What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-11 compared with 2021-02-12 · 270 added, 299 removed, 1560 unchanged (27% of the section changed)

1 unchanged sentence

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm 42

Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 )

Consolidated Balance Sheets as of December 31, 2021 and 2020 47

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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, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as 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, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

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We believe that our audits provide a reasonable basis for our opinion.

Critical audit matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses and Provision for Credit Losses

The Company offers financing programs to a network of automobile dealers (“Dealers”) who enter into lending contracts directly with consumers (“Consumer Loans”).

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 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 separate opinions 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.

2 unchanged sentences

Dealer Loans and Purchased Loans, collectively referred to as “Loans”, are presented as Loans receivable in the consolidated balance sheets.

As described in Note 2 and Note 5 to the financial statements, on January 1, 2020, 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”).

As described 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 outstanding on the adoption date, the Company (1) calculated an effective interest rate based on expected future net cash flows;

and (2) increased the Loans receivable by $2,463.6 million and the related allowance for credit losses balance by $2,463.6 million.

The amount is the present value of the difference between contractual future net cash flows and expected future net cash flows discounted at the effective interest rate.

For each subsequent period, the Company adjusts 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 a provision for credit losses or a reversal of provision for credit losses in the consolidated statements of income.

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”).

3 unchanged sentences

The initial allowance for credit losses is recognized as a provision for credit losses in the consolidated statements of income.

For each reporting period subsequent to assignment, the Company adjusts 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.

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.

1 unchanged sentence

An adjustment was made based on management’s best estimate of the impact on the expected future net cash flows and ultimately resulted in an increase to the provision for credit losses and the allowance for credit losses.

The Company re-assessed this estimate throughout each period in 2020 and continued to apply a reduction to the forecasted cash flows based on their evaluation.

We identified the allowance for credit losses and provision for credit losses as a critical audit matter.

The Company re-assessed this estimate throughout each period in 2021 and continued to apply a reduction to the expected future cash flows based on their evaluation.

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 allowance for credit losses as of December 31, 2021 was $3,013.5 million and the provision for credit losses was $8.4 million for the year ended December 31, 2021.

The principal considerations for our determination of the allowance for credit losses and provision for credit losses as a critical audit matter are the high degree of subjectivity in evaluating the reasonableness of management’s estimate and related assumptions used in the models that derive the expected future cash flows.

The models used in the computation of the estimate are internally developed and determine the amount and timing of the initial forecast and the current forecast of expected future cash flows.

In addition, it requires significant auditor judgment to obtain sufficient appropriate audit evidence related to management’s development and implementation of a new accounting standard.

Our audit procedures related to the allowance for credit losses included testing the design and operating effectiveness of key controls relating to initial adoption of ASC 326, which included management’s assessment on the applicability of transition relief guidance on existing loans and validating model changes necessitated by ASC 326.

We verified the completeness of the loan populations used in the new models at adoption.

We selected a sample of the loans included in the models at adoption and compared the relevant inputs to the underlying loan documentation.

We assessed the reasonableness of management’s assumptions and conclusions regarding the implementation of ASC 326 including the unit of account, segmentation, and the selection of the discounted cash flow model.

We recomputed the effective interest rate at adoption and recomputed the adjustment to the Loans receivable balance and the allowance for credit losses.

Our audit procedures related to the allowance for credit losses and provision for credit losses post-adoption include testing the design and operating effectiveness of key controls relating to the existence of Loans, development and validation of models used in the computation of the allowance for credit losses and provision for credit losses, management review controls over these models and segregation of duties for maintaining the models.

We tested Dealer advances, accuracy of the associated Consumer Loans, the provision for credit losses recorded for new advances and consumer payments for existence and application to the appropriate Consumer Loans and Dealer Loans, if applicable.

We sampled Loans and recomputed the provision for credit losses and allowance for credit losses for the sampled loans using the inputs we assessed.

We agreed key components to the applicable source, including agreeing the expected future cash flows back to the forecast model and recomputing the expected future net cash flows.

We recalculated the effective interest rate for new advances.

We assessed the reasonableness of the methodology used in the forecast model that computes the expected future cash flows, through the use of our internal valuation model specialists.

We recomputed the initial and current forecasts and compared to the system generated forecast.

We tested the underlying data used in the models and determined that Loans were appropriately categorized within the model.

We analyzed the timing of the future cash flows based on management’s assumptions and historical actual cash flows.

We performed procedures to determine if management has historically demonstrated the ability to accurately predict initial and current forecasts of future net cash flows.

We evaluated the dealer holdback used in both the expected cash flows and the contractual cash flows.

We assessed trends relating to changes in the allowance for loan loss.

Total finance charge revenue for the year ended December 31, 2021 was $1,742.6 million.

The principal consideration for our determination of the allowance for credit losses, provision for credit losses and finance charge revenue as a critical audit matter is the high degree of subjectivity 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 the initial forecast and the current forecast of expected future cash flows.

Our audit procedures related to the allowance for credit losses, provision for credit losses and finance charge revenue include testing the design and operating effectiveness of key 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 models that compute the expected future cash flows.

We recomputed the initial and current forecasts for a sample of Loans.

We tested the underlying data, including Loan balances and other characteristics included on the Consumer Loan and collections for that sample.

We also assessed the reasonableness of the COVID-19 adjustment applied to the expected future cash flows, considering internal and external factors.

We assessed the reasonableness of the timing of the future cash flows based on management’s assumptions and historical actual cash flows.

We analyzed the historical forecasts against actuals to determine if management has the ability to accurately predict initial and current forecasts of future cash flows.

We sampled new Loans during 2021 and confirmed the balance with the Dealer and/or agreed to the Consumer Loan for completeness and accuracy.

We sampled collections made during 2021 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.

We recomputed the provision for credit losses for a sample of new Loans by computing the difference between the initial Loan balance and the present value of expected future net cash flows discounted at the effective interest rate.

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, 2021.

For the sample tested, we also recomputed the 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 tested sensitivity around the partial write-off policy.

The team analyzed and agreed the past-due status of loans to collection details and verified the allowance was consistent with the status of the loans.

We evaluated the internal and external factors impacting the COVID-19 adjustment to the expected cash flows for reasonableness.

We evaluated the design and operating effectiveness of key controls relating to the adjustment.

We tested the data and assumptions used to compute the adjustment.

The team also evaluated the required disclosures under CECL for completeness and accuracy.

Finance Charge Revenue

We identified finance charge revenue as a critical audit matter.

As noted above, the Company adopted CECL as of January 1, 2020, which resulted in a change in their accounting policies for Loans.

As described in Note 2, the finance charge revenue is computed differently for Loans originated prior to December 31, 2019 and Loans originated on or after January 1, 2020.

The previous Loans are accounted for under the PCD Method.

The Company recognized finance charge revenue on these Loans, using the effective interest rate that was calculated on the adoption date based on expected future net cash flows.

For Loans originated on or after January 1, 2020, finance charge revenue is accounted for under the Originated Method.

The Company recognized finance charge revenue on these Loans, using the effective interest rate that was calculated at the time of assignment based on the contractual future net cash flows.

