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• Our vendor relationships subject us to a variety of risks, and the failure of third parties to comply with legal or regulatory requirements or to provide various services that are important to our operations could have an adverse effect on our business.
−Removed: • Our mission to provide inclusive, affordable financial services that empower our members to build a better future may conflict with the short-term interests of our stockholders.
+Added: • Our mission to provide inclusive, affordable financial services that empower our members to build a better future may conflict with the short-term interests of our stockholders or may not provide the long-term benefits that we expect and may adversely impact our business operations, results of operations, and financial condition.
• If we cannot maintain our corporate culture as we grow, we could lose the innovation, collaboration and focus on the mission that contribute to our business.
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The industries in which we compete are highly competitive, continuously changing, highly innovative, and increasingly subject to regulatory scrutiny and oversight.
−Removed: Our current and potential future competition primarily includes other consumer finance companies, credit card issuers, financial technology companies, technology platforms, neobanks, challenger banks, and financial institutions, as well as other nonbank lenders serving consumers who do not have access to mainstream credit, including online marketplace lenders, point-of-sale lending, payday lenders, and auto title lenders and pawn shops focused on underserved borrowers.
−Removed: We may compete with others in the market who may in the future provide offerings similar or are competitive with ours, particularly companies who may provide lending, money management and other services though a platform similar to our platform.
+Added: Our current and potential future competition primarily includes other consumer finance companies, financial technology companies, technology platforms, neobanks, challenger banks, and financial institutions, as well as other nonbank lenders serving consumers who do not have access to mainstream credit, including online marketplace lenders, point-of-sale lending, payday lenders, and auto title lenders and pawn shops focused on underserved borrowers.
+Added: We may compete with others in the market who may in the future provide offerings similar or are competitive with ours, particularly companies who may provide lending, money management and other services through a platform similar to our platform.
Many of our current or potential competitors have significantly more financial, technical, marketing, access to low-cost capital, and other resources than we do and may be able to devote greater resources to the development, promotion, sale and support of their platforms and distribution channels.
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If our relationship with Pathward terminates, or if Pathward were to suspend, limit, or cease its operations or loan origination activities for any reason, and we are unable to engage another originating bank partner on a timely basis or at all, our business, results of operations and financial condition would be materially and adversely affected.*
−Removed: As of June 30, 2024, we relied on Pathward, N.A., or Pathward, to originate a substantial portion of our loan originations, with the remaining loans being originated directly by us under our lending and servicing licenses across 3 states in the United States.
−Removed: In the three months ended June 30, 2024 and 2023, Pathward originated approximately 98% and 48% of aggregate personal loan originations, respectively.
+Added: As of September 30, 2024, we relied on Pathward, N.A., or Pathward, to originate a substantial portion of our loan originations, with the remaining loans being originated directly by us under our lending and servicing licenses across 3 states in the United States.
+Added: In the three months ended September 30, 2024 and 2023, Pathward originated approximately 97% and 57% of aggregate personal loan originations, respectively.
We expect the percentage of aggregate personal loans originated by Pathward to continue to increase in 2024.
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In particular, it is important that we continue to ensure that our members with loans remain loyal to us and we continue to extend loans to members who have successfully repaid their previous loans.
−Removed: As of June 30, 2024 and 2023, members with repeat loans comprised 82% and 81%, respectively, of our Owned Principal Balance at End of Period.
+Added: As of September 30, 2024 and 2023, members with repeat loans comprised 81% and 82%, respectively, of our Owned Principal Balance at End of Period.
If our repeat loan rates decline, we may not realize consistent or improved operating results from our existing member base.
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We use estimates and assumptions in determining the fair value of our loans receivable held for investment and asset-backed notes.
−Removed: Our Loans Receivable at Fair Value represented 84% of our total assets and our asset-backed notes represented 84% of our total liabilities as of June 30, 2024.
+Added: Our Loans Receivable at Fair Value represented 84% of our total assets and our asset-backed notes represented 85% of our total liabilities as of September 30, 2024.
The fair value of our loans receivable held for investment are determined using Level 3 inputs and the fair value of our asset-backed notes are determined using Level 2 inputs.
