What changed in this filing

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Item 1A. Risk Factors

2025-02-03 compared with 2024-02-05 · 109 added, 115 removed, 395 unchanged (36% of the section changed)

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Risks Related to the Company’s Strategy, Business and Operations

• The Company faces significant competition from other pawnshops, branch-based consumer lenders, banks, credit unions, online lenders, POS consumer finance companies, LTO companies;

general, specialty and online retailers;

governmental entities and other organizations offering similar financial services and retail products to those offered by the Company.

• A decrease in demand for the Company’s products and services and the failure of the Company to adapt to such decreases could adversely affect the Company’s results of operations.

• The Company faces significant competition from other pawnshops, branch-based consumer lenders, banks, credit unions, online lenders, POS consumer finance companies, LTO companies, general, specialty and online retailers, governmental entities and other organizations offering similar financial services and retail products to those offered by the Company.

• A decrease in demand for the Company’s products and services and the failure of the Company to adapt to such changes could adversely affect the Company’s results of operations.

• The Company’s future success is largely dependent upon the ability of its management team to successfully execute its business strategy and drive organic growth.

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• The Company’s businesses are typically subject to seasonality, which causes the Company’s revenues and operating cash flows to fluctuate.

• The Company’s financial position and results of operations may fluctuate significantly due to fluctuations in currency exchange rates in Latin American markets.

• Changes impacting international trade and corporate tax and other related regulatory provisions may have an adverse effect on the Company’s financial condition and results of operations.

• The Company’s financial position and results of operations may fluctuate significantly due to fluctuations in currency exchange rates in most Latin American markets.

• Changes impacting international trade, such as proposed or enacted tariffs, including pursuant to policies of the incoming U.S.

administration, and corporate taxation and other related regulatory provisions may have an adverse effect on the Company’s financial condition and results of operations.

Risks Related to the Company’s Regulatory, Legislative and Legal Environment

• The Company’s products and services are subject to extensive regulation and supervision under various federal, state and local laws, ordinances and regulations in both the U.S.

and Latin America, and all consumer finance companies that serve credit-constrained consumers, including the Company, face increasing regulatory scrutiny under the current presidential administration in the U.S.

and in the current regulatory environment.

and Latin America, and all consumer finance companies that serve credit-constrained consumers, including the Company, face increasing regulatory scrutiny under the current regulatory environment.

• The adoption of new laws or regulations or adverse changes in, or the interpretation or enforcement of, existing laws or regulations affecting the Company’s products and services could adversely affect its financial condition and operating results.

• The Company is the subject of a lawsuit initiated by the CFPB alleging (i) violations of the MLA and (ii) violations of a consent order the Company’s predecessor entered into with the CFPB.

• The Company is the subject of a lawsuit initiated by the CFPB alleging (1) violations of the MLA and (2) violations of a consent order the Company’s predecessor entered into with the CFPB.

• If the bank partner loan origination model used by AFF is successfully challenged or deemed impermissible, AFF could be found to be in violation of licensing, interest rate limit, lending or brokering laws and could face penalties, fines, a determination that certain of the loans are void or voidable, litigation or regulatory enforcement.

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• The sale and pawning of firearms, ammunition and certain related accessories is subject to current and potential regulation and exposes the Company to reputational and litigation risk if such firearms, ammunition and related accessories lead to deaths, injuries or are utilized in the commission of a crime.

Risks Related to the AFF Business

• The AFF business is dependent on merchant partners for its transaction volume, and its growth is primarily driven by the success of its existing merchant partners, its ability to retain and grow its relationships with existing merchant partners, and its ability to attract new merchant relationships.

• The AFF business derives a significant portion of its revenue from several top merchant partners.

The loss of business, transaction volumes or platform support from one or more of these top merchant partners could have a material adverse effect on the AFF business.

• The AFF business relies extensively on its proprietary decisioning platform and, if such platform is not effective, it could have a material impact on the AFF business and its financial condition and results of operations.

• If the AFF business is unable to collect on its leases, RISAs and bank loans, the performance of its lease and finance receivables portfolio would be adversely affected.

