What changed in this filing

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Item 1. Financial Statements

2022-05-02 compared with 2021-11-01 · 154 added, 352 removed, 1187 unchanged (30% of the section changed)

3 unchanged sentences

(Dollars in millions, except per share data) As of

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Cash and cash equivalents $ 17.6 $ 23.3

21 unchanged sentences

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

Common stock, $ .01 par value, 80,000,000 shares authorized, 14,716,977 and 17,092,432 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

Common stock, $ .01 par value, 80,000,000 shares authorized, 13,363,783 and 14,145,888 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

Paid-in capital 211.5 197.2

Retained earnings 1,418.7 1,626.7

Accumulated other comprehensive income 0.7 1.6

Accumulated other comprehensive income (loss) ( 1.5 ) 0.2

Total Shareholders' Equity 1,628.8 1,824.2

4 unchanged sentences

(Dollars in millions, except per share data) For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2021 2020 2021 2020

Finance charges $ 424.1 $ 424.9

9 unchanged sentences

Provision for claims 8.9 9.0

Loss on extinguishment of debt — — — 7.4

Total costs and expenses 171.2 186.7

12 unchanged sentences

(In millions) For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2021 2020 2021 2020

Net income $ 214.3 $ 202.1

Other comprehensive income (loss), net of tax:

Unrealized gain (loss) on securities, net of tax ( 0.2 ) ( 0.2 ) ( 0.9 ) 0.9

Other comprehensive gain (loss) ( 0.2 ) ( 0.2 ) ( 0.9 ) 0.9

Other comprehensive loss, net of tax:

Unrealized loss on securities, net of tax ( 1.7 ) ( 0.7 )

Other comprehensive loss ( 1.7 ) ( 0.7 )

Comprehensive income $ 212.6 $ 201.4

2 unchanged sentences

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Dollars in millions) For the Three Months Ended September 30, 2021

(Dollars in millions) For the Three Months Ended March 31, 2022

Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity

7 unchanged sentences

( 803,735 ) — ( 0.7 ) ( 422.3 ) — ( 423.0 )

Balance, end of period 14,716,977 $ 0.1 $ 166.0 $ 1,787.0 $ 0.7 $ 1,953.8

(Dollars in millions) For the Three Months Ended September 30, 2020

Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity

Number Amount

Balance, beginning of period 17,649,470 $ 0.2 $ 158.9 $ 1,904.1 $ 1.9 $ 2,065.1

Net income — — — 242.1 — 242.1

Other comprehensive loss — — — — ( 0.2 ) ( 0.2 )

Stock-based compensation — — 1.5 — — 1.5

Restricted stock forfeitures ( 88 ) — — — — —

Balance, end of period 17,649,382 $ 0.2 $ 160.4 $ 2,146.2 $ 1.7 $ 2,308.5

(Dollars in millions) For the Nine Months Ended September 30, 2021

Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity

Number Amount

Balance, beginning of period 17,092,432 $ 0.2 $ 161.9 $ 2,138.8 $ 1.6 $ 2,302.5

Net income — — — 740.7 — 740.7

Other comprehensive loss — — — — ( 0.9 ) ( 0.9 )

Stock-based compensation — — 5.4 — — 5.4

Restricted stock forfeitures ( 109,054 ) — — — — —

Repurchase of common stock ( 2,277,817 ) ( 0.1 ) ( 1.3 ) ( 1,092.5 ) — ( 1,093.9 )

Restricted stock units converted to common stock

3,980 — — — — —

Stock options exercised 17,650 — 5.9 — — 5.9

Balance, end of period 13,363,783 $ 0.1 $ 211.5 $ 1,418.7 $ ( 1.5 ) $ 1,628.8

(Dollars in millions) For the Nine Months Ended September 30, 2020

(Dollars in millions) For the Three Months Ended March 31, 2021

Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity

2 unchanged sentences

Net income — — — 202.1 — 202.1

Other comprehensive gain

— — — — 0.9 0.9

Other comprehensive loss — — — — ( 0.7 ) ( 0.7 )

Stock-based compensation — — 1.1 — — 1.1

1 unchanged sentence

Repurchase of common stock

( 393,408 ) — ( 1.3 ) ( 133.9 ) — ( 135.2 )

Restricted stock units converted to common stock

4 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions) For the Nine Months Ended September 30,

(In millions) For the Three Months Ended March 31,

Cash Flows From Operating Activities:

4 unchanged sentences

Amortization 4.3 4.1

Benefit from deferred income taxes ( 4.1 ) ( 16.4 )

Provision for deferred income taxes 11.0 12.9

Stock-based compensation 9.1 1.1

Loss on extinguishment of debt — 7.4

Other 0.1 ( 0.1 )

Change in operating assets and liabilities:

Increase (decrease) in accounts payable and accrued liabilities 65.5 ( 20.3 )

Increase in accounts payable and accrued liabilities 43.1 24.0

Decrease in income taxes receivable 56.3 48.7

11 unchanged sentences

Purchases of property and equipment ( 1.7 ) ( 0.8 )

Net cash provided by (used in) in investing activities 214.2 ( 658.0 )

Net cash used in investing activities ( 18.5 ) ( 112.6 )

Cash Flows From Financing Activities:

3 unchanged sentences

Repayments of secured financing ( 193.8 ) ( 521.3 )

Repayment of senior notes — ( 401.8 )

Payments of debt issuance costs and debt extinguishment costs ( 12.3 ) ( 12.5 )

Payments of debt issuance costs ( 0.8 ) ( 7.6 )

Repurchase of common stock ( 423.0 ) ( 135.2 )

Proceeds from stock options exercised 5.9 —

Other 4.8 6.6

Net cash used in financing activities ( 293.1 ) ( 24.6 )

Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents 46.1 ( 116.9 )

Net increase in cash and cash equivalents and restricted cash and cash equivalents 64.5 188.0

Cash and cash equivalents and restricted cash and cash equivalents beginning of period

15 unchanged sentences

Actual results could differ from those estimates.

