What changed in this filing

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Item 1. Business

2022-02-28 compared with 2021-02-01 · 341 added, 285 removed, 166 unchanged (79% of the section changed)

The Company is a leading operator of pawn stores in the U.S.

and Latin America.

As of December 31, 2020, the Company had 2,748 locations, consisting of 1,046 stores in 24 U.S.

states and the District of Columbia, 1,616 stores in all 32 states in Mexico, 59 stores in Guatemala, 14 stores in Colombia and 13 stores in El Salvador.

The Company’s primary business is the operation of retail pawn stores, also known as “pawnshops.” Pawn stores help customers meet small short-term cash needs by providing non-recourse pawn loans and buying merchandise directly from customers.

FirstCash Holdings, Inc.

and its wholly owned subsidiaries (together, the “Company”) is the leading operator of pawn stores in the U.S.

and Latin America, and following its acquisition of American First Finance (“AFF”) on December 17, 2021 (the “AFF Acquisition”), is a leading provider of technology-driven, retail point-of-sale (“POS”) payment solutions focused on serving credit-constrained consumers.

See Note 3 of Notes to Consolidated Financial Statements for additional information about the AFF Acquisition.

With the AFF Acquisition, the Company now operates two business lines:

pawn operations and retail POS payment solutions.

Its business lines are organized into three reportable segments.

pawn segment consists of all pawn operations in the U.S.

and the Latin America pawn segment consists of all pawn operations in Mexico, Guatemala, Colombia and El Salvador.

The retail POS payment solutions segment consists of AFF operations in the U.S.

and Puerto Rico.

The Company’s primary business line continues to be the operation of retail pawn stores, also known as “pawnshops,” which focus on serving cash and credit-constrained consumers.

Pawn stores help customers meet small short-term cash needs by providing non-recourse pawn loans and buying merchandise directly from customers.

Personal property, such as jewelry, electronics, tools, appliances, sporting goods and musical instruments, is pledged and held as collateral for the pawn loans over the typical 30-day term of the loan.

Pawn stores also generate retail sales primarily from the merchandise acquired through collateral forfeitures and over-the-counter purchases from customers.

Effective June 30, 2020, the Company ceased offering domestic payday and installment loans and no longer has any unsecured consumer lending or credit services operations in the U.S.

or Latin America.

The Company organizes its operations into two reportable segments.

operations segment consists of all operations in the U.S.

and the Latin America operations segment consists of all operations in Mexico, Guatemala, Colombia and El Salvador.

For the year ended December 31, 2020, 66% of total revenues were derived from the U.S.

and 34% were derived from Latin America.

The Company’s strategy is to grow revenues and income by opening new (“de novo”) retail pawn locations, acquiring existing pawn stores in strategic markets and increasing revenue and operating profits in existing stores.

The Company was formed as a Texas corporation in July 1988.

In April 1991, the Company reincorporated as a Delaware corporation.

On September 1, 2016, the Company completed a merger with Cash America International, Inc.

(“Cash America”), whereby Cash America merged with and into a wholly owned subsidiary of the Company (the “Merger”).

The Company’s retail POS payment solutions business line consists solely of the operations of AFF, which focuses on lease-to-own (“LTO”) products and facilitating other retail financing payment options across a large network of traditional and e-commerce merchant partners in all 50 states in the U.S., the District of Columbia and Puerto Rico.

AFF’s retail partners provide consumer goods and services to their customers and use AFF’s LTO and retail finance solutions to facilitate payments on such transactions.

As one of the largest omni-channel providers of “no credit required” payment options, AFF’s technology set provides consumers with seamless leasing and financing experiences in-store, online, in-cart and on mobile devices.

In connection with the completion of the AFF Acquisition, effective December 16, 2021, the Company completed a holding company reorganization creating a new holding company, FirstCash Holdings, Inc.

In connection with the reorganization, FirstCash Holdings, Inc.

succeeded FirstCash, Inc.

as the public company trading on Nasdaq under the ticker symbol “FCFS” and each outstanding share of FirstCash, Inc.

was converted into an equivalent corresponding share of common stock in FirstCash Holdings, Inc., having the same designations, rights, powers and preferences as the corresponding FirstCash, Inc.

shares that were converted.

FirstCash, Inc.

now operates as a wholly-owned subsidiary of FirstCash Holdings, Inc.

The Company’s principal executive offices are located at 1600 West 7th Street, Fort Worth, Texas 76102, and its telephone number is (817) 335-1100.

The Company’s primary website is www.firstcash.com .

Pawn Industry

The Company’s primary websites are www.firstcash.com and www.americanfirstfinance.com .

Pawn Operations

Pawn stores are neighborhood-based retail locations that buy and sell pre-owned consumer products such as jewelry, electronics, tools, appliances, sporting goods and musical instruments.

Pawn stores also provide a quick and convenient source of small secured consumer loans, also known as pawn loans, to unbanked, under-banked and credit-challenged customers.

Pawn stores also provide a quick and convenient source of small, secured consumer loans, also known as pawn loans, to unbanked, under-banked and credit-constrained customers.

Pawn loans are safe and affordable non-recourse loans for which the customer has no legal obligation to repay.

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Pawnshop customers are typically value-conscious consumers and/or borrowers who are not effectively or efficiently served by traditional lenders such as banks, credit unions, credit card providers or other small loan providers.

United States

The pawn industry in the U.S.

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The operation of pawn stores is governed primarily by state laws and accordingly, states that maintain regulations most conducive to profitable pawn operations have historically seen the greatest concentration of pawn stores.

Management believes the U.S.

pawn industry, although mature, remains highly fragmented.

The two publicly traded companies in the pawn industry, which includes the Company, currently operate approximately 1,600 of the estimated 12,000 to 14,000 pawn stores in the U.S.

The Company believes the majority of pawnshops in the U.S.

are owned by individuals operating five or fewer locations.

Mexico and Other Latin American Markets

In general, pawn stores in Latin America have limited square footage and focus on providing loans collateralized by gold jewelry or small electronics.

In contrast, a majority of the Company’s pawn stores in Latin America are larger format, full-service stores similar to the U.S.

Historically, competitor pawn stores in Latin America have limited square footage and focus on providing loans collateralized by gold jewelry or small electronics.

In contrast, a majority of the Company’s pawn stores opened in Latin America are larger format, full-service stores similar to the U.S.

stores, which lend on a wide array of collateral and have a larger retail sales floor.

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The Company believes there is significant opportunity for further expansion in Mexico and other Latin American countries due to the large potential consumer base and limited competition from other large format, full-service pawn store operators.

Business Strategy

The Company’s long-term business plan is to grow revenues and income by opening new (“de novo”) retail pawn locations, acquiring existing pawn stores in strategic markets and increasing revenue and operating profits in existing stores.

In pursuing its business strategy, the Company seeks to establish clusters of several stores in specific geographic areas with favorable regulations and customer demographics and to achieve certain economies of scale relative to management and supervision, pricing and purchasing, information and accounting systems and security/loss prevention.

The Company has opened or acquired 1,952 pawn stores in the last five years, including 815 pawn stores acquired in connection with the Merger, with net store additions growing at a compound annual store growth rate of 21% over this period.

The Company intends to open or acquire additional stores in locations where management believes appropriate demand and other favorable conditions exist.

The following table details stores opened and acquired over the five-year period ended December 31, 2020:

Year Ended December 31,

2020 2019 2018 2017 2016

operations segment:

Merged Cash America locations — — — — 815

New locations opened — — — 2 —

Locations acquired 22 27 27 1 3

Total additions 22 27 27 3 818

Latin America operations segment:

New locations opened 75 89 52 45 41

Locations acquired 40 163 366 5 179

Total additions 115 252 418 50 220

Merged Cash America locations — — — — 815

New locations opened 75 89 52 47 41

Locations acquired 62 190 393 6 182

Total additions 137 279 445 53 1,038

For additional information on store count activity, see “Locations and Operations” below.

New Store Openings

The Company plans to continue opening new pawn stores, primarily in Latin America.

The Company typically opens new stores in under-served markets and neighborhoods, especially where customer demographics are favorable and competition is limited or restricted.

After a suitable location has been identified and a lease and the appropriate licenses are obtained, a new store can typically be open for business within six to 12 weeks.

The investment required to open a new location includes store operating cash, inventory, funds for pawn loans, leasehold improvements, store fixtures, security systems, computer equipment and other start-up costs.

Due to the fragmented nature of the pawn industry, the Company believes attractive acquisition opportunities will continue to arise from time to time in both Latin America and the U.S.

Before making an acquisition, management assesses the demographic characteristics of the surrounding area, considers the number, proximity and size of competing stores, and researches federal, state and local regulatory standards.

Specific pawn store acquisition criteria include an evaluation of the volume of merchandise sales and pawn transactions, outstanding customer pawn loan balances, historical pawn yields, merchandise sales margins, pawn loan redemption rates, the condition and quantity of inventory on hand, licensing restrictions or requirements and the location, condition and lease terms of the facility.

Enhance Productivity of Existing and Newly Opened Stores

The primary factors affecting the profitability of the Company’s existing store base are the volume and gross profit of merchandise sales, the volume of and yield on pawn loans and store operating expenses.

To encourage customer traffic, which management believes is a key determinant of a store’s success, the Company has taken several steps to distinguish its stores and to make customers feel more comfortable and secure.

In addition to a clean and secure physical store facility, the stores’ exteriors typically display attractive and distinctive signage similar to that used by contemporary specialty retailers.

The Company has employee-training programs that promote customer service, productivity and professionalism.

The Company utilizes a proprietary computer information system that provides fully-integrated functionality to support point-of-sale retail operations, real-time merchandise valuations, loan-to-value calculations, inventory management, customer relationship management, loan management, cash management, compliance and control systems and employee compensation.

Each store is connected on a real-time basis to a secure data center that houses the centralized databases and operating systems.

The information system provides management with the ability to continuously monitor store transactions, assets, loans and operating results.

The Company maintains a well-trained audit and loss prevention staff which conducts regular store visits to verify assets, loans and collateral and test compliance with regulatory, financial and operational controls.