Total finance charge revenue for the year in the period ended December 31, 2020 was $1,562.4 million.

The principal considerations for our determination that finance charge revenue as a critical audit matter are that (1) it is challenging to test the various models, which include a significant volume of information and (2) the Company adopted a new accounting standard during the year in the period ended December 31, 2020, which required significant auditor judgment in evaluating the audit evidence related to development and implementation.

Our audit procedures related to finance charge revenue included testing the design and operating effectiveness of key controls relating to the existence of Loans, the effective interest rate used for each Loan, development and validation of models used in the computation of finance charge revenue and segregation of duties for maintaining the models.

We sampled Loans and recomputed the finance charge revenue which included agreeing the effective interest rate computed at the adoption date and computing the effective interest rate for new originations based on contractual cash flows.

We analyzed and agreed the past-due status of Loans to collection details and verified the allowance for credit losses was consistent with the status of the Loans.

/s/ GRANT THORNTON LLP

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Preferred stock, $ .01 par value, 1,000,000 shares authorized, none issued

Common stock, $ .01 par value, 80,000,000 shares aut horized, 17,092,432 and

Common stock, $ .01 par value, 80,000,000 shares aut ho rized, 14,145,888 and

17,092,432 shares issued and outstanding as of December 31, 2021 and

46 unchanged sentences

Net income — — — 656.1 — 656.1

Other comprehensive loss

— — — — ( 0.1 ) ( 0.1 )

Other comprehensive income — — — — 1.1 1.1

Stock-based compensation — — 7.6 — — 7.6

15 unchanged sentences

Net income — — — 958.3 — 958.3

Other comprehensive income — — — — 0.8 0.8

Other comprehensive loss — — — — ( 1.4 ) ( 1.4 )

Stock-based compensation — — 24.8 — — 24.8

4 unchanged sentences

11,416 — — — — —

Stock options exercised 35,251 — 11.8 — — 11.8

Balance, December 31, 2021 14,145,888 $ 0.1 $ 197.2 $ 1,626.7 $ 0.2 $ 1,824.2

15 unchanged sentences

Increase (decrease) in accounts payable and accrued liabilities ( 10.7 ) ( 18.4 ) 17.3

Increase in income taxes receivable ( 80.8 ) ( 58.3 ) ( 5.7 )

Decrease (increase) in income taxes receivable 37.8 ( 80.8 ) ( 58.3 )

Decrease in income taxes payable — — ( 2.3 )

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Purchases of property and equipment ( 7.6 ) ( 8.5 ) ( 26.8 )

Net cash used in investing activities ( 673.5 ) ( 1,024.2 ) ( 1,238.3 )

Net cash provided by (used in) investing activities 437.3 ( 673.5 ) ( 1,024.2 )

Cash Flows From Financing Activities:

5 unchanged sentences

Repayment of senior notes — ( 401.8 ) ( 148.2 )

Proceeds from mortgage note — — 12.0

Payments of debt issuance costs and debt extinguishment costs ( 16.4 ) ( 18.7 ) ( 25.5 )

Repurchase of common stock ( 1,471.8 ) ( 480.8 ) ( 300.4 )

Proceeds from stock options exercised 11.8 — —

Other ( 0.8 ) ( 0.8 ) ( 0.6 )

Net cash provided (used) by financing activities ( 433.2 ) 400.3 599.9

Net cash provided by (used in) financing activities ( 1,468.7 ) ( 433.2 ) 400.3

Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents 38.0 ( 121.5 ) 188.4

Cash and cash equivalents and restricted cash and cash equivalents, beginning of period 396.2 517.7 329.3

517.7 329.3 263.8

Cash and cash equivalents and restricted cash and cash equivalents, end of period $ 434.2 $ 396.2 $ 517.7

$ 396.2 $ 517.7 $ 329.3

Supplemental Disclosure of Cash Flow Information:

Cash paid during the period for interest $ 149.4 $ 191.6 $ 175.6

Cash paid during the period for income taxes $ 141.5 $ 172.4 $ 168.8

Cash paid during the period for income taxes, net of refunds $ 213.2 $ 141.5 $ 172.4

See accompanying notes to consolidated financial statements.

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91.0 % 94.9 % 95.9 %

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:

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(“BVPP”), Vehicle Remarketing Services, Inc.

(“VRS”), VSC Re Company (“VSC Re”), CAC Warehouse Funding Corporation II, CAC Warehouse Funding LLC IV, CAC Warehouse Funding LLC V, CAC Warehouse Funding LLC VI, CAC Warehouse Funding LLC VII, CAC Warehouse Funding LLC VIII, Credit Acceptance Funding LLC 2017-3, Credit Acceptance Funding LLC 2018-1, Credit Acceptance Funding LLC 2018-2 and Credit Acceptance Funding LLC 2018-3, Credit Acceptance Funding LLC 2019-1, Credit Acceptance Funding LLC 2019-2, Credit Acceptance Funding LLC 2019-3, Credit Acceptance Funding LLC 2020-1, Credit Acceptance Funding LLC 2020-2 and Credit Acceptance Funding LLC 2020-3.

(“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 2019-1, 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 and Credit Acceptance Funding LLC 2021-4.

Business Segment Information

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As of December 31, 2021 and 2020, we had $ 407.9 million and $ 376.9 million, respectively, in restricted cash and cash equivalents that were not insured by the FDIC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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:

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Loans Receivable and Allowance for Credit Losses

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• We only accept Consumer Loan assignments from Dealers located within the United States.

2020 Recognition and Measurement Policies.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

2021 and 2020 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.

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This “gross-up” did not impact the net carrying amount of Loans (Loans receivable less allowance for credit losses) or net income.

Under the PCD Method, for each reporting period subsequent to our adoption of CECL, we:

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;

1 unchanged sentence

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Consumer Loans assigned to us subsequent to December 31, 2019 do not qualify for the PCD Method and are accounted for as originated financial assets (“Originated Method”).

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.

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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.

2019 and 2018 Recognition and Measurement Policies.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

2019 Recognition and Measurement Policies.

Prior to the adoption of CECL on January 1, 2020, we accounted for our Loans as loans acquired with significant credit deterioration.

7 unchanged sentences

The initial allowance for credit losses was recognized as provision for credit losses expense and the adjustment to the allowance for credit losses was recognized as either provision for credit losses expense or a reversal of provision for credit losses expense.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Loans Receivable .

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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 subsequent to December 31, 2019;

• not aggregated, if assigned on or subsequent to January 1, 2020;

• aggregated into pools based on the month of purchase, if assigned prior to January 1, 2020.

19 unchanged sentences

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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.

In addition, on January 1, 2020, we adopted a partial write-off policy in connection with our adoption of CECL.

In addition, on January 1, 2020, we adopted a partial write-off policy in connection with the adoption of CECL.

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.

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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.

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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.

For additional information, see New Accounting Updates Adopted During the Current Year below and Note 5.

For additional information, see Note 5.

For the three year period ended December 31, 2021, we did not make any other methodology changes for Loans that had a material impact on our financial statements.