We have evaluated events and transactions occurring subsequent to the consolidated balance sheet date of September 30, 2021 for items that could potentially be recognized or disclosed in these financial statements.

For additional information regarding subsequent events, see Note 16.

We have evaluated events and transactions occurring subsequent to the consolidated balance sheet date of March 31, 2022 for items that could potentially be recognized or disclosed in these financial statements.

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

DESCRIPTION OF BUSINESS

9 unchanged sentences

We are an indirect lender from a legal perspective, meaning the Consumer Loan is originated by the Dealer and assigned to us.

Substantially all of the Consumer Loans assigned to us are made to consumers with impaired or limited credit histories.

The vast majority of the Consumer Loans assigned to us are made to consumers with impaired or limited credit histories.

The following table shows the percentage of Consumer Loans assigned to us with either FICO ® scores below 650 or no FICO ® scores:

For the Three Months Ended September 30, For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Consumer Loan Assignment Volume 2022 2021

1 unchanged sentence

87.9 % 94.3 %

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

4 unchanged sentences

Dealer Loans and Purchased Loans are collectively referred to as “Loans”.

The following table shows the percentage of Consumer Loans assigned to us as Dealer Loans and Purchased Loans for each of the last seven quarters:

The following table shows the percentage of Consumer Loans assigned to us as Dealer Loans and Purchased Loans for each of the last five quarters:

Unit Volume Dollar Volume (1)

5 unchanged sentences

March 31, 2022 72.7 % 27.3 % 68.6 % 31.4 %

June 30, 2021 66.9 % 33.1 % 64.0 % 36.0 %

September 30, 2021 69.9 % 30.1 % 66.8 % 33.2 %

(1) Represents advances paid to Dealers on Consumer Loans assigned under our Portfolio Program and one-time payments made to Dealers to purchase Consumer Loans assigned under our Purchase Program.

46 unchanged sentences

Cash equivalents consist of readily marketable securities with original maturities at the date of acquisition of three months or less.

As of September 30, 2021 and December 31, 2020, we had $ 13.0 million and $ 15.7 million, respectively, in cash and cash equivalents that were not insured by the Federal Deposit Insurance Corporation (“FDIC”).

As of March 31, 2022 and December 31, 2021, we had $ 17.3 million and $ 22.9 million, respectively, in cash and cash equivalents that were not insured by the Federal Deposit Insurance Corporation (“FDIC”).

Restricted cash and cash equivalents consist of cash pledged as collateral for secured financings and cash held in a trust for future vehicle service contract claims.

As of September 30, 2021 and December 31, 2020, we had $ 426.0 million and $ 376.9 million, respectively, in restricted cash and cash equivalents that were not insured by the FDIC.

As of March 31, 2022 and December 31, 2021, we had $ 477.8 million and $ 407.9 million, respectively, in restricted cash and cash equivalents that were not insured by the FDIC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

1 unchanged sentence

(In millions) As of

September 30, 2021 December 31, 2020 September 30, 2020 December 31, 2019

March 31, 2022 December 31, 2021 March 31, 2021 December 31, 2020

Cash and cash equivalents $ 17.6 $ 23.3 $ 45.7 $ 16.0

34 unchanged sentences

Loans outstanding prior to the adoption date qualified for transition relief and are accounted for as purchased financial assets with credit deterioration (“PCD Method”).

Under the PCD Method, on January 1, 2020, we:

• calculated an effective interest rate based on expected future net cash flows;

• increased the Loans receivable and the related allowance for credit losses balances by the present value of the difference between contractual future net cash flows and expected future net cash flows discounted at the effective interest rate.

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

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

44 unchanged sentences

Credit Quality.

Substantially all of the Consumer Loans assigned to us are made to individuals with impaired or limited credit histories.

The vast majority of the Consumer Loans assigned to us are made to individuals with impaired or limited credit histories.

Consumer Loans made to these individuals generally entail a higher risk of delinquency, default and repossession and higher losses than loans made to consumers with better credit.

14 unchanged sentences

Methodology Changes .

On January 1, 2020, we adopted CECL, which changed our accounting policies for Loans.

During the first quarter of 2020, we reduced forecasted collection rates to reflect the estimated long-term impact of COVID-19 on Consumer Loan performance.

During the first quarter of 2022, we removed the COVID forecast adjustment from our estimate of future net cash flows and enhanced our methodology for forecasting the amount and timing of future net cash flows from our Loan portfolio through the utilization of more recent data and new forecast variables.

For additional information, see Note 6.

For the three and nine months ended September 30, 2021 and 2020, we did not make any other methodology changes for Loans that had a material impact on our financial statements.

For the three months ended March 31, 2022 and 2021, we did not make any other methodology changes for Loans that had a material impact on our financial statements.

Finance Charges

33 unchanged sentences

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 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, we allocate finance charges recognized on each Loan between the Loan receivable and the related allowance for credit losses.

We report the change in the present value of credit losses attributable to the passage of time as a reduction to finance charges.

Accordingly, we allocate finance charges recognized on each Loan between the Loan receivable and the related allowance for credit losses.

The amount of finance charges allocated to the Loan receivable is equal to the effective interest rate applied to the Loans receivable balance.

The reduction of finance charges allocated to the allowance for credit losses is equal to the effective interest rate applied to the allowance for credit losses balance.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

VSC Re Company (“VSC Re”), our wholly owned subsidiary, is engaged in the business of reinsuring coverage under vehicle service contracts sold to consumers by Dealers on vehicles financed by us.

18 unchanged sentences

In addition, VSC Re has the obligation to absorb losses of the trust that could potentially be significant.

New Accounting Update Not Yet Adopted

Troubled Debt Restructurings and Vintage Disclosures.

In March 2022, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2022-02, which intends to improve the usefulness of information provided to investors about certain loan refinancings, restructurings, and write-offs.

ASU 2022-02 is effective for fiscal years, and interim periods, beginning after December 15, 2022.

Early application is permitted, but we have not yet adopted ASU 2022-02.

We are currently assessing the impact the adoption of ASU 2022-02 will have on our consolidated financial statements and related disclosures.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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.

