What changed in this filing

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Item 1A. Risk Factors

2023-02-22 compared with 2022-02-23 · 46 added, 50 removed, 316 unchanged (23% of the section changed)

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Risks Related to Our Business and Industry

The impact of the COVID-19 pandemic and the measures implemented to contain the spread of the virus have had, and could continue to have, an impact on our business and results of operations.

The COVID-19 pandemic and resulting containment measures have caused economic and financial disruptions that have adversely affected, and could continue to affect, our business and results of operations.

The extent to which the pandemic will continue to affect our business and results of operations will depend on future developments that we are not able to predict, including the duration, spread and severity of the outbreak;

An outbreak of a contagious disease, such as the COVID-19 pandemic, or other public health emergency could materially impact our business and results of operations.

The COVID-19 pandemic and resulting containment measures caused economic and financial disruptions that adversely affected our business and results of operations.

Other public health emergencies could also affect our business and results of operations and any impact would depend on future developments that we are not able to predict, including the duration, spread and severity of the public health emergency;

the nature, extent and effectiveness of containment measures;

the extent and duration of the effect on the economy;

and how quickly and to what extent normal economic and operating conditions can resume.

It is also possible that any adverse impacts of the pandemic and containment measures may continue once the pandemic is controlled.

The COVID-19 pandemic and resulting containment measures have contributed to among other things:

• Adverse impacts on our daily business operations and our ability to perform necessary business functions, including as a result of illness or as a result of restrictions on movement, which has caused expected delays in collections;

and how quickly and to what extent normal economic and operating conditions resumed.

The COVID-19 pandemic and resulting containment measures contributed to among other things:

• Widespread changes to financial and economic conditions of consumers;

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• Governmental actions discussed, proposed or taken to provide forms of relief, such as limiting debt collections efforts and encouraging or requiring extensions, modifications or forbearance, with respect to certain loans and fees;

• Impacts on the court system and the legal process, which have impacted our ability to collect through the litigation process;

• Impacts on the court system and the legal process, which impacted our ability to collect through the litigation process;

• Adverse impacts on third-party service providers;

• Impacts on capital and credit market conditions, which may limit our access to funding, increase our cost of capital, and affect our ability to meet liquidity needs;

• Increased spending on business continuity efforts and readiness efforts for returning to our offices, which may in turn require that we cut costs and investments in other areas;

• Impacts on capital and credit market conditions;

• Increased spending on business continuity efforts;

• An increased risk of an information or cyber security incident, fraud or a failure in the effectiveness of our compliance programs due to, among other things, an increase in remote work.

We do not yet know the full extent of how the COVID-19 pandemic could affect our business, results of operations and financial condition.

However, the effects could have a material impact on our business and results of operations and heighten many of the other risks described in this “ Risk Factors ” section.

Other public health emergencies could have similar or more significant impacts on our business and results of operations and could heighten many of the other risks described in this “Risk Factors” section.

Financial and economic conditions affect the ability of consumers to pay their obligations, which could harm our financial results.

Economic conditions globally and locally directly affect unemployment and credit availability.

Adverse conditions, economic changes, and financial disruptions place financial pressure on the consumer, which may reduce our ability to collect on our consumer receivable portfolios and may adversely affect the value of our consumer receivable portfolios.

Adverse conditions, economic changes (including significant inflation), and financial disruptions place financial pressure on the consumer, which may reduce our ability to collect on our consumer receivable portfolios and may adversely affect the value of our consumer receivable portfolios.

Further, increased financial pressures on the financially distressed consumer may result in additional regulatory requirements or restrictions on our operations and increased litigation filed against us.

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Due, in part, to fluctuating prices for receivable portfolios, fluctuating supply and competition within the marketplace, there has been considerable variation in our purchasing volume and pricing from quarter to quarter and we expect that to continue.

The volume of our portfolio purchases may be limited when prices are high and may or may not increase when portfolio pricing is more favorable to us.

The volume of our portfolio purchases may be limited when prices are high and may or may not increase when portfolio pricing is more favorable

Further, our rates of return may decline when portfolio prices are high.