Management believes the current operating and financial controls and systems are adequate for the Company’s existing store base and can accommodate reasonably foreseeable growth in the near term.

Response to COVID-19

COVID-19 significantly impacted the Company’s business in 2020 and it expects that it will continue to impact its business throughout 2021.

Throughout the COVID-19 pandemic, the Company’s management team and board were focused on managing the Company through the pandemic while prioritizing the health and safety of its employees and customers.

The operation of the Company’s stores is critically dependent on the ability of customers and employees to safely conduct transactions at each location.

Accordingly, the Company developed and implemented new procedures and protocols to minimize the risk to the health and safety of its employees while allowing the Company to continue to operate its pawnshops and serve its customers.

The Company implemented social distancing and mask-wearing protocols in its stores and corporate offices, provided additional cleaning supplies to facilitate the sanitation of high traffic areas, installed plexiglass dividers at store point-of-sale counters and prohibited all domestic and international non-essential travel for all employees, among other things.

The Company has consistently been able to meet its customers’ demands for its products, while at the same time making the necessary investments to ensure that the Company prioritizes the health, safety and welfare of its employees.

While some of the Company’s pawn stores experienced temporary closures, the Company’s pawn stores were generally able to remain open throughout the pandemic as essential businesses.

For a more detailed discussion of the impact of COVID-19 on the Company’s results of operations please see “Item 7.

COVID-19 and U.S.

government stimulus initiatives in response thereto significantly impacted the Company’s pawn business beginning in 2020, which continued throughout much of 2021.

For a more detailed discussion of the impact of COVID-19 on the Company’s results of operations see “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations.”

Services Offered by the Company

Services Offered by the Company’s Pawn Operations

Pawn Merchandise Sales

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The items sold generally consist of pre-owned consumer products such as jewelry, electronics, tools, appliances, sporting goods and musical instruments.

The Company also melts certain quantities of non-retailable scrap jewelry and sells the gold, silver and diamonds in the commodity markets.

Merchandise sales accounted for approximately 72% of the Company’s revenue during 2020.

The Company also melts certain quantities of scrap jewelry and sells the gold, silver and diamonds in the commodity markets.

Merchandise sales accounted for approximately 70% of the Company’s revenue during 2021 or 52% on a pro forma basis after giving effect to the AFF Acquisition as if it had closed on January 1, 2021.

Merchandise inventory is acquired primarily through forfeited pawn loan collateral and, to a lesser extent, through purchases of used goods directly from the general public.

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Merchandise acquired by the Company through forfeited pawn loan collateral is carried in inventory at the amount of the related pawn loan, exclusive of any accrued service fees, and purchased inventory is carried at cost.

The Company does not provide direct financing to customers for the purchase of its merchandise, but does allow customers to purchase merchandise on an interest-free “layaway” plan.

The Company does not currently provide direct financing to customers for the purchase of merchandise in its pawn stores, but does allow customers to purchase merchandise on an interest-free “layaway” plan.

Should the customer fail to make a required payment pursuant to a layaway plan, the item is returned to inventory and all or a portion of previous payments are typically forfeited to the Company.

Deposits and interim payments from customers on layaway sales are recorded as deferred revenue and subsequently recorded as retail merchandise sales revenue when the merchandise is delivered to the customer upon receipt of final payment or when previous payments are forfeited to the Company.

The Company anticipates it will provide AFF’s LTO payment option (as further described below) to retail customers in its U.S.

pawn locations in the near future.

Retail sales are seasonally highest in the fourth quarter, associated with holiday shopping and, to a lesser extent, in the first quarter associated with tax refunds in the U.S.

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Pawn loans may be either paid in full with accrued pawn loan fees and service charges or, where permitted by law, may be renewed or extended by the customer’s payment of accrued pawn loan fees and service charges.

If a pawn loan is not repaid before the expiration of the grace period, the pawn collateral is forfeited to the Company and transferred to inventory at a value equal to the principal amount of the loan, exclusive of accrued service fees.

pawn loan is not repaid before the expiration of the grace period, the pawn collateral is forfeited to the Company and transferred to inventory at a value equal to the principal amount of the loan, exclusive of accrued service fees.

Pledged property is held in a secured, non-public warehouse area of the pawn store for the term of the loan and the grace period, unless the loan is repaid earlier.

The Company does not record pawn loan losses or charge-offs because the amount advanced becomes the carrying cost of the forfeited collateral that is to be recovered through the merchandise sales function described above.

The pawn loan fees are typically calculated as a percentage of the pawn loan amount based on the size, duration and type of collateral of the pawn loan and generally range from 4% to 25% per month, as permitted by applicable law.

Pawn loan fees are typically calculated as a percentage of the pawn loan amount based on the size, duration and type of collateral of the pawn loan, and generally range from 4% to 25% per month, as permitted by applicable law.

As required by applicable law, the amounts of these charges are disclosed to the customer on the pawn ticket.

Pawn loan fees accounted for approximately 28% of the Company’s revenue during 2020.

Pawn loan fees accounted for approximately 28% of the Company’s revenue during 2021, or 21% on a pro forma basis after giving effect to the AFF Acquisition as if it had closed on January 1, 2021.

The amount the Company is willing to finance for a pawn loan is primarily based on a percentage of the estimated retail value of the collateral.

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These sources, together with the employees’ skills and experience in selling similar items of merchandise in particular stores, influence the determination of the estimated retail value of such items.

The Company does not utilize a standard or mandated percentage of estimated retail value in determining the amount to be financed.

Rather, the employee has the authority to set the percentage for a particular item and to determine the ratio of pawn loan amount to estimated sales value with the expectation that, if the item is forfeited to the pawnshop, its subsequent sale should yield a gross profit margin consistent with the Company’s historical experience.

The recovery of the principal and realization of gross profit on sales of inventory is dependent on the Company’s initial assessment of the property’s estimated retail value.

Improper over-assessment of the retail value of the collateral in the lending function can result in reduced gross profit margins from the sale of the merchandise.

The Company typically experiences seasonal growth in its pawn loan balances in the third and fourth quarters following lower balances in the first two quarters due to the typical repayment of pawn loans associated with statutory bonuses received by customers in the fourth quarter in Mexico and with tax refund proceeds typically received by customers in the first quarter in the U.S.

Locations and Operations

As of December 31, 2020, the Company had 2,748 store locations composed of 1,046 stores in 24 U.S.

Pawn Business Strategy

The Company’s business strategy is to continue growing pawn revenues and income by opening new (“de novo”) retail pawn locations, acquiring existing pawn stores in strategic markets and increasing revenue and operating profits in existing stores.

Over the last five years, 1,021 pawn stores have been opened or acquired with the net store count growing at a compound annual store growth rate of 6% over this period.

The Company intends to open or acquire additional stores in locations where management believes appropriate consumer demand and other favorable conditions exist.

The following table details stores opened and acquired over the five-year period ended December 31, 2021:

Year Ended December 31,

2021 2020 2019 2018 2017

pawn segment:

New locations opened 1 — — — 2

Locations acquired 46 22 27 27 1

Total additions 47 22 27 27 3

Latin America pawn segment:

New locations opened 60 75 89 52 45

Locations acquired — 40 163 366 5

Total additions 60 115 252 418 50

New locations opened 61 75 89 52 47

Locations acquired 46 62 190 393 6

Total additions 107 137 279 445 53

For additional information on store count activity, see “Pawn Store Locations” below.

New Store Openings

The Company typically opens new stores in under-served markets and neighborhoods, primarily in Latin America.

After a suitable location has been identified and a lease and the appropriate licenses are obtained, a new store can typically be open for business within six to 12 weeks.

Due to the fragmented nature of the pawn industry, the Company believes attractive acquisition opportunities will continue to arise in both Latin America and the U.S.

Specific pawn store acquisition criteria include an evaluation of the volume of merchandise sales and pawn transactions, outstanding customer pawn loan balances, historical pawn yields, merchandise sales margins, pawn loan redemption rates, the condition and quantity of inventory on hand, licensing restrictions or requirements, and the location, physical condition, and lease terms of the stores to be acquired.

Enhance Productivity of Existing and Newly Opened Stores

To encourage customer traffic and repeat business, which management believes is a key determinant of a store’s success, the Company has taken several steps to distinguish its stores and to make customers feel more comfortable and secure.

In addition to a clean and secure physical store facility, the stores’ exteriors typically display attractive and distinctive signage similar to that used by contemporary specialty retailers.

The Company believes the profitability of its pawnshops is dependent, among other factors, upon its employees’ skills and ability to engage with customers and provide prompt and courteous service.

The Company has employee-training programs that promote customer service, productivity, professionalism and regulatory compliance.

The Company’s proprietary point-of-sale and loan management system tracks certain key transactional performance measures, including pawn loan yields and merchandise sales margins, and permits a store manager or clerk to instantly recall the cost of an item in inventory and the date it was purchased, including the prior transaction history of a particular customer.

It also facilitates the timely valuation of goods by showing values assigned to similar goods.

The Company has networked its stores to allow employees to more accurately determine the retail value of merchandise and to permit the Company’s headquarters to more efficiently monitor, in real time, each store’s operations, including merchandise sales, service charge revenue, pawn loans written and redeemed and changes in inventory.

The Company maintains a well-trained audit and loss prevention staff which conducts regular store visits to verify assets, loans and collateral, and test compliance with regulatory, financial and operational controls.

Management believes the current operating and financial controls and systems are adequate for the Company’s existing store base and can accommodate reasonably foreseeable growth in the near term.

Pawn Store Locations

The Company’s typical large format pawn store is a freestanding building or part of a retail shopping center with dedicated available parking.

The Company’s stores in Latin America tend to be smaller than its U.S.

stores, located mostly in dense urban markets, which may not have dedicated parking.

Management has established a standard store design intended to attract customers and distinguish the Company’s stores from the competition.

As of December 31, 2021, the Company had 2,825 pawn store locations composed of 1,081 stores in 25 U.S.

states and the District of Columbia, 1,656 stores in 32 states in Mexico, 60 stores in Guatemala, 15 stores in Colombia and 13 stores in El Salvador.