Risks Related to Financial and Tax Matters

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• Climate change, including increased frequency of extreme weather events, and related regulations could adversely affect the Company’s business and results of operations.

Risks Related to the AFF Business

The loss of business, transaction volumes or platform support from one or more of these top merchant partners could have a material adverse effect on the AFF business.

• If the AFF business is unable to collect on its leases, RISAs and bank loans, the performance of its lease and finance receivables portfolio would be adversely affected.

Strategic and Business Risks

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AFF also competes with many of these retailers for consumers desiring to purchase lower cost merchandise for cash or on credit.

Furthermore, many of AFF’s merchants operate at brick-and-mortar retail locations that are subject to increased competition from online or lower-cost competitors.

In Mexico, the Company’s pawn stores also compete directly with government-sponsored or affiliated non-profit foundations operating pawn stores.

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The Company’s business depends highly upon its ability to perform, in an efficient and uninterrupted fashion, necessary business functions such as operating, managing and securing its retail locations, technical support centers, security monitoring, treasury and accounting functions and other administrative support functions.

Additionally, the Company’s storefront operations depend on the efficiency and reliability of the Company’s proprietary pawn POS and loan management system and

AFF depends on its systems to process its transaction volume and effectively take applications, decision and service its customers.

Additionally, the Company’s storefront operations depend on the efficiency and reliability of the Company’s proprietary pawn POS and loan management system and AFF depends on its systems to process its transaction volume and effectively take applications, decision and service its customers.

Furthermore, third parties provide a number of key components necessary to the Company’s business functions and systems.

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While the Company’s pawn business has historically acquired and maintained minimal personal information (primarily name, address, government identification numbers and date of birth).

AFF obtains additional personal information, including social security numbers, dates of birth, bank account and payment card information and data from consumer reporting agencies (including credit report information) from its customers, increasing the potential risk of unauthorized access to such confidential information.

potential risk of unauthorized access to such confidential information.

The Company is under constant threat of loss due to the velocity and sophistication of security breaches and cyber attacks.

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The Company could also experience liability or adverse publicity arising from such crimes.

Any such event may have a material and adverse effect on the Company’s business, prospects, results of operations and financial condition.

event may have a material and adverse effect on the Company’s business, prospects, results of operations and financial condition.

If the Company is unable to protect its intellectual property rights, its ability to compete could be negatively impacted.

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It has been reported over the past several years that actions, such as Operation Choke Point, by the U.S.

Department of Justice (the “Justice Department”), the Federal Deposit Insurance Corporation (the “FDIC”) and certain state regulators appear to be intended to discourage banks and ACH payment processors from providing access to the ACH system for certain lenders that they believe are operating illegally, cutting off their access to the ACH system to either debit or credit customer accounts (or both).

Department of Justice (the “Justice Department”), the Federal Deposit Insurance Corporation (the “FDIC”) and certain state regulators appear to be intended to discourage banks, card and ACH payment processors from providing access to card platforms and the ACH system for certain lenders that they believe are operating illegally, cutting off their access to the ACH system to either debit or credit customer accounts (or both).

In the past, this heightened regulatory scrutiny by the Justice Department, the FDIC and other regulators has caused some banks and ACH payment processors to cease doing business with consumer finance companies who are operating legally, without regard to whether those companies are complying with applicable laws, simply to avoid the risk of heightened scrutiny or even litigation.

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or Latin America could have a negative effect on the Company’s business activities.

For example, certain states have capped interest rates on consumer loans

at 36% and there has been legislation proposed at the Federal level and in other states to implement a comparable cap on interest rates on consumer loans.

For example, certain states have capped interest rates on consumer loans at 36% and there has been legislation proposed at the Federal level and in other states to implement a comparable cap on interest rates on consumer loans.

If such caps were implemented more broadly, they could have a material impact on the Company’s revenues and profitability.

In addition, certain consumer advocacy groups, federal, state and local legislators and governmental agencies have also asserted that rules, laws and regulations should be tightened so as to severely limit, if not eliminate, the availability of pawn transactions, POS payment products and buy/sell agreements to consumers.