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If these credit reference agencies were to terminate their agreements or stop providing us with data for any reason, for example, due to a change in governmental regulation, or if they were to considerably raise the price of their services, our business could be materially and adversely affected.

Also, if any of the proprietary information or data that we use became public, for example, due to a change in government regulations, we could lose a significant competitive advantage and our business could be negatively impacted.

Also, if any of the

proprietary information or data that we use became public, for example, due to a change in government regulations, we could lose a significant competitive advantage and our business could be negatively impacted.

If we become unable to continue to acquire or use information and data in the manner in which it is currently acquired and used, or if we were prohibited from accessing or aggregating the data in these systems or profiles for any reason, we may lose a significant competitive advantage, in particular if our competitors continue to be able to acquire and use such data, and our business could be materially and adversely affected .

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• increased exposure to U.S.

laws that apply abroad, such as the Foreign Corrupt Practices Act, and exposure to other anti-corruption laws such as the U.K.

laws that apply abroad, such as the Foreign Corrupt Practices Act, and exposure to other anti-corruption laws such as the UK Bribery Act;

• social, political and economic instability or recessions;

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We may not be able to protect our technology and data resources adequately, which may diminish our competitive advantage, which may, in turn, adversely affect our business, financial condition and operating results.

The United Kingdom’s exit from the European Union could have a material adverse effect on our business, financial condition and results of operations.

In June 2016, the United Kingdom held a referendum in which voters approved the United Kingdom’s exit from the E.U., commonly referred to as “Brexit.” The United Kingdom formally exited the European Union on January 31, 2020 although an agreement was not reached until the end of the allocated transition period in December 31, 2020.

Even though an agreement has been reached there remains a significant lack of clarity over the terms of the United Kingdom’s future relationship with the European Union in certain key areas including financial services where a temporary additional transition period has been assigned while negotiations continue.

The United Kingdom’s withdrawal from the European Union could have a material adverse effect on our business, financial condition and results of operations.

In June 2016, the United Kingdom held a referendum in which voters approved the United Kingdom’s withdrawal from the European Union, commonly referred to as “Brexit.” The United Kingdom formally exited the European Union on January 31, 2020.

The EU-UK Trade and Cooperation Agreement – a key agreement that governs the relationship after Brexit – entered into force in May 2021.

During 2022, negotiations on the future partnership continued with an aim to improve the clarity on post-Brexit positions on trade arrangements and cross-border investments.

Talks between the United Kingdom and the European Union continue on how to implement post-Brexit arrangements.

Nevertheless there remains ongoing risks resulting from a lack of clarity, which could potentially undermine bilateral cooperation and disrupt trade (including in the financial services sector) between the United Kingdom and the European Union.

These developments may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity, restrict the ability of key market participants to operate in certain financial markets or restrict our access to capital.

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These negative effects could result from changes in collection laws and guidance, laws related to credit reporting, consumer bankruptcy laws, laws related to the management and enforcement of consumer debt, court and enforcement procedures, the statute of limitation for debts, accounting standards, taxation requirements, employment laws, communications laws, data privacy and protection laws, anti-bribery and corruption laws and anti-money laundering laws.

For example, on October 30, 2020, the CFPB issued final rules in the form of new Regulation F to implement the Fair Debt Collection Practices

Act, which rules restate and clarify prohibitions on harassment and abuse, false or misleading representations, and unfair practices by debt collectors when collecting consumer debt as discussed in more detail under “Part I - Item 1—Business - Government Regulation.”

For example, in November 2021, the CFPB final rules in the form of a new Regulation F that implement the Fair Debt Collection Practices Act became effective.

Regulation F restates and clarifies prohibitions on harassment and abuse, false or misleading

representations, and unfair practices by debt collectors when collecting consumer debt as discussed in more detail under “Part I - Item 1—Business - Government Regulation.”

We sometimes purchase accounts in asset classes that are subject to industry-specific and/or issuer-specific restrictions that limit the collection methods that we can use on those accounts.

