimes and that we will not be able to apply our traditional analytical framework (which is what we expect to be able to do) in a successful and value-enhancing manner.

Risks Related to Our Financial Reporting and Accounting

We are remediating a material weakness in our internal control over financial reporting.

If we experience additional material weaknesses in the future, our business may be harmed.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for evaluating and reporting on the effectiveness of our system of internal control.

Our 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 reporting purposes in accordance with generally accepted accounting principles in the United States (“GAAP”).

As a public company, we are required to comply with the Sarbanes-Oxley Act and other rules that govern public companies.

In particular, we are required to certify our compliance with Section 404 of the Sarbanes-Oxley Act, which requires us to furnish annually a report by management on the effectiveness of our internal control over financial reporting.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2024 and concluded that our internal control over financial reporting was not effective as of December 31, 2024 due to a material weakness described under Part II, Item 9A “Controls and Procedures” on our Form 10-K for the fiscal year ended December 31, 2024.

Remediation efforts place a significant burden on management and add increased pressure on our financial resources and processes.

If we identify material weaknesses in our internal control over financial reporting in the future, our business may be harmed.

Such harm may include:

(i) failure to accurately report our financial results, to prevent fraud or to meet our SEC reporting obligations in a timely basis or at all; (ii) material misstatements in our condensed consolidated financial statements and harm to our operating results and investor confidence; and (iii) a material adverse effect on the trading prices of our securities.

In addition, the foregoing could subject us to sanctions or investigations by the NASDAQ, the SEC or other regulatory authorities, and result in the breach of covenants in our debt agreements, any of which could have a material adverse impact on our operations, financial condition, results of operations, liquidity and our securities’ trading prices.

Further, there are inherent limitations in the effectiveness of any control system, including the potential for human error and the possible circumvention or overriding of controls and procedures.

Additionally, judgments in decision-making can be faulty and breakdowns can occur because of a simple error or mistake.

An effective control system can provide only reasonable, not absolute, assurance that the control objectives of the system are adequately met.

Finally, projections of any evaluation or assessment of effectiveness of a control system to future periods are subject to the risks that, over time, controls may become inadequate because of changes in an entity’s operating environment or deterioration in the degree of compliance with policies or procedures.

Other Risks of Our Business

25 unchanged sentences

Our financial performance and consumers’ ability to repay indebtedness may be affected by uncertain economic conditions, including inflation, government shutdowns and changing interest rates.

In recent months, there have been significant changes to U.S.

trade policies, treaties and tariffs.

Although trade negotiations are ongoing, sustained higher tariffs likely would accelerate inflation.

Higher inflation increases the costs of goods and services, reduces consumer spending power and may negatively affect our ability to purchase receivables.

3 unchanged sentences

Higher interest rates often lead to higher payment obligations, which may reduce the ability of consumers to remain current on their obligations and, therefore, lead to increased delinquencies, defaults, customer bankruptcies and charge-offs, and decreased recoveries, all of which could have an adverse effect on our business.

Over the last two years, prices for energy and food have been particularly volatile in light of Russia’s invasion of Ukraine and the resulting trade restrictions and sanctions imposed on Russia by the U.S.

and other countries.

These events have increased inflationary pressures.

The potential for government shutdowns due to Congress' failure to enact an appropriations bill could have a negative impact on the nation's economy and adversely impact both our ability to purchase receivables due to lower economic spending levels and our ability to collect on existing receivables as consumers may have temporary or permanent delays in income.

We are a holding company with no operations of our own.

90 unchanged sentences

Management has processes in place to monitor these judgments and assumptions, but these processes may not ensure that our judgments and assumptions are accurate.

Our allowances for credit losses are determined based upon both objective and subjective factors and may not be adequate to absorb credit losses.

Our allowance for credit losses are determined based upon both objective and subjective factors and may not be adequate to absorb credit losses.

We face the risk that customers will fail to repay their loans in full.

Through our analysis of loan performance, delinquency data, charge-off data, economic trends and the potential effects of those economic trends on consumers, we establish allowances for credit losses as an estimate of the expected credit losses inherent within those loans, interest and fees receivable that we do not report at fair value.

We determine the necessary allowances for credit losses by analyzing some or all of the following attributes unique to each type of receivable pool:

historical loss rates; current delinquency and roll-rate trends; vintage analyses based on the number of months an account has been in existence; the effects of changes in the economy on consumers; changes in underwriting criteria; and estimated recoveries.

Through our analysis of loan performance, delinquency data, charge-off data, economic trends and the potential effects of those economic trends on consumers, we establish allowance for credit losses as an estimate of the expected credit losses inherent within those loans, interest and fees receivable that we do not report at fair value.

We determine the necessary allowance for credit losses by analyzing some or all of the following attributes unique to each type of receivable pool:

historical loss rates; current delinquency and roll-rate trends; the effects of changes in the economy on consumers; changes in underwriting criteria; and estimated recoveries.

