6.	Fair Values of Assets and Liabilities

We elected the fair value option with respect to our investments in equity securities, included in other assets, as well as our credit card loans, interest and fees receivable portfolios, the retained interests in which we historically recorded at fair value under securitization structures that were off balance sheet prior to accounting rules changes requiring their consolidation into our financial statements. The legal structure qualifies as a VIE but is consolidated as the Company is the primary beneficiary. With respect to our

equity securities, we decided to carry these assets at fair value due to our intent to invest and redeem these investments with expected frequency. For our credit card loans, interest and fees receivable portfolios underlying our formerly off-balance-sheet securitization structures, we elected the fair value option because, at the time of election, in contrast to substantially all of our other assets, we had significant experiences in determining the fair value of these assets in connection with our historical fair value accounting for our retained interests in their associated securitization structures. Because we elected to account for the credit card receivables underlying our formerly off-balance-sheet securitization structures at fair value, accounting rules require that we account for the notes payable issued by such securitization structures at fair value as well. For our other credit card receivables that have never been owned by our formerly off-balance-sheet securitization structures, we have

not

elected the fair value option, and we record such receivables at net realizable value within loans, interest and fees receivable, net on our consolidated balance sheets. As of

January 1, 2020,

we have elected the fair value option to account for certain additional loan receivables associated with our point-of-sale and direct-to-consumer platform that were originated on or after

January 1, 2020.

For all of our other debt other than the notes payable underlying our formerly off-balance sheet credit card securitization structures, we have

not

elected the fair value option. Nevertheless, pursuant to applicable requirements, we include disclosures of the fair value of this other debt to the extent practicable within the disclosures below. Additionally, we have other liabilities, associated with consolidated legacy credit card securitization trusts, that we are required to carry at fair value in our consolidated financial statements, and they also are addressed within the disclosures below.

Where applicable as noted above, we account for our financial assets and liabilities at fair value based upon a

three

-tiered valuation system. In general, fair values determined by Level

inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Fair values determined by Level

inputs use inputs other than quoted prices included in Level

that are observable for the asset or liability, either directly or indirectly. Level

inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level

inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Where inputs used to measure fair value

may

fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined is based on the lowest level input that is significant to the fair value measurement in its entirety.

Valuations and Techniques for Assets

Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The table below summarizes (in thousands) by fair value hierarchy the

December 31, 2019

and

December 31, 2018

fair values and carrying amounts of (

) our assets that are required to be carried at fair value in our consolidated financial statements and (

) our assets

not

carried at fair value, but for which fair value disclosures are required:

Assets – As of December 31, 2019 (1)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Amount of Assets
Loans, interest and fees receivable, net for which it is practicable to estimate fair value	$	—	$	—	$	781,208	$	721,573
Loans, interest and fees receivable, at fair value	$	—	$	—	$	4,386	$	4,386

Assets – As of December 31, 2018 (1)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Amount of Assets
Loans, interest and fees receivable, net for which it is practicable to estimate fair value	$	—	$	—	$	470,496	$	418,236
Loans, interest and fees receivable, at fair value	$	—	$	—	$	6,306	$	6,306

(

)

For cash, deposits and investments in equity securities, the carrying amount is a reasonable estimate of fair value.

For those asset classes above that are required to be carried at fair value in our consolidated financial statements, gains and losses associated with fair value changes are detailed on our fees and related income on earning assets table within Note

“Significant Accounting Policies and Consolidated Financial Statement Components.” For our loans, interest and fees receivable included in the above tables, we assess the fair value of these assets based on our estimate of future cash flows net of servicing costs, and to the extent that such cash flow estimates change from period to period, any such changes are considered to be attributable to changes in instrument-specific credit risk.

For Level

assets carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) a reconciliation of the beginning and ending balances for the years ended

December 31, 2019

and

2018

	Loans, Interest and Fees Receivables, at Fair Value
	2019			2018
Balance at January 1,	$	6,306		$	11,109
Total gains—realized/unrealized:
Net revaluations of loans, interest and fees receivable, at fair value		1,251			606
Settlements		(3,171	)		(5,395	)
Impact of foreign currency translation		—			(14	)
Balance at December 31,	$	4,386		$	6,306

The unrealized gains and losses for assets within the Level

category presented in the tables above include changes in fair value that are attributable to both observable and unobservable inputs. Impacts related to foreign currency translation are included as a component of other operating expense on the consolidated statements of operations when recognized.

Net Revaluation of Loans, Interest and Fees Receivable.