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Our failure or the failure of third-party agencies and attorneys, or the credit originators or portfolio resellers selling receivables to us, to comply with existing or new laws, rules, or regulations could limit our ability to recover on receivables, affect the willingness of financial institutions to sell portfolios to us, cause us to pay damages to consumers or result in fines or penalties, which could reduce our revenues, or increase our expenses, and consequently adversely affect our business, financial condition and operating results.

For example, on September 8, 2020, the CFPB filed a lawsuit alleging that Encore and certain of our US subsidiaries had violated a consent order (the “2015 Consent Order”) pursuant to which we had previously settled allegations raised by the CFPB arising from practices during the period between 2011 and 2015.

For example, on September 8, 2020, the CFPB filed a lawsuit alleging that Encore and certain of our U.S.

subsidiaries had violated a consent order (the “2015 Consent Order”) pursuant to which we had previously settled allegations raised by the CFPB arising from practices during the period between 2011 and 2015.

In the lawsuit, the CFPB alleged that we did not perfectly adhere to certain operational provisions of the 2015 Consent Order, leading to alleged violations of federal consumer financial law.

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Our operations outside the United States are subject to foreign and U.S.

laws and regulations that apply to our international operations, including GDPR, the U.K.

Consumer Credit Act, the Foreign Corrupt Practices Act, the U.K.

Bribery Act and other local laws prohibiting corrupt payments to government officials.

laws and regulations that apply to our international operations, including GDPR, the UK Consumer Credit Act, the Foreign Corrupt Practices Act, the UK Bribery Act and other local laws prohibiting corrupt payments to government officials.

Violations of these laws and regulations could result in fines and penalties, criminal sanctions, prohibitions on the conduct of our business and reputational damage.

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Increases in interest rates could adversely affect our business, financial condition and operating results.

Changes in the method pursuant to which LIBOR rates are determined, including the potential phasing out of LIBOR after 2021, may affect the value of the financial obligations to be held or issued by us that are linked to LIBOR, or our results of operations or financial condition.

Certain of our debt and other financial instruments have interest rates tied to LIBOR.

The Chief Executive of the United Kingdom Financial Conduct Authority (“FCA”), which regulates LIBOR, has announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021.

However, the ICE Benchmark Administration, in its capacity as administrator of U.S.

Dollar LIBOR, has announced that it intends to extend publication of certain U.S.

Dollar LIBOR rates to June 2023.

Notwithstanding this possible extension, a joint statement by key regulatory authorities calls on banks to cease entering into new contracts that use U.S.

Dollar LIBOR as a reference rate after 2021.

At this time, it is not possible to predict the effect any discontinuance, modification or other reforms to LIBOR, or the establishment of alternative reference rates, may have on our cost of capital.

Any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on extensions of credit held by us and could have a material adverse effect on us.

Our common stock price may be subject to significant fluctuations and volatility.

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The market price of our common stock could fluctuate significantly for many reasons, including in response to the risks described in this Annual Report on Form 10-K, elsewhere in our filings with the SEC from time to time or for reasons unrelated to our operations, such as reports by industry analysts, investor perceptions or negative announcements by our customers, competitors or suppliers regarding their own performance, as well as industry conditions and general financial, economic and political instability.

The price of our common stock could also be affected by possible sales of our common stock by investors who view our

convertible notes or exchangeable notes as a more attractive means of equity participation in us and by hedging or arbitrage trading activity that we expect to develop involving our common stock.

The price of our common stock could also be affected by possible sales of our common stock by investors who view our convertible notes or exchangeable notes as a more attractive means of equity participation in us and by hedging or arbitrage trading activity that we expect to develop involving our common stock.

If securities or industry analysts have a negative outlook regarding our stock or our industry, or our operating results do not meet their expectations, our stock price could decline.

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In the future, we may sell additional shares of our common stock or other equity or equity-related securities to raise capital or issue equity securities to finance acquisitions.

In addition, a substantial number of shares of our common stock are reserved for issuance upon conversion of our convertible notes and exchangeable notes and our at-the-market equity offering program.

In addition, a substantial number of shares of our common stock are reserved for issuance upon conversion of our convertible notes and exchangeable notes.

We are not restricted from issuing additional common stock, including securities that are convertible into or exchangeable for, or that represent the right to receive, common stock.