The following table details store count activity for the twelve months ended December 31, 2021:

Latin America

Operations Segment Operations Segment Total Locations

Latin America Total

Total locations, beginning of period 1,046 1,702 2,748

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Locations acquired 46 — 46

Closure of consumer loan stores (1)

Consolidation of existing pawn locations (2)

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Total locations, end of period 1,081 1,744 2,825

(1) Effective June 30, 2020, the Company ceased offering unsecured consumer lending and credit services products, which include all payday and installment loans, in the U.S.

(2) Store consolidations were primarily acquired locations over the past four years which have been combined with overlapping stores and for which the Company expects to maintain a significant portion of the acquired customer base in the consolidated location.

The Company maintains its primary administrative offices in Fort Worth, Texas, Monterrey, Mexico and Mexico City, Mexico.

As of December 31, 2020, the Company’s stores were located in the following countries and states:

(1) In addition to new store openings, the Company strategically relocated five stores in the U.S.

and two stores in Latin America during the twelve months ended December 31, 2021.

(2) Store consolidations were primarily acquired locations over the past five years which have been combined with overlapping stores and for which the Company expects to maintain a significant portion of the acquired customer base in the consolidated location.

As of December 31, 2021, the Company’s pawn stores were located in the following countries and states:

Number of Locations

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Ohio 63 Veracruz 208

Tennessee 51 Puebla 116

North Carolina 50 Tamaulipas 93

North Carolina 50 Puebla 118

Tennessee 49 Tamaulipas 97

Georgia 43 Baja California 84

Washington 31 Jalisco 78

Maryland 29 Nuevo Leon 70

Colorado 28 Estado de Ciudad de Mexico (State of Mexico City) 66

South Carolina 28 Chiapas 63

Arizona 27 Oaxaca 56

Nevada 27 Tabasco 51

Louisiana 26 Coahuila 50

Illinois 25 Hidalgo 47

Kentucky 25 Chihuahua 44

Indiana 23 Guanajuato 44

Louisiana 29 Nuevo Leon 77

Maryland 29 Estado de Ciudad de Mexico (State of Mexico City) 65

Arizona 27 Chiapas 64

Nevada 27 Oaxaca 56

South Carolina 27 Coahuila 49

Colorado 26 Tabasco 49

Illinois 25 Guanajuato 46

Kentucky 24 Hidalgo 46

Indiana 23 Chihuahua 45

Missouri 23 Sonora 41

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Alabama 9 Sinaloa 31

Alaska 6 Guerrero 26

Utah 6 Michoacan 24

Virginia 6 Morelos 24

Alaska 6 Michoacan 26

Utah 6 Morelos 26

Virginia 6 Guerrero 25

District of Columbia 3 San Luis Potosi 22

Nebraska 1 Aguascalientes 21

Wyoming 1 Durango 19

total 1,046 Campeche 18

Mississippi 2 Aguascalientes 21

Nebraska 1 Durango 20

Wyoming 1 Campeche 18

total 1,081 Queretaro 18

Baja California Sur 12

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Latin America total 1,744

Pawn Store Operations

The Company’s typical large format pawn store is a freestanding building or part of a retail shopping center with dedicated available parking.

The Company also operates smaller stores in Mexico, mostly in dense urban markets, which may not have dedicated parking.

Management has established a standard store design intended to attract customers and distinguish the Company’s stores from the competition.

The design consists of a well-illuminated exterior with distinctive signage and a layout similar to other contemporary specialty retailers.

The Company’s stores are typically open six or seven days a week from 9:00 a.m.

to between 6:00 p.m.

and 9:00 p.m.

The Company attempts to attract customers primarily through the pawn stores’ visibility, signage and neighborhood presence.

The Company uses seasonal promotions, special discounts for regular customers, prominent display of impulse purchase items such as jewelry, electronics, and tools, tent and sidewalk sales and a layaway purchasing plan to attract retail shoppers.

The Company attempts to attract and retain pawn customers by lending a competitive loan amount as a percentage of the estimated sales value of items presented for pledge and by providing quick loan processing, funding, renewal and redemption services in an appealing, customer-friendly atmosphere.

Generally, each pawnshop employs a manager, one or two assistant managers, and between two and eight sales personnel, depending upon the size, sales volume and location of the store.

The store manager is responsible for customer relations, reviewing pawn transactions and related collateral, inventory management, supervising personnel and assuring the store is managed in accordance with Company guidelines and established policies and procedures which emphasize safeguarding of pledged and Company assets, strict cost containment and financial controls.

All material store expenses are paid from corporate administrative offices in order to enhance financial accountability.

The Company believes careful monitoring of customer transaction metrics and operational expenses enables it to maintain financial stability and profitability.

Each store manager reports to a district manager, who typically oversees four to seven store managers.

District managers report to a regional manager who, in turn, typically reports to a regional operations director.

Regional operations directors report to a regional vice president of operations.

There is a senior vice president of operations and five regional vice presidents of operations.

The Company believes the profitability of its pawnshops is dependent, among other factors, upon its employees’ skills and ability to engage with customers and provide prompt and courteous service.

The Company’s proprietary computer system tracks certain key transactional performance measures, including pawn loan yields and merchandise sales margins, and permits a store manager or clerk to instantly recall the cost of an item in inventory and the date it was purchased, including the prior transaction history of a particular customer.

It also facilitates the timely valuation of goods by showing values assigned to similar goods.

The Company trains its employees through direct instruction and on-the-job pawn and sales experience.

New employees are introduced to the business through an orientation and training program that includes on-the-job training in lending practices, layaways, merchandise valuation, regulatory compliance and general administration of store operations.

Certain experienced employees receive training and an introduction to the fundamentals of management to acquire the skills necessary to advance into management positions within the organization.

Management training typically involves exposure to overall financial acumen, including revenue and margin generation, cost efficiency, regulatory compliance, recruitment, human resources management and asset and security control.

The Company maintains a non-qualified, performance-based profit sharing compensation plan for all store employees based on sales, gross profit and other performance criteria.

Pawn Operations Competitive Environment

The Company encounters significant competition in connection with all aspects of its pawn operations.

These competitive conditions may adversely affect the Company’s pawn revenue and profitability and its ability to expand and execute its pawn business strategy.

The Company believes the primary elements of competition in the pawn industry are store location, customer service, the ability to lend competitive amounts on pawn loans and to sell popular retail merchandise at competitive prices.

In addition, the Company competes with other lenders and retailers to attract and retain employees with competitive compensation programs.

Many of the competitors have significantly greater size, financial resources and human capital than the Company.

The Company’s retail business competitors include numerous retail and wholesale merchants, including jewelry stores, rent-to-own operators, discount retail stores, “second-hand” stores, consumer electronics stores, other specialty retailers, online retailers, online auction sites, online classified advertising sites and other pawnshops.

Competitive factors in the Company’s retail operations include the ability to provide the customer with a variety of merchandise items at attractive prices.

The Company’s pawn lending business competes primarily with other pawn store operators and other specialty consumer finance operators, including online lenders.

The pawnshop and other specialty consumer finance industries are characterized by a large number of independent owner-operators, some of whom own and operate multiple locations.

In addition, the Company competes with other non-pawn lenders, such as banks and consumer finance companies, which generally lend on an unsecured as well as a secured basis.

Other lenders may and do lend money on terms more favorable than those offered by the Company.

Management believes the pawn industry remains highly fragmented with an estimated 12,000 to 14,000 total pawnshops in the U.S.

and 7,000 to 8,000 pawnshops in Mexico.

Including the Company, there are two publicly-held, U.S.-based pawnshop operators, both of which have pawn operations in the U.S., Mexico, Guatemala and El Salvador.

Of these two, the Company has the higher store count and the largest market capitalization as of December 31, 2021, and the Company believes it is the largest public or private operator of large format, full-service pawn stores in the U.S.

Retail POS Payment Solutions Operations

On December 17, 2021, the Company completed the AFF Acquisition, resulting in AFF becoming a wholly owned subsidiary of and new business line for the Company.

AFF facilitates customized LTO and retail finance programs to its merchant partners that allows those merchant partners to complete sales by providing their customers with an attractive retail POS payment solution.

Customers can apply for AFF’s products online or through their mobile devices and complete the process electronically or in person at one of AFF’s merchant partner locations.

AFF primarily serves customers who are credit-constrained who may not qualify for prime or near prime retail payment options.

On a pro forma basis after giving effect to the AFF Acquisition as if it had closed on January 1, 2021, AFF would have accounted for 27% of the Company’s total revenues during 2021.

Products Offered by AFF

AFF’s merchant partners provide financing of consumer goods and services to their customers using one of AFF’s retail POS payment options, including an LTO product, a merchant-based retail installment sales agreement (“RISA”) or a bank-originated installment loan to facilitate payments on such transactions.

The merchant partners generally choose a single solution from one of these three available options to offer to their customers at a given location.

The merchant’s selection of the appropriate retail POS payment option depends upon which payment options are allowable under applicable state law, whether AFF’s bank partner makes loans in the state where the merchant is located and by the products or services offered by the merchant.

The majority of AFF’s originations are facilitated with the LTO product, with retailers of tangible personal property most commonly using the LTO product.

The RISA and bank-originated products are more commonly offered in situations where services are being offered by the merchant.

Each of these retail POS payment options is subject to AFF’s (or AFF’s partner bank’s) proprietary technology-driven decisioning process as further described below.

AFF’s ability to customize the technology and offer a choice between retail POS payment options gives its merchant partners the advantage of flexibility.

The following is a description of the three primary retail POS payment options offered by AFF:

• LTO - LTO transactions involve the purchase by AFF of tangible personal property directly from the merchant partner and a subsequent lease of that merchandise by AFF to the customer.

The customer has the right to acquire ownership of the leased merchandise either through an early buyout option, another early purchase option after the early buyout option expires, or through payment of all required lease payments.