11 unchanged sentences

For additional information regarding our property and equipment, see Note 6 to the consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Deferred Debt Issuance Costs

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For additional information regarding our derivative instruments, see Note 10 to the consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Finance Charges

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We charge a monthly fee of $ 599 to Dealers participating in our Portfolio Program and we collect it from future Dealer Holdback payments.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Recognition Policy.

1 unchanged sentence

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 subsequent to December 31, 2019, the effective interest rate is based on contractual future net cash flows.

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.

In connection with our adoption of CECL on January 1, 2020, we have elected to report the change in the present value of credit losses attributable to the passage of time as a reduction to finance charges.

In connection with the adoption of CECL on January 1, 2020, we have elected to report the change in the present value of credit losses attributable to the passage of time as a reduction to finance charges.

As a result, for financial statement periods beginning after December 31, 2019, we allocate finance charges recognized on each Loan between the Loan receivable and the related allowance for credit losses.

12 unchanged sentences

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

We have consolidated the trust within our financial statements based on our determination of the following:

16 unchanged sentences

For the years ended December 31, 2021, 2020 and 2019, we recognized compensation expense of $ 7.5 million, $ 7.2 million, and $ 7.1 million, respectively, for our matching contributions to the plan.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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.

11 unchanged sentences

Advertising expenses were $ 0.3 million for the year ended December 31, 2021, $ 0.1 million for the year ended December 31, 2020 and $ 0.3 million for the year ended December 31, 2019.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

New Accounting Updates Adopted During the Current Year

Accounting for Costs of Implementing Cloud Computing.

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, which reduces complexity in the accounting for costs of implementing a cloud computing service arrangement.

This standard aligns the accounting for implementation costs of hosting arrangements, regardless of whether they convey a license to the hosted software.

Under the current guidance, the classification of an arrangement as either a software license or a service contract determines whether or not we capitalize implementation costs.

If an arrangement meets the definition of a software license, implementation costs are capitalized.

If an arrangement meets the definition of a service contract, implementation costs are expensed as incurred.

Under the new guidance, implementation costs will be capitalized regardless of their classification.

The adoption of ASU 2018-15 on January 1, 2020 changed how we account for our cloud computing arrangements.

However, its adoption did not have a material impact on our consolidated financial statements and related disclosures.

Measurement of Credit Losses on Financial Instruments.

In June 2016, the FASB issued ASU 2016-13, which included an allowance for credit losses model known as the current expected credit loss model, or CECL, that is based on expected losses rather than incurred losses.

Under the new guidance, an entity recognizes an allowance for credit losses based on the difference between contractual future net cash flows and its estimate of expected future net cash flows.

The new guidance also changed the scope of the special accounting for loans acquired with significant credit deterioration.

Our adoption of ASU 2016-13 on January 1, 2020 had a material impact on our consolidated financial statements and related disclosures, as it changed our accounting policies for Loans.

Upon adoption of CECL on January 1, 2020, we increased both our Loans receivable and the related allowance for credit losses balances by $ 2,463.6 million.

This gross-up did not impact the net carrying amount of Loans (Loans receivable less allowance for credit losses) or net income.

This gross-up also reflected the impact of our adoption of a partial write-off policy on January 1, 2020 in connection with our adoption of CECL.

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.

While the total amount of net Loan income we will recognize over the life of the Loan is not impacted by CECL, the timing of when we will recognize this income changes significantly from our prior accounting method, as CECL requires us to recognize a significant provision for credit losses expense at the time of assignment for amounts we never expected to realize and finance charge revenue in subsequent periods that significantly exceeds our expected yields.

Given the significant change in timing of net Loan income recognition, net income for the year ending December 31, 2020 was significantly lower under CECL than what would have been reported under our prior accounting method, with the greatest impact occurring in the quarter of adoption.

For the year ended December 31, 2020, we recognized $ 518.6 million provision for credit losses on new Consumer Loan assignments related to our adoption of CECL on January 1, 2020, which reduced consolidated net income by $ 399.3 million, or $ 22.26 per diluted share.

The financial statement impact of CECL in any period will depend on Consumer Loan assignment volume and the percentage of Consumer Loans assigned to us as Purchased Loans, the size and composition of our Loan portfolio, the Loan portfolio’s credit quality and economic conditions.

New Accounting Update Not Yet Adopted

New Accounting Update Adopted During the Current Year

Simplifying the Accounting for Income Taxes.

In December 2019, the FASB issued ASU 2019-12, which intends to enhance and simplify various aspects of the income tax accounting guidance, including requirements impacting the allocation of income tax expense to certain legal entities and interim-period accounting for enacted changes in tax law.

ASU 2019-12 is effective for fiscal years, and interim periods, beginning after December 15, 2020.

Early application is permitted, but we have not yet adopted ASU 2019-12.

We do not believe that the adoption of ASU 2019-12 will have a material impact on our consolidated financial statements and related disclosures.

The adoption of ASU 2019-12 on January 1, 2021 did not have a material impact on our consolidated financial statements and related disclosures.

Subsequent Events

We have evaluated events and transactions occurring subsequent to the consolidated balance sheet date of December 31, 2021 for items that could potentially be recognized or disclosed in these financial statements.

For additional information regarding subsequent events, see Note 18 to the consolidated financial statements.

We did not identify any items which would require disclosure in or adjustment to the consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

8 unchanged sentences

Loans Receivable, net.

The fair value is determined by calculating the present value of expected future net cash flows estimated by us utilizing a discount rate comparable with the rate used to calculate the value of our Loans under our non-GAAP floating yield methodology.

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.

143 unchanged sentences

$ 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

Adoption of CECL (1)

940.2 1,523.4 2,463.6 ( 940.2 ) ( 1,523.4 ) ( 2,463.6 ) — — —

Finance charges

29 unchanged sentences

$ 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

51 unchanged sentences

$ 4,623.3 $ 2,597.9 $ 7,221.2 $ ( 428.0 ) $ ( 108.0 ) $ ( 536.0 ) $ 4,195.3 $ 2,489.9 $ 6,685.2

(1) 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.

(1) The Dealer Loans amount represents advances paid to Dealers on Consumer Loans assigned under our Portfolio Program.

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The Purchased Loans amount represents collections received on Purchased Loans that were previously written off in full .

Under CECL, which we adopted on January 1, 2020, we are required to 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.

Under both CECL and our prior accounting method, we also recognize provision for credit losses for forecast changes in the amount and timing of expected future net cash flows subsequent to assignment.

(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:

8 unchanged sentences

$ ( 28.2 ) $ 36.6 $ 8.4

(In millions)

For the Year Ended December 31, 2020

Provision for Credit Losses

Purchased Loans

New Consumer Loan assignments

$ 209.7 $ 308.9 $ 518.6

Forecast changes

30.0 8.3 38.3

$ 239.7 $ 317.2 $ 556.9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

While the total amount of net Loan income we will recognize over the life of the Loan is not impacted by the adoption of CECL on January 1, 2020, the timing of when we will recognize this income changes significantly from our prior accounting method, as CECL requires us to recognize a significant provision for credit losses expense at the time of assignment for amounts we never expected to realize and finance charge revenue in subsequent periods that significantly exceeds our expected yields.