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

7 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.

9 unchanged sentences

A comparison of the carrying amount and estimated fair value of these financial instruments is as follows:

(In millions) As of September 30, 2021 As of December 31, 2020

(In millions) As of March 31, 2022 As of December 31, 2021

Amount Estimated Fair

19 unchanged sentences

The following table provides the level of measurement used to determine the fair value for each of our financial instruments measured or disclosed at fair value:

(In millions) As of September 30, 2021

(In millions) As of March 31, 2022

Level 1 Level 2 Level 3 Total Fair Value

22 unchanged sentences

Restricted securities available for sale consist of the following:

(In millions) As of September 30, 2021

(In millions) As of March 31, 2022

Amortized Cost Gross Unrealized

4 unchanged sentences

Asset-backed securities 9.9 — ( 0.2 ) 9.7

Commercial paper 1.0 — — 1.0

Mortgage-backed securities 0.3 — — 0.3

10 unchanged sentences

The fair value and gross unrealized losses for restricted securities available for sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

(In millions) Securities Available for Sale with Gross Unrealized Losses as of September 30, 2021

(In millions) Securities Available for Sale with Gross Unrealized Losses as of March 31, 2022

Less than 12 Months 12 Months or More

8 unchanged sentences

8.3 ( 0.2 ) — — 8.3 ( 0.2 )

Commercial paper 1.0 — — — 1.0 —

Mortgage-backed securities 0.3 — — — 0.3 —

9 unchanged sentences

Government and agency securities

10.1 ( 0.1 ) — — 10.1 ( 0.1 )

Asset-backed securities 8.4 ( 0.1 ) — — 8.4 ( 0.1 )

6 unchanged sentences

(In millions) As of

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Contractual Maturity Amortized Cost Estimated Fair

8 unchanged sentences

Loans receivable and allowance for credit losses consist of the following:

(In millions) As of September 30, 2021

(In millions) As of March 31, 2022

Dealer Loans Purchased Loans Total

9 unchanged sentences

A summary of changes in Loans receivable and allowance for credit losses is as follows:

For the Three Months Ended September 30, 2021

For the Three Months Ended March 31, 2022

(In millions)

28 unchanged sentences

$ 5,689.5 $ 3,508.5 $ 9,198.0 $ ( 1,768.9 ) $ ( 1,101.9 ) $ ( 2,870.8 ) $ 3,920.6 $ 2,406.6 $ 6,327.2

For the Three Months Ended September 30, 2020

For the Three Months Ended March 31, 2021

(In millions)

28 unchanged sentences

$ 5,933.5 $ 4,224.5 $ 10,158.0 $ ( 1,727.6 ) $ ( 1,555.1 ) $ ( 3,282.7 ) $ 4,205.9 $ 2,669.4 $ 6,875.3

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

For the Nine Months Ended September 30, 2021

(In millions) Loans Receivable Allowance for Credit Losses Loans Receivable, Net

Dealer Loans Purchased Loans Total Dealer Loans Purchased Loans Total Dealer Loans Purchased Loans Total

Balance, beginning of period $ 5,869.6 $ 4,255.2 $ 10,124.8 $ ( 1,702.1 ) $ ( 1,634.8 ) $ ( 3,336.9 ) $ 4,167.5 $ 2,620.4 $ 6,787.9

Finance charges 1,043.4 844.8 1,888.2 ( 308.7 ) ( 267.1 ) ( 575.8 ) 734.7 577.7 1,312.4

Provision for credit losses — — — 36.8 ( 19.3 ) 17.5 36.8 ( 19.3 ) 17.5

New Consumer Loan assignments (1) 1,626.2 905.3 2,531.5 — — — 1,626.2 905.3 2,531.5

Collections (2) ( 2,633.9 ) ( 1,592.5 ) ( 4,226.4 ) — — — ( 2,633.9 ) ( 1,592.5 ) ( 4,226.4 )

Accelerated Dealer Holdback payments 36.0 — 36.0 — — — 36.0 — 36.0

Dealer Holdback payments 117.2 — 117.2 — — — 117.2 — 117.2

Transfers (3) ( 87.7 ) 87.7 — 27.3 ( 27.3 ) — ( 60.4 ) 60.4 —

Write-offs ( 201.9 ) ( 593.2 ) ( 795.1 ) 201.9 593.2 795.1 — — —

Recoveries (4) 1.2 1.9 3.1 ( 1.2 ) ( 1.9 ) ( 3.1 ) — — —

Deferral of Loan origination costs 6.5 — 6.5 — — — 6.5 — 6.5

Balance, end of period $ 5,776.6 $ 3,909.2 $ 9,685.8 $ ( 1,746.0 ) $ ( 1,357.2 ) $ ( 3,103.2 ) $ 4,030.6 $ 2,552.0 $ 6,582.6

For the Nine Months Ended September 30, 2020

(In millions) Loans Receivable Allowance for Credit Losses Loans Receivable, Net

Dealer Loans Purchased Loans Total Dealer Loans Purchased Loans Total Dealer Loans Purchased Loans Total

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

Adoption of CECL (5) 940.2 1,523.4 2,463.6 ( 940.2 ) ( 1,523.4 ) ( 2,463.6 ) — — —

Finance charges 972.3 722.0 1,694.3 ( 270.3 ) ( 279.5 ) ( 549.8 ) 702.0 442.5 1,144.5

Provision for credit losses — — — ( 202.8 ) ( 261.5 ) ( 464.3 ) ( 202.8 ) ( 261.5 ) ( 464.3 )

New Consumer Loan assignments (1) 1,751.1 1,161.4 2,912.5 — — — 1,751.1 1,161.4 2,912.5

Collections (2) ( 2,313.1 ) ( 1,250.8 ) ( 3,563.9 ) — — — ( 2,313.1 ) ( 1,250.8 ) ( 3,563.9 )