To take advantage of the early buyout option, the customer generally has between 90 and 105 days to pay the cash price of the leased merchandise, plus a nominal early

The customer can still utilize an early purchase option after the 90 to 105-day period and obtain ownership early, while also saving money, by paying a certain percentage of the remaining lease payments (usually established by applicable state law).

The customer can also obtain ownership of the merchandise by simply paying all of the remaining lease payments as they become due.

Conversely, the customer has the right to cancel the lease at any time by returning the merchandise and making all scheduled payments due through the minimum lease holding period, which is typically 60 days.

Leased merchandise contracts can typically be renewed for between six to 24 months.

AFF offers the LTO retail POS payment option to merchant partners in 44 U.S.

states, the District of Columbia and Puerto Rico and it accounted for 64% of AFF’s total revenues for the full year ended December 31, 2021 on a pro forma basis.

• RISA - The RISA transaction involves the purchase of either tangible personal property or services from the merchant partner by the customer.

The customer enters into a RISA with the merchant and AFF subsequently purchases the RISA from the merchant partner and services the account through the end of the contractual term.

The customer can take advantage of an early payoff discount whereby the customer generally has between 90 and 105 days to pay the original principal amount, plus a nominal early payoff discount fee (equal to or less than the accrued interest charges), without incurring any additional interest charges.

RISA finance receivables typically have a term ranging from six to 24 months, and when utilized for the purchase of tangible personal property, are generally secured by such tangible personal property.

AFF facilitates the RISA retail POS payment option with merchant partners in 20 U.S.

states and it accounted for 18% of AFF’s total revenues for the full year ended December 31, 2021 on a pro forma basis.

• Bank-originated installment loans - The customer enters into an installment loan directly with FinWise Bank (the “Bank”) for the purchase of a good or service from the merchant partner.

After origination of the loan by the Bank, AFF purchases the rights to the cash flows of the loan from the Bank, but does not purchase the loan itself.

AFF then assumes responsibility for sub-servicing the loan on behalf of the Bank for the remaining term of the loan.

The customer can take advantage of an early payoff discount, whereby the customer generally has between 90 and 105 days to pay the original principal amount (including any origination fee) without paying any interest charges.

Bank-originated loans typically have a term ranging from six to 24 months and can be either secured by tangible personal property or unsecured.

Approximately 28% of these loans are not related to the purchase of property or services but rather are loans with cash proceeds issued directly to the customer.

The bank-originated installment loan retail POS payment option is made available to merchant partners in 34 U.S.

states and it accounted for 18% of AFF’s total revenues for the full year ended December 31, 2021 on a pro forma basis.

Decisioning Process

AFF has made substantial investments in the development of its unique and proprietary decisioning platform that is customizable to individual merchants and/or merchandise categories.

The platform is supported by an experienced and robust data science team that use data analytics to continually improve the performance of the decisioning platform.

This proprietary decisioning platform is used to determine whether a particular applicant meets AFF’s (or the Bank’s as applicable) LTO, RISA or loan qualifications for a particular amount.

The sophisticated algorithms consider external and internal data points beyond traditional credit scores, allowing AFF or the Bank to approve customers that do not have a credit score.

Over 90% of AFF applications submitted are automatically decisioned within 10 seconds on average, creating a highly efficient, scalable model.

While the Bank partner utilizes AFF’s technology platform to process and evaluate consumer applications originated by the Bank, all credit underwriting and approval criteria used by the Bank to underwrite the loans are provided and approved by the Bank.

Servicing & Collections Process

The amount of a customer’s contractual periodic payment (i.e., weekly, bi-weekly, semi-monthly, or monthly) is generally based on a customer's pay frequency and the term of the contract.

Customer payments are typically processed through automated clearing house payments or debits to the customer’s payment card (e.g., through a Visa or MasterCard network).

Consumers can choose between scheduling automated payments to process on their accounts or make manual, non-recurring payments on each due date.

If a payment attempt is unsuccessful, collection activities are managed through AFF’s call centers and/or AFF’s network of third-party debt collection agencies.

The call center contacts customers through several communication channels to encourage the customer to keep their lease, RISA or loan current and discuss all available payment options.

Business—Government Regulation” for further information about applicable collections laws AFF is subject to.

Customer Service

AFF believes its strong focus on building a positive relationship with the customer and ensuring high levels of customer satisfaction generates repeat customer business and long-lasting relationships with its merchant partners.

This focus on customer service begins on day one with a phone call or email from AFF’s customer service team to welcome new customers to AFF, answer any questions they may have about their new account and confirm they are aware of their repayment schedule.

Existing customers have access to AFF’s customer service team at all times to answer questions about their lease, RISA or loan or to provide comments or complaints about merchant partners.

For those customers that utilize AFF’s LTO solution and wish to cancel their lease, AFF’s customer service team can also assist with the cancellation process.

AFF has also made significant investments to make the application process for its LTO, RISA or loan products user-friendly for its customers.

AFF customers can apply for the AFF products via text-2-apply, QR codes, web applications on merchant websites, merchant portal applications, in-cart plug-in experiences and third-party waterfall applications.

Upon submission of an application, AFF’s platform typically communicates a decision within seconds, providing a near immediate response to the customer.

The customer then purchases goods or services using one of AFF’s retail POS payment options and makes scheduled payments, which can be managed by the customer via phone or online.

Merchant Relationships

AFF believes that its highly customizable LTO, RISA and loan products offer significant value to merchant partners.

AFF’s products can help drive further sales for these merchants by helping these merchants reach credit-constrained customers through the offer of AFF’s financing solutions.

AFF also constantly monitors consumer preferences and trends to ensure that the solutions offered through their merchant partners are aligned with the needs of the merchant partner and its customers.

AFF markets to new merchants through various channels including field sales representatives, national sales, independent sales representatives, buying groups, AFF’s website and strategic integrations via waterfall lending platforms.

AFF takes great care in adding quality merchant partners that meet AFF’s high standards.

To assure this quality, each prospective merchant goes through a rigorous vetting and approval process.

Once a merchant partner is approved, they must sign a merchant agreement that identifies the roles and responsibilities of both the merchant and AFF.

Merchants also receive appropriate training so they can properly represent AFF’s retail POS payment solutions to their customers and ensure regulatory compliance.

Existing merchant partners are subject to regular monitoring.

AFF’s monitoring procedures are designed to identify merchant partners that do not meet AFF’s merchant standards.

Merchant partners are subject to suspension and/or termination if, based upon the results of AFF’s monitoring, they are found to be out of compliance with the merchant agreement, have low lease or loan quality performance, have elevated customer complaint volume or fail to comply with applicable law.

AFF currently has a large network of over 6,500 active retail merchant partner stores and e-commerce platforms offering its leasing and financing products.

Those merchant partners offer a wide array of goods and services spanning 26 vertical channels.

The following table shows the percentage of AFF's pro forma 2021 originations attributable to these vertical channels:

Year Ended December 31, 2021

Furniture 61 %

Automotive 15 %

A significant portion of AFF’s revenue is concentrated with its top merchant partners.

While this concentration has provided AFF with opportunities for growth, the increasing size and importance of individual merchant partners creates a certain degree of exposure to potential transaction volume loss.

On a pro forma basis, after giving effect to the AFF Acquisition as if it had closed on January 1, 2021, AFF’s top five merchant partners accounted for an aggregate of 16% of combined pro forma 2021 revenues.

For a discussion of the risks associated with the possible loss of one of AFF’s top merchant partners or a significant reduction in transaction volumes with one of its top merchant partners, refer to “Item 1A.

Risk Factors.”

Retail POS Payment Solutions Business Strategy

AFF’s business model is primarily driven by a scalable technology-based platform that does not require significant increases in operating overhead to support incremental origination growth.

Thus, AFF generally achieves more operating leverage as transaction volume grows.

Additionally, AFF does not have any of the costs associated with operating physical stores, the personnel needed to operate physical store locations, or any of the costs associated with buying, storing and shipping inventory.

AFF’s business strategy is to continue building market share through additional expansion of both its brick-and-mortar and online merchant base, while increasing customer utilization rates by continuous improvement and enhancement of its omni-channel user experience.

AFF continues to expand on its digital marketing and search engine optimization strategies to harvest more consumer searches and to drive quality repeat customers back to its merchant partners.

With an ongoing focus toward improving application conversion rates combined with an enhanced risk segmentation of its applications, AFF believes that it has numerous opportunities to gain additional market share and expand its large and fast-growing merchant and customer base to achieve greater levels of revenue and profitability.

Expand Utilization with Existing Merchant Partners and Customers

AFF strives to be the preferred provider of retail POS payment solutions in all of its merchant partner locations.

AFF will continue to promote and build relationships with existing customers and merchants and believes there is an opportunity to increase the share of existing merchants’ overall transaction volumes.

AFF has made, and intends to continue to make, investments in its marketing team to drive awareness of AFF’s products at its merchant partners to increase utilization and encourage repeat business through increased marketing directly to AFF’s customers.

Pursue New Merchant Partners

AFF believes there are many more untapped traditional and e-commerce merchants providing goods and services to customers that could benefit from offering AFF’s retail POS payment solutions.

Utilizing its dedicated national, regional and local sales teams, AFF will continue to pursue and add new merchant partners.

Increase E-Commerce Transaction Volume

AFF currently derives the majority of its transaction volume through traditional brick-and-mortar retail partners.

With the continued growth of e-commerce, AFF believes there is significant opportunity to grow transaction volume through increased e-commerce penetration, both at existing e-commerce merchant partners and with new e-commerce merchants.

AFF believes its customizable decisioning platform and customer experience is highly scalable for e-commerce retailers and provides these retailers with compelling financing solutions for credit-constrained consumers.

AFF has made, and intends to continue to make, investments in its sales team to help capture these e-commerce opportunities.

Continue Enhancement of Proprietary Decisioning Platform

AFF employs a dedicated data science team to develop, monitor and effectively manage its proprietary data analytics and decisioning platform.

As it continues to generate originations, the transaction volume is expected to increase AFF’s internal customer and transactional data set available for analysis, thereby improving the effectiveness of AFF’s decisioning model.