Moreover, the Company expects the current presidential administration in the U.S.

to devote substantial attention to consumer protection matters, including more aggressive enforcement actions, and, as a result, businesses transacting with credit-constrained consumers could be held to higher standards of monitoring, disclosure and reporting, regardless of whether new laws or regulations governing the Company’s industry are adopted.

It is difficult to assess the likelihood of the enactment of any unfavorable federal or state legislation or local ordinances, and there can be no assurance that additional legislative, administrative or regulatory initiatives will not be enacted that would severely restrict, prohibit, or eliminate the Company’s ability to offer certain products and services.

The CFPB, state and federal banking regulatory agencies, state attorneys general offices, the Federal Trade Commission, the U.S.

Department of Justice, the U.S.

Department of Housing and Urban Development and state and local governmental authorities continue to monitor lending practices.

State, local and federal governmental agencies have imposed sanctions on originators for practices including, but not limited to, charging borrowers excessive fees, steering borrowers to loans with higher costs or more onerous terms, imposing higher interest rates than the borrower’s credit risk warrants, failing to adequately disclose the material terms of loans to the borrowers and otherwise engaging in discriminatory lending practices or unfair, deceptive or abusive acts or practices.

Donald Trump became president on January 20, 2025, and at this juncture, it is unclear whether a new CFPB Director appointed by the Trump Administration will be less aggressive in its regulatory and enforcement approach.

In addition to the specific laws described above, it is anticipated that the Trump administration will promulgate a number of executive orders and propose legislation that could directly impact the regulation of the financial services industry.

These orders and legislation could change banking statutes and our operating environment in substantial and unpredictable ways by increasing or decreasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance among financial institutions.

Consequently, it is difficult to assess the likelihood of the enactment of any unfavorable federal or state legislation or local ordinances, and there can be no assurance that additional legislative, administrative or regulatory initiatives will not be enacted that would severely restrict, prohibit, or eliminate the Company’s ability to offer certain products and services.

In particular, with respect to the Company’s pawn business, restrictions and regulations such as licensing requirements for pawn stores and their employees, customer identification requirements, suspicious activity reporting, disclosure requirements and limits on interest rates, loan service fees, or other fees have been and continue to be proposed.

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The Company is the subject of a lawsuit initiated by the CFPB alleging violations of the MLA and the Company’s predecessor company’s 2013 CFPB consent order .

On November 12, 2021, the CFPB initiated a civil action in the United States District Court for the Northern District of Texas against FirstCash, Inc.

and Cash America West, Inc., two of the Company’s subsidiaries, alleging violations of the MLA in connection with pawn transactions.

On November 12, 2021, the CFPB initiated a civil action in the United States District Court for the Northern District of Texas (the “District Court”) against FirstCash, Inc.

and Cash America West, Inc., and later amended the complaint to include numerous Company subsidiaries as defendants.

The CFPB lawsuit alleges violations of the MLA in connection with pawn transactions.

The CFPB also alleges that these same alleged violations of the MLA constitute breaches of a 2013 CFPB consent order entered into by the Company’s predecessor that, among other things, allegedly required such predecessor company and its successors to cease and desist from further MLA violations.

The CFPB is seeking an injunction, redress for affected borrowers and a civil monetary penalty.

On March 28, 2022, the CFPB filed a motion to strike certain affirmative defenses of the Company.

The Company responded by filing a motion for partial summary judgment.

On October 24, 2022, the Company filed a motion to dismiss the lawsuit on the basis that the funding structure of the CFPB is unconstitutional.

This motion to dismiss follows the recent decision in another case by the Fifth Circuit Court of Appeals, which found that the CFPB is unconstitutionally structured.

The Fifth Circuit’s decisions govern the law applied in the jurisdiction in which the CFPB action is pending against the Company.

In light of the CFPB's stated intent to seek Supreme Court review of that decision, the parties stipulated to a stay of the action against the Company, which the Supreme Court entered on November 4, 2022.

T he Supreme Court is currently reviewing the Fifth Circuit's decision, with oral arguments having been completed on October 3, 2023.

The stay of the CFPB’s action against the Company will remain in effect until the

Supreme Court issues its decision with respect to the appeal.