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:

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Provision for credit losses expense at the time of assignment

$ ( 209.7 ) $ ( 308.9 ) $ ( 518.6 )

Expected future finance charges at the time of assignment (4)

93 unchanged sentences

2021 66.5 % — — 66.3 % — — 0.2 %

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Dealer Loans as of December 31, 2021

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2021 66.2 % — — 66.3 % — — - 0.1 %

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Purchased Loans as of December 31, 2021

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(2) The forecasted collection rates presented for Dealer Loans and Purchased Loans reflect the Consumer Loan classification at the time of assignment.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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 segmented by year of assignment:

The following table summarizes the past-due status of Consumer Loan assignments as of December 31, 2021 and December 31, 2020, segmented by year of assignment:

(In millions)

22 unchanged sentences

$ 3,632.8 $ 1,016.8 $ 896.6 $ 108.9 $ 5,655.1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(In millions)

10 unchanged sentences

$ 2,147.7 $ 695.3 $ 800.8 $ 50.9 $ 3,694.7

(In millions)

Total Loans as of December 31, 2020 (1) (2)

Pre-term Consumer Loans (3)

Post-term Consumer Loans (4)

Consumer Loan Assignment Year

2015 and prior $ 4.8 $ 2.2 $ 16.1 $ 99.0 $ 122.1

2016 73.5 29.1 119.3 41.7 263.6

2017 320.9 121.0 277.5 7.2 726.6

2018 962.8 374.6 513.9 1.0 1,852.3

2019 1,985.2 745.6 610.8 — 3,341.6

2020 3,002.0 663.8 152.8 — 3,818.6

$ 6,349.2 $ 1,936.3 $ 1,690.4 $ 148.9 $ 10,124.8

(In millions)

Dealer Loans as of December 31, 2020 (1)

Pre-term Consumer Loans (3)

Post-term Consumer Loans (4)

Consumer Loan Assignment Year

2015 and prior $ 2.1 $ 1.0 $ 7.9 $ 76.1 $ 87.1

2016 31.9 12.3 55.7 31.1 131.0

2017 170.5 62.7 143.3 5.1 381.6

2018 523.3 197.5 267.4 0.7 988.9

2019 1,046.9 383.5 310.2 — 1,740.6

2020 2,009.5 433.1 97.8 — 2,540.4

$ 3,784.2 $ 1,090.1 $ 882.3 $ 113.0 $ 5,869.6

(In millions)

Purchased Loans as of December 31, 2020 (2)

Pre-term Consumer Loans (3)

Post-term Consumer Loans (4)

Consumer Loan Assignment Year

2015 and prior $ 2.7 $ 1.2 $ 8.2 $ 22.9 $ 35.0

2016 41.6 16.8 63.6 10.6 132.6

2017 150.4 58.3 134.2 2.1 345.0

2018 439.5 177.1 246.5 0.3 863.4

2019 938.3 362.1 300.6 — 1,601.0

2020 992.5 230.7 55.0 — 1,278.2

$ 2,565.0 $ 846.2 $ 808.1 $ 35.9 $ 4,255.2

(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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

COVID-19 continues to be widespread in the United States.

In an effort to contain the virus, authorities have implemented various measures, including travel bans, stay-at-home orders and shutdowns of non-essential businesses.

These measures have caused a significant decline in economic activity and a dramatic increase in unemployment.

While the prevalence, severity and impact of such restrictions have lessened and unemployment rates have improved, uncertainty remains as to when economic conditions will return to normalcy and whether further restrictions may be required.

Starting in mid-March, we experienced a substantial reduction in demand for our product and a significant decline in cash flows from our Loan portfolio that lasted through mid-April, after which collections and new loan volumes improved significantly.

Starting in late July and continuing through the end of the year, we experienced another substantial reduction in demand for our product.

As the virus is not yet fully contained, the ultimate impact of the pandemic on our business is not yet known.

The impact will depend on future developments, including, but not limited to, the duration of the pandemic, its severity, the actions to contain the disease or mitigate its impact, additional federal stimulus measures and enhanced unemployment benefits, if any, and the duration, timing and severity of the impact on consumer behavior and economic activity.

During the first quarter of 2020, we reduced our estimate of future net cash flows from our Loan portfolio by $ 206.5 million, or 2.3 % of the forecasted net cash flows at the start of the period, primarily due to the impact of the COVID-19 pandemic.

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Under CECL, changes in the amount and timing of forecasted net cash flows are recorded as a provision for credit losses in the current period.

While the adjustment to our forecast, which we continued to apply through the end of 2020, represents our best estimate at this time, the COVID-19 pandemic has created conditions that increase the level of uncertainty associated with our estimate of the amount and timing of future net cash flows from our Loan portfolio.

Additional Prior Year Loan Disclosures

The adoption of CECL on January 1, 2020 eliminated the following disclosures for 2020 that were required in prior years.

We have continued to apply this adjustment to our forecast through the end of 2021 as it continues to represent our best estimate of the impact of the COVID-19 pandemic on future net cash flows.

The COVID-19 pandemic has created conditions that increase the level of uncertainty associated with our estimate of the amount and timing of future net cash flows from our Loan portfolio.

Additional Prior Year Loan Disclosure

The adoption of CECL on January 1, 2020 eliminated the following disclosure for 2020 and 2021 that was required in prior years.

The excess of expected net cash flows over the outstanding balance of Loans receivable, net is referred to as the accretable yield and is recognized on a level-yield basis as finance charge income over the remaining lives of the Loans.

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Balance, end of period $ 1,381.8 $ 938.2 $ 2,320.0

(In millions) For the Year Ended December 31, 2018

Dealer Loans Purchased Loans Total

Balance, beginning of period $ 1,088.6 $ 576.9 $ 1,665.5

New Consumer Loan assignments (1) 990.2 488.4 1,478.6

Accretion (2) ( 816.3 ) ( 369.3 ) ( 1,185.6 )

Provision for credit losses 48.0 8.9 56.9

Forecast changes 2.0 40.3 42.3

Transfers (3) ( 29.5 ) 37.3 7.8

Balance, end of period $ 1,283.0 $ 782.5 $ 2,065.5

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

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We transfer the Dealer’s outstanding Dealer Loan balance, the related allowance for credit losses balance and related expected future net cash flows to Purchased Loans in the period this forfeiture occurs.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Advances paid to Dealers on Consumer Loans assigned under our Portfolio Program and one-time payments made to Dealers to purchase Consumer Loans assigned under our Purchase Program are aggregated into pools for purposes of recognizing revenue and measuring credit losses.

As a result of this aggregation, we are not able to segment the carrying amounts of the majority of our Loan portfolio by year of assignment.

We are able to segment our Loan portfolio by the performance of the Loan pools.

Performance considers both the amount and timing of expected net cash flows and is measured by comparing the balance of the Loan pool to the discounted value of the expected future net cash flows of each Loan pool using the yield established at the time of assignment.