Accelerated Dealer Holdback payments 34.6 — 34.6 — — — 34.6 — 34.6

Dealer Holdback payments 109.9 — 109.9 — — — 109.9 — 109.9

Transfers (3) ( 90.3 ) 90.3 — 29.5 ( 29.5 ) — ( 60.8 ) 60.8 —

Write-offs ( 177.8 ) ( 527.1 ) ( 704.9 ) 177.8 527.1 704.9 — — —

Recoveries (4) 0.8 1.3 2.1 ( 0.8 ) ( 1.3 ) ( 2.1 ) — — —

Deferral of Loan origination costs 6.7 — 6.7 — — — 6.7 — 6.7

Balance, end of period $ 5,857.7 $ 4,318.4 $ 10,176.1 $ ( 1,634.8 ) $ ( 1,676.1 ) $ ( 3,310.9 ) $ 4,222.9 $ 2,642.3 $ 6,865.2

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

5 unchanged sentences

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

(5) Represents the gross-up of Loans receivable and allowance for credit losses on January 1, 2020 upon the adoption of CECL for the present value of the difference between contractual future net cash flows and expected future net cash flows discounted at the effective interest rate.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

3 unchanged sentences

(In millions)

For the Three Months Ended September 30, 2021

Provision for Credit Losses

Purchased Loans

New Consumer Loan assignments

$ 32.0 $ 43.5 $ 75.5

Forecast changes

( 41.5 ) ( 42.3 ) ( 83.8 )

$ ( 9.5 ) $ 1.2 $ ( 8.3 )

(In millions) For the Three Months Ended September 30, 2020

Provision for Credit Losses Dealer Loans Purchased Loans Total

New Consumer Loan assignments $ 45.6 $ 68.5 $ 114.1

Forecast changes ( 72.0 ) ( 71.9 ) ( 143.9 )

Total $ ( 26.4 ) $ ( 3.4 ) $ ( 29.8 )

(In millions)

For the Nine Months Ended September 30, 2021

For the Three Months Ended March 31, 2022

Provision for Credit Losses

5 unchanged sentences

$ 1.5 $ 21.8 $ 23.3

(In millions) For the Nine Months Ended September 30, 2020

(In millions) For the Three Months Ended March 31, 2021

Provision for Credit Losses Dealer Loans Purchased Loans Total

6 unchanged sentences

(In millions)

For the Three Months Ended September 30, 2021

For the Three Months Ended March 31, 2022

New Consumer Loan Assignments

12 unchanged sentences

$ 245.6 $ 101.6 $ 347.2

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(In millions)

For the Three Months Ended September 30, 2020

For the Three Months Ended March 31, 2021

New Consumer Loan Assignments

12 unchanged sentences

$ 264.3 $ 159.1 $ 423.4

(In millions) For the Nine Months Ended September 30, 2021

New Consumer Loan Assignments Dealer Loans Purchased Loans Total

Contractual net cash flows at the time of assignment (1) $ 2,538.8 $ 1,919.0 $ 4,457.8

Expected net cash flows at the time of assignment (2) 2,283.6 1,272.6 3,556.2

Loans receivable at the time of assignment (3) 1,626.2 905.3 2,531.5

Provision for credit losses expense at the time of assignment $ ( 123.2 ) $ ( 175.7 ) $ ( 298.9 )

Expected future finance charges at the time of assignment (4) 780.6 543.0 1,323.6

Expected net Loan income at the time of assignment (5) $ 657.4 $ 367.3 $ 1,024.7

(In millions) For the Nine Months Ended September 30, 2020

New Consumer Loan Assignments Dealer Loans Purchased Loans Total

Contractual net cash flows at the time of assignment (1) $ 2,787.2 $ 2,566.4 $ 5,353.6

Expected net cash flows at the time of assignment (2) 2,471.7 1,633.5 4,105.2

Loans receivable at the time of assignment (3) 1,751.1 1,161.4 2,912.5

Provision for credit losses expense at the time of assignment $ ( 171.3 ) $ ( 254.9 ) $ ( 426.2 )

Expected future finance charges at the time of assignment (4) 891.9 727.0 1,618.9

Expected net Loan income at the time of assignment (5) $ 720.6 $ 472.1 $ 1,192.7

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

2 unchanged sentences

The Purchased Loans amount represents repayments that we expected to collect at the time of assignment on Consumer Loans assigned under our Purchase Program.

The Loan amounts also represent the fair value at the time of assignment.

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

5 unchanged sentences

(In millions)

For the Three Months Ended September 30, 2021

For the Three Months Ended March 31, 2022

Expected Future Net Cash Flows

13 unchanged sentences

(In millions)

For the Three Months Ended September 30, 2020

For the Three Months Ended March 31, 2021

Expected Future Net Cash Flows

12 unchanged sentences

$ 5,737.4 $ 4,022.1 $ 9,759.5

(In millions) For the Nine Months Ended September 30, 2021

Expected Future Net Cash Flows Dealer Loans Purchased Loans Total

Balance, beginning of period $ 5,664.3 $ 3,880.1 $ 9,544.4

New Consumer Loan assignments (1) 2,283.6 1,272.6 3,556.2

Realized net cash flows (2) ( 2,480.7 ) ( 1,592.5 ) ( 4,073.2 )

Forecast changes 79.9 214.3 294.2

Transfers (3) ( 87.7 ) 94.3 6.6

Balance, end of period $ 5,459.4 $ 3,868.8 $ 9,328.2

(In millions) For the Nine Months Ended September 30, 2020

Expected Future Net Cash Flows Dealer Loans Purchased Loans Total

Balance, beginning of period $ 5,577.0 $ 3,428.2 $ 9,005.2

New Consumer Loan assignments (1) 2,471.7 1,633.5 4,105.2

Realized net cash flows (2) ( 2,168.6 ) ( 1,250.8 ) ( 3,419.4 )

Forecast changes ( 36.5 ) ( 7.1 ) ( 43.6 )

Transfers (3) ( 87.0 ) 92.5 5.5

Balance, end of period $ 5,756.6 $ 3,896.3 $ 9,652.9

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

8 unchanged sentences

For additional information regarding credit quality, see Note 3.