As its dedicated data science team continues to further analyze both internal and external data, the Company believes there is room for continued improvement to the decisioning model that would allow for a greater percentage of applicants being approved, thereby increasing originations, while also becoming more effective in predicting the ability of its applicants to repay their lease, RISA or loan, thereby reducing charge-offs.

Retail POS Payment Solutions Competitive Environment

AFF’s retail POS payment solutions business competes with national, regional and local LTO stores, virtual LTO companies, rental stores that do not offer their customers a purchase option and various other types of consumer finance companies that may enable customers to shop at traditional or online retailers on credit.

In addition, banks and consumer finance companies are developing POS payment products and services designed to compete for the credit-constrained customer.

AFF also competes with traditional and e-commerce retailers and traditional and online sellers of new and used merchandise for customers desiring to purchase merchandise for cash or on credit.

Competition is based primarily on product selection and availability, customer service, store location and lease and loan terms.

Intellectual Property

The Company relies on a combination of trademarks, trade dress, trade secrets, proprietary software, website domain names and other rights, including confidentiality procedures and contractual provisions, to protect its proprietary technology, processes and other intellectual property.

The Company’s competitors may develop products that are similar to its technology, such as the Company’s proprietary pawn point-of-sale and loan management software, AFF’s proprietary lease, financing and loan management software, AFF’s proprietary decisioning platform and other developed technology.

The Company enters into agreements with its employees, consultants and partners, and through these and other confidentiality or non-compete agreements, the Company attempts to control access to and distribution of its software, documentation and other proprietary technology and information.

Despite the Company’s efforts to protect its proprietary rights, third parties may, in an authorized or unauthorized manner, attempt to use, copy or otherwise obtain and market or distribute its intellectual property rights or technology or otherwise develop products with the same functionality as its solutions.

Policing all unauthorized use of the Company’s intellectual property rights is nearly impossible.

The Company cannot be certain that the steps it has taken or will take in the future will prevent misappropriations of its technology or intellectual property rights.

Environmental, Social and Governance (ESG)

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Environmental Sustainability

The Company’s core business extends the lifecycle and utilization of popular consumer products.

The Company’s pawn business extends the lifecycle and utilization of popular consumer products.

Most of the Company’s merchandise inventories are pre-owned items sourced directly from local customers in each store’s immediate geographic neighborhood.

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By being a large reseller of pre-owned items, the Company believes it extends the life of these products and helps reduce demand for newly manufactured and distributed products, thereby reducing carbon emissions and water usage, resulting in a positive impact to the environment.

The Company estimates that it resold approximately 12 million used or pre-owned consumer product items in its retail stores during 2020 with a commercial value of approximately $1.1 billion.

The Company estimates that it resold approximately 11 million used or pre-owned consumer product items in its pawn stores during 2021, with a commercial value of approximately $1.1 billion.

In addition, the Company recycles significant volumes of precious metals and diamonds whereby unwanted or broken jewelry is collected and melted/processed by the Company and then resold as a commodity for future commercial use.

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Unlike most brick-and-mortar or online retailers, the Company does not rely on supply chains or manufacturing of its inventories as it sources the majority of its inventory from forfeited pawn loan collateral and merchandise purchased directly from customers.

Accordingly, the Company does not own, operate or contract for any manufacturing, supply chain, warehousing or distribution facilities to support its retail sales or lending operations.

Accordingly, the Company does not own, operate or contract for any manufacturing, supply chain, warehousing or distribution facilities to support its pawn operations.

Almost all retail sales and pawn loans are made to customers who live or work within a tight geographic radius of the Company’s stores, and only a very small percentage of sales require delivery service.

The Company does not own, lease or operate any long-haul trucks to support its 2,748 locations and, other than operating small storefront locations which are typically 5,000 square feet or less, the Company’s operations leave a limited carbon footprint compared to manufacturers and retailers selling new merchandise with extensive supply chain and distribution channels.

The Company does not own, lease or operate any long-haul trucks to support its 2,825 pawn locations and, other than operating small storefront locations which are typically 5,000 square feet or less, the Company’s operations leave a limited carbon footprint compared to manufacturers and retailers selling new merchandise with extensive supply chain and distribution channels.

The Company is working to further reduce energy consumption by retrofitting buildings with LED lighting and reducing corporate travel by utilizing remote work and meeting technologies.

Providing Safe Lending Solutions in Underserved Communities

Pawn Loans Offer Safe Lending Solutions in Underserved Communities

It is estimated by multiple studies and surveys that approximately 25% of U.S.

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The Company contributes to its communities by providing these customers with instant access to capital through very small, non-recourse pawn loans or buying merchandise from its customers.

The average credit provided to a customer is $198 in the U.S.

The average credit provided by the Company’s pawn business to a customer is $222 in the U.S.

and $77 in Latin America.

Traditional lenders such as banks, credit unions, credit card providers or other small loan providers do not efficiently or effectively offer microcredit products of this size.

Traditional lenders such as banks, credit unions, credit card providers or other small loan providers do not efficiently or effectively offer micro credit products of this size.

Obtaining a pawn loan is simple, requiring only a valid government ID and an item of personal property owned by the customer.

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This ESR certification is granted to companies that meet a series of criteria that generally cover the economic, social and environmental sustainability of its operations, which include corporate ethics, good governance, the quality of life of the Company’s employees and a proven commitment to the betterment of the community where it operates, including the care and preservation of the environment.

The Company has also established relationships and supports multiple foundations and programs in Mexico, including an exclusive partnership with the JUCONI Foundation, which works with families and children to prevent and help heal the trauma associated with domestic violence in families or children who are living in extreme poverty or are homeless.

Additionally, the Company supports or partners with several other foundations and projects, which provide educational scholarships, intern programs, reading initiatives and recycling programs for disadvantaged citizens.

The Company has also established relationships and supports certain foundations and social programs in Mexico, which provide internships, reading initiatives and recycling programs for disadvantaged citizens.

Human Capital Resources

In managing its human capital resources, the Company aims to attract a qualified and diverse workforce through an inclusive and accessible recruiting process that utilizes online recruiting platforms, campus outreach, internships and job fairs.

The Company’s workforce is composed primarily of employees who work on an hourly basis, which have historically had high turnover rates.

These high turnover rates can lead to increased training, retention and other costs and impair the overall customer service and efficiencies at the Company’s stores.

In order to increase retention among its hourly employees, the Company is focused on providing competitive and attractive wages and benefits, which includes a store-level profit-sharing program and extensive training and advancement opportunities as well as fostering a diverse, safe, healthy and secure workplace.

The Company complies with all applicable state, local and international laws governing nondiscrimination in employment in every location in which the Company operates.

The workforce of the Company’s pawn business is composed primarily of employees who work on an hourly basis.

The AFF business also relies on customer service personnel that are also primarily hourly employees.

In order to increase retention among its hourly employees, the Company is focused on providing competitive and attractive wages and benefits, which includes a store-level profit-sharing program for its pawn store employees and extensive training and advancement opportunities as well as fostering a diverse, safe, healthy and secure workplace.

The Company believes that it complies with all applicable state, local and international laws governing nondiscrimination in employment in jurisdictions in which the Company operates.

All applicants and employees are treated with the same high level of respect regardless of their gender, ethnicity, religion, national origin, age, marital status, political affiliation, sexual orientation, gender identity, disability or protected veteran status.

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Among the Company’s global workforce as of December 31, 2021, 56% identify as women and 44% as men.

In management positions for our global operations, 46% identify as women and 54% as men as of December 31, 2020.

In management positions for the Company’s global operations, 53% identify as women and 47% as men as of December 31, 2021.

Race and Ethnicity Demographics

In the U.S.as of December 31, 2020, 48% identify as Hispanic, 18% as Black, 1% as Asian, 3% as two or more races or Other and 30% as White.

Among, managers in our U.S.

employees as of December 31, 2021, 48% identify as Hispanic, 17% as Black, 1% as Asian, 4% as two or more races or Other and 30% as White.

Among managers in the Company’s U.S.

operations, 47% identify as Hispanic, 14% as Black, 1% as Asian, 3% as two or more races or Other and 35% as White as of December 31, 2021.

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The Company implemented social distancing and mask-wearing protocols in its stores and corporate offices, remote working for its corporate employees, provided additional cleaning supplies to facilitate the sanitation of high traffic areas, installed plexiglass dividers at store point-of-sale counters and prohibited all domestic and international non-essential travel for all employees, among other things.

The Company continues to actively monitor its COVID-19 safety protocols and updates these protocols to respond to the current situation in its specific geographies.

The Company has consistently been able to meet customers’ demands for its products, while at the same time making the necessary investments to ensure that the Company prioritizes the health, safety and welfare of its employees.

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or Mexico markets have been terminated, laid off or furloughed without pay as a direct result of the pandemic.

The Company encounters significant competition in connection with all aspects of its business operations.

These competitive conditions may adversely affect the Company’s revenue, profitability and ability to expand.

The Company believes the primary elements of competition in the businesses in which it operates are store location, customer service, the ability to lend competitive amounts on pawn loans and to sell popular retail merchandise at competitive prices.

In addition, the Company competes with other lenders and retailers to attract and retain employees with competitive compensation programs.

The Company’s pawn business competes primarily with other pawn store operators, other specialty consumer finance operators, including online lenders, retail and virtual rent-to-own operators and consumer goods retailers, including online operators.

Management believes the pawn industry remains highly fragmented with an estimated 12,000 to 14,000 total pawnshops in the U.S.

and 7,000 to 8,000 pawnshops in Mexico.

Including the Company, there are two publicly-held, U.S.-based pawnshop operators, both of which have pawn operations in the U.S., Mexico, Guatemala and El Salvador.

Of these two, the Company had the most pawn stores and the largest market capitalization, as of December 31, 2020, and believes it is the largest public or private operator of large format, full-service pawn stores in the U.S.

The pawnshop and other specialty consumer finance industries are characterized by a large number of independent owner-operators, some of whom own and operate multiple locations.

In addition, the Company competes with other non-pawn lenders, such as banks and consumer finance companies, which generally lend on an unsecured as well as a secured basis.