The following table segments our Loan portfolio by the performance of the Loan pools:

(In millions) As of December 31, 2019

Loan Pool Performance

Meets or Exceeds Initial Estimates Loan Pool Performance

Less than Initial Estimates

Loans Purchased Loans Total Dealer

Loans Purchased Loans Total

Loans receivable $ 1,591.3 $ 2,006.9 $ 3,598.2 $ 3,032.0 $ 591.0 $ 3,623.0

Allowance for credit losses

— — — ( 428.0 ) ( 108.0 ) ( 536.0 )

Loans receivable, net $ 1,591.3 $ 2,006.9 $ 3,598.2 $ 2,604.0 $ 483.0 $ 3,087.0

PROPERTY AND EQUIPMENT

55 unchanged sentences

Dealer enrollment fees 1.9 3.0 4.7

Interest 2.9 8.5 5.0

Dealer support products and services 1.3 1.9 2.5

Interest 1.2 2.9 8.5

GPS-SID fees — — 1.9

1 unchanged sentence

Total $ 53.1 $ 49.6 $ 68.6

Ancillary product profit sharing consists of payments received from Third Party Providers (“TPPs”) based upon the performance of vehicle service contracts and Guaranteed Asset Protection (“GAP”) contracts, and is recognized as income over the life of the vehicle service contracts and GAP contracts.

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.

8 unchanged sentences

The 50 % portion of the accelerated Dealer Holdback payment(s) on the first 100 Consumer Loan assignments is also 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 an accelerated Dealer Holdback payment and the amount of the first payment, if any, has been calculated.

Once an accelerated Dealer Holdback payment has 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.

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 may 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.

Interest consists of income earned on cash and cash equivalents, restricted cash and cash equivalents, and restricted securities available for sale.

1 unchanged sentence

Interest income on restricted securities available for sale is recognized over the life of the underlying financial instruments using the interest method.

Income is recognized in the period the product or service is provided.

GPS-SID fees consist of fees we received from a TPP for providing Dealers in certain states the ability to purchase GPS Starter Interrupt Devices (“GPS-SID”).

7 unchanged sentences

(In millions) For the Year Ended December 31, 2021

Ancillary product profit sharing Remarketing fees Dealer enrollment fees Interest Dealer support products and services Other Total Other Income

Ancillary product profit sharing Remarketing fees Dealer enrollment fees Dealer support products and services Interest Other Total Other Income

Source of income

8 unchanged sentences

(In millions) As of December 31, 2021

Principal Outstanding Unamortized Debt Issuance Costs Unamortized Discount Carrying

Principal Outstanding Unamortized Debt Issuance Costs Carrying

Revolving secured line of credit (1) $ 2.6 $ — $ 2.6

4 unchanged sentences

(In millions) As of December 31, 2020

Principal Outstanding Unamortized Debt Issuance Costs Unamortized Discount Carrying

Principal Outstanding Unamortized Debt Issuance Costs Carrying

Revolving secured line of credit (1) $ 95.9 $ — $ 95.9

11 unchanged sentences

Line of Credit n/a 06/22/24 $ 435.0 (1) At our option, either LIBOR plus 187.5 basis points or the prime rate plus 87.5 basis points

Warehouse Facility II (2) CAC Warehouse Funding Corp.

II 07/12/22 (3) $ 400.0 LIBOR plus 175 basis points (4)

Warehouse Facility II (2) CAC Warehouse Funding LLC II 04/30/24 (3) $ 400.0 LIBOR plus 175 basis points (4)

Warehouse Facility IV (2) CAC Warehouse Funding LLC IV 11/17/23 (3) $ 300.0 LIBOR plus 210 basis points (4)

1 unchanged sentence

Warehouse Facility VI (2) CAC Warehouse Funding LLC VI 09/30/24 (3) $ 75.0 LIBOR plus 200 basis points

Warehouse Facility VII (2) CAC Warehouse Funding LLC VII 12/16/21 (6) $ 150.0 Commercial paper rate plus 200 basis points (4)

Warehouse Facility VIII (2) CAC Warehouse Funding LLC VIII 09/01/24 (3) $ 200.0 LIBOR plus 190 basis points (4)

5 unchanged sentences

Term ABS 2020-3 (2) Credit Acceptance Funding LLC 2020-3 10/17/22 (3) $ 600.0 Fixed rate

Term ABS 2019-3 (2) Credit Acceptance Funding LLC 2019-3 11/15/21 (3) $ 351.7 Fixed rate

Term ABS 2021-1 (2) Credit Acceptance Funding LLC 2021-1 02/15/23 (3) $ 100.0 LIBOR plus 198.5 basis points (4)

Term ABS 2021-2 (2) Credit Acceptance Funding LLC 2021-2 02/15/23 (3) $ 500.0 Fixed rate

4 unchanged sentences

Mortgage Note (2) Chapter 4 Properties, LLC 08/06/23 $ 12.0 LIBOR plus 150 basis points

(1) The amount of the facility will decrease to $305.0 million on June 22, 2022.

(1) The amount of the facility will decrease by $35.0 million on June 22, 2022, and will further decrease by $25.0 million on June 22, 2023.

(2) Financing made available only to a specified subsidiary of the Company.

5 unchanged sentences

(6) Represents the revolving maturity date.

The outstanding balance will amortize after the revolving maturity date and any amounts remaining on December 16, 2023 will be due on that date.

(7) Represents the revolving maturity date.

The Company has the option to redeem and retire the indebtedness after the revolving maturity date.

136 unchanged sentences

Interest rate 1.14 % — %

2021 Senior Notes

Principal balance outstanding $ — $ 151.8

Interest rate — % 6.125 %

2023 Senior Notes

Term ABS 2021-4

Principal balance outstanding $ 250.1 $ —

Loans pledged as collateral 281.2 —

Restricted cash and cash equivalents pledged as collateral 22.1 —

Interest rate 1.44 % — %

10 unchanged sentences

We have a $ 435.0 million revolving secured line of credit facility with a commercial bank syndicate.

The amount of the facility will decrease to $ 305.0 million on June 22, 2022.

The amount of the facility will decrease by $ 35.0 million on June 22, 2022, and will further decrease by $ 25.0 million on June 22, 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.

2 unchanged sentences

Warehouse Facilities

We have six Warehouse facilities with total borrowing capacity of $ 1,250.0 million.

We have five Warehouse facilities with total borrowing capacity of $ 1,100.0 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 equity in each subsidiary.

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.

4 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

The subsidiaries pay us a monthly servicing fee equal to 6 % of the collections received with respect to the contributed Loans.

The subsidiaries pay us a monthly servicing fee equal to 6 % ( 4 % for Warehouse Facility II and Warehouse Facility VIII) 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 may be entitled to retain a portion of such collections provided that the borrowing base requirements of the facility are satisfied.

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.

Term ABS Financings

1 unchanged sentence

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 that of Term ABS 2019-2, contributed the Loans to a respective trust that issued notes to qualified institutional investors.

The Funding LLC for the Term ABS 2019-2 transaction pledged the Loans to a lender.