The following table compares our forecast of Consumer Loan collection rates as of September 30, 2021 with the forecasts as of June 30, 2021, December 31, 2020 and at the time of assignment, segmented by year of assignment:

Total Loans as of September 30, 2021

The following table compares our forecast of Consumer Loan collection rates as of March 31, 2022 with the forecasts as of December 31, 2021 and at the time of assignment, segmented by year of assignment:

Total Loans as of March 31, 2022

Forecasted Collection Percentage as of (1) Current Forecast Variance from

Consumer Loan

Assignment Year September 30, 2021 June 30, 2021 December 31, 2020 Initial

Forecast June 30, 2021 December 31, 2020 Initial

Assignment Year March 31, 2022 December 31, 2021 Initial

Forecast December 31, 2021 Initial

2013 73.4 % 73.4 % 72.0 % 0.0 % 1.4 %

8 unchanged sentences

2022 66.9 % — 67.2 % — - 0.3 %

Dealer Loans as of September 30, 2021

Dealer Loans as of March 31, 2022

Forecasted Collection Percentage as of (1) (2) Current Forecast Variance from

Consumer Loan

Assignment Year September 30, 2021 June 30, 2021 December 31, 2020 Initial

Forecast June 30, 2021 December 31, 2020 Initial

Assignment Year March 31, 2022 December 31, 2021 Initial

Forecast December 31, 2021 Initial

2013 73.3 % 73.3 % 72.1 % 0.0 % 1.2 %

9 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Purchased Loans as of September 30, 2021

Purchased Loans as of March 31, 2022

Forecasted Collection Percentage as of (1) (2) Current Forecast Variance from

Consumer Loan

Assignment Year September 30, 2021 June 30, 2021 December 31, 2020 Initial

Forecast June 30, 2021 December 31, 2020 Initial

Assignment Year March 31, 2022 December 31, 2021 Initial

Forecast December 31, 2021 Initial

2013 74.2 % 74.2 % 71.6 % 0.0 % 2.6 %

13 unchanged sentences

We evaluate and adjust the expected collection rate of each Consumer Loan subsequent to assignment primarily through the monitoring of consumer payment behavior.

The following table summarizes the past-due status of Consumer Loan assignments as of September 30, 2021 and December 31, 2020, segmented by year of assignment:

The following table summarizes the past-due status of Consumer Loan assignments as of March 31, 2022 and December 31, 2021, segmented by year of assignment:

(In millions)

Total Loans as of September 30, 2021 (1) (2)

Total Loans as of March 31, 2022 (1) (2)

Pre-term Consumer Loans (3)

9 unchanged sentences

(In millions)

Dealer Loans as of September 30, 2021 (1)

Dealer Loans as of March 31, 2022 (1)

Pre-term Consumer Loans (3)

10 unchanged sentences

(In millions)

Purchased Loans as of September 30, 2021 (2)

Purchased Loans as of March 31, 2022 (2)

Pre-term Consumer Loans (3)

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(5) We consider a Consumer Loan to be current for purposes of forecasting expected collection rates if contractual repayments are less than 11 days past due.

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.

The reduction was comprised of:

(1) $ 44.3 million calculated by our forecasting model, which reflected lower realized collections during the first quarter of 2020 and (2) an additional $ 162.2 million, which represented our best estimate of the future impact of the COVID-19 pandemic on future net cash flows.

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.

We have continued to apply this adjustment to our forecast through the third quarter 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.

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

During the first quarter of 2020, we applied a subjective adjustment to our forecasting model to reflect our best estimate of the future impact of the COVID-19 pandemic on future net cash flows (“COVID forecast adjustment”), which reduced our estimate of future net cash flows by $ 162.2 million.

We continued to apply the COVID forecast adjustment through the end of 2021 as it continued to represent our best estimate.

During the first quarter of 2022, we determined that we had sufficient Consumer Loan performance experience since the lapse of federal stimulus payments and enhanced unemployment benefits to refine our estimate of future net cash flows.

Accordingly, during the first quarter of 2022, we removed the COVID forecast adjustment and enhanced our methodology for forecasting the amount and timing of future net cash flows from our Loan portfolio through the utilization of more recent data and new forecast variables.

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

The removal of the COVID forecast adjustment and the implementation of the enhanced forecasting methodology impacted forecasted net cash flows and provision for credit losses as follows:

(In millions) Increase / (Decrease) in

Forecasting Methodology Changes Forecasted Net Cash Flows Provision for Credit Losses

Removal of COVID forecast adjustment $ 149.5 $ ( 118.5 )

Implementation of enhanced forecasting methodology ( 53.8 ) 47.9

Total $ 95.7 $ ( 70.6 )

A summary of reinsurance activity is as follows:

(In millions) For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2021 2020 2021 2020

Net assumed written premiums $ 17.7 $ 18.7

4 unchanged sentences

(In millions) As of

Balance Sheet location September 30, 2021 December 31, 2020

Balance Sheet location March 31, 2022 December 31, 2021

Trust assets Restricted cash and cash equivalents $ 1.1 $ 0.3

5 unchanged sentences

Other income consists of the following:

(In millions) For the Three Months Ended September 30, For the Nine Months Ended September 30,

2021 2020 2021 2020

(In millions) For the Three Months Ended March 31,

Ancillary product profit sharing $ 14.7 $ 8.2

3 unchanged sentences

Interest 0.3 0.3

Other 0.2 0.2 0.4 0.6

Total $ 17.8 $ 11.7

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The following table disaggregates our other income by major source of income and timing of the revenue recognition:

(In millions) For the Three Months Ended September 30, 2021

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

Source of income

Third Party Providers $ 9.6 $ — $ — $ — $ 0.2 $ 0.2 $ 10.0

Dealers — 1.9 0.5 0.2 — — 2.6

Total $ 9.6 $ 1.9 $ 0.5 $ 0.2 $ 0.2 $ 0.2 $ 12.6

Timing of revenue recognition

Over time $ 9.6 $ — $ 0.5 $ — $ 0.2 $ — $ 10.3

At a point in time — 1.9 — 0.2 — 0.2 2.3

Total $ 9.6 $ 1.9 $ 0.5 $ 0.2 $ 0.2 $ 0.2 $ 12.6

(In millions) For the Nine Months Ended September 30, 2021

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

(In millions) For the Three Months Ended March 31, 2022

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

Source of income

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Debt consists of the following:

(In millions) As of September 30, 2021

(In millions) As of March 31, 2022

Principal Outstanding Unamortized Debt Issuance Costs Carrying

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Total debt $ 4,642.7 $ ( 26.4 ) $ 4,616.3

(1) Excludes deferred debt issuance cost s of $ 2.3 million and $ 3.2 million as of September 30, 2021 and December 31, 2020, respectively, which are included in other assets.