If the Supreme Court decides in favor of the CFPB, the stay will be lifted and the Company and the CFPB will continue to litigate the civil action brought against the Company by the CFPB.

After an initial period of pre-trial activity, the case was stayed on November 4, 2022, pending the Supreme Court review of the Fifth Circuit's decision in Community Financial v.

CFPB , where the Fifth Circuit held the CFPB’s funding mechanism was unconstitutional and its actions were void.

The Supreme Court reversed that decision through an opinion issued on May 16, 2024.

The stay of the CFPB case was lifted, and active litigation ensued.

On November 7, 2024, the District Court denied the Company’s motion for partial summary judgement.

The District Court has also ordered the parties to mediation.

After an initial session, the mediation is currently postponed pending the anticipated leadership transition at the CFPB.

Unless resolved by agreement, the Company intends to vigorously defend the action.

While the Company intends to vigorously defend itself against the allegations in the case, it cannot predict or determine the timing or final outcome of this matter, or the effect that any adverse determinations from the lawsuit may have on the Company.

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Following the announcement of the CFPB’s action, the Company became the subject to a purported shareholder class action and derivative action related to the CFPB’s lawsuit.

While both the securities class action and derivative action have been dismissed, there is no guarantee that the Company will not become subject to future securities litigation related to the CFPB lawsuit, including in the event of an adverse outcome in the CFPB lawsuit.

While both the securities class action and derivative action

have been dismissed, there is no guarantee that the Company will not become subject to future securities litigation related to the CFPB lawsuit, including in the event of an adverse outcome in the CFPB lawsuit.

The FTC and the CFPB have regulatory, supervisory and enforcement powers over providers of consumer financial products and services in the U.S., and each could exercise its enforcement powers in ways that could have a material adverse effect on the Company’s business and financial results.

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If the CFPB or one or more state attorneys general or state regulators believe that the Company has violated any of the applicable laws or regulations or any consent orders or confidential memorandums of understanding against or with the Company, they could exercise their enforcement powers in ways that could have a material adverse effect on the Company’s business and financial results.

Furthermore, under the current presidential administration in the U.S., the CFPB has been more aggressive in its exercise of the enforcement powers, making it more likely, as evidenced by the CFPB’s action against the Company related to alleged violations of the MLA, that future enforcement actions will be brought against consumer finance companies providing services and products to credit-constrained customers.

These orders and legislation could change applicable statutes and the Company’s operating environment in substantial and unpredictable ways by increasing or decreasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance among financial services institutions.

Business—Governmental Regulation” for a further discussion of the regulatory authority of the CFPB.

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The types of relationships that would be covered by the guidance include (but are not limited to) relationships for originating loans on behalf of, through or jointly with third parties, or using platforms developed by third parties.

If adopted as proposed, the guidance would result in increased supervisory attention of institutions

that engage in significant lending activities through third parties, including at least one examination every 12 months, as well as supervisory expectations for a third-party lending risk management program and third-party lending policies that contain certain minimum requirements, such as self-imposed limits as a percentage of total capital for each third-party lending relationship and for the overall loan program, relative to origination volumes, credit exposures (including pipeline risk), growth, loan types, and acceptable credit quality.

If adopted as proposed, the guidance would result in increased supervisory attention of institutions that engage in significant lending activities through third parties, including at least one examination every 12 months, as well as supervisory expectations for a third-party lending risk management program and third-party lending policies that contain certain minimum requirements, such as self-imposed limits as a percentage of total capital for each third-party lending relationship and for the overall loan program, relative to origination volumes, credit exposures (including pipeline risk), growth, loan types, and acceptable credit quality.

While the guidance has never formally been adopted, it is the Company’s understanding that the FDIC has relied upon it in its examination of third-party lending arrangements.

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Furthermore, the Company may incur losses and reputational damage due to lawsuits relating to its performance of background checks on firearms purchases as mandated by state and federal law, the selling of firearms or the improper use of firearms sold by the Company, including lawsuits by individuals, municipalities, state or federal agencies or other organizations attempting to recover damages or costs from firearms retailers relating to the sale or misuse of firearms.

