What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-02-12 compared with 2023-02-10 · 250 added, 256 removed, 1542 unchanged (25% of the section changed)

36 unchanged sentences

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

As described further in note 2 and note 5 to the financial statements, on January 1, 2020 (the “Adoption Date”), the Company adopted Financial Accounting Standards Board Accounting Standard Codification (“ASC”) 326, Financial Instruments, which is also known as the current expected credit loss model (“CECL”).

The Loans outstanding at December 31, 2019 qualified for transition relief and were accounted for as purchased financial assets with credit deterioration (“PCD Method”).

For the Loans accounted for under the PCD Method, the Company calculated an effective interest rate based on expected future net cash flows at the Adoption Date.

Loans originated after December 31, 2019, did not qualify for the PCD Method and are accounted for as originated financial assets (“Originated Method”).

At the time of assignment, the Company (1) calculates the effective interest rate based on contractual future net cash flows;

(2) records a Loan receivable equal to the advance paid to the Dealer under the Portfolio Program or purchase price paid to the Dealer under the Purchase Program;

and (3) records an allowance for credit losses equal to the difference between the initial Loan receivable balance and the present value of expected future net cash flows discounted at the effective interest rate.

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

In each subsequent period, the Company adjusts the allowance for credit losses for Loans accounted for under the PCD and Originated Methods, so that the net carrying amount of each Loan equals the present value of expected future net cash flows discounted at the effective interest rate.

The adjustment to the allowance for credit losses is recognized as either a provision for credit losses or a reversal of provision for credit losses in the consolidated statements of income.

During the first quarter of 2022, the Company enhanced their methodology for forecasting the amount and timing of future net cash flows through the utilization of more recent data and new forecast variables.

As a result, the Company removed the COVID-19 adjustment that was included in their estimate of future net cash flows during 2020 and 2021.

For Loans accounted for under the PCD Method, finance charge revenue is computed using the effective interest rate that was calculated on the Adoption Date based on expected future net cash flows.

For Loans accounted for under the Originated Method, finance charge revenue is computed using the effective interest rate that was calculated upon assignment based on contractual future net cash flows.

We identified the allowance for credit losses, provision for credit losses and finance change revenue, which are recorded based on subjective models, as a critical audit matter.

The principal consideration for our determination that the allowance for credit losses, provision for credit losses and finance charge revenue is a critical audit matter is the high degree of subjectivity that is involved in evaluating the reasonableness of management’s estimate, including assumptions used in the models that derive the expected future cash flows.

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

The Company accounts for Loans in accordance with Financial Accounting Standards Board Accounting Standard Codification (“ASC”) 326, Financial Instruments, which is also known as the current expected credit loss model (“CECL”).

We identified the allowance for credit losses, provision for credit losses and finance charge revenue, which are recorded based on internally developed models, as a critical audit matter.

The principal consideration for our determination that the allowance for credit losses, provision for credit losses and finance charge revenue is a critical audit matter is the high degree of subjectivity that is involved in evaluating the reasonableness of management’s estimates of expected future cash flows on the Loans, which are derived from the models.

Our audit procedures related to the allowance for credit losses, provision for credit losses and finance charge revenue included the following, among others:

We tested the design and operating effectiveness of relevant controls related to the models, including controls over the development and validation of the models, the completeness and accuracy of information used in the models, management review controls over the models and segregation of duties for maintaining the models.

With the assistance of an internal specialist, we assessed the reasonableness of the methodology used in the enhancement of the models that support or compute the expected future cash flows, including removal of the COVID-19 adjustment.

We recomputed the initial and current forecast of expected future cash flows for a sample of Loans utilizing the new variables.

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

We assessed the reasonableness of the timing of the expected future cash flows based on historical cash flows.

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

We sampled new Loans during 2022 and confirmed the balance with the Dealer and/or agreed to the Consumer Loan documents for completeness and accuracy.

We sampled collections received during 2022 to verify completeness, accuracy, and application to the appropriate Loans.

We recalculated the effective interest rate for a sample of Loans based on the contractual cash flows less estimated dealer holdback or we agreed to the prior year rate, based on the applicable method described above.

• We tested the design and operating effectiveness of relevant controls related to the models, including controls over the 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.

• We assessed the reasonableness of the methodology used in the models to compute the expected future cash flows.

Our assessment included the use of our internal specialist’s evaluation of the appropriateness of the Company’s internal model validation process.

• We reperformed the computation of the initial and current forecasts of expected future cash flows for a sample of Loans using management’s model methodology.

For that sample, we verified the accuracy of certain credit quality indicators used in the models, by comparing to the Consumer Loan documents.

For an additional sample, we assessed the correlation of collection history to forecasted future net cash flows for a sample of Loans.

• We assessed the reasonableness of the timing of the expected future cash flows based on historical monthly cash flows compared to forecasted monthly cash flows considering seasonality trends.

• We analyzed the historical forecasts against actual cash flows in evaluating management’s ability to predict future cash flows.

• We sampled new Loans during 2023 and confirmed the balance with the Dealer and/or agreed to the Consumer Loan documents for accuracy and existence.

• We sampled collections received during 2023 to verify the accuracy of the Loans.

• We recalculated the effective interest rate for a sample of Loans based on the contractual net cash flows.

• We recomputed the present value of expected future net cash flows discounted at the effective interest rate and the initial provision for credit losses for a sample of new Consumer Loan assignments.

We selected a sample of Loans to recompute the provision for credit losses, allowance for credit losses and finance charge revenue for the year-ended December 31, 2022.

• We selected a sample of Loans and recomputed the provision for credit losses and finance charge revenue for the year-ended December 31, 2023, and allowance for credit losses as of December 31, 2023.

For the sample tested, we also recomputed the estimated dealer holdback, if applicable.

We also assessed the correlation of changes in the allowance for credit losses to collections for a sample of Loans.

We analyzed the forecast enhancement in 2022 on the same sample of Loans.

/s/ GRANT THORNTON LLP

17 unchanged sentences

Accounts payable and accrued liabilities $ 318.8 $ 260.8

Revolving secured line of credit 30.9 2.6

Revolving secured lines of credit 79.2 30.9

Secured financing 3,990.9 3,756.4

12 unchanged sentences

Retained earnings 1,475.6 1,381.1

Accumulated other comprehensive income (loss) ( 2.9 ) 0.2

Accumulated other comprehensive loss ( 1.0 ) ( 2.9 )

Total Shareholders’ Equity 1,753.7 1,624.0

12 unchanged sentences

Sales and marketing 91.7 75.6 65.3

Provision for credit losses 481.4 8.4 556.9

Total operating expenses 459.1 426.3 383.7

Provision for credit losses on forecast changes 413.7 137.7 ( 356.7 )

Provision for credit losses on new Consumer Loan assignments 322.5 343.7 365.1

Total provision for credit losses 736.2 481.4 8.4

Interest 266.5 166.6 164.2

23 unchanged sentences

(Dollars in millions) Common Stock

Number Amount Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity

Number of Shares Amount Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity

Balance, January 1, 2021 17,092,432 $ 0.2 $ 161.9 $ 2,138.8 $ 1.6 $ 2,302.5

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

3 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

2 unchanged sentences

Stock-based compensation — — 36.5 — — 36.5

Forfeiture of restricted stock awards ( 109,085 ) — — — — —

Repurchase of common stock ( 1,491,481 ) — ( 3.1 ) ( 781.4 ) — ( 784.5 )

4 unchanged sentences

Net income — — — 286.1 — 286.1

Other comprehensive loss — — — — ( 3.1 ) ( 3.1 )

Other comprehensive gain — — — — 1.9 1.9

Stock-based compensation — — 39.1 — — 39.1

20 unchanged sentences

Increase (decrease) in accounts payable and accrued liabilities 49.7 67.9 ( 10.7 )

Decrease (increase) in income taxes receivable 100.5 37.8 ( 80.8 )

Decrease in income taxes receivable 4.4 100.5 37.8

Increase in income taxes payable 78.5 2.3 —

13 unchanged sentences

Cash Flows From Financing Activities:

Borrowings under revolving secured line of credit 6,622.6 1,562.6 5,376.0

Repayments under revolving secured line of credit ( 6,594.3 ) ( 1,655.9 ) ( 5,280.1 )

Borrowings under revolving secured lines of credit 7,431.9 6,622.6 1,562.6

Repayments under revolving secured lines of credit ( 7,383.6 ) ( 6,594.3 ) ( 1,655.9 )

Proceeds from secured financing 2,762.0 1,541.9 1,830.8

Repayments of secured financing ( 2,519.8 ) ( 1,599.2 ) ( 1,729.0 )

Proceeds from issuance of senior notes 600.0 — —

Repayment of senior notes ( 400.0 ) — —

3 unchanged sentences

Other 6.4 16.3 ( 0.8 )

Net cash used in financing activities ( 794.6 ) ( 1,468.7 ) ( 433.2 )

Net cash provided by (used in) financing activities 266.2 ( 794.6 ) ( 1,468.7 )

Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents 53.2 ( 16.5 ) 38.0

14 unchanged sentences

Further, as we report to the three national credit reporting agencies, an important ancillary benefit of our programs is that we provide consumers with an opportunity to improve their lives by improving their credit score and move on to more traditional sources of financing.