We record the net revaluation of loans, interest and fees receivable (including those pledged as collateral) in the fees and related income on earning assets category in our consolidated statements of operations, specifically as changes in fair value of loans, interest and fees receivable recorded at fair value. The net revaluation of loans, interest and fees receivable is based on the present value of future cash flows using a valuation model of expected cash flows and the estimated cost to service and collect those cash flows. We estimate the present value of these future cash flows using a valuation model consisting of internally developed estimates of assumptions

third

-party market participants would use in determining fair value, including estimates of net collected yield, principal payment rates, expected principal credit loss rates, costs of funds, discount rates and servicing costs. Interest income on receivables underlying our asset classes that are carried at fair value in our consolidated financial statements is recorded in Interest income - Consumer loans, including past due fees in our Consolidated Statements of Operations.

For Level

assets carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) quantitative information about the valuation techniques and the inputs used in the fair value measurement as of

December 31, 2019

and

December 31, 2018

Quantitative Information about Level

Fair Value Measurements

Fair Value Measurement	Fair Value at December 31, 2019 (in thousands)		Valuation Technique	Unobservable Input	Range (Weighted Average)
Loans, interest and fees receivable, at fair value	$	4,386	Discounted cash flows	Gross yield		27.5% to 59.4% (31.0%)
				Principal payment rate		2.2% to 5.5% (2.6%)
				Expected credit loss rate		10.5% to 39.4% (13.7%)
				Servicing rate		11.3% to 16.9% (11.9%)
				Discount rate		14.3% to 14.3% (14.3%)

Quantitative Information about Level

Fair Value Measurements

Fair Value Measurement	Fair Value at December 31, 2018 (in thousands)		Valuation Technique	Unobservable Input	Range (Weighted Average)
Loans, interest and fees receivable, at fair value	$	6,306	Discounted cash flows	Gross yield		25.8% to 30.8% (26.4%)
				Principal payment rate		2.2% to 3.0% (2.3%)
				Expected credit loss rate		8.7% to 11.3% (9.0%)
				Servicing rate		14.9% to 19.5% (15.5%)
				Discount rate		14.9% to 14.9% (14.9%)

Valuations and Techniques for Liabilities

Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the liability. The table below summarizes (in thousands) by fair value hierarchy the

December 31, 2019

and

December 31, 2018

fair values and carrying amounts of (

) our liabilities that are required to be carried at fair value in our consolidated financial statements and (

) our liabilities

not

carried at fair value, but for which fair value disclosures are required:

Liabilities – As of December 31, 2019	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Amount of Liabilities
Liabilities not carried at fair value
Revolving credit facilities	$	—	$	—	$	720,687	$	720,687
Amortizing debt facilities	$	—	$	—	$	28,522	$	28,522
Notes payable to related parties	$	—	$	—	$	—	$	—
Convertible senior notes	$	—	$	16,920	$	—	$	24,091
Liabilities carried at fair value
Notes payable associated with structured financings, at fair value	$	—	$	—	$	3,920	$	3,920

Liabilities – As of December 31, 2018	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Amount of Liabilities
Liabilities not carried at fair value
Revolving credit facilities	$	—	$	—	$	389,707	$	389,707
Amortizing debt facilities	$	—	$	—	$	1,220	$	1,220
Notes payable to related parties	$	—	$	—	$	40,000	$	40,000
Convertible senior notes	$	—	$	47,230	$	—	$	62,142
Liabilities carried at fair value
Notes payable associated with structured financings, at fair value	$	—	$	—	$	5,651	$	5,651

For our notes payable, we assess the fair value of these liabilities based on our estimate of future cash flows generated from their underlying credit card receivables collateral, net of servicing compensation required under the note facilities, and to the extent that such cash flow estimates change from period to period, any such changes are considered to be attributable to changes in instrument-specific credit risk. Gains and losses associated with fair value changes for our notes payable associated with structured financing liabilities that are carried at fair value are detailed on our fees and related income on earning assets table within Note

“Significant Accounting Policies and Consolidated Financial Statement Components.” For our

5.875%

convertible senior notes due

2035

(

“5.875%

convertible senior notes”), we assess fair value based upon the most recent trade data available from

third

-party providers. We have evaluated the fair value of our

third

party debt by analyzing the expected repayment terms and credit spreads included in our recent financing arrangements obtained with similar terms. These recent financing arrangements provide positive evidence that the underlying data used in our assessment of fair value has

not

changed relative to the general market and therefore the fair value of our debt continues to be the same as the carrying value. See Note

“Notes Payable and Variable Interest Entities,” for further discussion on our other notes payable.

For our material Level

liabilities carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) a reconciliation of the beginning and ending balances for the years ended

December 31, 2019

and

2018

	Notes Payable Associated with Structured Financings, at Fair Value
	2019			2018
Balance at January 1,	$	5,651		$	9,240
Total (gains) losses—realized/unrealized:
Net revaluations of notes payable associated with structured financings, at fair value		(1,731	)		(3,589	)
Repayments on outstanding notes payable, net		—			—
Balance at December 31,	$	3,920		$	5,651

The unrealized gains and losses for liabilities within the Level

category presented in the table above include changes in fair value that are attributable to both observable and unobservable inputs. We provide below a brief description of the valuation techniques used for Level

liabilities.

Net Revaluation of Notes Payable Associated with Structured Financings, at Fair Value.

We record the net revaluations of notes payable associated with structured financings, at fair value, in the changes in fair value of notes payable associated with structured financings line item within the fees and related income on earning assets category of our consolidated statements of operations. The legal entity associated with the securitization transaction is consolidated as a VIE as the Company is deemed the primary beneficiary of the entity. The Company is

not

liable for the full face value of the liability in the VIE so it is carried at fair value based upon amounts the borrower will receive from the legal entity. The net revaluation of these notes is based on the present value of future cash flows utilized in repayment of the outstanding principal and interest under the facilities using a valuation model of expected cash flows net of the contractual service expenses within the facilities. We estimate the present value of these future cash flows using a valuation model consisting of internally developed estimates of assumptions

third

-party market participants would use in determining fair value, including: estimates of net collected yield, principal payment rates and expected principal credit loss rates on the credit card receivables that secure the non-recourse notes payable; costs of funds; discount rates; and contractual servicing fees. Accrued interest expense on notes payable underlying our notes payable associated with structured financings, at fair value is recorded in Interest expense in our consolidated statements of operations.

For material Level

liabilities carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) quantitative information about the valuation techniques and the inputs used in the fair value measurement as of

December 31, 2019

and

December 31, 2018

Quantitative Information about Level

Fair Value Measurements

Fair Value Measurement	Fair Value at December 31, 2019 (in thousands)		Valuation Technique	Unobservable Input	Weighted Average
Notes payable associated with structured financings, at fair value	$	3,920	Discounted cash flows	Gross yield		27.5	%
				Principal payment rate		2.2	%
				Expected credit loss rate		10.5	%
				Discount rate		14.3	%

Quantitative Information about Level

Fair Value Measurements

Fair Value Measurement	Fair Value at December 31, 2018 (in thousands)		Valuation Technique	Unobservable Input	Weighted Average
Notes payable associated with structured financings, at fair value	$	5,651	Discounted cash flows	Gross yield		25.8	%
				Principal payment rate		2.2	%
				Expected credit loss rate		8.7	%
				Discount rate		14.9	%

Other Relevant Data

Other relevant data (in thousands) as of

December 31, 2019

and

December 31, 2018

concerning certain assets and liabilities we carry at fair value are as follows:

As of December 31, 2019	Loans, Interest and Fees Receivable at Fair Value		Loans, Interest and Fees Receivable Pledged as Collateral under Structured Financings at Fair Value
Aggregate unpaid principal balance within loans, interest and fees receivable that are reported at fair value	$	644	$	5,280
Aggregate fair value of loans, interest and fees receivable that are reported at fair value	$	466	$	3,920
Aggregate fair value of receivables carried at fair value that are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies)	$	1	$	8
Unpaid principal balance of receivables within loans, interest and fees receivable that are reported at fair value and are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies) over the fair value of such loans, interest and fees receivable	$	28	$	185

As of December 31, 2018	Loans, Interest and Fees Receivable at Fair Value		Loans, Interest and Fees Receivable Pledged as Collateral under Structured Financings at Fair Value
Aggregate unpaid principal balance within loans, interest and fees receivable that are reported at fair value	$	1,160	$	7,708
Aggregate fair value of loans, interest and fees receivable that are reported at fair value	$	655	$	5,651
Aggregate fair value of receivables carried at fair value that are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies)	$	3	$	7
Unpaid principal balance of receivables within loans, interest and fees receivable that are reported at fair value and are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies) over the fair value of such loans, interest and fees receivable	$	35	$	224

Notes Payable	Notes Payable Associated with Structured Financings, at Fair Value as of December 31, 2019		Notes Payable Associated with Structured Financings, at Fair Value as of December 31, 2018
Aggregate unpaid principal balance of notes payable	$	101,314	$	101,314
Aggregate fair value of notes payable	$	3,920	$	5,651