Furthermore, if any firearms sold by the Company are used in the commitment of any crimes or mass shootings, it could result in significant adverse media attention against the Company, have a material adverse impact on the reputation of the Company and result in material litigation against the Company.

Furthermore, if any firearms sold by the Company are used in the commitment of any crimes or shootings, it could result in significant adverse media attention against the Company, have a material adverse impact on the reputation of the Company and result in material litigation against the Company.

Commencement of such lawsuits or any adverse media attention against the Company could have a material adverse effect on its business, reputation, prospects, results of operations and financial condition.

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These states or their respective regulatory bodies have established criteria the Company must meet in order to obtain, maintain, and renew those licenses.

In addition, the AFF business is also subject to certain states’ laws which regulate and require licensing, registration, notice filing or other approval by parties that engage in certain activity regarding consumer finance transactions, including facilitating and assisting

such transactions in certain circumstances.

Furthermore, certain states and localities have also adopted laws requiring licensing, registration, notice filing, or other approval for consumer debt collection or servicing, and/or purchasing or selling consumer loans.

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Risks and uncertainties related to the Company’s foreign operations could negatively impact the Company’s operating results.

As of December 31, 2023, the Company had 1,814 pawn store locations in Latin America, including 1,721 in Mexico, 65 in Guatemala, 14 in Colombia and 14 in El Salvador, and the Company plans to open or acquire additional pawn stores in Latin America in the future.

As of December 31, 2024, the Company had 1,826 pawn store locations in Latin America, including 1,725 in Mexico, 72 in Guatemala, 17 in El Salvador and 12 in Colombia, and the Company plans to open or acquire additional pawn stores in Latin America in the future.

In addition, AFF owns customer service call centers operating in Jamaica and Mexico and utilizes third-party call center services located in the Dominican Republic and Mexico.

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Many of the foreign countries in which the Company operates impose costs on non-domestic companies through the use of local regulations, tariffs, labor controls and other federal or state requirements or legislation.

In addition, the 2024 presidential and congressional election results may have a significant impact on U.S.

domestic and global trade policies.

As the Company derives significant revenue, earnings and cash flow from operations in Latin America, primarily in Mexico, there are some inherent risks regarding the overall stability of the trading relationship between Mexico and the U.S.

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Specifically, the Company has significant exposure to fluctuations and devaluations of the Mexican peso and the health of the Mexican economy, which, in each case, may be negatively impacted by changes in U.S.

trade treaties, including the United States-Mexico-Canada

Agreement and corporate tax policy.

trade treaties, including the United States-Mexico-Canada Agreement and corporate tax policy.

In some cases, there have been negative reactions to the enacted and/or proposed policies as expressed in the media and by politicians in Mexico, which could potentially negatively impact U.S.

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Any such changes in regulations, trade treaties, corporate tax policy, import taxes or adverse court or administrative interpretations of the foregoing could adversely and significantly affect the Mexican economy and ultimately the Mexican peso, which could adversely and significantly affect the Company’s financial position and results of the Company’s Latin America pawn operations.

Risks Related to the AFF Business

If AFF is unable to attract additional merchants and retain and grow its relationships with its existing merchant partners, its business, results of operations, financial condition and future prospects would be materially and adversely affected.

AFF’s continued success is dependent on its ability to maintain and expand its merchant partner base and the volume of transactions from these merchants in order to grow revenue on its platform.

Its ability to retain and grow its relationships with its merchant partners depends on the willingness of merchants to partner with AFF.

The attractiveness of AFF’s platform to merchants depends upon, among other things, the size of its consumer base, its brand and reputation, the amount of merchant premium, discounts or profit share paid or received by AFF, its ability to sustain its value proposition to merchants for customer acquisition by demonstrating higher conversion at checkout, the attractiveness to merchants of AFF’s technology and data-driven platform, services and products offered by competitors, and its ability to perform under, and maintain, its merchant agreements.

It is also important that AFF partner with merchants with growing sales across a diverse mix of retail channels to mitigate risk associated with changing consumer spending behavior, economic conditions and other factors that may affect a particular type of merchant or industry.

Additionally, AFF’s agreements with its merchant partners are generally terminable for convenience.