We refer to automobile dealers who participate in our programs and who share our commitment to changing consumers’ lives as “Dealers”.

Upon enrollment in our financing programs, the Dealer enters into a Dealer servicing agreement with us that defines the legal relationship between Credit Acceptance and the Dealer.

We refer to automobile dealers who participate in our programs and who share our commitment to changing consumers’ lives as “Dealers.” Upon enrollment in our financing programs, the Dealer enters into a Dealer servicing agreement with us that defines the legal relationship between Credit Acceptance and the Dealer.

The Dealer servicing agreement assigns the responsibilities for administering, servicing, and collecting the amounts due on retail installment contracts (referred to as “Consumer Loans”) from the Dealers to us.

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

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

The 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:

3 unchanged sentences

80.9 % 84.8 % 91.0 %

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.

In recent years, we expanded our financing programs to consumers with higher credit ratings, which has contributed to the reduction in the percentage of total unit volume with either FICO ® scores below 650 or no FICO ® scores over the three year period presented above.

We have two programs:

2 unchanged sentences

Under the Purchase Program, we buy the Consumer Loans from the Dealers (referred to as a “Purchased Loan”) and keep all amounts collected from the consumer.

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

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

Dealer Loans and Purchased Loans are collectively referred to as “Loans.” The following table shows the percentage of Consumer Loans assigned to us as Dealer Loans and Purchased Loans for each of the last three years:

Unit Volume Dollar Volume (1)

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

(“VRS”), VSC Re Company (“VSC Re”), CAC Warehouse Funding LLC II, CAC Warehouse Funding LLC IV, CAC Warehouse Funding LLC V, CAC Warehouse Funding LLC VI, CAC Warehouse Funding LLC VIII, Credit Acceptance Funding LLC 2019-2, Credit Acceptance Funding LLC 2019-3, Credit Acceptance Funding LLC 2020-1, Credit Acceptance Funding LLC 2020-2, Credit Acceptance Funding LLC 2020-3, Credit Acceptance Funding LLC 2021-1, Credit Acceptance Funding LLC 2021-2, Credit Acceptance Funding LLC 2021-3, Credit Acceptance Funding LLC 2021-4, Credit Acceptance Funding LLC 2022-1, Credit Acceptance Funding LLC 2022-2, and Credit Acceptance Funding LLC 2022-3.

(“VRS”), VSC Re Company (“VSC Re”), CAC Warehouse Funding LLC II, CAC Warehouse Funding LLC IV, CAC Warehouse Funding LLC V, CAC Warehouse Funding LLC VI, CAC Warehouse Funding LLC VIII, Credit Acceptance Funding LLC 2019-2, Credit Acceptance Funding LLC 2020-3, Credit Acceptance Funding LLC 2021-1, Credit Acceptance Funding LLC 2021-2, Credit Acceptance Funding LLC 2021-3, Credit Acceptance Funding LLC 2021-4, Credit Acceptance Funding LLC 2022-1, Credit Acceptance Funding LLC 2022-2, Credit Acceptance Funding LLC 2022-3, Credit Acceptance Funding LLC 2023-1, Credit Acceptance Funding LLC 2023-2, Credit Acceptance Funding LLC 2023-3, Credit Acceptance Funding LLC 2023-A, and Credit Acceptance Funding LLC 2023-5.

Business Segment Information

36 unchanged sentences

the Portfolio Program and the Purchase Program.

We are considered to be a lender to our Dealers for Consumer Loans assigned under the Portfolio Program and a purchaser of Consumer Loans assigned under the Purchase Program.

We are considered to be a lender to Dealers for Consumer Loans assigned under the Portfolio Program and a purchaser of Consumer Loans assigned under the Purchase Program.

• The Portfolio Program and the Purchase Program have different levels of risk in relation to credit losses.

10 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 consolidated net income.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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

2 unchanged sentences

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 on or subsequent to January 1, 2020 do not qualify for the PCD Method and are accounted for as originated financial assets (“Originated Method”).

27 unchanged sentences

transfers out.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Under our Portfolio Program, certain events may result in Dealers forfeiting their rights to Dealer Holdback.

1 unchanged sentence

We aggregate these Purchased Loans by Dealer for purposes of recognizing revenue and measuring credit losses.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Allowance for Credit Losses.

2 unchanged sentences

Expected future net cash flows for Purchased Loans are comprised of expected future collections on the assigned Consumer Loans.

Expected future collections are forecasted for each individual Consumer Loan based on the historical performance of Consumer Loans with similar characteristics, adjusted for recent trends in payment patterns and economic conditions.

Our forecast of expected future collections includes estimates for prepayments and post-contractual-term cash flows.

12 unchanged sentences

The credit quality indicators considered in our model include attributes contained in the consumer’s credit bureau report, data contained in the consumer’s credit application, the structure of the proposed transaction, vehicle information, and other factors.

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

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

Our evaluation becomes more accurate as the Consumer Loans age, as we use actual performance data in our forecast.

Since all known, significant credit quality indicators have already been factored into our forecasts and pricing, we are not able to use any specific credit quality indicators to predict or explain variances in actual performance from our initial expectations.

Any variances in performance from our initial expectations are the result of Consumer Loans performing differently from historical Consumer Loans with similar characteristics.

Any variances in performance from our initial expectations are a result of Consumer Loans performing differently from historical Consumer Loans with similar characteristics.

We periodically adjust our statistical pricing model for new trends that we identify through our evaluation of these forecasted collection rate variances.

3 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 second quarter of 2023, we adjusted our methodology for forecasting the amount and timing of future net cash flows from our Loan portfolio through the utilization of more recent Consumer Loan performance and Consumer Loan prepayment data .

During the first quarter of 2022, we removed the COVID-19 forecast adjustment (as defined in Note 5) from our estimate of future net cash flows and enhanced our methodology for forecasting the amount and timing of future net cash flows from our Loan portfolio through the utilization of more recent data and new forecast variables.

6 unchanged sentences

Estimated useful lives are generally as follows:

buildings – 40 years , building improvements – 10 years , data processing equipment – 3 years , software – 5 years , office furniture and equipment – 7 years , and leasehold improvements – the lesser of the lease term or 7 years .

buildings – 40 years, building improvements – 10 years, data processing equipment – 3 years, software – 5 years, and office furniture and equipment – 7 years.

The cost of assets sold or retired and the related accumulated depreciation are removed from the balance sheet at the time of disposition and any resulting gain or loss is included in operations.

6 unchanged sentences

Deferred Debt Issuance Costs

Deferred debt issuance costs associated with secured financings and senior notes are included as a deduction from the carrying amount of the related debt liability, and deferred debt issuance costs associated with our revolving secured line of credit are included in other assets.

Expenses associated with the issuance of debt instruments are capitalized and amortized as interest expense over the term of the debt instrument using the effective interest method for asset-backed secured financings (“Term ABS”) and senior notes and the straight-line method for lines of credit and revolving secured warehouse (“Warehouse”) facilities.

Expenses associated with the issuance of debt instruments are capitalized and amortized as interest expense over the term of the debt instrument using the effective interest method for asset-backed secured financings (“Term ABS financings”) and senior notes and the straight-line method for lines of credit and revolving secured warehouse (“Warehouse”) facilities.

For additional information regarding deferred debt issuance costs, see Note 9 to the consolidated financial statements.

21 unchanged sentences

We bear the risk of loss for claims on certain vehicle service contracts that are reinsured by us.

We market the vehicle service contracts directly to our Dealers.

We market the vehicle service contracts directly to Dealers.

We provide Dealers the ability to offer Guaranteed Asset Protection (“GAP”) to consumers through our relationships with TPPs.

62 unchanged sentences

Advertising expenses were $ 0.5 million for the year ended December 31, 2023, $ 1.0 million for the year ended December 31, 2022, and $ 0.3 million for the year ended December 31, 2021.