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The issuance of preferred stock could be used to dilute the stock ownership of a potential hostile acquirer.

The provisions that discourage potential acquisitions of us and adversely affect the voting power of the holders of common stock may adversely affect the price of our common stock and the value of the Convertible Notes.

The provisions that discourage potential acquisitions of us and adversely affect the voting power of the holders of common stock may adversely affect the price of our common stock.

We are dependent on our management team for the adoption and implementation of our strategies and the loss of its services could have an adverse effect on our business.

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The management teams at each of our operating subsidiaries are also important to the success of their respective operations.

The loss of the services of one or more key members of

management could disrupt our collective operations and seriously impair our ability to continue to acquire or collect on portfolios of charged-off receivables and to manage and expand our business, any of which could have an adverse effect on our business, financial condition and operating results.

The loss of the services of one or more key members of management could disrupt our collective operations and seriously impair our ability to continue to acquire or collect on portfolios of charged-off receivables and to manage and expand our business, any of which could have an adverse effect on our business, financial condition and operating results.

We may not be able to recruit and retain key employees and workers in a competitive labor market.

If we cannot successfully recruit and retain key employees and workers, or if we experience the unexpected loss of those employees, our operations may be negatively affected.

In addition, cost inflation may require us to enhance our compensation in order to compete effectively in the hiring and retention of employees.

We may make acquisitions that prove unsuccessful and any mergers, acquisitions, dispositions or joint venture activities may change our business and financial results and introduce new risks.

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Our company could be larger or smaller after any such transactions and may have a different investment profile.

An impairment of goodwill could negatively impact our financial results.

We have a significant amount of goodwill.

Goodwill is tested for impairment at the reporting unit level annually and in interim periods if certain events occur that indicate that the fair value of a reporting unit may be below its carrying value.

The goodwill test compares the fair value for each of our reporting units to its associated carrying value.

Determining the fair value of a reporting unit requires us to make judgments and involves the use of significant estimates and assumptions.

Adverse changes in the Company’s actual or expected operating results, market capitalization, business climate, economic factors or other negative events that may be outside the control of management could result in a material non-cash impairment charge in the future.

We may consume resources in pursuing business opportunities, financings or other transactions that are not consummated, which may strain or divert our resources.

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The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal control over financial reporting.

During the year ended December 31, 2021, we determined that we did not design and maintain effective controls within our Midland Credit Management operating unit with respect to the determination of certain qualitative factors applied to our estimates of future recoveries.

This was evidenced by our failure to sufficiently document and substantiate certain qualitative factors that were applied to the output of our quantitative forecasting model during the year ended December 31, 2021.

Accordingly, management has determined that this is a control deficiency that constitutes a material weakness.

A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting that results in a more than reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis.

We are in the process of implementing remedial measures to address the material weakness and we expect that the remediation of this material weakness will be completed no later than December 31, 2022.

However we cannot ensure that our efforts will be successful, or that we have identified all material weaknesses.

Any failure to implement these remedial measures and to achieve and maintain effective internal controls and disclosure controls and procedures could have a material adverse effect on the market for our common stock.

For a discussion of our internal controls over financial reporting and a description of the identified material weakness, see Part II, Item 9A.

Controls and Procedures of this Annual Report on Form 10-K.

In our Annual Report on Form 10-K for the year ended December 31, 2021, we reported a material weakness in internal control related to the determination of certain qualitative factors applied to our estimates of future recoveries within our Midland Credit Management operating unit.

During 2022 we completed the remedial measures related to the material weakness and concluded that our internal control over financial reporting was effective as of December 31, 2022.

For a discussion of our internal controls over financial reporting and a description of the remediation of the material weakness, see “Part II, Item 9A Controls and Procedures” of this Annual Report on Form 10-K.

Completion of the remediation does not provide assurance that our remediation or other controls will continue to operate properly.

Any failure to maintain such internal controls could adversely impact our ability to report our financial results on a timely and accurate basis.

Any such failures could have a material adverse effect on our financial results and investor confidence and the market for our common stock.

Item 1B—Unresolved Staff Comments

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 1A. Risk Factors