Other lenders may and do lend money on terms more favorable than those offered by the Company.

Many of these financial institutions have greater financial resources or human capital than the Company’s with which to compete for consumer loans.

In both its U.S.

and Latin American retail pawn operations, the Company’s competitors include numerous retail and wholesale merchants, including jewelry stores, rent-to-own operators, discount retail stores, “second-hand” stores, consumer electronics stores, other specialty retailers, online retailers, online auction sites, online classified advertising sites and other pawnshops.

Competitive factors in the Company’s retail operations include the ability to provide the customer with a variety of merchandise items at attractive prices.

Many of the retail competitors have significantly greater size, financial resources and human capital than the Company.

Intellectual Property

The Company’s competitors may develop products that are similar to its technology, such as the Company’s proprietary point-of-sale and loan management software.

Despite the Company’s efforts to protect its proprietary rights, third parties may, in an authorized or unauthorized manner, attempt to use, copy or otherwise obtain and market or distribute its intellectual property rights or technology or otherwise develop a product with the same functionality as its solution.

Policing all unauthorized use of the Company’s intellectual property rights is nearly impossible.

The Company cannot be certain that the steps it has taken or will take in the future will prevent misappropriations of its technology or intellectual property rights.

Governmental Regulation

Effective June 30, 2020, the Company ceased offering domestic payday and installment loans and no longer has any unsecured consumer lending or credit services operations in the U.S.

or Latin America.

The Company remains subject to significant regulation of its pawn and general business operations in all of the jurisdictions in which it operates.

These regulations are implemented through various laws, ordinances and regulatory pronouncements from federal, state and municipal governmental entities in the U.S.

and Latin America.

These regulatory bodies often have broad discretionary authority over the establishment, interpretation and enforcement of such regulations.

These regulations are subject to change, sometimes significantly, as a result of political, economic or social trends, events and media perception.

The Company is subject to specific laws, regulations and ordinances primarily concerning its pawn lending operations.

Many statutes and regulations prescribe, among other things, the general terms of the Company’s pawn loan agreements, including maximum service fees and/or interest rates that may be charged and collected and mandatory consumer disclosures.

In many municipal, state and federal jurisdictions in both the U.S.

and countries in Latin America, the Company must obtain and maintain regulatory store operating and employee licenses and comply with regular or frequent regulatory reporting and registration requirements, including reporting and recording of pawn loans and transactions, pawned collateral, used merchandise purchased from the general public, retail sales activities, firearm transactions, export, import and transfer of merchandise, and currency transactions, among other things.

The Company is subject to numerous other types of regulations including, but not limited to, regulations related to securities and exchange activities, including financial reporting and internal controls processes, data protection and privacy, tax compliance, health and safety, labor and employment practices, import/export activities, real estate transactions, credit card transactions, marketing, advertising and other general business activities.

There can be no assurance that the current domestic and international political climate will not change and negatively affect the Company’s business, or that additional local, state or federal statutes, regulations or edicts will not be enacted or that existing laws and regulations will not be amended, decreed or interpreted at some future date that could prohibit or limit the ability of the Company to profitably operate any or all of its services.

For example, such regulations could restrict the ability of the Company to offer pawn loans, significantly decrease or cap the interest rates or service fees for such lending activities, prohibit or more stringently regulate the acceptance of pawn collateral or buying used merchandise and the sale, exportation or importation of such pawn merchandise, any of which could have a material adverse effect on the Company’s operations and financial condition.

If legislative, regulatory or other arbitrary actions or interpretations are taken at a federal, state or local level in the U.S.

or countries in Latin America which negatively affect the pawn industry where the Company has a concentrated or significant number of stores, those actions could have a material adverse effect on the Company’s business operations.

can be no assurance that such regulatory action at any jurisdiction level will not be enacted, or that existing laws and regulations will not be amended, decreed or interpreted in such a way which could have a material adverse effect on the Company’s operations and financial condition.

General Overview

The Company’s pawn, LTO and retail finance businesses are subject to significant regulation through various laws, regulations, ordinances and regulatory pronouncements from federal, state and municipal governmental entities in the U.S.

and Latin America, all of which are constantly evolving and subject to potentially significant changes.

These statutes and regulations prescribe, among other things, the general terms of the Company’s pawn loan agreements, including maximum service fees and/or interest rates that may be charged and collected and mandatory consumer disclosures, as well as maximum interest rates/finance charges or leasing fees (as applicable), consumer disclosures, contractual terms and other matters directly related to the Company’s retail POS payments solutions platform activities.

The Company is also required to obtain and maintain regulatory licenses and comply with regular or frequent regulatory reporting and registration requirements.

In general, the regulatory regimes to which the Company are subject are increasingly focused on consumer finance companies serving credit-constrained customers and any of these agencies or authorities may propose and adopt new regulations, or interpret existing regulations, in a manner that could result in significant adverse changes in the regulatory landscape for businesses such as the Company’s.

In addition, the current presidential administration has taken a more aggressive enforcement stance against consumer finance companies serving credit-constrained customers like the Company.

For a discussion of the risks related to the Company’s regulatory environment, see “Item 1A.

Risk Factors—Regulatory, Legislative and Legal Risks.”

Federal Regulations

government and its agencies have significant regulatory authority over consumer financial services activities.

In recent years, additional legislation and regulations have been enacted or proposed which have increased or could continue to increase regulation of the consumer finance industry.

The Consumer Financial Protection Bureau (the “CFPB”), created by Title X of the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), has broad regulatory, supervisory and enforcement powers over certain financial institutions.

The CFPB’s examination authority permits examiners to inspect the Company’s books and records and ask questions about its business and its practices relating to unsecured, small dollar loans, like payday loans, which the Company offered before June 30, 2020.

The CFPB also has the authority to pursue administrative proceedings or litigation for actual or perceived violations of federal consumer laws (including the CFPB’s own rules).

In these proceedings, the CFPB can seek civil investigative demands, consent orders, confidential memorandums of understandings, obtain cease and desist orders (which can include orders for redisclosure, restitution or rescission of contracts, as well as affirmative or injunctive relief) and monetary penalties.

Also, where a company has been found to have violated consumer laws, the Dodd-Frank Act (in addition to similar state consumer laws) empowers state attorneys general and state regulators to bring administrative or civil actions seeking the same equitable relief available to the CFPB, in addition to state-led enforcement actions and consent orders.

If the CFPB or one or more state officials believe that the Company violated any of the applicable laws or regulations, they could exercise their enforcement powers in ways that could have a material adverse effect on the Company or its business.

government and its agencies have significant regulatory authority over the Company’s activities and its business is subject to a variety of federal laws, including but not limited to the following:

Federal Trade Commission (“FTC”) Act and Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”) - The FTC and the Consumer Financial Protection Bureau (the “CFPB”), regulate advertising, marketing of and practices related to financial products and services.

The FTC is charged with preventing, investigating and remediating unfair or deceptive acts or practices and false or misleading advertisements, and the CFPB is charged with preventing unfair, deceptive or abusive acts or practices.

The CFPB has regulatory, supervisory and enforcement powers over certain providers of consumer financial products and services.

The CFPB also has the authority to issue civil investigative demands and pursue administrative proceedings or litigation for actual or perceived violations of federal consumer laws (including the CFPB’s own rules).

In these proceedings, the CFPB can seek consent orders, confidential memorandums of understandings, cease and desist orders (which can include orders for redisclosure, restitution or rescission of contracts, as well as affirmative or injunctive relief) and monetary penalties.

The Company was recently named as a defendant in a lawsuit brought by the CFPB alleging violations of the Military Lending Act (“MLA”) as discussed elsewhere herein.

For a discussion of the risks to the Company’s business related to CFPB regulation, see “Item 1A.

Risk Factors—Regulatory, Legislative and Legal Risks and General Economic and Market Risks.”

On October 5, 2017, the CFPB released its small-dollar loan rule (the “SDL Rule”), which was subsequently revised on July 7, 2020.

Traditional possessory, non-recourse pawn loans were not covered under the CFPB’s original 2017 regulation and remain excluded under the revised regulation.

Accordingly, the Company believes that the SDL Rule does not directly impact the vast majority of its pawn products, which comprise more than 99% of its total revenues.

Traditional possessory, non-recourse pawn loans are not covered under the SDL Rule.

The SDL Rule does, however, define consumer loan products, both short-term loans and installment loans offered by the Company before June 30, 2020, as loans covered under the rule.

Given the Company’s discontinuance of consumer loans and credit services on June 30, 2020, the Company does not believe the SDL Rule will have a material effect, if any, on the Company’s operations and financial condition.

In July 2015, the U.S.

Department of Defense published a finalized set of additional requirements and restrictions under the Military Lending Act (“MLA Rule”).

The MLA Rule, which went into effect on October 3, 2016, amended requirements for its “safe harbor” (making covered member attestation insufficient on its own to comply with the “safe harbor” provision of the MLA Rule) and expanded the scope of the credit products covered by the MLA to include overdraft lines of credit, pawn loans, or vehicle and certain unsecured installment loan products to the extent any such products have a military annual percentage rate greater than 36%.

While the Company does not believe that active members of the U.S.

military or their dependents comprise a significant percentage of the historical pawn customer base in most locations, compliance with the MLA Rule, including its safe harbor provisions, is complex, increases compliance risks and related costs and limits the potential customer base of the Company.

The Company must comply with various disclosure requirements under the Federal Truth in Lending Act (and Regulation Z promulgated thereunder).

These disclosures include, among other things, the total amount of the finance charges and annualized percentage rate of the charges associated with pawn transactions.

The Financial Crimes Enforcement Network (“FinCEN”) exercises regulatory functions primarily under the Currency and Financial Transactions Reporting Act of 1970, as amended by Title III of the USA PATRIOT Act of 2001 and other legislation, which legislative framework is commonly referred to as the “Bank Secrecy Act” (the “BSA”).

The BSA is a comprehensive U.S.

federal anti-money laundering (“AML”) and counter-terrorism financing statute.