New Accounting Update Not Yet Adopted

New Accounting Updates Adopted During the Current Year

Troubled Debt Restructurings and Vintage Disclosures.

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

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

The adoption of ASU 2022-02 will expand our write-off disclosures.

In March 2022, the Financial Accounting Standards Board (“FASB”) 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.

The adoption of ASU 2022-02 on January 1, 2023 expanded our write-off disclosures, but did not otherwise have a material impact on our consolidated financial statements.

Reference Rate Reform:

Deferral of the Sunset Date.

In December 2022, the FASB issued ASU 2022-06, which amends ASU 2020-04 to extend the period of time preparers can utilize the reference rate reform relief guidance during the phaseout of the London Interbank Offered Rate.

ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024.

The adoption of ASU 2022-06 on January 1, 2023 did not have a material impact on our consolidated financial statements or related disclosures.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

New Accounting Update Not Yet Adopted

Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.

In October 2023, the FASB issued ASU 2023-06 , which amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification (the “Codification”).

The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited.

If by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity.

We are currently evaluating the impact the adoption of ASU 2023-06 will have on our consolidated financial statements and related disclosures.

Improvements to Reportable Segment Disclosures.

In November 2023, the FASB issued ASU 2023-07, which enhances the required disclosures for operating segments in our annual and interim consolidated financial statements.

ASU 2023-07 is effective on a retrospective basis for annual periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024.

Early adoption is permitted but we have not yet adopted ASU 2023-07.

We are currently evaluating the impact the adoption of ASU 2023-07 will have on our consolidated financial statements and related disclosures.

Improvements to Income Tax Disclosures.

In December 2023, the FASB issued ASU 2023-09, which intends to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction.

It also includes certain other amendments intended to improve the effectiveness of income tax disclosures.

ASU 2023-09 is effective for annual periods beginning after December 15, 2024.

Early adoption is permitted, but we have not yet adopted ASU 2023-09.

We are currently evaluating the impact the adoption of ASU 2023-09 will have on our consolidated financial statements and related disclosures.

Reclassification

3 unchanged sentences

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

FAIR VALUE OF FINANCIAL INSTRUMENTS

4 unchanged sentences

The fair value of U.S.

Government and agency securities and corporate bonds is based on quoted market values in active markets.

Government and agency securities, corporate bonds, and municipal bonds is based on quoted market values in active markets.

For asset-backed securities, mortgage-backed securities, and commercial paper we use model-based valuation techniques for which all significant assumptions are observable in the market.

1 unchanged sentence

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.

Revolving Secured Lines of Credit.

The fair value is determined by calculating the present value of the debt instrument based on current rates for debt with a similar risk profile and maturity.

2 unchanged sentences

For our warehouse facilities and certain other Term ABS financings, the fair values are determined by calculating the present value of each debt instrument based on current rates for debt with similar risk profiles and maturities.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Senior Notes.

12 unchanged sentences

Loans receivable, net 6,955.3 7,759.1 6,297.7 6,767.9

Revolving secured line of credit $ 30.9 $ 30.9 $ 2.6 $ 2.6

Revolving secured lines of credit $ 79.2 $ 79.2 $ 30.9 $ 30.9

Secured financing 3,990.9 4,025.9 3,756.4 3,581.9

1 unchanged sentence

Mortgage note 8.4 8.4 8.9 8.9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

6 unchanged sentences

These unobservable assumptions reflect estimates or assumptions that market participants would use in pricing the asset or liability.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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:

6 unchanged sentences

Loans receivable, net (1) — — 7,759.1 7,759.1

Revolving secured line of credit (1) $ — $ 30.9 $ — $ 30.9

Revolving secured lines of credit (1) $ — $ 79.2 $ — $ 79.2

Secured financing (1) 3,225.8 800.1 — 4,025.9

8 unchanged sentences

Loans receivable, net (1) — — 6,767.9 6,767.9

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

Revolving secured lines of credit (1) $ — $ 30.9 $ — $ 30.9

Secured financing (1) 2,781.8 800.1 — 3,581.9

12 unchanged sentences

Asset-backed securities 18.0 0.1 ( 0.2 ) 17.9

Municipal securities 0.7 — — 0.7

Mortgage-backed securities 0.2 — — 0.2

139 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 (5)

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

Finance charges

26 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.

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.

19 unchanged sentences

$ 240.4 $ 241.0 $ 481.4

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(In millions)

7 unchanged sentences

$ ( 28.2 ) $ 36.6 $ 8.4

The net Loan income (finance charge revenue less provision for credit losses expense) that we will recognize over the life of a Loan equals the cash we collect from the underlying Consumer Loan less the cash we pay to the Dealer.

Under CECL, we are required to recognize a significant provision for credit losses expense at the time of assignment for contractual net cash flows we never expect to realize and to recognize in subsequent periods finance charge revenue that is significantly in excess of our expected yields.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

The net Loan income (finance charge revenue less provision for credit losses expense) that we recognize over the life of a Loan equals the cash we collect from the underlying Consumer Loan less the cash we pay to the Dealer.

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 do not expect to realize;

• finance charge revenue in subsequent periods that is significantly in excess of our expected yields.

Additional information related to new Consumer Loan assignments is as follows:

107 unchanged sentences

For additional information regarding credit quality, see Note 2 to the consolidated financial statements.

The following table compares our forecast of Consumer Loan collection rates as of December 31, 2022, with the forecasts as of December 31, 2021, as of December 31, 2020, and at the time of assignment, segmented by year of assignment:

The following table compares our aggregated forecast of Consumer Loan collection rates as of December 31, 2023, with the aggregated forecasts as of December 31, 2022, as of December 31, 2021, and at the time of assignment, segmented by year of assignment:

Total Loans as of December 31, 2023

45 unchanged sentences

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

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

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

The following table summarizes the past-due status of Consumer Loan assignments as of December 31, 2023 and December 31, 2022, segmented by year of assignment:

78 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

The following table summarizes the write-offs for Consumer Loan assignments for the year ended December 31, 2023, segmented by year of assignment:

(In millions) For the Year Ended December 31, 2023

Write-offs by Consumer Loan Assignment Year Dealer Loans Purchased Loans Total

2018 and prior $ 120.6 $ 104.8 $ 225.4

2019 101.3 176.6 277.9

2020 107.0 101.9 208.9

2021 107.2 119.7 226.9

2022 113.3 158.0 271.3

2023 17.2 62.8 80.0

$ 566.6 $ 723.8 $ 1,290.4

During the first half of 2023, we experienced a decrease in Consumer Loan prepayments to below-average levels and, as a result, slowed our forecasted net cash flow timing.

The below-average levels of Consumer Loan prepayments continued through the fourth quarter of 2023.

Historically, Consumer Loan prepayments have been lower in periods with less availability of consumer credit.

Changes in the amount and timing of forecasted net cash flows are recognized in the period of change through provision for credit losses.

The implementation of the adjustment to our forecasting methodology during the second quarter of 2023 reduced forecasted net cash flows by $44.5 million, or 0.5%, and increased provision for credit losses by $71.3 million.

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.

3 unchanged sentences

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

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

The removal of the COVID forecast adjustment and the implementation of the enhanced forecasting methodology during the first quarter of 2022 impacted forecasted net cash flows and provision for credit losses as follows:

4 unchanged sentences

Total $ 95.7 $ ( 70.6 )

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PROPERTY AND EQUIPMENT

5 unchanged sentences

Office furniture and equipment 2.6 3.0

Leasehold improvements — 0.7

Total property and equipment 114.3 111.9

3 unchanged sentences

We are actively exploring options to reduce our office space, which could result in the sale or lease of one or both of our buildings.

As there is currently a significant amount of unoccupied office space, we believe the market value of our buildings and improvements, land and land improvements, and office furniture and equipment is significantly less than their combined carrying value.

If we were to reclassify one or both of these buildings as held for sale, we would be required to record an impairment charge to reduce their carrying value to their estimated market value less costs to sell.

43 unchanged sentences

Ancillary product profit sharing $ 34.1 $ 60.6 $ 40.2

Remarketing fees 13.4 7.8 7.1

Interest 19.7 6.6 1.2

Dealer enrollment fees 1.7 1.9 3.0

Dealer support products and services 1.2 1.3 1.9

Remarketing fees 10.7 13.4 7.8

Other 2.4 2.8 3.9

1 unchanged sentence

Ancillary product profit sharing consists of payments received from TPPs based upon the performance of vehicle service contracts and GAP contracts, and is recognized as income over the life of the vehicle service contracts and GAP contracts.