In turn, each Funding LLC, other than those of Term ABS 2019-2 and 2021-1, contributed the Loans to the respective trusts that issued notes to qualified institutional investors.

The Funding LLCs for the Term ABS 2019-2 and 2021-1 transactions pledged the Loans to their respective lenders.

The Term ABS 2019-1, 2019-3, 2020-1, 2020-2, 2020-3, 2021-2, 2021-3 and 2021-4 transactions each consist of three classes of notes.

Each financing at the time of issuance has a specified revolving period during which we are likely to contribute additional Loans to each Funding LLC.

Each Funding LLC (other than that of Term ABS 2019-2) will then contribute the Loans to its respective trust.

Each Funding LLC (other than those of Term ABS 2019-2 and 2021-1) 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.

2 unchanged sentences

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 6 % of the collections received with respect to the contributed Loans.

We receive a monthly servicing fee on each financing equal to 6 % ( 4 % for Term ABS 2021-2, 2021-3, and 2021-4) 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 a portion of such collections provided that the borrowing base requirements of the facility are satisfied.

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 do 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.

5 unchanged sentences

Contributed at Closing Revolving Period

Term ABS 2017-3 October 26, 2017 $ 437.6 Through October 15, 2019

Term ABS 2019-1 February 21, 2019 $ 503.1 Through February 15, 2021

Term ABS 2018-2 May 24, 2018 562.6 Through May 15, 2020

Term ABS 2019-2 August 28, 2019 625.1 Through August 15, 2022

Term ABS 2019-1 February 21, 2019 503.1 Through February 15, 2021

Term ABS 2019-2 August 28, 2019 625.1 Through August 15, 2022

Term ABS 2019-3 November 21, 2019 439.6 Through November 15, 2021

2 unchanged sentences

Term ABS 2020-3 October 22, 2020 750.1 Through October 17, 2022

Term ABS 2021-1 January 29, 2021 125.1 Through February 15, 2023

Term ABS 2021-2 February 18, 2021 625.1 Through February 15, 2023

Term ABS 2021-3 May 20, 2021 562.6 Through May 15, 2023

Term ABS 2021-4 October 28, 2021 312.6 Through October 16, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

52 unchanged sentences

300.0 Warehouse Facility IV Cap Floating Rate 07/2019 07/2023 300.0 6.50 %

Cap Floating Rate 05/2018 04/2021 50.0 6.50 %

Cap Floating Rate 07/2019 07/2023 216.7 6.50 %

125.0 Warehouse Facility V Cap Floating Rate 12/2020 01/2026 94.0 5.50 %

150.0 Warehouse Facility VII Cap Floating Rate 12/2017 11/2021 68.7 5.50 %

Cap Floating Rate 01/2020 12/2023 81.3 5.50 %

200.0 Warehouse Facility VIII Cap Floating Rate 08/2019 08/2023 200.0 5.50 %

100.0 Term ABS 2021-1 Cap Floating Rate 02/2021 06/2024 100.0 5.50 %

(Dollars in millions)

7 unchanged sentences

150.0 Warehouse Facility VII Cap Floating Rate 12/2017 11/2021 68.7 5.50 %

Cap Floating Rate 01/2020 12/2023 81.3 5.50 %

200.0 Warehouse Facility VIII Cap Floating Rate 08/2019 08/2023 200.0 5.50 %

2 unchanged sentences

The interest rate caps have not been designated as hedging instruments.

As of December 31, 2020 and 2019, the interest rate caps had a fair value of $ 0.1 million, as the capped rates were significantly above market rates.

As of December 31, 2021 and 2020, the interest rate caps had a fair value of $ 0.2 million and $ 0.1 million, respectively, as the capped rates were significantly above 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, 2021, 2020 and 2019 is as follows:

40 unchanged sentences

Net deferred tax liability $ 435.2 $ 391.0

The increases in our deferred tax assets and deferred tax liabilities from 2019 to 2020 were primarily due to the adoption of CECL on January 1, 2020, which significantly increased the outstanding balances of Loans receivable and the related allowance for credit losses.

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 2031, if not utilized.

During 2018, we wrote off $ 3.4 million of this deferred tax asset as we determined that we would not be able to utilize a state net operating loss carryforward prior to its expiration.

We do not anticipate expiration of the remaining net operating loss carryforwards prior to their utilization.

We do not anticipate expiration of the net operating loss carryforwards prior to their utilization.

Effective Income Tax Rate

6 unchanged sentences

Excess tax benefits from stock-based compensation plans - 0.3 % - 0.5 % - 0.9 %

Effect of the 2017 Tax Act — % — % - 0.7 %

Other 0.3 % 0.2 % 0.1 %

1 unchanged sentence

State income taxes

The decrease in our state income tax rate from 2019 to 2020 was primarily the result of the settlement of an uncertain tax position for state income taxes during 2020.

The decrease in our state income tax rate from 2018 to 2019 was primarily the result of the write-off of a deferred state net operating loss tax asset during 2018.

The increase in our state income tax rate from 2020 to 2021 and the decrease in our state income tax rate from 2019 to 2020 were primarily the result of the settlement of an uncertain tax position for state income taxes during 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

1 unchanged sentence

During the first quarter of each year, we receive a tax benefit upon the vesting of restricted stock and the conversion of restricted stock units to common stock based on the fair value of the shares.

In addition, we receive a tax benefit upon the exercise of stock options.

The amount by which this tax benefit exceeds the grant-date fair value that was recognized as stock-based compensation expense is referred to as an excess tax benefit.

Excess tax benefits are recognized in provision for income taxes and reduce our effective income tax rate.

The impact of excess tax benefits on our effective income tax rate decreased in magnitude from 2019 to 2020, and increased in magnitude from 2018 to 2019, primarily due to the number of restricted stock units that were converted to common stock in each period, due to the timing of our long-term stock award grants.

Effect of the 2017 Tax Act

In 2018, we reversed a provisional valuation allowance related to stock-based compensation that we had established in 2017 upon enactment of the 2017 Tax Act, which resulted in a $ 5.5 million reversal of provision for income taxes in 2018.

The impact of excess tax benefits on our effective income tax rate decreased from 2020 to 2021 primarily due to an increase in pre-tax income.

The impact of excess tax benefits on our effective income tax rate decreased from 2019 to 2020, primarily due to a decrease in the number of restricted stock units that were converted to common stock during 2020 due to the timing of our long-term stock award grants.

Unrecognized Tax Benefits

9 unchanged sentences

Unrecognized tax benefits at December 31, $ 49.4 $ 41.8 $ 41.7

The total amount of gross unrecognized tax benefit that, if recognized, would favorably affect our effective income tax rate in future periods, was $ 41.8 million as of December 31, 2020.

The total amount of gross unrecognized tax benefits that, if recognized, would favorably affect our effective income tax rate in future periods was $ 49.4 million as of December 31, 2021.

As of December 31, 2021, 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 $ 10.8 million and $ 9.2 million as of December 31, 2021 and 2020, respectively.