The BSA authorizes the Secretary of the Treasury to issue regulations requiring banks and other financial institutions to take a number of precautions against financial crimes, including the establishment of AML programs and the filing of certain reports.

The Secretary of the Treasury has delegated to the Director of FinCEN the authority to implement, administer, and enforce compliance with the BSA and associated regulations, which among other things, regulates the reporting of transactions involving currency in an amount greater than $10,000.

As of January 1, 2018, the Company ceased offering fee-based check cashing services and is no longer considered a money services business as defined under federal law.

Generally, however, and depending on the service or product, financial institutions, including the Company, must report certain transactions involving currency in an amount greater than $10,000 during a specific period, or transactions deemed suspicious in nature.

The Company’s compliance with AML

regulations and reporting requirements is reviewed annually by its director of internal audit who reports all findings directly to the Board of Directors.

The Gramm-Leach-Bliley Act requires the Company to generally protect the confidentiality of its customers’ non-public personal information and to disclose to its customers its privacy policy and practices, including those regarding sharing the customers’ non-public personal information with third parties.

Such disclosure must be made to customers at the time the customer relationship is established, at least annually thereafter, and if there is a change in the Company’s privacy policy.

In addition, the Company is subject to strict document retention and destruction policies.

The Company’s advertising and marketing activities, in general and depending on the type of product and/or service offered, are subject to additional federal laws and regulations administered by the Federal Trade Commission and the CFPB which prohibit unfair or deceptive acts or practices and false or misleading advertisements.

The Fair and Accurate Credit Transactions Act (“FACTA”) requires the Company to adopt written guidance and procedures for detecting, mitigating, preventing and responding appropriately to identity theft and to adopt various employee policies and procedures, and provide employee training and materials that address the importance of protecting non-public personal information, specifically, personal identifiable information, and aid the Company in detecting and responding to suspicious activity, including suspicious activity which may suggest a possible identity theft red flag, as appropriate.

The Company is subject to the Foreign Corrupt Practices Act (“FCPA”) and other similar laws in other jurisdictions that prohibit improper payments or offers of improper payments to foreign governments and their officials and political parties by U.S.

persons and issuers (as defined by the statute) for the purpose of obtaining or retaining business.

In addition, the FCPA requires adequate accounting internal controls and record keeping.

It is the Company’s policy to maintain safeguards to discourage these practices by its employees and vendors and follow Company standards of conduct for its business throughout the U.S.

and Latin America, including the prohibition of any direct or indirect payment or transfer of Company funds or assets to suppliers, vendors, or government officials in the form of bribes, kickbacks or other illegal payoffs.

All Company employees who have a significant role in the operations of the Company, including all Latin America store operations employees, and certain third party intermediaries receive training and/or provide certification over their understanding of and compliance with the FCPA.

pawn store location that handles pawned firearms or buys and sells firearms must comply with the Brady Handgun Violence Prevention Act (the “Brady Act”).

The SDL Rule also defines some of the RISA transactions that AFF purchases and some of the installment loans that AFF sub-services as loans covered under the rule.

Electronic Fund Transfer Act (“EFTA ”) - The EFTA and its implementing Regulation, Regulation E, is a consumer protection law affecting electronic fund transfers, including one-time and recurring preauthorized transactions.

Consumers with whom the Company conducts business may elect to repay through the use of electronic funds transfers, requiring the Company to obtain the appropriate authorization from the consumer to enter into such transactions.

The EFTA imposes certain disclosure and practice restriction requirements upon the Company, and at the same time grants certain rights to consumers.

MLA - The MLA requires the provision of certain disclosures at certain times and restricts, among other things, the interest rate and other terms that can be offered to active military personnel and their dependents on most types of consumer credit.

The MLA caps the interest rate that may be offered to a covered borrower to a 36% military annual percentage rate (“MAPR”), which includes certain fees such a s application fees, participation fees and fees for add-on products.

The MLA also requires certain disclosures and prohibits certain terms, such as mandatory arbitration, if a dispute arises concerning the consumer credit product.

The MLA covers overdraft lines of credit, pawn loans and certain vehicle-secured and unsecured credit products and restricts the Company’s ability to offer its products to military personnel and their dependents to the extent any such products

have a MAPR greater than 36% .

Failure to comply with the MLA may limit the Company’s ability to collect principal, interest, and fees from borrowers and may result in civil and criminal liability that could harm its business.

Compliance with the MLA is complex, increases compliance risks and related costs and limits the potential customer base of the Company.

The Company was recently named as a defendant in a lawsuit brought by the CFPB alleging violations of the MLA as discussed elsewhere herein.

Servicemembers Civil Relief Act (“SCRA”) - The federal SCRA and similar state laws apply to certain transactions between the Company and servicemembers called to active duty in the United States military as defined within the SCRA, and may include reservists and members of the National Guard.

The SCRA limits the rate of interest a covered servicemember may be charged, including certain fees, as well as the actions that can be taken while the consumer is a covered servicemember, including limitations on the ability to maintain legal action and obtain default judgments.

Truth in Lending Act (“TILA”) - TILA and its implementing regulations known as Regulation Z require creditors to deliver disclosures to borrowers during the life cycle of a loan, including when publishing certain advertisements, at application, at account opening and at consummation.

The requirements may vary based upon product type (e.g., open-end versus closed end credit products), as well as the timing and nature of certain events (e.g., post-consummation events).

These disclosures include, among other things, the total amount of the finance charges and annualized percentage rate.

Anti-money laundering and economic sanctions - The Company is subject to certain provisions of the USA PATRIOT Act and the Bank Secrecy Act under which it must maintain an anti-money laundering compliance program covering certain of its business activities.

Gramm-Leach-Bliley Act (“GLBA”) - The Company is subject to various federal and state laws and regulations relating to privacy and security of consumers’ nonpublic personal information.

Under these laws, including the GLBA and Regulation P promulgated thereunder, the Company must disclose its privacy policy and practices, including those policies relating to the sharing of nonpublic personal information with third parties.

The Company may also be required to provide an opt-out to certain sharing.

The GLBA and other laws also require the Company to safeguard personal information.

The FTC regulates the safeguarding requirements of the GLBA for non-bank lenders through its Safeguard Rules.

Fair Credit Reporting Act (“FCRA”) - The Company is subject to the FCRA and its implementing regulation known as Regulation V, as both a user of consumer reports and a furnisher of consumer credit information to credit reporting agencies.

The FCRA regulates the use of consumer reports and reporting of information to credit reporting agencies.

Specifically, the FCRA establishes requirements that apply to the use of “consumer reports” and similar data, including certain notifications to consumers, including when an adverse action, such as a loan declination, is based on information contained in a consumer report.

The Company only obtains and uses consumer reports subject to the permissible purpose requirements under the FCRA, which also permits the Company to share its experiential information, information obtained from consumer reporting agencies and other customer information with affiliates.

The Company complies with notice and opt out requirements for prescreen solicitations and for certain information sharing under the FCRA, and conducts reasonable investigations of disputes as applicable.

The Company also has implemented an identity theft prevention program to fulfill the requirements of the Red Flags Regulations and Guidelines issued under the Fair and Accurate Credit Transactions Act (the “FACTA”).

Anti-corruption - The Company is subject to the U.S.

Foreign Corrupt Practices Act (the “FCPA”) and other similar laws in other jurisdictions which generally prohibit companies and their agents or intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business and/or other benefits.

Brady Handgun Violence Prevention Act (“Brady Act”) - Each U.S.

pawn store location that handles pawned firearms or buys and sells firearms must comply with the Brady Act.

The Brady Act requires that federally licensed firearms dealers conduct a background check in connection with releasing, selling or otherwise disposing of firearms.

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Department of Justice-Bureau of Alcohol, Tobacco and Firearms that require each pawn lending location dealing in guns to obtain a Federal Firearm License (“FFL”) and maintain a permanent record of all receipts and dispositions of firearms.

Employees handling firearms are required to complete a firearms training program that covers firearms safety, processes and compliance.

Only trained and certified employees are able to perform firearm transactions in the Company’s proprietary point-of-sale and loan management system.

As of December 31, 2020, the Company had 836 locations in the U.S.

with an active FFL.

Telephone Consumer Protection Act - The Company is also subject to the Telephone Consumer Protection Act and its implementing regulations (together, the “TCPA”) and the regulations of the Federal Communications Commission.

The TCPA regulates the delivery of live and prerecorded telemarketing calls, non-marketing calls to cell phones through the use of an automated telephone dialing system, fax advertisements and text messages.

For example, under the TCPA, it is unlawful to make many of these types of communications without the prior consent of the recipient.

The TCPA also established a federal do-not-call registry with the Telemarketing Sales Rule.

The Company maintains policies and procedures reasonably designed to comply with the TCPA.

State and Local Regulations

The Company operates pawn stores in 24 U.S.

Pawn Business - The Company operates pawn stores in 25 U.S.

states and the District of Columbia, all of which have licensing and/or fee regulations on pawnshop operations and employees, and are subject to regular state level regulatory audits.

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Additionally, these statutes and regulations in various jurisdictions restrict or prohibit the Company from transferring and/or relocating its pawn licenses and restrict or prohibit the issuance of new licenses.

The Company’s fee structures are at or below the applicable rate ceilings adopted by each of these states.

The Company offers its pawn and retail customers an interest free layaway plan which complies with applicable state laws.

In addition, the Company is in compliance with the net asset requirements in states where it is required to maintain certain levels of liquid assets for each pawn store it operates in the applicable state.

Failure to observe a state’s legal requirements for pawn brokering could result, among other things, in loss of pawn licenses, fines, refunds, and other civil or criminal proceedings.

Many of the Company’s pawn locations are also subject to local ordinances that require, among other things, local permits, licenses, record keeping requirements and procedures, reporting of daily transactions, and adherence to local law enforcement “do-not-buy-lists” by checking law enforcement created databases.

Specifically, under some county and municipal ordinances, pawn stores must provide local law enforcement agencies with reports of all daily transactions involving pawns and over-the-

counter merchandise purchased directly from customers.