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If we are unable to collect payment and service the loans we make to members, our net charge-off rates may exceed expected loss rates, and our business and results of operations may be harmed.*
−Removed: Our unsecured personal loans and credit card receivables, which comprise a significant portion of our overall portfolio, are not secured by any collateral, not guaranteed or insured by any third party and not backed by any governmental authority in any way.
+Added: Our unsecured personal loans, which comprise a significant portion of our overall portfolio, are not secured by any collateral, not guaranteed or insured by any third party and not backed by any governmental authority in any way.
We are therefore limited in our ability to collect on these loans if a member is unwilling or unable to repay them for any reason.
−Removed: We currently act as servicer with respect to the unsecured and secured consumer loans and credit card receivables held by our subsidiaries, by our bank partners, and for parties to whom we have sold our loans, including the loans that are sold as part of whole loan sales, contributed to asset-backed securitizations, and pledged in connection with warehouse credit facilities.
+Added: We currently act as servicer with respect to the unsecured and secured consumer loans, by our bank partners, and for parties to whom we have sold our loans, including the loans that are sold as part of whole loan sales, contributed to asset-backed securitizations, and pledged in connection with warehouse credit facilities.
Our ability to adequately service our loans is dependent on our ability to maintain appropriate staffing levels and sufficiently train new member services and collections staff, our ability to contact our members when they default, and our ability to leverage technologies to service and collect amounts owed with respect to loans.
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For example, in 2023, we announced the sunsetting of our checking account product, the sunsetting of our partnership with Sezzle, and the discontinuation of our investing and retirement products, in order to strategically realign our resources to focus on other products, as well as to reduce our expenses and simplify our business.
−Removed: Further, on August 8, 2024, we announced that we entered into a nonbinding letter of intent with a third-party to sell our credit card receivable portfolio.
+Added: Further, on September 24, 2024, we signed a definitive agreement to sell our credit cards receivable portfolio, and we completed the sale of our credit cards receivable portfolio on November 12, 2024.
Failure to achieve the anticipated benefits from the discontinuation or sale of these products could adversely affect our results of operations.
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• litigation, claims or other liabilities in connection with the acquired company.
−Removed: We may also choose to divest certain assets or product lines.
+Added: We have previously divested certain assets and products lines and we may continue to do so in the future.
+Added: For example, o n November 12, 2024, we completed the sale of our credit cards receivable portfolio.
If we decide to sell assets or product lines, we may have difficulty obtaining terms acceptable to us in a timely manner, or at all.
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Further, the concentration of our outstanding receivables in one or more states would have a disproportionate effect on us if governmental authorities in any of those states take action against us or take action affecting how we conduct our business.
−Removed: As of June 30, 2024, 44.0%, 26.4%, 9.3%, 5.3% and 3.6% of our Owned Principal Balance at End of Period related to members from California, Texas, Florida, Illinois and New Jersey, respectively.
+Added: As of September 30, 2024, 42.3%, 26.3%, 9.6%, 5.4% and 3.7% of our Owned Principal Balance at End of Period related to members from California, Texas, Florida, Illinois and New Jersey, respectively.
If any of the events noted in these risk factors were to occur in or have a disproportionate impact in regions where we operate or plan to commence operations, it may negatively affect our business in many ways, including increased delinquencies and loan losses or a decrease in future originations.
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Our international operations and offshore service providers involve inherent risks which could result in harm to our business.
−Removed: As of June 30, 2024, we had 1,488 employees in Mexico, including employees related to our two contact centers.
+Added: As of September 30, 2024, we had 1,556 employees in Mexico, including employees related to our two contact centers.
These employees provide certain English/Spanish bilingual support related to member-facing contact center activities, administrative and technology support of the contact centers and back-office support services.
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that provide offshore member-facing contact center activities in Colombia and the Philippines, and may in the future include additional locations in other countries.
−Removed: In addition, we have a technology development center in India, where we had 156 employees as of June 30, 2024.
+Added: In addition, we have a technology development center in India, where we had 177 employees as of September 30, 2024.
We have engaged vendors that utilize employees or contractors based outside of the U.S.