11 unchanged sentences

Basic number of weighted average shares outstanding 16,085,823 17,858,935 18,900,256

Dilutive effect of restricted stock and restricted stock units 76,844 76,304 86,245

Dilutive effect of restricted stock, restricted stock units and stock options 14,729 76,844 76,304

Dilutive number of weighted average shares outstanding 16,100,552 17,935,779 18,976,560

For the years ended December 31, 2020, 2019 and 2018 there were no shares of restricted stock or restricted stock units that were not included in the computation of diluted net income per share because their inclusion would have been anti-dilutive.

For the year ended December 31, 2021, there were 349,222 stock options outstanding that were excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive.

For the year ended December 31, 2021, there were no shares of restricted stock or restricted stock units outstanding that were excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive.

For the years ended December 31, 2020 and 2019, there were no stock options, shares of restricted stock, or restricted stock units outstanding that were excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

7 unchanged sentences

Total 2,884,126 $ 1,471.8 1,282,166 $ 480.8 712,448 $ 300.4

(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 or in privately negotiated transactions.

On March 5, 2020, the board of directors authorized the repurchase of up to three million shares of our common stock in addition to the board’s prior authorizations.

(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, 2021, we had authorization to repurchase 1,625,550 shares of our common stock.

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STOCK-BASED COMPENSATION PLANS

Pursuant to our Amended and Restated Incentive Compensation Plan (the “Incentive Plan”), 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 at any time prior to March 26, 2022.

On March 26, 2012, our board of directors approved an amendment to our Incentive Plan, increasing the number of shares authorized for issuance by 500,000 shares, to 2.0 million shares.

The shares available for future grants under the Incentive Plan totaled 116,031 as of December 31, 2020, disregarding the stock option grant described below which is subject to shareholder approval of an amendment to the Incentive Plan.

Restricted Stock

We grant performance-based and time-based shares of restricted stock to team members in accordance with our 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.

Based on the terms of individual restricted stock grant agreements, shares vest under one of the following methods:

• Over a period of 15 years, based on continuous employment and a combination of the cumulative improvement in our annual adjusted economic profit, a non-GAAP financial measure, and the attainment of annual adjusted economic profit targets.

• Over a period of three years , based on continuous employment.

A summary of the non-vested restricted stock activity under the Incentive Plan for the year ended December 31, 2020 is presented below:

Restricted Stock Number of Shares Weighted Average Grant-Date Fair Value Per Share

Non-vested as of December 31, 2019 137,503 $ 125.04

Vested ( 14,633 ) 182.61

Forfeited ( 152 ) 362.80

Non-vested as of December 31, 2020 122,718 $ 117.88

No shares of restricted stock were granted in 2020.

The grant-date weighted average fair value of shares granted in 2019 and 2018 was $ 441.54 , and $ 317.87 , respectively.

The total fair value of shares vested was $ 5.1 million in 2020, $ 7.9 million in 2019 and $ 4.8 million in 2018.

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 258,467 as of December 31, 2021.

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 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

A summary of the stock option activity under the Incentive Plan for the year ended December 31, 2021, is presented below:

Stock Options Number of Stock Options Weighted Average Exercise Price Per Share Aggregate Intrinsic

(in millions) Weighted Average Remaining Contractual Term (in years)

Outstanding as of December 31, 2020 — $ —

Granted 778,500 349.17

Exercised ( 35,251 ) 333.94

Forfeited ( 37,500 ) 333.94

Outstanding as of December 31, 2021 705,749 $ 350.74 $ 237.8 5.7

Exercisable as of December 31, 2021 120,251 $ 333.94 $ 42.5 4.7

Unvested as of December 31, 2021 585,498 $ 354.18 $ 195.3 5.9

(1) The intrinsic value of stock options is the amount by which the market price of the stock as of December 31, 2021 exceeded the exercise price of the options .

The grant-date weighted average fair value of stock options granted in 2021 was $ 188.43 per share.

The total intrinsic value of stock options exercised during 2021 was $ 11.6 million.

Net cash proceeds from the exercise of stock options in 2021 was $ 11.8 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 2021

Risk-free interest rate 0.4 % - 0.7 %

Expected stock price volatility 37.0 % - 39.0 %

Expected life of stock options (in years) 3.0 - 4.5

Restricted Stock Units

We grant performance-based and time-based restricted stock units to team members and directors in accordance with our Incentive Plan.

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 grant agreements, restricted stock units vest under one of the following methods:

• Over a period of ten years , based on continuous employment and the cumulative improvement in our annual adjusted economic profit.

• Over a period of five years , based upon the compounded annual growth rate in our adjusted economic profit.

• Over a period of one to four years , based on continuous employment and the compounded annual growth rate in our adjusted EPS, a non-GAAP financial measure.

• Over a period of three years , based on continuous employment.

A summary of the restricted stock unit activity under the Incentive Plan for the year ended December 31, 2020, is presented below:

Restricted Stock Units Number of Restricted

Stock Units Weighted Average Grant-Date Fair Value Per Share Aggregate Intrinsic

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 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.

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, 2021, is presented below:

Restricted Stock Units Number of Restricted Stock Units Weighted Average Grant-Date Fair Value Per Share Aggregate Intrinsic

(in millions) Weighted Average Remaining Contractual Term (in years)

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The total intrinsic value of RSUs converted to common stock during 2021, 2020 and 2019 was $ 7.9 million, $ 7.6 million, and $ 36.9 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.

The grant-date fair value per share was estimated to equal the market price of our common stock on the date of grant.

Based on the terms of individual restricted stock grant agreements, shares vest under one of the following methods:

• For our former Chief Executive Officer, over a period of 15 years, based on continuous employment and a combination of the cumulative improvement in our annual adjusted economic profit, a non-GAAP financial measure, and the attainment of annual adjusted economic profit targets.

• For all other team members, over a period of three years , based on continuous employment.

A summary of the non-vested restricted stock activity under the Incentive Plan for the year ended December 31, 2021 is presented below:

Restricted Stock Number of Shares Weighted Average Grant-Date Fair Value Per Share

Non-vested as of December 31, 2020 122,718 $ 117.88

Vested ( 12,130 ) 177.77

Forfeited ( 109,085 ) 106.76

Non-vested as of December 31, 2021 1,503 $ 441.54

No shares of restricted stock were granted in 2020 and 2021.

The grant-date weighted average fair value of shares granted in 2019 was $ 441.54 .

The total fair value of shares vested was $ 8.3 million in 2021, $ 5.1 million in 2020 and $ 7.9 million in 2019.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Stock-based compensation expense

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2021 2020 2019

Restricted stock $ 2.0 $ 3.0 $ 2.7

Stock options $ 33.7 $ — $ —

Restricted stock units ( 1.1 ) 4.2 4.6

Restricted stock ( 7.8 ) 2.0 3.0

Total $ 24.8 $ 6.2 $ 7.6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

While the stock-based awards are often expected to vest in equal, annual installments over the corresponding requisite service periods of the grants, the related stock-based compensation expense is not recognized on a straight-line basis over the same periods.

Each installment is accounted for as a separate award and as a result, the fair value of each installment is recognized as stock-based compensation expense on a straight-line basis over the related expected vesting period.