If AFF is not able to retain its existing merchant partners, attract additional merchants and expand revenue and volume of transactions from existing merchants, it will not be able to continue to grow its business, and its business, results of operations, financial condition and future prospects would be materially and adversely affected.

AFF derives a significant portion of its revenue from several top merchant partners.

The loss of business from one or more of these top merchant partners could have a material adverse effect on the AFF business.

Historically, AFF has relied on a limited number of merchant partners for a significant portion of its total revenues and transaction volume.

AFF’s top five merchant partners accounted for an aggregate of 15% of 2023 consolidated revenues, and future revenues and transaction volume of AFF may be similarly concentrated.

The loss of any of these top merchant partners or groups of merchant partners for any reason, or a change of relationship with any of AFF’s key merchant partners could adversely affect the results of operations of the AFF business.

Additionally, mergers or consolidations among AFF’s top merchant partners could reduce the number of merchant partners and could adversely affect AFF’s revenues.

In particular, if AFF’s merchant partners are acquired by entities that are not also AFF’s merchant partners, that do not use its solutions or that have more favorable contract terms with a competitor and choose to discontinue, reduce or change the terms of their use of AFF’s solutions, the AFF business and its operating results could be materially and adversely affected.

AFF’s transaction volume is dependent on the support of its platform by its merchant partners.

AFF depends on its merchants to drive transaction volume by supporting its platform over alternative payment options for credit-constrained customers and by prominently presenting AFF’s platform as an attractive payment option for these customers.

The degree to which these merchants successfully integrate the AFF platform into their website or in their store, such as by prominently featuring the platform on such websites or in such stores, has a material impact on AFF’s transaction volume.

The failure by AFF’s merchants to effectively present, integrate, and support its platform would have a material and adverse effect on AFF’s originations and, as a result, on its business, results of operations, financial condition and future prospects.

Furthermore, AFF relies on these merchants to comply with all applicable laws and regulations associated with the LTO, RISA and bank loan products offered by AFF.

As part of this process, merchants are generally contractually required to comply with AFF’s policies, procedures, marketing materials, and training materials.

In the event that a merchant or merchant employee fails to adequately and correctly describe the terms and conditions of the lease, RISA or bank loan product, the merchant and/or AFF may be subject to consumer complaints and/or lawsuits.

AFF’s bank loan product is offered pursuant to its agreement with the Bank, and such agreement is non-exclusive, short-term in duration and subject to termination by the Bank partner upon the occurrence of certain events.

If that agreement is terminated and AFF is unable to either replace the commitments of the Bank or substitute its other products for the bank loan product, its business, results of operations, financial condition, and future prospects may be materially affected.

AFF serves as a marketer, service provider and sub-servicer of loans originated by a Utah-chartered state bank.

Under this arrangement, AFF purchases a portion of the cash flows originated by the Bank and sub-services the loans thereafter while the Bank retains ownership of the loans at all times.

AFF does not originate or ultimately control the pricing or functionality of the loans.

The Bank makes all key decisions regarding the marketing, underwriting, product features and pricing.

AFF generates revenues through the loans and through marketing and sub-servicing fees paid by the Bank.

If the Bank were to change its pricing, underwriting or marketing of the loans in a way that decreases revenues or increases losses, then the profitability of each loan could be reduced.

Loans originated through the Bank’s program represent a material amount of AFF’s total origination volume.

AFF’s bank loan product relies on the Bank originating the loans that are facilitated through AFF’s platform and complying with various federal, state and other laws.

The loan program agreement had an initial term that expired during the third quarter of 2023, and the parties extended the agreement for a one-year term that will auto-renew in August 2024 for an additional one-year period unless either party notifies the other of its intent to terminate at least six months prior.

In addition, upon the occurrence of certain early termination events, either AFF or the Bank may terminate the loan program agreement immediately upon written notice to the other party.

The Bank could decide not to work with AFF for any reason, could make working with AFF cost-prohibitive or could decide to enter into an exclusive or more favorable relationship with one or more of AFF’s competitors.