(1) Excludes deferred debt issuance cost s of $ 3.2 million and $ 3.6 million as of March 31, 2022 and December 31, 2021, respectively, which are included in other assets.

(2) Warehouse facilities and Term ABS.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

General information for each of our financing transactions in place as of September 30, 2021 is as follows:

General information for each of our financing transactions in place as of March 31, 2022 is as follows:

(Dollars in millions)

2 unchanged sentences

Amount Interest Rate Basis as of

September 30, 2021

March 31, 2022

Revolving Secured Line of Credit n/a 06/22/2024 $ 435.0 (1) At our option, either LIBOR plus 187.5 basis points or the prime rate plus 87.5 basis points

3 unchanged sentences

Warehouse Facility VI (2) CAC Warehouse Funding LLC VI 09/30/2024 (3) 75.0 LIBOR plus 200 basis points

Warehouse Facility VII (2) CAC Warehouse Funding LLC VII 12/16/2021 (6) 150.0 Commercial paper rate plus 200 basis points (4)

Warehouse Facility VIII (2) CAC Warehouse Funding LLC VIII 09/01/2024 (3) 200.0 LIBOR plus 190 basis points (4)

5 unchanged sentences

Term ABS 2020-3 (2) Credit Acceptance Funding LLC 2020-3 10/17/2022 (3) 600.0 Fixed rate

Term ABS 2021-1 (2) Credit Acceptance Funding LLC 2021-1 02/15/2023 (3) 100.0 LIBOR plus 198.5 basis points (4)

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Term ABS 2021-3 (2) Credit Acceptance Funding LLC 2021-3 05/15/2023 (3) 450.0 Fixed rate

Term ABS 2021-4 (2) Credit Acceptance Funding LLC 2021-4 10/16/2023 (3) 250.1 Fixed rate

2024 Senior Notes n/a 12/31/2024 400.0 Fixed rate

1 unchanged sentence

Mortgage Note (2) Chapter 4 Properties, LLC 08/06/2023 12.0 LIBOR plus 150 basis points

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

For additional information, see Note 16.

(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.

3 unchanged sentences

(In millions) For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2021 2020 2021 2020

Revolving Secured Line of Credit

13 unchanged sentences

Average outstanding principal balance — —

Warehouse Facility VII

Maximum outstanding principal balance — 125.0 — 125.0

Average outstanding principal balance — 102.5 — 75.0

Warehouse Facility VIII

3 unchanged sentences

(Dollars in millions) As of

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Revolving Secured Line of Credit

26 unchanged sentences

Interest rate — % — %

Warehouse Facility VII

Principal balance outstanding $ — $ —

Amount available for borrowing (1) 150.0 150.0

Loans pledged as collateral — —

Restricted cash and cash equivalents pledged as collateral 1.0 1.0

Interest rate — % — %

Warehouse Facility VIII

9 unchanged sentences

Interest rate 3.94 % 3.86 %

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Term ABS 2019-2

3 unchanged sentences

Interest rate 3.13 % 3.13 %

Term ABS 2018-2

Principal balance outstanding $ — $ 254.3

Loans pledged as collateral — 410.0

Restricted cash and cash equivalents pledged as collateral — 34.6

Interest rate — % 3.85 %

Term ABS 2018-3

Principal balance outstanding $ 72.9 $ 296.1

Loans pledged as collateral 262.9 408.8

Restricted cash and cash equivalents pledged as collateral 30.5 32.9

Interest rate 4.04 % 3.78 %

Term ABS 2019-1

Principal balance outstanding $ 196.3 $ 402.5

Loans pledged as collateral 340.8 482.3

Restricted cash and cash equivalents pledged as collateral 35.4 35.4

Interest rate 3.73 % 3.53 %

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Term ABS 2019-3

26 unchanged sentences

Loans pledged as collateral 596.8 618.7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Restricted cash and cash equivalents pledged as collateral 56.7 49.2

16 unchanged sentences

Interest rate 6.625 % 6.625 %

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Mortgage Note

4 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 by $35.0 million on June 22, 2022.

For additional information, see Note 16.

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.

3 unchanged sentences

Because the subsidiaries are organized as legal entities separate from us, their assets (including the contributed Loans) are not available to our creditors.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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.

1 unchanged sentence

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Term ABS Financings

2 unchanged sentences

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 the respective lenders.

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 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.

5 unchanged sentences

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 2018-3 August 23, 2018 $ 500.1 Through August 17, 2020

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

7 unchanged sentences

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)

5 unchanged sentences

We used a portion of the net proceeds from the 2024 senior notes to repurchase or redeem all of the $ 300.0 million outstanding principal amount of our 6.125 % senior notes due 2021 (the “2021 senior notes”), of which $ 148.2 million was repurchased on December 18, 2019 and the remaining $ 151.8 million was redeemed on January 17, 2020.

We used the remaining net proceeds from the 2024 senior notes, together with borrowings under our revolving credit facility, to redeem in full the $ 250.0 million outstanding principal amount of our 7.375 % senior notes due 2023 (the “2023 senior notes”) on March 15, 2020.

We used the remaining net proceeds from the 2024 senior notes, together with borrowings under our revolving credit facility and cash on hand to the extent available, to redeem in full the $ 250.0 million outstanding principal amount of our 7.375 % senior notes due 2023 (the “2023 senior notes”) on March 15, 2020.