These inputs are considered in conjunction with (and potentially reduced by) any unearned fees and discounts that may be applicable for an outstanding loan receivable.

Actual losses are difficult to forecast, especially if such losses are due to factors beyond our historical experience or control.

As a result, our allowances for credit losses may not be adequate to absorb all credit losses or prevent a material adverse effect on our business, financial condition and results of operations.

As a result, our allowance for credit losses may not be adequate to absorb all credit losses or prevent a material adverse effect on our business, financial condition and results of operations.

Losses are the largest cost as a percentage of revenues across all of our products.

27 unchanged sentences

Future sales of shares of common stock or the availability of shares of common stock for future sale, including sales of our common stock in short sale transactions, may have a material adverse effect on the trading price of our common stock.

The shares of Series A preferred stock and Series B p referred stock are senior obligations, rank prior to our common stock with respect to dividends, distributions and payments upon liquidation and have other terms, such as a redemption right, that could negatively impact the value of shares of our common stock.

The shares of Series A preferred stock and Series B preferred stock are senior obligations, rank prior to our common stock with respect to dividends, distributions and payments upon liquidation and have other terms, such as a redemption right, that could negatively impact the value of shares of our common stock.

In December 2019, we issued 400,000 shares of Series A preferred stock.

35 unchanged sentences

The rights of holders of the Series B preferred stock to participate in the distribution of our assets will rank junior to the prior claims of our current and future creditors, the Series A preferred stock and any future series or class of preferred stock we may issue that ranks senior to the Series B preferred stock.

Our Articles of Incorporation authorize us to issue up to 10,000,000 shares of preferred stock in one or more series on terms determined by our board of directors, and as of September 30, 2024 we had outstanding 400,000 shares of Series A preferred stock and 3,300,704 shares of Series B preferred stock.

As of September 30, 2024, we could issue up to 6,299,296 additional shares of preferred stock.

Our Articles of Incorporation authorize us to issue up to 10,000,000 shares of preferred stock in one or more series on terms determined by our board of directors, and as of March 31, 2025, we had outstanding 400,000 shares of Series A preferred stock and 3,314,840 shares of Series B preferred stock.

As of March 31, 2025, we could issue up to 6,285,160 additional shares of preferred stock.

In addition, the Series B preferred stock effectively ranks junior to all existing and future indebtedness and other liabilities of (as well as any preferred equity interests held by others in) our existing subsidiaries and any future subsidiaries.

12 unchanged sentences

We are allowed to issue additional shares of Series B preferred stock and additional series of preferred stock that would rank on a parity with the Series B preferred stock as to dividend payments and rights upon our liquidation, dissolution or winding up of our affairs pursuant to our Articles of Incorporation and the Amended and Restated Articles of Amendment Establishing the Series B preferred stock without any vote of the holders of the Series B preferred stock.

As of September 30, 2024, we could issue up to 6,299,296 additional shares of preferred stock.

As of March 31, 2025, we could issue up to 6,285,160 additional shares of preferred stock.

The issuance of additional shares of Series B preferred stock and additional series of parity preferred stock could have the effect of reducing the amounts available to the holders of Series B preferred stock upon our liquidation or dissolution or the winding up of our affairs.

26 unchanged sentences

The conversion rate for the Series B preferred stock is subject to adjustment in certain circumstances.

A failure to adjust (or to adjust adequately) the conversion rate after an event that increases the proportionate interest of the Series B preferred stock holders in us could be treated as a deemed taxable dividend to you.

A failure to adjust (or to adjust adequately) the conversion rate after an event that increases the proportionate interest of the Series B preferred stockholders in us could be treated as a deemed taxable dividend to you.

If a holder is a non-U.S.

29 unchanged sentences

In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness and may consequently receive payment from these assets before they may be used to pay other creditors, including the holders of the 2026 Senior Notes and 2029 Senior Notes.

The 2026 Senior Notes and 2029 Senior Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.

T he 2026 Senior Notes and 2029 Senior Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.

The 2026 Senior Notes and 2029 Senior Notes are obligations exclusively of Atlanticus and not of any of our subsidiaries.

22 unchanged sentences

The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of the 2026 Senior Notes and 2029 Senior Notes.

We may not be able to generate sufficient cash to service all of our debt, and may be forced to take other actions to satisfy our obligations under such indebtedness, which may not be successful.

W e may not be able to generate sufficient cash to service all of our debt, and may be forced to take other actions to satisfy our obligations under such indebtedness, which may not be successful.

Our ability to make scheduled payments on, or to refinance our obligations under, our debt will depend on our financial and operating performance and that of our subsidiaries, which, in turn, will be subject to prevailing economic and competitive conditions and to financial and business factors, many of which may be beyond our control.

32 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors