Commitments, Contingencies and Guarantees

Commitments

We primarily lease our premises under multi-year, non-cancelable operating leases with terms expiring through 2024, exclusive of renewal option periods. Our lease agreement expiring in 2024 also contains a renewal option, at our election, to extend the lease for five consecutive three-year periods. Base rent is subject to rent escalations on each annual anniversary from the lease commencement dates. Rental payments, as well as any step rent provisions specified in the lease agreements, are aggregated and charged evenly to expense over the lease term. Certain of these operating leases contain rent holidays and tenant allowances that may be applied toward leasehold improvements or other lease concessions. Capital improvement funding and other lease concessions provided by the landlord are recorded as deferred liabilities and are amortized evenly over the lease term as a reduction of rent expense. In most circumstances, we expect that in the normal course of business, leases will be renewed or replaced by other leases.

Rent expense is recognized on a straight-line basis over the life of the lease and included within property, office and technology or related party expenses in the Unaudited Consolidated Statements of Operations. Refer to Note 13 for additional information regarding office space leased from a related party. Rent expense was $812 and $750 for the three months ended June 30, 2018 and 2017, respectively. Rent expense was $1,556 and $1,475 for the six months ended June 30, 2018 and 2017, respectively.

As of June 30, 2018, future minimum lease payments under our leases for the succeeding five fiscal years and thereafter are as follows:




	June 30, 2018

Remainder of 2018	$	1,764
2019	3,723
2020	3,815
2021	3,878
2022	2,827
2023 and thereafter	1,647
Total minimum lease payments	$	17,654

Our transaction processor imposes certain financial covenants upon our wholly owned subsidiary, GSLLC.

The financial covenants with our transaction processor apply only to GSLLC and include the following:


•	Tangible net worth, as defined in the agreement, of no less than $7.5 million;


•	Minimum aggregate net income of $5.0 million for the trailing four fiscal quarters, and


•	Ratio of total liabilities to total equity not to exceed 3.00:1.00.

As of June 30, 2018, GSLLC was in compliance with all financial covenants.

As of June 30, 2018, our outstanding open and unused line of credit on approved loans was $3.7 million. We have not recorded a provision for these unfunded commitments, but believe we have adequate cash on hand to fund these commitments.

For certain Bank Partners, we maintain a restricted cash balance based on a contractual percentage of the total interest billed on outstanding deferred interest loans that are within the promotional period less previous FCR on such outstanding loans. As of June 30, 2018, restricted cash in the Unaudited Consolidated Balance Sheet includes $42.2 million associated with this arrangement.

Contingencies

In limited instances, the Company may be subject to operating losses if we make certain errors in managing credit programs and we determine that a customer is not liable for a loan originated by a Bank Partner. We evaluated this contingency in accordance with ASC 450, Contingencies, and determined that it is reasonably possible that losses could result from errors in underwriting. However, in management’s opinion, it is not possible to estimate the likelihood or range of reasonably possible future losses related to errors in underwriting based on currently available information. Therefore, we have not established a liability for this loss contingency.

Further, from time to time, we place Bank Partner loans on non-accrual and non-payment status (“Pended Status”) while we investigate consumer loan balance inquiries, which may arise from disputed charges related to work performed by third-party merchants. As of June 30, 2018, Bank Partner loan balances in Pended Status were $14.2 million. While it is management’s expectation that most of these loan balance inquiries will be resolved without incident, in certain instances we may determine that it is appropriate for the Company to permanently reverse the loan balance and assume the economic responsibility for the loan balance itself. We record a liability for these instances. As of June 30, 2018, our liability for potential Pended Status future losses was $2.6 million.

From time to time, we may become a party to civil claims and lawsuits. As of June 30, 2018, we were not a party as a defendant to any litigation that we believed was material to our operations or results.

Financial guarantees

Under the terms of the contracts with our Bank Partners, a contractual percentage of the Bank Partners’ monthly originations and month-end outstanding portfolio balance is held and maintained in restricted, interest-bearing escrow accounts to serve as limited protection to the Bank Partners in the event of excess Bank Partner portfolio credit losses. The Company’s maximum exposure to Bank Partner portfolio credit losses is limited to the contractual restricted cash balance, which was $72.7 million as of June 30, 2018. The recorded fair value of the financial guarantee related to these contracts was $0.6 million as of June 30, 2018, which was recorded within other liabilities in the Unaudited Consolidated Balance Sheets. Recorded financial guarantees are typically settled within one year of the initial measurement of the liability. In determining the measured liabilities, we consider a variety of factors, including historical experience and management’s expectations of current customer delinquencies converting into Bank Partner portfolio losses.