Remarketing fees consist of fees retained from the sale of repossessed vehicles by Vehicle Remarketing Services, Inc.

(“VRS”), our wholly owned subsidiary that is responsible for remarketing vehicles for Credit Acceptance.

VRS coordinates vehicle repossessions with a nationwide network of repossession contractors, the redemption of the vehicles by the consumers, and the sale of the vehicles through a nationwide network of vehicle auctions.

VRS recognizes income from the retained fees at the time of the sale and does not retain a fee if a repossessed vehicle is redeemed by the consumer prior to the sale.

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

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.

Dealer enrollment fees consist of fees from Dealers that enrolled in our Portfolio Program prior to August 5, 2019.

Depending on the enrollment option selected by the Dealer, Dealers may have enrolled by paying us an upfront, one-time fee of $ 9,850 , or by agreeing to allow us to retain 50 % of their accelerated Dealer Holdback payment(s) on the first 100 Consumer Loan assignments.

A portion of the $ 9,850 upfront, one-time fee was considered to be a Dealer enrollment fee, which was amortized on a straight-line basis over the estimated life of the Dealer relationship.

In the case of Dealers that enrolled by agreeing to allow us to retain 50 % of their accelerated Dealer Holdback payment(s) on the first 100 Consumer Loan assignments, the 50 % portion we retain is considered to be a Dealer enrollment fee.

We do not recognize any of this Dealer enrollment fee until the Dealer has met the eligibility requirements to receive the accelerated Dealer Holdback payment(s) and the amount(s) of the payment(s), if any, have been calculated.

Once the accelerated Dealer Holdback payment(s) have been calculated, we defer the 50 % portion that we keep and recognize it on a straight-line basis over the remaining estimated life of the Dealer relationship.

Beginning August 5, 2019, Dealers enroll in our Portfolio Program without incurring an enrollment fee.

Dealer support products and services consist of income earned from products and services provided to Dealers to assist with their operations, including sales and marketing, purchasing supplies and materials, and acquiring vehicle inventory.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Remarketing fees consist of fees charged to Dealers that are retained from the sale of repossessed vehicles by Vehicle Remarketing Services, Inc.

(“VRS”), our wholly owned subsidiary that is responsible for remarketing vehicles for Credit Acceptance.

VRS recognizes income from the retained fees at the time of the sale and does not retain a fee if a repossessed vehicle is redeemed by the consumer prior to the sale.

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

(In millions) For the Year Ended December 31, 2023

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

Ancillary product profit sharing Interest Remarketing fees Other Total Other Income

Source of income

6 unchanged sentences

Total $ 34.1 $ 19.7 $ 10.7 $ 2.4 $ 66.9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Debt consists of the following:

1 unchanged sentence

Principal Outstanding Unamortized Debt Issuance Costs Unamortized Discount Carrying

Revolving secured line of credit (1) $ 30.9 $ — $ — $ 30.9

Revolving secured lines of credit (1) $ 79.2 $ — $ — $ 79.2

Secured financing (2) 4,019.0 ( 25.6 ) ( 2.5 ) 3,990.9

4 unchanged sentences

Principal Outstanding Unamortized Debt Issuance Costs Unamortized Discount Carrying

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

Revolving secured lines of credit (1) $ 30.9 $ — $ — $ 30.9

Secured financing (2) 3,776.7 ( 16.9 ) ( 3.4 ) 3,756.4

3 unchanged sentences

(1) Excludes deferred debt issuance costs of $ 4.2 million and $ 3.9 million as of December 31, 2023 and December 31, 2022, respectively, which are included in other assets.

(2) Warehouse facilities and Term ABS.

(2) Warehouse facilities and Term ABS financings.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

3 unchanged sentences

Revolving Secured

Line of Credit n/a 06/22/25 $ 410.0 (1) At our option, either the Bloomberg Short-Term Bank Yield Index rate (BSBY) plus 187.5 basis points or the prime rate plus 87.5 basis points

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 05/20/25 (3) $ 300.0 The Secured Overnight Financing Rate (SOFR) plus 221.4 basis points (4)

Line of Credit Facility n/a 06/22/26 $ 390.0 At our option, either the Bloomberg Short-Term Bank Yield Index rate (BSBY) plus 187.5 basis points or the prime rate plus 87.5 basis points

RTP Facility n/a — (1) $ 20.0 BSBY plus 187.5 basis points

Warehouse Facility II (2) CAC Warehouse Funding LLC II 04/30/26 (3) $ 400.0 The Secured Overnight Financing Rate (SOFR) plus 230 basis points

Warehouse Facility IV (2) CAC Warehouse Funding LLC IV 12/29/26 (3) $ 300.0 SOFR plus 221.4 basis points (4)

Warehouse Facility V (2) CAC Warehouse Funding LLC V 12/29/25 (5) $ 200.0 SOFR plus 245 basis points (4)

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

Term ABS 2021-1 (2) Credit Acceptance Funding LLC 2021-1 12/16/24 (6) $ 100.0 SOFR plus 220 basis points (4)

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

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Term ABS 2021-4 (2) Credit Acceptance Funding LLC 2021-4 10/16/23 (3) $ 250.1 Fixed rate

Term ABS 2022-1 (2) Credit Acceptance Funding LLC 2022-1 06/17/24 (3) $ 350.0 Fixed rate

Term ABS 2022-2 (2) Credit Acceptance Funding LLC 2022-2 12/15/25 (6) $ 200.0 SOFR plus 235 basis points (4)

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Term ABS 2023-3 (2) Credit Acceptance Funding LLC 2023-3 08/15/25 (3) $ 400.0 Fixed rate

Term ABS 2022-2 (2) Credit Acceptance Funding LLC 2022-2 12/15/25 (6) $ 200.0 SOFR plus 235 basis points (4)

Term ABS 2023-A (2) Credit Acceptance Funding LLC 2023-A 12/15/25 (6) $ 200.0 Fixed rate

Term ABS 2023-5 (2) Credit Acceptance Funding LLC 2023-5 12/15/25 (3) $ 294.0 Fixed rate

2 unchanged sentences

Mortgage Note (2) Chapter 4 Properties, LLC 08/06/28 $ 9.0 BSBY plus 150 basis points

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

(1) Borrowings are subject to repayment on demand.

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

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(In millions) For the Years Ended December 31,

Revolving Secured Line of Credit

Revolving Secured Lines of Credit

Maximum outstanding principal balance $ 355.5 $ 379.7

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(Dollars in millions) As of December 31,

Revolving Secured Line of Credit

Revolving Secured Lines of Credit

Principal balance outstanding $ 79.2 $ 30.9

46 unchanged sentences

Interest rate — % 2.51 %

(1) Availability may be limited by the amount of assets pledged as collateral.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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Term ABS 2022-2

Balance outstanding $ 350.0 $ —

Principal balance outstanding $ 200.0 $ 200.0

Loans pledged as collateral 212.1 229.3

2 unchanged sentences

Term ABS 2022-3

Balance outstanding $ 200.0 $ —

Principal balance outstanding $ 389.9 $ 389.9

Loans pledged as collateral 418.9 429.2

1 unchanged sentence

Interest rate 7.68 % 7.68 %

Term ABS 2022-3

Balance outstanding $ 389.9 $ —

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Dollars in millions) As of December 31,

Term ABS 2023-1

Principal balance outstanding $ 400.0 $ —

Loans pledged as collateral 611.6 —

1 unchanged sentence

Interest rate 6.92 % — %

Term ABS 2023-2

Principal balance outstanding $ 400.0 $ —

Loans pledged as collateral 701.7 —

Restricted cash and cash equivalents pledged as collateral 42.0 —

Interest rate 6.39 % — %

Term ABS 2023-3

Principal balance outstanding $ 400.0 $ —

Loans pledged as collateral 643.8 —

Restricted cash and cash equivalents pledged as collateral 40.3 —

Interest rate 6.86 % — %

Term ABS 2023-A

Principal balance outstanding $ 200.0 $ —

Loans pledged as collateral 273.4 —

Restricted cash and cash equivalents pledged as collateral 17.2 —

Interest rate 7.51 % — %

Term ABS 2023-5

Principal balance outstanding $ 294.0 $ —

Loans pledged as collateral 433.9 —

Restricted cash and cash equivalents pledged as collateral 52.2 —

Interest rate 6.54 % — %

2024 Senior Notes

4 unchanged sentences

Interest rate 6.625 % 6.625 %

2028 Senior Notes

Principal balance outstanding $ 600.0 $ —

Interest rate 9.250 % — %

Mortgage Note

2 unchanged sentences

(1) Availability may be limited by the amount of assets pledged as collateral.