These daily transaction reports are designed to provide local law enforcement officials with a detailed description of the merchandise involved, including serial numbers, if any, or other specific identifying information, including the name and address of the customer obtained from a valid identification card and photographs of the customers and/or merchandise in certain jurisdictions.

Goods held to secure pawns or goods directly purchased may be subject to mandatory holding periods before they can be resold by the Company.

If pawned or purchased merchandise is determined to belong to an owner other than the borrower or seller, it may be subject to confiscation by police for recovery by the rightful owners.

Historically, the Company has not found the volume of the confiscations or claims to have a material adverse effect upon results of operations.

The Company does not maintain insurance to cover the costs of returning merchandise to its rightful owners but historically has benefited from civil and criminal restitution efforts.

Local rules, regulations and ordinances vary widely from county to county or city to city.

While many of the local rules and regulations relate primarily to zoning and land use restrictions, certain cities have restrictive regulations specific to pawn products.

The Company cannot currently assess the likelihood of any other proposed legislation, regulations or amendments, such as those described above or discussed in “Item 1A, Risk Factors,” which could be enacted.

However, if such legislation or regulations were enacted in certain jurisdictions, it could have a materially adverse impact on the revenue and profitability of the Company.

Mexico Federal Regulations

Federal law in Mexico provides for administrative regulation of the pawnshop industry by Procuraduria Federal del Consumidor (“PROFECO”), Mexico’s primary federal consumer protection agency, which requires the Company to annually register its pawn stores, approve pawn contracts and disclose the interest rate and fees charged on pawn transactions.

In addition, the pawnshop industry in Mexico is subject to various general business regulations in the areas of tax compliance, customs, consumer protections, anti-money laundering, public safety and employment matters, among others, by various federal, state and local governmental agencies.

PROFECO regulates the form and non-financial terms of pawn contracts and defines certain operating standards and procedures for pawnshops, including retail operations, consumer disclosures and establishes reporting requirements and requires all pawn businesses and its owners to register annually with and be approved by PROFECO in order to legally operate.

AFF Business - In addition to federal regulatory oversight, currently, nearly every state specifically regulates LTO transactions via state statutes and regulations.

This includes states in which the POS payments platform operates through existing merchant partners.

The scope of state LTO regulation, including permissible rental rates, fees and terms, varies from state to state.

Some states require specific disclosures, mandate or prohibit certain terms and limit the total cost of ownership and fees that may be charged.

Most state LTO laws require LTO companies to disclose to their customers the total number of payments, total amount and timing of all payments to acquire ownership of an item, any other charges that may be imposed and miscellaneous other items.

The more restrictive state LTO laws limit the retail price for an item, limit the total cost of ownership that a customer may be required to pay to obtain ownership of an item, or regulate the "cost-of-rental" amount that lease-to-own companies may charge on lease-to-own transactions, generally defining "cost-of-rental" as lease fees paid in excess of the "retail" price of the goods.

Where licensing or registration is required, the Company is subject to extensive state rules, licensing and examination.

Failure to comply with these requirements may result in, among other things, refunds of excess charges, monetary penalties, revocation of required licenses, voiding of leases and other administrative enforcement actions.

Some states also specifically regulate via statutes and regulations the RISA transactions that AFF purchases from merchants.

The scope of state RISA regulation varies from state to state.

Most state RISA laws require certain consumer-facing disclosures.

Some state RISA laws require AFF, as a purchaser of RISA transactions, to obtain a license or file a registration or notification with the applicable state regulator.

Where licensing or registration is required, AFF is subject to extensive state rules, licensing and examination.

Failure to comply with these requirements may result in, among other things, refunds of excess charges, monetary penalties, revocation of required licenses, voiding of RISA transactions and other administrative enforcement actions.

In addition, from time to time, state regulatory agencies and state attorneys general have directed investigations or regulatory initiatives toward the Company’s industry, or toward certain companies within the industry.

For example, on January 6, 2022, AFF received a subpoena from the New Jersey Attorney General’s office requesting information related to AFF’s partnership with the Bank and the bank loans with New Jersey consumers that AFF sub-services.

AFF is in the process of providing the requested documents.

Mexico Regulations

The Company’s pawn business in Mexico is subject to various federal, state and local regulatory regimes affecting the pawn industry, as well as general business regulations in the areas of tax compliance, customs, consumer protections, anti-money laundering, public safety and employment matters, among others, by various federal, state and local governmental agencies.

Procuraduria Federal del Consumidor (“PROFECO”) - The Company’s pawn business in Mexico is regulated by PROFECO, Mexico’s primary federal consumer protection agency, which requires the Company to annually register its pawn stores, approve pawn contracts and disclose the interest rate and fees charged on pawn transactions.

PROFECO regulates the form and non-financial terms of pawn contracts and defines certain operating standards and procedures for pawnshops, including retail operations, consumer disclosures and establishes reporting requirements and requires all pawn businesses and their owners to register annually with and be approved by PROFECO in order to legally operate.

In addition, all operators must comply with additional customer notice and disclosure provisions, bonding and insurance requirements to insure against loss or insolvency, reporting of certain types of suspicious transactions, and reporting to state law enforcement officials of certain transactions (or series of transactions) or suspicious transactions on a monthly basis to states’ attorneys general offices.

PROFECO modifies its process and procedures regarding regulation including its annual registration requirements.

The Company complies in all material respects with this process and registration requirements as administered by PROFECO.

There are significant fines and sanctions, including license revocation and operating suspensions, for failure to register and/or comply with PROFECO’s rules and regulations.

Mexico’s anti-money laundering regulations, The Federal Law for the Prevention and Identification of Transactions with Funds From Illegal Sources (“Anti-Money Laundering Law”), requires monthly reporting of certain transactions (or series of transactions) exceeding certain monetary limits, imposes strict maintenance of customer identification records and controls, and requires reporting of all foreign (non-Mexican) customer transactions.

This law affects all industries in Mexico and is intended to detect commercial activities arising from illicit or ill-gotten means through bilateral cooperation between Mexico’s Ministry of Finance and Public Credit (“Hacienda”) and all of Mexico’s various states’ attorneys general offices (“PGR”).

This law restricts the use of cash in certain transactions associated with high-value assets and limits, to the extent possible, money laundering activities protected by the anonymity that cash transactions provide.

The law empowers Hacienda to oversee and enforce these regulations and to follow up on the information received from other agencies in Mexico and abroad.

Relevant aspects of the law specifically affecting the pawn industry include monthly reporting by the Company to Hacienda and the PGR on “vulnerable activities,” which encompass the sale of jewelry, precious metals and watches exceeding certain thresholds.

There are significant fines and sanctions for failure to comply with the Anti-Money Laundering Law.

Mexico’s Federal Personal Information Protection Act (“Mexico Privacy Law”) requires companies to protect their customers’ personal information, among other things.

Specifically, the Mexico Privacy Law requires that the Company create and maintain a privacy policy and inform its customers whether the Company shares the customer’s personal information with third parties or transfers personal information to third parties.

It also requires public posting (both online and in-store) of the Company’s privacy policy, which includes a process for the customer to revoke any previous consent granted to the Company for the use of the customer’s personal information, or limit the use or disclosure of such information.

On May 1, 2019, Mexico’s Federal Official Gazette published a decree setting forth major amendments to Mexico’s Federal Labor Law.

The labor reform in Mexico is derived from the requirements to be in compliance with Annex 23-A of the United States-Mexico-Canada Agreement (“USMCA”) labor chapter.

Mexico’s Federal Labor Law established guidelines involving unions and the labor force, which includes, among other things, a new structure to manage union life, labor agreements and labor disputes by replacing the existing federal and local conciliation and arbitration boards and federal certification of formal unions and labor agreements.

In addition, there is currently proposed federal legislation that would regulate, and in some cases, prohibit, commonly used employee insourcing and outsourcing structures.

A number of Mexican employers, including the Company, use insourcing and outsourcing structures to manage labor costs, including profit-sharing obligations.

While the final outcome of the legislation is unknown, if the legislation is passed in its current form, the use of these insourcing and outsourcing structures will be severely limited.

Anti-Money Laundering - Mexico’s anti-money laundering regulations, The Federal Law for the Prevention and Identification of Transactions with Funds From Illegal Sources, requires monthly reporting of certain transactions (or series of transactions) exceeding certain monetary limits, imposes strict maintenance of customer identification records and controls, and requires reporting of all foreign (non-Mexican) customer transactions.

Privacy Laws - Mexico’s Federal Personal Information Protection Act requires companies to protect their customers’ personal information, among other things.

Mexico State and Local Regulations

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Certain other states have proposed similar legislation but have not yet enacted such legislation.

Additionally, certain municipalities in Mexico have attempted to curtail the operation of new and existing pawn stores through additional local business licensing, permitting, reporting requirements and the enactment of transaction taxes on certain pawn transactions.

Furthermore, certain municipalities in Mexico have attempted to further regulate or limit the operation of new and existing pawn stores through additional local business licensing, such as operating licenses, signage permits and safety permits, in addition to reporting requirements and the enactment of transaction taxes on certain pawn transactions.

State and local agencies, including local and state police officials, often have unlimited and discretionary authority to suspend store operations pending an investigation of suspicious pawn transactions or resolution of actual or alleged regulatory, licensing and permitting issues.

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Like Mexico, department agencies, including local and state police officials, have unlimited and discretionary authority in their application of their rules and requirements.

As the scope of the Company’s international operations increases, the Company may face additional administrative, labor and regulatory costs in operating and managing its business.

In addition, unexpected changes, arbitrary or adverse court decisions, adverse action by financial regulators, aggressive public officials or regulators attacking the Company’s business models, administrative interpretations of federal or local requirements or legislation, or public remarks by elected officials could negatively impact the Company’s operations and profitability.

FirstCash Website

The Company’s primary website is www.firstcash.com .

The Company’s primary websites are www.firstcash.com and www.americanfirstfinance.com .

The Company makes available, free of charge, at its corporate website, its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after they are electronically filed with the Securities and Exchange Commission (“SEC”).

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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 1. Business