−Removed: As of June 30, 2024, our outsourcing partners have provided us, on an exclusive basis, the equivalent of 27 full-time equivalents in Colombia and Philippines to support contact center work.
+Added: As of September 30, 2024, our outsourcing partners have provided us, on an exclusive basis, the equivalent of 41 full-time equivalents in Colombia and Philippines to support contact center work.
These international activities are subject to inherent risks that are beyond our control, including:
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If we cannot generate sufficient cash flow from operations to service our debt, we may need to adopt one or more alternatives to refinance our debt, dispose of assets or obtain necessary funds, including obtaining additional equity capital which could be on terms that may be onerous or highly dilutive.
+Added: For example, in October 2024, we announced that we had entered into a Credit Agreement to refinance our existing corporate financing facility with a new senior secured term loan.
We do not know whether we will be able to take any of these actions on a timely basis, on terms satisfactory to us or at all.
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The CFPB has called out other fees, such as pay-to-pay fees charged by debt collectors, and is actively soliciting consumer input on fee practices associated with other consumer financial products or services, signaling that the “junk fee” initiative is likely to continue to broaden in scope.
−Removed: On March 5, 2023, the CFPB published a final rule amending Regulation Z to reduce credit card late fees significantly and eliminate annual inflation adjustments for late fee safe harbor amounts, with an effective date of May 14, 2024.
−Removed: The rule is currently the subject of litigation in the Fifth Circuit District Court in Texas with plaintiffs challenging the validity of the rule and seeking temporary relief pending that challenge.
−Removed: If the final rule becomes effective, it could have operational and financial impacts on our credit card business.
In October 2023, the CFPB issued a pre-rule proposal to modify the Fair Credit Reporting Act and Regulation V, which would have broad implications across all participants in the credit reporting ecosystem.
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If any of those factors were to cause any loans, or any of the terms of the loans, to be unenforceable against the borrowers, or impair our ability to service our loans, the value of our loan assets would decrease significantly to us and to our whole loan purchasers, securitization investors and warehouse lenders.
−Removed: In addition to increased default rates and losses on our loans, this could lead to the loss of whole loan purchasers and
−Removed: securitization investors and trigger terminations and amortizations under our debt warehouse facilities, each of which would materially adversely impact our business.
+Added: In addition to increased default rates and losses on our loans, this could lead to the loss of whole loan purchasers and securitization investors and trigger terminations and amortizations under our debt warehouse facilities, each of which would materially adversely impact our business.
The CFPB has broad authority to regulate consumer financial services, creating uncertainty as to how the agency’s actions or the actions of any other new agency could impact our business.*
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For example, in March 2022, it requested public input on fees for financial products and has indicated that it plans to ramp up enforcement actions against lenders that illegally charge credit card late-payment fees and may rewrite its rules that set thresholds for such fees.
−Removed: Further, in February 2024, the CFPB published a final rule that amends regulations to limit credit card late-payment fees to $8 or 25% of the minimum payment due, whichever is greater.
−Removed: The rule is currently the subject of litigation in the Fifth Circuit District Court in Texas with plaintiffs challenging the validity of the rule and seeking temporary relief pending that challenge.
−Removed: If the final rule becomes effective, it could have operational and financial impacts on our credit card business.
Digit received a CID from the CFPB in June 2020.
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The FTC, for example, released its updated Standards for Safeguarding Customer Information (Safeguards Rule), effective June 9, 2023, which raises the bar for covered financial institutions’ information security programs through proscriptive requirements for things like accountability and oversight, performing risk assessments, encryption, and enabling multi-factor authentication to protect all forms of customer information.
−Removed: Further, in October 2023, the CFPB announced a Section 1033 Proposed Rule on Personal Financial Data Rights, which requires certain financial institutions, and any party who controls or possesses information concerning a covered financial product or service, to provide financial data to consumers in a standardized electronic format through a consumer interface and limits collecting and maintaining data only as necessary to carry out transactions a
−Removed: consumer requests, prohibiting use of any information for targeted or behavioral advertising.
−Removed: The rule is not yet finalized or effective.