Revolving Secured Line of Credit Facility

We have a $ 410.0 million revolving secured line of credit facility with a commercial bank syndicate.

The amount of the facility will decrease by $ 25.0 million on June 23, 2023.

Borrowings under the revolving secured line of credit facility, including any letters of credit issued under the facility, are subject to a borrowing-base limitation.

This limitation equals 80 % of the value of Loans, as defined in the agreement, less a hedging reserve (not exceeding $ 1.0 million), and the amount of other debt secured by the collateral which secures the revolving secured line of credit facility.

Borrowings under the revolving secured line of credit facility agreement are secured by a lien on most of our assets.

Revolving Secured Lines of Credit

We have two revolving secured lines of credit:

(1) a $ 390.0 million revolving secured line of credit facility, to which we refer as our revolving secured line of credit facility, with a commercial bank syndicate and (2) an uncommitted $20.0 million revolving secured line of credit facility, to which we refer as the RTP facility, with a lender for use solely in facilitating payments by the Company through the lender’s real-time payments service.

Borrowings under our revolving secured line of credit facility, including any letters of credit issued under the facility, are subject to a borrowing-base limitation.

This limitation equals 80 % of the value of Loans, as defined in the agreement governing

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

our revolving secured line of credit facility, less a hedging reserve (not exceeding $ 1.0 million), and the amount of other debt secured by the collateral that secures our revolving secured line of credit facility.

Borrowings under our revolving secured line of credit facility are secured by a lien on most of our assets that do not secure obligations under our Warehouse facilities or Term ABS financings.

Borrowings under the RTP facility are secured by a lien on the same collateral that secures obligations under our revolving secured line of credit facility.

The RTP facility terminates automatically if the lender ceases to be part of the commercial bank syndicate under our revolving secured line of credit facility or if its lending commitments under our revolving secured line of credit facility are terminated.

Warehouse Facilities

1 unchanged sentence

Each of the facilities is with a different lender or group of lenders.

Under each Warehouse facility, we can contribute Loans to our wholly owned subsidiaries in return for cash and an increase in the value of our equity in each subsidiary.

In turn, each subsidiary pledges the Loans as collateral to lenders to secure financing that will fund the cash portion of the purchase price of the Loans.

The financing provided to each subsidiary under the applicable facility is generally limited to the lesser of 80 % of the value of the contributed Loans, as defined in the agreements, plus the restricted cash and cash equivalents pledged as collateral on such Loans or the facility limit.

Under each Warehouse facility, we can convey Loans to the applicable wholly owned subsidiary in return for cash and/or an increase in the value of our equity in such subsidiary.

In turn, each such subsidiary pledges the Loans as collateral to secure financing that will fund the cash portion of the purchase price of the Loans.

The financing provided to each such subsidiary under the applicable facility is generally limited to the lesser of 80 % of the outstanding balance of the conveyed Loans, as determined in accordance with the applicable agreement, plus certain restricted cash and cash equivalents pledged as collateral, or the facility limit.

The financings create indebtedness for which the subsidiaries are liable and which is secured by all the assets of each subsidiary.

Such indebtedness is non-recourse to us, even though we are consolidated for financial reporting purposes with the subsidiaries.

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

The subsidiaries pay us a monthly servicing fee equal to either 4 % or 6 %, depending upon the facility, of the collections received with respect to the contributed Loans.

Such indebtedness is non-recourse to us (other than customary, limited recourse to us in the form of repurchase obligations or indemnification obligations for any violations by us of our representations or obligations as seller, servicer, or custodian), even though we are consolidated for financial reporting purposes with the subsidiaries.

Because the subsidiaries are organized as bankruptcy-remote legal entities separate from us, their assets (including the conveyed Loans) are not available to any creditors other than the creditors of the applicable subsidiary.

The subsidiaries pay us a monthly servicing fee equal to either 4 % or 6 %, depending upon the facility, of the collections received with respect to the conveyed Loans.

The servicing fee is paid out of the collections.

Except for the servicing fee and holdback payments due to Dealers, if a facility is amortizing, we do not have any rights in any portion of such collections until all outstanding principal, accrued and unpaid interest, fees, and other related costs have been paid in full.

If a facility is not amortizing, the applicable subsidiary is entitled to any collections remaining after the payment of interest, certain other transaction expenses, and any amounts necessary to satisfy the borrowing base requirements of the facility.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

If a facility is in its revolving period, the applicable subsidiary is entitled to the portion of such collections available after the payment of interest and transaction expenses under the facility, provided that the borrowing base requirements of the facility are satisfied.

Term ABS Financings

We have wholly owned subsidiaries (the “Funding LLCs”) that have completed secured financing transactions with qualified institutional investors or lenders.

In connection with these transactions, we contributed Loans on an arms-length basis to each Funding LLC for cash and the sole membership interest in that Funding LLC.

In turn, each Funding LLC, other than of the Funding LLCs for the Term ABS 2019-2, 2021-1, and 2022-2 financings, contributed the Loans to the respective trusts that issued notes to qualified institutional investors.

The Funding LLCs for the Term ABS 2019-2, 2021-1, and 2022-2 financings pledged the Loans to their respective lenders.

The Term ABS 2019-3, 2020-1, 2020-2, 2020-3, 2021-2, 2021-3, and 2021-4 financings each consist of three classes of notes, while the Term ABS 2022-1 and Term ABS 2022-3 financings consist of four classes of notes.

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

Each Funding LLC (other than the Funding LLCs of the Term ABS 2019-2, 2021-1, and 2022-2 financings) will then contribute the Loans to its respective trust.

In connection with each of these transactions, we conveyed Loans on an arms-length basis to a Funding LLC for cash and the sole membership interest in that Funding LLC.

In turn, each Funding LLC, other than the Funding LLCs for the Term ABS 2019-2, 2021-1, 2022-2, and 2023-A financings, conveyed the Loans to the respective trusts that issued notes to qualified institutional investors.

The Funding LLCs for the Term ABS 2019-2, 2021-1, 2022-2, and 2023-A financings pledged the Loans for the benefit of their respective lenders.

The Term ABS 2020-3, 2021-2, 2021-3, 2021-4, 2023-1, 2023-2, 2023-3, 2023-A, and 2023-5 financings each consist of three classes of notes, while the Term ABS 2022-1 and Term ABS 2022-3 financings consist of four classes of notes.

Each Term ABS financing at the time of issuance has a specified revolving period during which we are likely to convey additional Loans to the applicable Funding LLC.

Each Funding LLC (other than the Funding LLCs of the Term ABS 2019-2, 2021-1, 2022-2, and 2023-A financings) will then convey the Loans to its respective trust.

At the end of the applicable revolving period, the debt outstanding under each financing will begin to amortize.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

The Term ABS financings create indebtedness for which the applicable trust or Funding LLC is liable and which is secured by all the assets of the applicable trust or Funding LLC.

Such indebtedness is non-recourse to us, even though we are consolidated for financial reporting purposes with the trusts and the Funding LLCs.

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

We receive a monthly servicing fee on each financing equal to either 4 % or 6 %, depending upon the financing, of the collections received with respect to the contributed Loans.

Such indebtedness is non-recourse to us (other than customary, limited recourse to us in the form of repurchase obligations or indemnification obligations for any violations by us of our representations or obligations as seller, servicer, or custodian) , even though we are consolidated for financial reporting purposes with the trusts and the Funding LLCs.

Because the trusts and the Funding LLCs are organized as bankruptcy-remote legal entities separate from us, their assets (including the conveyed Loans) are not available to any creditors other than the creditors of the applicable subsidiary.

We receive a monthly servicing fee on each financing equal to either 4 % or 6 %, depending upon the financing, of the collections received with respect to the conveyed Loans.

The fee is paid out of the collections.

Except for the servicing fee and Dealer Holdback payments due to Dealers, if a facility is amortizing, we do not have any rights in any portion of such collections until all outstanding principal, accrued and unpaid interest, fees, and other related costs have been paid in full.

If a facility is not amortizing, the applicable subsidiary may be entitled to retain any collections remaining after payment of interest, certain other transaction expenses, and any amounts necessary to satisfy the borrowing base requirements of the facility.

However, in our capacity as servicer of the Loans, we have a limited right to exercise a “clean-up call” option to purchase Loans from the Funding LLCs and/or the trusts under certain specified circumstances.