During the fourth quarter of 2019, we recognized a pre-tax loss on extinguishment of debt of $ 1.8 million related to the repurchase of the 2021 senior notes in the fourth quarter of 2019 and the irrevocable notice given in December 2019 for the redemption of the remaining 2021 senior notes in the first quarter of 2020.

12 unchanged sentences

Debt Covenants

As of September 30, 2021, we were in compliance with our covenants under the revolving secured line of credit facility and our Warehouse facilities, including those that require the maintenance of certain financial ratios and other financial conditions.

As of March 31, 2022, we were in compliance with our covenants under the revolving secured line of credit facility and our Warehouse facilities, including those that require the maintenance of certain financial ratios and other financial conditions.

These covenants require a minimum ratio of (1) our net earnings, adjusted for specified items, before income taxes, depreciation, amortization and fixed charges to (2) our fixed charges, as defined in the agreements.

4 unchanged sentences

Our Term ABS financings also contain covenants that measure the performance of the contributed assets.

As of September 30, 2021, we were in compliance with all such covenants.

As of March 31, 2022, we were in compliance with all such covenants.

As of the end of the quarter, we were also in compliance with our covenants under the senior notes indentures.

3 unchanged sentences

We utilize interest rate cap agreements to manage the interest rate risk on certain secured financings.

The following tables provide the terms of our interest rate cap agreements that were in effect as of September 30, 2021 and December 31, 2020:

The following tables provide the terms of our interest rate cap agreements that were in effect as of March 31, 2022 and December 31, 2021:

(Dollars in millions)

As of September 30, 2021

As of March 31, 2022

Facility Amount Facility Name Purpose Start End Notional Cap Interest Rate (1)

2 unchanged sentences

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 31.3 5.50 %

Cap Floating Rate 01/2020 12/2023 118.7 5.50 %

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

5 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 %

(1) Rate excludes the spread over the corresponding LIBOR or commercial paper rate.

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

As of September 30, 2021 and December 31, 2020, the interest rate caps had a fair value of $ 0.1 million as the capped rates were significantly above market rates.

As of March 31, 2022 and December 31, 2021, the interest rate caps had a fair value of $ 1.4 million and $ 0.2 million, respectively, as the capped rates were significantly above market rates.

The increase in fair value from December 31, 2021 was the result of an increase in market rates.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

2 unchanged sentences

For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2021 2020 2021 2020

federal statutory income tax rate 21.0 % 21.0 %

State income taxes 3.1 % 2.8 %

Excess tax benefits from stock-based compensation plans — % — % - 0.1 % - 0.8 %

Excess tax benefits from stock-based compensation - 0.2 % - 0.4 %

Other 0.8 % 0.1 %

2 unchanged sentences

State income taxes include non-deductible expenses related to uncertain tax positions.

The impact of these non-deductible expenses on our effective income tax rate for the three months ended September 30, 2021 increased from the same period in 2020 primarily due to an increase in the proportion of pre-tax income reserved for uncertain tax positions.

Excess tax benefits from stock-based compensation plans

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.

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 from 2020 to 2021 due to an increase in pre-tax income and a decrease in the number of restricted stock units that were converted to common stock during the first quarter of 2021 due to the timing of long-term stock award grants.

The impact of these non-deductible expenses on our effective income tax rate for the three months ended March 31, 2022 increased from the same period in 2021 primarily due to an increase in the proportion of pre-tax income reserved for uncertain tax positions.

Excess tax benefits from stock-based compensation

We recognize an excess tax benefit or tax deficiency when the deduction for the stock-based compensation expense of a stock award for tax purposes differs from the cumulative stock-based compensation expense recognized in the financial statements.

The excess tax benefit or tax deficiency is recognized in provision for income taxes in the period in which the amount of the deduction is determined, which is when restricted stock vests, restricted stock units are converted to common stock or stock options are exercised.

Excess tax benefits reduce our effective income tax rate, while tax deficiencies increase our effective income tax rate.

The impact of excess tax benefits on our effective income tax rate for the three months ended March 31, 2022 decreased from the same period in 2021 primarily due to a decrease in the number of restricted stock units that were converted to common stock during the first quarter of 2022 due to the timing of long-term stock award grants.

Other items impacting our effective income tax rate primarily consist of non-deductible executive compensation expenses.

The impact of other items on our effective income tax rate for the three months ended September 30, 2021 increased from the same period in 2020 primarily due to an increase in non-deductible executive compensation, which was primarily the result of stock options granted under our Amended and Restated Incentive Compensation Plan, which was approved by shareholders in July 2021.

The impact of other items on our effective income tax rate for the nine months ended September 30, 2021 decreased from the same period in 2020 primarily due to the increase in pre-tax income.

The impact of other items on our effective income tax rate for the three months ended March 31, 2022 increased from the same period in 2021 primarily due to an increase in non-deductible executive compensation, which was primarily the result of stock options granted under our Amended and Restated Incentive Compensation Plan (the “Incentive Plan”).

For additional information, see Note 14.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

4 unchanged sentences

For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2021 2020 2021 2020

Weighted average shares outstanding:

4 unchanged sentences

Dilutive number of weighted average shares outstanding 14,341,523 17,099,058

For the three and nine months ended September 30, 2021, there were 120,217 and 204,557 stock options outstanding, respectively, that were excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive.

For the three and nine months ended September 30, 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 three and nine months ended September 30, 2020, 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.

For the three months ended March 31, 2022, there were 45,600 stock opti ons outstanding that were excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive.

For the three months ended March 31, 2022, there w ere no share s 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 three months ended March 31, 2021, 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.

