Loans and Interest Receivable, Net

Loans and interest receivable primarily represent purchased consumer receivables arising from loans made by our partner chartered financial institutions to individual consumers in the U.S. to purchase goods and services through our PayPal Credit merchant network. Although a chartered financial institution continues to own each respective customer account, we own the related consumer receivable and PayPal Credit is responsible for all servicing functions related to the customer accounts. Effective August 2013, ownership of most of the existing customer accounts was transitioned from WebBank to a new chartered financial institution, Comenity Capital Bank. As part of the arrangement, we sell Comenity Capital Bank a participation interest in the entire pool of consumer receivables outstanding under the customer accounts. During the three months ended September 30, 2014 and 2013, we purchased approximately $1.3 billion and $1 billion, respectively, in consumer receivables. During the nine months ended September 30, 2014 and 2013, we purchased approximately $3.6 billion and $2.8 billion, respectively, in consumer receivables. As of September 30, 2014, the total outstanding balance of this pool of consumer receivables was $3.3 billion, of which Comenity Capital Bank owned a participation interest of $133 million, or 4.1% of the total outstanding balance of the consumer receivables at that date. Comenity Capital Bank has no recourse against us related to its participation interest for failure of debtors to pay when due. The participation interest held by the Comenity Capital Bank has the same priority to the interests held by us and is subject to the same credit, prepayment, and interest rate risk associated with this pool of consumer receivables.

Loans and interest receivable are reported at their outstanding principal balances, net of participation interest sold and pro-rata allowances, including unamortized deferred origination costs and estimated collectible interest and fees. We use a consumer's FICO score, among other measures, in evaluating the credit quality of our consumer receivables. A FICO score is a type of credit score that lenders use to assess an applicant's credit risk and whether to extend credit. Individual FICO scores generally are obtained each quarter the consumer has an outstanding consumer receivable owned by PayPal Credit. The weighted average consumer FICO score related to the pool of consumer receivables and interest receivable balance outstanding as of September 30, 2014 was 686, compared to 688 as of December 31, 2013. As of September 30, 2014 and December 31, 2013, approximately 54.0% and 54.7%, respectively, of the pool of consumer receivables and interest receivable balance was due from consumers with FICO scores greater than 680, which is generally considered "prime" by the consumer credit industry. As of September 30, 2014 and December 31, 2013, approximately 10% and 9.1%, respectively, of the pool of consumer receivables and interest receivable balance was due from customers with FICO scores below 599. As of September 30, 2014 and December 31, 2013, approximately 89% and 90%, respectively, of the portfolio of consumer receivables and interest receivable was current.

During 2013, we began a pilot program, working with a chartered financial institution, for the chartered financial institution to offer working capital loans to selected merchant sellers in the U.S. We subsequently purchase the related merchant receivable from the chartered financial institution. Under the program, participating merchants can borrow a certain percentage of their annual payment volume processed by PayPal and are charged a fixed fee for the loan. This program is still in the pilot phase. As of September 30, 2014, the total outstanding balance of this pool of merchant receivables was approximately $86 million.

The following table summarizes the activity in the allowance for loans and interest receivable, net of participating interest sold, for the periods indicated:



	Nine Months Ended September 30,
	2014			2013
	(In millions)
Balance as of January 1	$	146		$	101
Charge-offs	(210		)	(161		)
Recoveries	20			9
Provision	222			181
Balance as of September 30	$	178		$	130