For those Funding LLCs with a trust, when the trust’s underlying indebtedness is paid in full, either through collections or through a prepayment of the indebtedness, the trust is to pay any remaining collections over to its Funding LLC as the sole beneficiary of the trust.

Except for the servicing fee and Dealer Holdback payments due to Dealers, if a Term ABS financing 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 Term ABS financing is in its revolving period, the applicable trust or Funding LLC is entitled to the portion of such collections available after application of any amounts necessary to acquire additional Loans from us and to pay accrued interest on the debt and any other transaction expenses, provided that any necessary principal payments are made to compensate for certain reductions in the balance of eligible loans or, in the case of Term ABS financings occurring after the Term ABS 2021-3 financing, certain reductions in forecasted collections.

In addition, in our capacity as servicer of the Loans, we have a limited right to exercise a “clean-up call” option to purchase Loans from the Funding LLCs and/or the trusts under certain specified circumstances.

For those Funding LLCs with a trust, when the trust’s indebtedness is paid in full, either through collections or through a prepayment of the indebtedness, the trust is to pay any remaining collections over to its Funding LLC as the sole beneficiary of the trust.

For all Funding LLCs, after the indebtedness is paid in full, any remaining collections will ultimately be available to be distributed to us as the sole member of the respective Funding LLC.

1 unchanged sentence

(Dollars in millions)

Term ABS Financings Close Date Net Book Value of Loans

Contributed at Closing Revolving Period

Term ABS Financings Closing Date Net Book Value of Loans

Conveyed at Closing Revolving Period

Term ABS 2019-2 August 28, 2019 $ 625.1 Through August 15, 2025

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

Term ABS 2020-1 February 20, 2020 625.1 Through February 15, 2022

Term ABS 2020-2 July 23, 2020 602.3 Through July 15, 2022

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

6 unchanged sentences

Term ABS 2022-3 November 3, 2022 500.1 Through October 15, 2024

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Term ABS 2023-1 March 16, 2023 500.2 Through March 17, 2025

Term ABS 2023-2 May 25, 2023 500.1 Through May 15, 2025

Term ABS 2023-3 August 24, 2023 500.1 Through August 15, 2025

Term ABS 2023-A November 30, 2023 252.0 Through December 15, 2025

Term ABS 2023-5 December 21, 2023 375.1 Through December 15, 2025

On December 19, 2023, we issued $600.0 million aggregate principal amount of 9.250% senior notes due 2028 (the “2028 senior notes”).

The 2028 senior notes were issued pursuant to an indenture, dated as of December 19, 2023, among the Company, as issuer, the Company’s subsidiaries Buyers Vehicle Protection Plan, Inc.

and Vehicle Remarketing Services, Inc., as guarantors (collectively, the “Guarantors”), and U.S.

Bank National Association, as trustee.

and Vehicle Remarketing Services, Inc., as guarantors (collectively, the “Guarantors”), and the trustee under the indenture.

The 2028 senior notes mature on December 15, 2028 and bear interest at a rate of 9.250% per annum, computed on the basis of a 360-day year composed of twelve 30-day months and payable semi-annually on June 15 and December 15 of each year, beginning on June 15, 2024.

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

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

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

During the first quarter of 2020, we recognized a pre-tax loss on extinguishment of debt of $ 7.4 million related to the redemption of the 2023 senior notes.

We used a portion of the net proceeds from the 2028 senior notes to repurchase or redeem all of the $400.0 million outstanding principal amount of our 5.125% senior notes due 2024 (the “2024 senior notes”), of which $322.3 million was repurchased on December 19, 2023 and the remaining $77.7 million was redeemed on December 31, 2023.

We used the remaining net proceeds from the 2028 senior notes for general corporate purposes.

During the fourth quarter of 2023, we recognized a pre-tax loss on extinguishment of debt of $1.8 million related to the repurchase and redemption of the 2024 senior notes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

On March 7, 2019, we issued $ 400.0 million aggregate principal amount of 6.625 % senior notes due 2026 (the “2026 senior notes”).

The 2026 senior notes were issued pursuant to an indenture, dated as of March 7, 2019, among the Company, as issuer, the Guarantors, and U.S.

Bank National Association, as trustee.

The 2026 senior notes were issued pursuant to an indenture, dated as of March 7, 2019, among the Company, as issuer, the Guarantors and the trustee under the indenture.

The 2026 senior notes mature on March 15, 2026 and bear interest at a rate of 6.625 % per annum, computed on the basis of a 360-day year composed of twelve 30-day months and payable semi-annually on March 15 and September 15 of each year, beginning on September 15, 2019.

9 unchanged sentences

(In millions)

Year Revolving Secured Line of Credit Facility Warehouse Facilities Term ABS

Year Revolving Secured Lines of Credit Facility Warehouse Facilities Term ABS

Financings (1) Senior Notes Mortgage Note Total

6 unchanged sentences

Total $ 79.2 $ — $ 4,019.0 $ 1,000.0 $ 8.4 $ 5,106.6

(1) The principal maturities of the Term ABS transactions are estimated based on forecasted collections.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(1) The principal maturities of the Term ABS financings are estimated based on forecasted collections.

Debt Covenants

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

As of December 31, 2023, we were in compliance with our covenants under our revolving secured line of credit facility and our Warehouse facilities, including those that require the maintenance of certain financial ratios and other financial conditions.

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

These covenants also limit the maximum ratio of our funded debt less unrestricted cash and cash equivalents to tangible net worth.

Additionally, for one of our Warehouse facilities, we must maintain consolidated net income, as defined in the agreement, of not less than $ 1 for the two most recently ended fiscal quarters.

Some of these covenants may indirectly limit the repurchase of common stock or payment of dividends on common stock.

Our Warehouse facilities also contain covenants that measure the performance of the contributed assets.

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

Our Warehouse facilities also contain covenants that measure the performance of the conveyed assets.

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

As of December 31, 2023, we were in compliance with all such covenants.

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

As of the end of the year, we were also in compliance with our covenants under the senior notes indentures and the RTP facility.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

DERIVATIVE AND HEDGING INSTRUMENTS

5 unchanged sentences

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

$ 400.0 Warehouse Facility II Cap Floating Rate 07/2022 12/2023 $ 205.0 6.50 %

$ 300.0 Warehouse Facility IV Cap Floating Rate 05/2023 11/2024 $ 300.0 7.50 %

1 unchanged sentence

200.0 Warehouse Facility VIII Cap Floating Rate 09/2022 09/2025 200.0 5.42 %

Cap Floating Rate 09/2022 09/2025 83.3 5.50 %

100.0 Term ABS 2021-1 Cap Floating Rate 04/2023 06/2024 37.5 5.46 %

7 unchanged sentences

200.0 Warehouse Facility VIII Cap Floating Rate 08/2019 08/2023 116.7 5.50 %

Cap Floating Rate 09/2022 09/2025 83.3 5.50 %

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

200.0 Term ABS 2022-2 Cap Floating Rate 12/2022 06/2024 200.0 6.50 %

(1) Rate excludes the spread over the corresponding benchmark rate.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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

As of December 31, 2023 and 2022, the interest rate caps had a fair value of $ 0.1 million and $ 2.0 million, respectively.

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

Information related to the effect of derivative instruments not designated as hedging instruments on our consolidated statements of income for the years ended December 31, 2023, 2022, and 2021 is as follows:

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Interest rate caps Interest expense $ 2.0 $ ( 1.0 ) $ ( 0.1 )

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Income Tax Provision

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Penalties — — —

2.4 1.5 ( 0.2 )

Provision for income taxes $ 81.5 $ 175.9 $ 302.6

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State and local income taxes 2.7 % 3.8 % 3.0 %

Non-deductible executive compensation expense 1.3 % 0.5 % 0.2 %

Excess tax benefits from stock-based compensation plans - 3.0 % - 0.8 % - 0.3 %

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State and local income taxes

The increase in our state and local income tax rate from 2021 to 2022 was primarily due to changes in state and local tax laws that were enacted during the third quarter of 2022, which are expected to increase our long-term effective income tax rate by approximately 20 basis points.

The enactment of these tax law changes increased our effective income tax rate by approximately 60 basis points basis points for the year ended December 31, 2022, of which 50 basis points related to the impact of tax law changes that are effective for future periods and 10 basis points related to the impact of tax law changes that were effective retroactively to the beginning of 2022.

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

For the year ended December 31, 2023, the impact of state and local income taxes on our effective income tax rate decreased from 2022 primarily due to the settlement of an uncertain tax position for state income taxes during the second quarter of 2023.