STOCK REPURCHASES

The following table summarizes our stock repurchases for the three and nine months ended September 30, 2021 and 2020:

(Dollars in millions) For the Three Months Ended September 30,

Number of Shares Repurchased Cost Number of Shares Repurchased Cost

Open Market (1) 1,286,246 $ 704.1 — $ —

(Dollars in millions) For the Nine Months Ended September 30,

The following table summarizes our stock repurchases for the three months ended March 31, 2022 and 2021:

(Dollars in millions) For the Three Months Ended March 31,

Stock Repurchases Number of Shares Repurchased Cost Number of Shares Repurchased Cost

4 unchanged sentences

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 September 30, 2021, we had authorization to repurchase 2,231,859 shares of our common stock.

As of March 31, 2022, we had authorization to repurchase 823,560 shares of our common stock.

(2) Represents shares of common stock released to us by team members as payment of tax withholdings upon the vesting of restricted stock and restricted stock units and the conversion of restricted stock units to common stock.

3 unchanged sentences

(In millions) For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2021 2020 2021 2020

Stock options $ 8.5 $ —

Restricted stock 0.1 0.4 ( 7.8 ) 1.5

Restricted stock units 0.6 0.7

Restricted stock — 0.4

Total $ 9.1 $ 1.1

During the third quarter of 2021, we recognized $ 14.7 million in stock-based compensation expense for stock options granted under our Amended and Restated Incentive Compensation Plan, which was approved by shareholders in July 2021.

During the second quarter of 2021, we recognized an $ 11.5 million reversal of stock-based compensation expense due to the forfeiture of unvested restricted stock and restricted stock units upon the retirement of our former Chief Executive Officer in May 2021.

A summary of the non-vested restricted stock activity 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 ( 109,054 ) 106.67

Non-vested as of September 30, 2021 1,534 $ 441.54

A summary of the restricted stock unit activity is presented below:

Restricted Stock Units Number of Restricted

Stock Units Weighted Average Grant-Date Fair Value Per Share

Outstanding as of December 31, 2020 412,602 $ 138.65

Granted 7,302 366.07

Converted ( 11,416 ) 190.32

Forfeited ( 31,418 ) 110.33

Outstanding as of September 30, 2021 377,070 $ 143.85

Stock option grants

From December 2020 through June 2021, we granted 770,500 time-based stock options with a weighted average exercise price of $ 346.94 per share to certain team members and a new member of our board of directors, subject to shareholder approval of an amendment to our Amended and Restated Incentive Compensation Plan (“Shareholder Approval”).

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 time-based stock options was July 21, 2021.

The $ 145.3 million grant date fair value of those stock options is being recognized as stock-based compensation expense over the requisite service period.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

During the third quarter of 2021, we granted an additional 8,000 time-based stock options with an exercise price of $ 563.10 per share and a grant date fair value of $ 171.36 per share.

We expect to recognize the future expense of the stock options as follows:

Accordingly, the accounting grant date of the 770,500 previously-awarded stock options is July 21, 2021, and no expense was recognized for stock options prior to that date.

We expect to recognize the future stock-based compensation expense as follows:

(in millions)

Year Total Projected Expense of

Stock Options

Year Total Projected

Stock-Based Compensation Expense

Remainder of 2022 $ 26.3

Total $ 130.6

COMMITMENTS AND CONTINGENCIES

10 unchanged sentences

The following matters include current actions to which we are a party and updates to matters that were disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

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 – (CONTINUED)

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.

4 unchanged sentences

The Company intends to vigorously defend itself in this matter.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

On May 7, 2019, we received a subpoena from the Consumer Frauds and Protection Bureau of the Office of the New York State Attorney General, relating to the Company’s origination and collection policies and procedures in the state of New York.

6 unchanged sentences

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

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.

9 unchanged sentences

On June 3, 2021, we received another civil investigative demand from the Bureau seeking additional information relating to its investigation.

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

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.

On March 7, 2022, we received another civil investigative demand from the Bureau seeking additional information relating to its investigation.

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)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONCLUDED)

On March 18, 2016, we received a subpoena from the Attorney General of the State of Maryland, relating to the Company’s repossession and sale policies and procedures in the state of Maryland.

On April 3, 2020, we received a subpoena from the Attorney General of the State of Maryland relating to the Company’s origination and collection policies and procedures in the state of Maryland.

On August 11, 2020, we received a subpoena from the Attorney General of the State of Maryland restating most of the requests contained in the March 18, 2016 and April 3, 2020 subpoenas, making additional requests, and expanding the inquiry to include 40 other states (Alabama, Alaska, Arizona, Arkansas, California, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Minnesota, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, and Wisconsin) and the District of Columbia.

On August 11, 2020, we received a subpoena from the Attorney General of the State of Maryland restating most of the requests contained in the March 18, 2016 and April 3, 2020 subpoenas, making additional requests, and expanding the inquiry to include 41 other states (Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Minnesota, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, and Wisconsin) and the District of Columbia.

Also on August 11, 2020, we received from the Attorney General of the State of New Jersey a subpoena that is essentially identical to the August 11, 2020 Maryland subpoena, both as to substance and as to the jurisdictions identified.

We are cooperating with these 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.

3 unchanged sentences

As a result, we are unable to estimate the reasonably possible loss or range of reasonably possible loss arising from this investigation.

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.

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.

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.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONCLUDED)

SUBSEQUENT EVENTS

On October 6, 2021, we increased the financing amount on our revolving secured line of credit facility with a commercial bank syndicate from $ 340.0 million to $ 385.0 million.

We also extended the maturity of the facility from June 22, 2023 to June 22, 2024.

The amount of the facility will decrease from $ 385.0 million to $ 350.0 million on June 22, 2022, and will further decrease from $ 350.0 million to $ 325.0 million on June 22, 2023.

On October 15, 2021, we extended the date on which our $ 75.0 million Warehouse Facility VI will cease to revolve from September 30, 2022 to September 30, 2024.

On October 28, 2021, we completed a $ 250.1 million Term ABS financing, which was used to repay outstanding indebtedness and for general corporate purposes.

The financing has an expected annualized cost of approximately 1.8% (including the initial purchasers’ fees and other costs), and it will revolve for 24 months, after which it will amortize based upon the cash flows on the contributed Loans.

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

What changed 10-Q

Item 1. Financial Statements