If the Bank were to suspend, limit or cease its operations, or if AFF’s relationship with the Bank were to otherwise terminate for any reason (including, but not limited to, its failure to comply with regulatory actions), AFF would need to implement a substantially similar arrangement with another bank, obtain additional state licenses or curtail its offering of a direct to consumer loan product through its platform.

If AFF needs to enter into alternative arrangements with a different bank to replace its existing arrangements, it may not be able to negotiate a comparable alternative arrangement in a timely manner or at all.

If AFF is unable to enter into an alternative arrangement with different banks to fully replace or supplement its relationship with the Bank, AFF would potentially need to cease offering its bank loan product or other direct to consumer installment loans.

In the event that AFF’s relationship with the Bank were terminated and it is unable to substitute another one of its products at the merchants that utilize such bank loan products, its business, results of operations, financial condition and future prospects may be materially affected.

AFF’s transaction volume is dependent on sales at its merchant partners and any decline in such sales or interruptions, inventory shortages and other factors affecting the supply chains of AFF’s merchant partners could have a material and adverse effect on AFF’s results of operations, financial condition and future prospects.

AFF depends on sales at its merchant partners to drive its transaction volume.

If AFF’s merchant partners experience a general decline in sales, it could negatively impact AFF’s transaction volume.

Any extended supply chain interruptions, inventory shortages or other operational disruptions affecting any of its merchant partners could have a material adverse impact on AFF’s transaction volume and results of operations.

AFF depends on its merchant partners’ abilities to deliver products to customers at the right time and in the right quantities.

Accordingly, it is important for these merchant partners to maintain optimal levels of inventory and respond rapidly to shifting demands.

The disruption to, or inefficiency in, supply chain networks may have an adverse impact on AFF’s operations in the near term, but if such interruptions were to continue, could potentially have a more material adverse impact on AFF’s results of operations, financial condition and future prospects.

AFF’s business relies extensively on its proprietary decisioning platform, and if such platform is not effective it could have a material impact on AFF’s business, financial condition and results of operations.

AFF’s business is largely predicated on the effectiveness of its proprietary decisioning platform and model, and AFF relies extensively on this platform for LTO, RISA and bank loan decisioning.

AFF’s platform relies heavily on AFF’s modeling and analytics as well as information provided by applicants and third-party data providers and credit reporting agencies.

To the extent that applicants provide inaccurate or unverifiable information or data from third-party providers is incomplete or inaccurate, then AFF’s platform will not be able to perform effectively, which could result in wrong or sub-optimal decisions with respect to applicants.

AFF’s data providers could also stop providing data, provide untimely, incorrect or incomplete data, or increase the costs for their data for a variety of reasons, including security or regulatory concerns or for competitive reasons.

If AFF were to lose access to this external data or if such access is restricted or becomes more expensive, it could have a material effect on AFF’s business.

Furthermore, the models underlying AFF’s decisioning platform may prove in practice to be less predictive than AFF expects for a variety of reasons, including as a result of errors in constructing, interpreting or using the models or the use of inaccurate assumptions (including failures to update assumptions appropriately or in a timely manner).

The potential errors or inaccuracies in AFF’s decisioning platform and models may be material and affect a significant number of transactions, which could have a material and adverse effect on AFF’s business.

If AFF is unable to collect on its leases, RISAs and bank loans, the performance of its lease and loan portfolio would be adversely affected.

AFF’s ability to collect scheduled payments under its leases, RISAs and bank loans is dependent on its customers’ continuing financial stability, and, consequently, collections can be adversely affected by a number of factors, including general economic conditions, inflationary impacts and individual factors such as job loss, divorce, death, illness, personal bankruptcy and customer fraud.

Furthermore, the application of various federal and state laws, including federal and state bankruptcy and debtor relief laws, may limit the amount that can be recovered on AFF’s leases, RISAs and bank loans.

Federal, state or other restrictions could impair the ability of AFF or the third-party collection services utilized by AFF to collect amounts owed and due on the leases and loans facilitated through its platform.

Furthermore, AFF relies on its proprietary decisioning platform to decision its LTO, RISA and bank loan products and customizes this technology to individual merchants and merchandise categories.

There is no guarantee that this technology or platform will be effective in making decisions that minimize credit losses.