The increase in our state and local income tax rate from 2021 to 2022 was primarily due to changes in state and local tax laws that were enacted during the third quarter of 2022.

The enactment of these tax law changes increased our effective income tax rate by approximately 60 basis points for the year ended December 31, 2022, of which 50 basis points related to the impact of tax law changes that are effective for future periods and 10 basis points related to the impact of tax law changes that were effective retroactively to the beginning of 2022.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Non-deductible executive compensation expense

The impact of non-deductible executive compensation expense on our effective income tax rate for year ended December 31, 2023 increased in magnitude from the same period in 2022 primarily due to an increase in non-deductible executive compensation expense and a decrease in pre-tax income.

Excess tax benefits from stock-based compensation

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The impact of excess tax benefits on our effective income tax rate for the year ended December 31, 2023 increased from the same period in 2022 primarily due to an increase in the number of restricted stock units that were converted to common stock during 2023 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 expense.

The impact of non-deductible executive compensation expense on our effective income tax rate for year ended December 31, 2022 increased in magnitude from the same period in 2021 primarily due to a decrease in pre-tax income.

Unrecognized Tax Benefits

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(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.

On August 21, 2023, 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, 2023, we had authorization to repurchase 1,806,007 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.

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

STOCK-BASED COMPENSATION PLANS

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On April 10, 2023, our board of directors approved an amendment to the Incentive Plan, subject to shareholder approval, increasing the number of shares authorized for issuance by 250,000 shares, to 3,000,000 shares.

Shareholder approval was received at our annual meeting of shareholders on July 21, 2021.

Shareholder approval was received at our annual meeting of shareholders on June 2, 2023.

The shares available for future grants under the Incentive Plan totaled 455,100 as of December 31, 2023.

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• expire either six or ten years from the date of the grant.

From December 2020 through June 2021, we granted 770,500 stock options, subject to shareholder approval of an amendment to the Incentive Plan (“Shareholder Approval”).

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

Shareholder Approval was received at our annual meeting of shareholders on July 21, 2021.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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Outstanding as of December 31, 2022

Granted 67,000 501.50

682,074 $ 365.34

Exercised ( 15,624 ) 333.94

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Outstanding as of December 31, 2023

655,200 $ 365.93 $ 110.1 4.0

Exercisable as of December 31, 2023

406,288 $ 352.67 $ 73.3 3.7

Unvested as of December 31, 2023

248,912 $ 387.58 $ 36.8 4.4

(1) The intrinsic value of stock options is the amount by which the market price of the stock as of December 31, 2023 exceeded the exercise price of the options .

The grant-date weighted average fair value of stock options granted in 2022 was $ 501.50 per share.

The total intrinsic value of stock options exercised during 2023 was $ 2.8 million.

Net cash proceeds from the exercise of stock options in 2023 was $ 5.2 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 2022

Risk-free interest rate 1.5 % - 4.4 %

Expected stock price volatility 38.0 % - 41.0 %

Expected life of stock options (in years) 3.5 - 4.0

Restricted Stock Units

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• For certain team members, over a period of three or four years , based on continuous employment.

• For certain team members, over a period of one to four years , based on continuous employment and the compounded annual growth rate in our adjusted net income per diluted share, a non-GAAP financial measure.

• For certain directors, over a period of five years , based upon the compounded annual growth rate in our adjusted net income per diluted share, a non-GAAP financial measure.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

• For independent directors, over a period of three years , based on continuous service as a director.

• For certain independent 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.

A summary of the restricted stock unit (“RSU”) activity under the Incentive Plan for the year ended December 31, 2023, is presented below:

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Restricted Stock

Prior to 2020, we granted performance-based and time-based shares of restricted stock to team members in accordance with the Incentive Plan.

As of December 31, 2022, there were no unvested shares of restricted stock.

As of December 31, 2023 and December 31, 2022, there were no unvested shares of restricted stock.

During 2021, we recognized an $ 8.5 million reversal of stock-based compensation expense due to the forfeiture of 109,000 shares of unvested restricted stock upon the retirement of our former Chief Executive Officer in May 2021.

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For the Years Ended December 31, Stock Options Restricted

Stock Units Restricted Stock Total Projected Expense

Stock Units Total Projected Expense

2024 $ 33.4 $ 5.8 $ 39.2

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Total $ 39.8 $ 14.1 $ 53.9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

BUSINESS SEGMENT AND OTHER INFORMATION

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Additionally, no single Dealer’s Loans receivable balance accounted for more than 10% of total Loans receivable as of December 31, 2023 or 2022.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

COMMITMENTS AND CONTINGENCIES

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We may also have disputes and litigation with Dealers.

The claims may allege, among other theories of liability, that we breached our Dealer servicing agreement.

The claims may allege, among other theories of liability, that we breached the Dealer servicing agreement.

We may also have disputes and litigation with vendors and other third parties.

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The damages, fines, and penalties that may be claimed by consumers, regulatory agencies, Dealers, vendors, or other third parties in these types of matters can be substantial.

The relief requested by plaintiffs varies but may include requests for compensatory, statutory, and punitive damages and injunctive relief, and plaintiffs may seek treatment as purported class actions or they may file individual arbitration demands for which arbitration providers may request separate filing fees.

Current actions to which we are a party include the following matters:

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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

On July 30, 2020, we received two additional subpoenas from the Office of the New York State Attorney General, both from the Consumer Frauds and Protection Bureau and the Investor Protection Bureau, relating to the Company’s origination and collection policies and procedures in the state of New York and its securitizations.

On August 28, 2020, we were informed that one of the two additional subpoenas was being withdrawn.

On November 16, 2020, we received an additional subpoena for documents from the Office of the New York State Attorney General.

On November 19, 2020, the Company received a letter from the Office of the New York State Attorney General stating that the New York State Attorney General was considering bringing claims against the Company under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), New York Executive Law § 63(12), the New York Martin Act, and New York General Business Law § 349 in connection with the Company’s origination and securitization practices.

On December 9, 2020, we responded to the New York State Attorney General’s letter disputing the assertions contained therein.

On December 21, 2020, we received two additional subpoenas from the Office of the New York State Attorney General, one relating to data and the other seeking testimony.

On February 24 and April 30, 2021, we received additional subpoenas from the Office of the New York State Attorney General seeking information relating to its investigation.

On August 23, 2022, we received a letter from the Consumer Frauds and Protection Bureau of the Office of the New York State Attorney General stating that the Office of the New York State Attorney General intended to commence litigation against the Company asserting violations of New York Executive Law § 63(12) and New York General Business Law §§ 349 and 352 et seq.

and applicable federal laws, including but not limited to claims that the Company engaged in unfair and deceptive trade practices in auto lending, debt collection and asset-backed securitizations in the State of New York in violation of the Dodd-Frank Act, New York Executive Law § 63(12), the New York Martin Act and New York General Business Law § 349, and seeking to obtain injunctive relief, restitution, civil penalties, damages, disgorgement, reformation, rescission, costs and such other relief as the court may deem just and proper .

On January 4, 2023, the Office of the New York State Attorney General and the Bureau of Consumer Financial Protection (“Bureau”) jointly filed a complaint in the United States District Court for the Southern District of New York alleging that the Company engaged in deceptive practices, fraud, illegality, and securities fraud in violation of New York Executive Law § 63(12) and New York General Business Law §§ 349 and 352, and that the Company engaged in deceptive and abusive acts and provided substantial assistance to a covered person or service provider in violation of the Consumer Financial Protection Act of 2010 (the “CFPA”), 12 U.S.C.

After May 7, 2019 through April 30, 2021, we received additional subpoenas from the Office of the New York State Attorney General relating to the Company's origination, collection, and securitization practices.

On November 19, 2020 and August 23, 2022, we received letters from the Office of the New York State Attorney General indicating that it may commence litigation against the Company asserting violations of New York Executive Law § 63(12) and New York General Business Law §§ 349 and 352 et seq.

and applicable federal laws, including but not limited to claims that the Company engaged in unfair and deceptive trade practices in auto lending, debt collection, and asset-backed securitizations in the State of New York in violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, New York Executive Law § 63(12), the New York Martin Act, and New York General Business Law § 349.

See the description below of the lawsuit commenced by the Office of the New York State Attorney General on January 4, 2023.

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

After April 22, 2019 through March 7, 2022, we received additional subpoenas from the Bureau.