+Added: Further, on October 22, 2024, the CFPB finalized the Section 1033 Rule on Personal Financial Data Rights, which requires certain financial institutions, and any party who controls or possesses information concerning a covered financial product or service, to provide financial data to consumers in a standardized electronic format through a consumer interface and limits collecting and maintaining data only as necessary to carry out transactions a consumer requests, prohibiting use of any information for targeted or behavioral advertising.
+Added: The final rule has been challenged in the Eastern District Court of Kentucky.
federal government also is contemplating federal privacy legislation.
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Our bank partnership products may lead to regulatory risk and may increase our regulatory burden.
−Removed: We provide our credit card products through a bank partnership program with WebBank and we have bank partnership programs with Pathward, N.A., to offer unsecured personal loans, secured personal loans, and provide deposit accounts, debit card services and other transaction services to our members.
+Added: We provided our credit card products through a bank partnership program with WebBank and we have bank partnership programs with Pathward, N.A., to offer unsecured personal loans, secured personal loans, and provide deposit accounts, debit card services and other transaction services to our members.
State and federal agencies have broad discretion in their interpretation of laws and their interpretation of requirements related to bank partnership programs and may elect to alter standards or the interpretation of the standards applicable to these programs.
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Our failure to comply with anti-money laundering, economic and trade sanctions regulations, and similar laws could subject us to substantial civil and criminal penalties, or result in the loss or restriction of our state licenses, or liability under our contracts with third parties, which may significantly affect our ability to conduct some aspects of our business.
−Removed: Changes in this regulatory environment, including changing interpretations and the implementation of new or varying regulatory requirements, may significantly affect or change the manner in which we currently conduct some aspects of our business.
+Added: Changes in this regulatory environment, including changing interpretations
+Added: and the implementation of new or varying regulatory requirements, may significantly affect or change the manner in which we currently conduct some aspects of our business.
We may have to constrain our business activities to avoid being deemed an investment company under the Investment Company Act.
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The issuance of shares of our Common Stock upon exercise of our outstanding Warrants issued in connection with the Amended Credit Agreement would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.
−Removed: As of June 30, 2024, the Warrants to purchase 4,193,453 shares of our Common Stock issued in connection with the Amended Credit Agreement were outstanding and exercisable.
+Added: As of September 30, 2024, Warrants to purchase 4,193,453 shares of our Common Stock issued in connection with the Amended Credit Agreement were outstanding and exercisable.
The exercise price of these Warrants is $0.01 per share.
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Realization of these net operating loss and research and development tax credit carryforwards depends on future income, and there is a risk that some of our existing carryforwards could expire unused or may be unavailable to fully offset future income tax liabilities, which could adversely affect our results of operations.
−Removed: Our ability to utilize some or all of our net operating loss carryforwards could be limited in the future as a result of tax reform legislation, including as further described under
−Removed: “Risk Factors—“ The enactment of tax reform legislation and differences in interpretation of tax laws and regulations could adversely impact our financial position and results of operations.
+Added: Our ability to utilize some or all of our net operating loss carryforwards could be limited in the future as a result of tax reform legislation, including as further described under “Risk Factors—“ The enactment of tax reform legislation and differences in interpretation of tax laws and regulations could adversely impact our financial position and results of operations.
In addition, under Sections 382 and 383 of the Internal Revenue Code, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in ownership by “5 percent shareholders” over a rolling three-year period, the corporation’s ability to use its pre-change net operating loss carryovers and other pre-change tax attributes, such as research and development credits, to offset its post-change income or taxes may be limited.
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The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified Board members.
−Removed: As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing standards of the Nasdaq Stock Market, and other applicable securities rules and regulations, including with regard to corporate governance practices and the establishment and maintenance of effective disclosure and financial controls.
+Added: As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing standards of the Nasdaq Stock Market, and other applicable securities rules and regulations, including with regard to corporate governance practices and the establishment and maintenance of effective disclosure and financial controls.
Compliance with these rules and regulations increases our legal and financial compliance costs, makes some activities more difficult, time-consuming or costly and increases demand on our systems and resources.
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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.