Furthermore, the platform relies on an experienced data science team.

In the event the platform is not effective or cannot be supported at the required levels, AFF could experience increased credit losses.

If AFF is unable to fully collect on its leases, RISAs and bank loans, the performance of its lease and loan portfolio will be adversely affected, which could result in additional provisions for lease and loan losses and loss of revenue, cash flow and profitability.

Accounting, Tax and Financial Risks

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Any of the foregoing impacts of the Company’s level of indebtedness could have a material adverse effect on its business, financial condition and results of operations.

In addition, the Company’s borrowings under its unsecured credit facilities bear interest at variable rates based on a fixed spread over the prevailing secured overnight rate (“SOFR”) and, as a result of the recent increase in interest rates, the Company’s borrowing expenses under its unsecured credit facilities increased in 2023.

The Company expects borrowing expenses in 2024 to further increase from 2023 levels due to interest rates remaining higher for the entire year.

Furthermore, the Company has, in the past, accessed the debt capital markets to refinance existing debt obligations and to obtain capital to finance growth.

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The Company sells significant quantities of gold, other precious metals and diamonds acquired through collateral forfeitures or direct purchases from customers.

A significant and sustained decline in gold and/or other precious metal and diamond prices could result in decreased merchandise sales and related margins,

decreased inventory valuations and sub-standard collateralization of outstanding pawn loans.

A significant and sustained decline in gold and/or other precious metal and diamond prices could result in decreased merchandise sales and related margins, decreased inventory valuations and sub-standard collateralization of outstanding pawn loans.

In addition, a significant decline in market prices could result in a lower balance of pawn loans outstanding for the Company, as customers would receive lower loan amounts for individual pieces of jewelry or other gold items.

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The current economic environment, characterized by rising inflation, higher interest rates, declines in consumer confidence and uncertainly about economic stability and a potential recession, has increased demand for pawn loans in the U.S.

Conversely these conditions, coupled with tighter decisioning, adversely affected demand for AFF’s products in 2023.

Conversely these conditions, coupled with tighter decisioning, adversely affected merchant sales volumes in certain categories and demand in general for AFF’s products in 2024.

While retail sales at the Company’s pawnshops, due in part to the “deep value” nature of the products sold at its pawnshops, and demand for pawn loans have not been adversely affected by such economic trends in 2024, there is no guarantee that they will not be adversely affected should economic conditions deteriorate further.

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Quantitative and Qualitative Disclosures About Market Risk.”

Risks Related to the AFF Business

AFF’s transaction volume is dependent on sales at its merchant partners and any decline in such sales could have a material and adverse effect on AFF’s results of operations, financial condition and future prospects.

AFF depends on sales at its merchant partners to drive its transaction volume.

If AFF’s merchant partners experience a general decline in sales or close their locations, it could negatively impact AFF’s transaction volume.

The loss of business, transaction volumes or platform support from one or more of its top merchant partners could have a material adverse effect on the AFF business.

Furthermore, a number of AFF’s legacy merchant partners operate brick-and-mortar retail locations, many of which are furniture stores which have been impacted industry-wide by sales declines in 2024.

Certain of AFF’s larger furniture-focused merchant partners have experienced lagging sales, store closures and, in some instances, including Conn’s Appliances, Inc.

and American Freight, Inc.

, bankruptcies, which has and is expected to continue to negatively impact AFF’s originations.

In the event that AFF is not able to replace origination volume from these brick-and-mortar retailers, its transaction volume and results of operations could be materially impacted.

AFF’s continued success is dependent on its ability to maintain and expand its merchant partner base and the volume of transactions from these merchants in order to grow revenue on its platform.

Its ability to retain and grow its relationships with its merchant partners depends on the willingness of merchants to partner with AFF.

The attractiveness of AFF’s platform to merchants depends upon, among other things, the size of its consumer base, its brand and reputation, the amount of merchant premium or discounts paid or received by AFF, its ability to sustain its value proposition to merchants for customer acquisition by demonstrating higher conversion at checkout, the attractiveness to merchants of AFF’s technology and data-driven platform, services and products offered by competitors, and its ability to perform under, and maintain, its merchant agreements.