On December 6, 2021, we received a Notice and Opportunity to Respond and Advise letter from the Staff of the Office of Enforcement (“Staff”) of the Bureau, stating that the Staff was considering whether to recommend that the Bureau take legal action against the Company for alleged violations of the Consumer Financial Protection Act of 2010 (the “CFPA”) in connection with the Company’s consumer loan origination practices.

See the description below of the lawsuit commenced by the Bureau on January 4, 2023.

On January 4, 2023, the Office of the New York State Attorney General and the Bureau jointly filed a complaint in the United States District Court for the Southern District of New York alleging that the Company engaged in deceptive practices, fraud, illegality, and securities fraud in violation of New York Executive Law § 63(12) and New York General Business Law §§ 349 and 352, and that the Company engaged in deceptive and abusive acts and provided substantial assistance to a covered person or service provider in violation of the CFPA, 12 U.S.C.

§ 5531 and 12 U.S.C.

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The complaint seeks injunctive relief, an accounting of all consumers for whom the Company provided financing, restitution, damages, disgorgement, civil penalties, and payment of costs.

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

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

On March 14, 2023, the Company filed a motion to dismiss the complaint.

On August 7, 2023, the court stayed the action pending the U.S.

Supreme Court's decision in Consumer Financial Protection Bureau v.

Community Financial Services Association of America, Ltd., No.

We are unable to estimate the reasonably possible loss or range of reasonably possible loss arising from this litigation.

The Company intends to vigorously defend itself in this matter.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

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

On May 7, 2020, we received another civil investigative demand from the Bureau seeking additional information relating to its investigation.

The Company raised various objections to the May 7, 2020 civil investigative demand, and on May 26, 2020, we were notified that it was withdrawn.

On June 1, 2020, we received another civil investigative demand that was similar to the May 7, 2020 demand, and which raised many of the same objections.

We formally petitioned the Bureau to modify the June 1, 2020 civil investigative demand.

On September 3, 2020, the Director of the Bureau denied our petition to modify the June 1, 2020 civil investigative demand.

On December 23, 2020, we received a civil investigative demand for investigational hearings in connection with the Bureau’s investigation.

The Company objected to certain portions of the civil investigative demands for hearings and, on January 19, 2021, the Bureau notified the Company that it had withdrawn such portions from the December 23, 2020 civil investigative demands.

On March 11, 2021, we received another civil investigative demand from the Bureau seeking additional information relating to its investigation and an investigational hearing.

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

On December 6, 2021, we received a Notice and Opportunity to Respond and Advise (“NORA”) letter from the Staff of the Office of Enforcement (“Staff”) of the Bureau, stating that the Staff was considering whether to recommend that the Bureau take legal action against the Company for alleged violations of the CFPA in connection with the Company’s consumer loan origination practices.

The NORA letter stated that the Bureau may allege that the Company (i) committed abusive and unfair acts or practices in violation of 12 U.S.C.

§ 5531(c) and (d) and 12 U.S.C.

§ 5536(a)(1)(B) and (ii) substantially assisted the deceptive acts of others in violation of 12 U.S.C.

§ 5536 (a)(3).

The NORA letter also stated that, in connection with any action, the Bureau may seek all remedies available under the CFPA, including civil money penalties, consumer redress, and injunctive relief.

On January 18, 2022, the Company responded to the NORA letter disputing that it had committed any violations.

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

As noted above, on January 4, 2023, the Bureau and the Office of the New York State Attorney General jointly filed a complaint in the United States District Court for the Southern District of New York alleging that the Company engaged in deceptive practices, fraud, illegality, and securities fraud in violation of New York Executive Law § 63(12) and New York General Business Law §§ 349 and 352, and that the Company engaged in deceptive and abusive acts and provided substantial assistance to a covered person or service provider in violation of the CFPA, 12 U.S.C.

§ 5531 and 12 U.S.C.

§ 5536(a)(1)(B).

The complaint seeks injunctive relief, an accounting of all consumers for whom the Company provided financing, restitution, damages, disgorgement, civil penalties, and payment of costs.

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

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

The Company intends to vigorously defend itself in this matter.

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

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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.

The Company has been informed that the State of Kansas, the State of Texas, and the State of Iowa have withdrawn from the multistate investigation.

We are cooperating with these investigations and cannot predict their eventual scope, duration, or outcome at this time.

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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 – (CONTINUED)

Litigation Resolved during 2022

On October 2, 2020, a shareholder filed a putative class action complaint against the Company, its Chief Executive Officer (now former Chief Executive Officer), and its Chief Financial Officer (now Chief Executive Officer) in the United States District Court for the Eastern District of Michigan, Southern Division, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5, promulgated thereunder, based on alleged false and/or misleading statements or omissions regarding the Company and its business, and seeking class certification, unspecified damages plus interest and attorney and expert witness fees, and other costs on behalf of a purported class consisting of all persons and entities (subject to specified exceptions) that purchased or otherwise acquired Credit Acceptance common stock from November 1, 2019 through August 28, 2020.

On May 28, 2021, the court issued an opinion and order appointing lead plaintiffs and lead counsel.

On July 22, 2021, the lead plaintiffs filed an amended complaint asserting similar violations, seeking similar relief, and expanding the putative class to include all persons and entities (subject to specified exceptions) that purchased or otherwise acquired Credit Acceptance common stock from May 4, 2018 through August 28, 2020.

On June 14, 2022, the Company reached an agreement in principle to settle this putative class action.

The agreement in principle contemplated an aggregate cash payment by the Company of $ 12.0 million, all of which was recognized during the second quarter of 2022, to settle claims brought on behalf of all persons and entities that purchased or otherwise acquired Credit Acceptance common stock from May 4, 2018 through August 28, 2020.

On August 24, 2022, the parties executed and filed with the court a definitive stipulation and agreement of settlement, referred to herein as the settlement agreement, which was consistent with the agreement in principle and provides for a full release of all claims against all defendants, including the Company and its officers.

The settlement agreement provides that the defendants expressly deny any liability, wrongdoing, or responsibility.

On October 17, 2022, the Company wired the $ 12.0 million payment to a settlement administrator as provided for in the settlement agreement.

On December 12, 2022, the court issued an opinion and order granting lead plaintiffs’ motion for final approval of the settlement and plan of allocation.

In 2022, the Company reached an agreement to make an aggregate cash payment of $ 12.0 million, all of which was recognized during the second quarter of 2022, to settle claims brought on behalf of all persons and entities that purchased or otherwise acquired Credit Acceptance common stock from May 4, 2018 through August 28, 2020, and provided for a full release of all claims against all defendants, including the Company and its officers.

On December 16, 2022, the court entered a final order and judgment consistent with the settlement agreement, including dismissal with prejudice of all claims asserted against the Company and its officers.

Regulatory Matter Resolved during 2021

On December 4, 2014, we received a civil investigative demand from the Office of the Attorney General of the Commonwealth of Massachusetts relating to the origination and collection of non-prime auto loans in Massachusetts.

On November 20, 2017, we received a second civil investigative demand from the Office of the Attorney General seeking updated information on its original civil investigative demand, additional information related to the Company’s origination and collection of Consumer Loans, and information regarding securitization activities.

In connection with this inquiry, we were informed by representatives of the Office of the Attorney General that it believed that the Company may have engaged in unfair and deceptive acts or practices related to the origination and collection of auto loans, which may have caused some of the Company’s representations and warranties contained in securitization documents to be inaccurate.

On July 22, 2020, we received a third civil investigative demand from the Office of the Attorney General seeking updates on previously produced data and additional information related to the Company’s origination of Consumer Loans.

Regulatory Matters Resolved during 2021

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

On March 15, 2021, the court entered an order denying a motion by the Company to dismiss four of the Commonwealth’s seven claims and granting in part and denying in part a motion by the Commonwealth for partial summary judgment on three of its claims.

On April 27, 2021, the Company and the Commonwealth reached an agreement in principle to settle this lawsuit, and, as a result, we estimated a probable loss of $ 27.2 million, all of which was recognized as a contingent loss during the first quarter of 2021.

On September 1, 2021, we entered into a settlement agreement with the Office of the Attorney General, reflecting the parties’ agreement to settle and fully resolve the claims asserted against us.

We made a payment in the total amount of $ 27.2 million to an independent trust for purposes of making payments to provide relief for eligible Massachusetts consumers, paying costs of implementation of the agreement and paying the Attorney General’s costs of investigation, and to pay up to $ 95,000 to cover costs and expenses incurred by an independent trustee for management of the independent trust.

We made a payment in the total amount of $ 27.2 million, which was recognized as a contingent loss during the first quarter of 2021, 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 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.

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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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