While the stock-based awards are often expected to vest in equal, annual installments over the corresponding requisite service periods of the grants, for certain grants the related stock-based compensation expense is not recognized on a straight-line basis over the same periods.

For restricted stock and restricted stock units granted prior to 2021, each installment was accounted for as a separate award and, as a result, the fair value of each installment is being recognized as stock-based compensation expense on a straight-line basis over the related expected vesting period.

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, 2021 over a weighted average period of 1.5 years, as follows:

(In millions)

For the Years Ended December 31, Restricted

For the Years Ended December 31, Stock Options Restricted

Stock Units Restricted Stock Total Projected Expense

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2025 2.5 — — 2.5

2025 — 0.3 0.3

Thereafter — — — —

Total $ 105.8 $ 1.8 $ — $ 107.6

Stock option grant subject to shareholder approval

On December 30, 2020, we granted 622,000 time-based stock options to team members, which are subject to shareholder approval of an amendment to our Incentive Plan at the next Annual Meeting of Shareholders (“Shareholder Approval”).

The exercise price of the options is $ 333.94 , which is equal to the closing market price of our common stock on the day prior to the date of the grant.

Based on the terms of individual stock option grant agreements, the stock options:

• vest and become exercisable in four equal annual installments beginning on December 30, 2021, which is the first anniversary of the date on which the options were granted, based on continuous employment and

• expire six years from the date of the grant.

Under GAAP, if a stock award is subject to shareholder approval, it is not considered granted for accounting purposes until that approval is received.

If Shareholder Approval is received, we will measure the grant date fair value of the December 30, 2020 stock options on the Shareholder Approval date and recognize stock-based compensation expense over the requisite service period, which would begin on the Shareholder Approval date.

No stock-based compensation expense was recognized for stock options in 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

BUSINESS SEGMENT AND OTHER INFORMATION

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We also provide Dealers the ability to offer or purchase ancillary products on vehicles financed by us.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Major Customer Information

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONCLUDED)

On October 2, 2020, a shareholder filed a putative class action complaint against the Company, its Chief Executive Officer and its Chief Financial 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 plaintiff 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.

We cannot predict the duration or outcome of this lawsuit at this time.

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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.

We are cooperating with the inquiry and cannot predict the eventual scope, duration or outcome at this time.

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.

We are cooperating with the investigation and cannot predict its 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

On April 22, 2019, we received a civil investigative demand from the Bureau of Consumer Financial Protection (the “Bureau”) seeking, among other things, certain information relating to the Company’s origination and collection of Consumer Loans, TPPs and credit reporting.

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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.

We continue to cooperate with the investigation, but cannot predict the eventual scope, duration, or outcome at this time.

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 Staff is considering whether to recommend that the Bureau take legal action against the Company for alleged violations of the Consumer Financial Protection Act (the “CFPA”) in connection with the Company’s consumer loan origination practices.

The NORA letter states 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 states 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.

We cannot predict the eventual scope, duration or outcome of the investigation 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.

On August 14, 2017, we received a subpoena from the Attorney General of the State of Mississippi, relating to the origination and collection of non-prime auto loans in the state of Mississippi.

The Company cooperated with the inquiry.

On April 23, 2019, the Attorney General of the State of Mississippi, on behalf of the State of Mississippi, filed a complaint in the Chancery Court of the First Judicial District of Hinds County, Mississippi, alleging that the Company engaged in unfair and deceptive trade practices in subprime auto lending, loan servicing, vehicle repossession and debt collection in the State of Mississippi in violation of the Mississippi Consumer Protection Act.

The complaint seeks injunctive relief, including civil penalties and disgorgement, and payment of the State’s attorney’s fees and costs.

We cannot predict the 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 lawsuit.

The Company intends to vigorously defend itself in this matter.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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.

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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 inquiries and cannot predict the eventual scope, duration or outcome at this time.

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.

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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.

Litigation and Other Legal Matters 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 believes 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.

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.

The complaint seeks injunctive relief, restitution, disgorgement, civil penalties and payment of the Commonwealth’s attorney’s fees and costs.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

We cannot predict the 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 lawsuit.

The Company intends to vigorously defend itself in this matter.

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.

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 agreed to make 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONCLUDED)

On August 14, 2017, we received a subpoena from the Attorney General of the State of Mississippi, relating to the origination and collection of non-prime auto loans in the state of Mississippi.

The Company cooperated with the inquiry.

On December 15, 2021, the Company announced its settlement of litigation with the Mississippi Attorney General.

As part of the settlement, the Company made a charitable donation of $125,000, paid $325,000 to the State of Mississippi, inclusive of attorney’s fees and expenses, and provided certain assurances relating to, among other things, continued compliance with laws applicable to indirect auto finance operations in Mississippi and disclosures to consumers purchasing an optional vehicle service contract.

The Attorney General agreed to dismiss the litigation, and Credit Acceptance made no admission of liability or wrongdoing as part of the settlement.

Lease Commitments

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Lease Commitments

QUARTERLY FINANCIAL DATA (unaudited)

The following quarterly financial data for the years ended December 31, 2020 and 2019 has been prepared in accordance with GAAP:

(In millions, except per share data) 2020

Quarters Ended

Income Statement Data March 31 June 30 September 30 December 31

Revenue $ 389.1 $ 406.3 $ 426.5 $ 447.4

Income before provision for income taxes ( 112.8 ) 127.8 318.4 216.1

Net income ( 83.8 ) 96.4 242.1 166.3

Net income per share (1):

Basic $ ( 4.61 ) $ 5.40 $ 13.57 $ 9.47

Diluted $ ( 4.61 ) $ 5.40 $ 13.56 $ 9.43

(In millions, except per share data) 2019

Quarters Ended

Income Statement Data March 31 June 30 September 30 December 31

Revenue $ 353.8 $ 370.6 $ 378.7 $ 385.9

Income before provision for income taxes 206.3 215.3 219.1 215.2

Net income 164.4 164.4 165.4 161.9

Net income per share (1):

Basic $ 8.67 $ 8.68 $ 8.73 $ 8.63

Diluted $ 8.65 $ 8.68 $ 8.73 $ 8.60

(1) Basic and diluted net income per share are computed independently for each of the quarters presented.

Therefore, the sum of quarterly basic and diluted per share information may not equal annual basic and diluted net income per share.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONCLUDED)

SUBSEQUENT EVENTS

On January 29, 2021, we completed a $ 100.0 million Term ABS financing, which was used to repay outstanding indebtedness.

The financing will revolve for 24 months, after which it will amortize based upon the cash flows on the contributed Loans.

On January 29, 2021, we extended the date on which our $ 300.0 million Warehouse Facility IV will cease to revolve from July 26, 2022 to November 17, 2023.

The interest rate on borrowings under the facility has been increased from LIBOR plus 200 basis points to LIBOR plus 210 basis points.

On February 3, 2021, we extended the date on which our $ 400.0 million Warehouse Facility II will cease to revolve from July 12, 2022 to April 30, 2024.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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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-K

Item 8. Financial Statements and Supplementary Data