CORRESP 1 filename1.htm SEC Document

May 13, 2016

VIA EDGAR
Michael Volley
Staff Accountant
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re:
Credit Acceptance Corporation
 
Form 10-K for the Fiscal Year Ended December 31, 2015
 
Filed February 12, 2016
 
Response Dated March 21, 2016
 
File No. 000-20202
Dear Mr. Volley:
This letter is in response to the April 29, 2016 comment letter of the Staff of the U.S. Securities and Exchange Commission (the “Staff”) with respect to the above referenced annual report on Form 10-K for the fiscal year ended December 31, 2015 of Credit Acceptance Corporation (the “Company”) and the Company’s response, dated March 21, 2016, to the Staff’s comment letter, dated March 7, 2016.
Set forth below in bold is the comment from the April 29, 2016 comment letter followed by the Company’s response.
Form 10-K For the Fiscal Year Ended December 31, 2015
Note 2 - Summary of Significant Accounting Policies - Loans Receivable and Allowance for Credit Losses, page 52
1.
Please refer to comment 1. In order to better understand how you determine your yield and allowance for credit losses on pooled dealer loans that have previously had increased yields due to increases in cash flows expected to be collected arising from changes in estimates after assignment, please provide us with a detailed example that clearly describes your accounting. Your example should:

•
Present a period of time with increased expected cash flows resulting in an increased yield followed by a period of decreased expected cash flows, and
•
Detail the yield and the allowance for loan losses for the pool at each relevant period end with a description of how the amount was determined.
Please provide us with a detailed response that will allow for a complete understanding of your accounting and consider providing any additional information deemed necessary.
To illustrate how we determine our yield and allowance for credit losses on dealer loans, we have provided an example based on the following assumptions:
•
A dealer assigned one consumer loan to us and received an advance of $7,955 for this assignment. We record this advance as a loan to the dealer in Month 0.
•
Contractual future net cash flows were $12,712 at Month 0, which consisted of principal and interest payments of $16,214 on the consumer loan less dealer holdback payments of $3,502.
•
Future net cash flows are forecasted over a period of 120 months and were $12,200 at Month 0, which consisted of forecasted collections of $13,533 on the consumer loan less forecasted dealer holdback payments of $1,333.
•
The forecasted future net cash flows were revised upward in Month 3.
•
The forecasted future net cash flows were revised downward in Month 4, but remain above our initial expectation.
•
The forecasted future net cash flows were revised downward again in Month 5 and are now below our initial expectations.
•
The forecasted future net cash flows were revised upward in Month 6, but remain below our initial expectations.
•
The forecasted future net cash flows were revised upward again in Month 7 and are now above our initial expectations, but remain below our highest expectation.

1


The forecasted net cash flow streams for this example are as follows:
 
Forecasted Net Cash Flows as of
 
 
Forecasted Net Cash Flows as of
Month
Month 0
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Month 7
 
Month
Month 0
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Month 7
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
0
(7,955)
(7,955)
(7,955)
(7,955)
(7,955)
(7,955)
(7,955)
(7,955)
 
61
3
3
3
3
3
3
3
3
1
302
350
350
350
350
350
350
350
 
62
3
3
3
4
3
3
3
4
2
315
315
350
350
350
350
350
350
 
63
4
4
4
4
4
3
3
4
3
327
327
327
350
350
350
350
350
 
64
4
4
4
4
4
3
4
4
4
341
341
341
352
200
200
200
200
 
65
4
4
4
4
4
3
4
4
5
337
337
337
347
340
0
0
0
 
66
4
4
4
4
4
3
4
4
6
350
350
350
361
353
336
700
700
 
67
4
4
4
4
4
4
4
4
7
345
345
345
355
348
331
341
350
 
68
4
4
4
4
4
4
4
4
8
312
312
312
321
315
299
308
317
 
69
4
4
4
4
4
4
4
4
9
325
325
325
335
328
312
321
331
 
70
4
4
4
4
4
4
4
4
10
416
416
416
429
420
399
411
423
 
71
4
4
4
4
4
4
4
4
11
392
392
392
404
396
376
387
399
 
72
4
4
4
4
4
4
4
4
12
353
353
353
363
356
338
349
359
 
73
4
4
4
4
4
4
4
4
13
349
349
349
359
352
334
344
355
 
74
4
4
4
4
4
4
4
4
14
336
336
336
346
339
322
332
342
 
75
4
4
4
4
4
4
4
4
15
330
330
330
340
334
317
326
336
 
76
4
4
4
4
4
4
4
4
16
333
333
333
343
336
319
328
338
 
77
4
4
4
4
4
4
4
4
17
320
320
320
329
323
307
316
325
 
78
4
4
4
4
4
4
4
4
18
323
323
323
332
326
309
319
328
 
79
4
4
4
4
4
4
4
4
19
311
311
311
320
314
298
307
316
 
80
4
4
4
4
4
4
4
4
20
277
277
277
285
279
265
273
282
 
81
4
4
4
4
4
4
4
4
21
285
285
285
294
288
274
282
290
 
82
4
4
4
4
4
3
4
4
22
361
361
361
372
365
346
357
367
 
83
4
4
4
4
4
3
4
4
23
339
339
339
349
342
325
335
345
 
84
4
4
4
4
4
3
4
4
24
304
304
304
313
307
291
300
309
 
85
4
4
4
4
4
3
4
4
25
302
302
302
311
305
290
299
308
 
86
4
4
4
4
4
3
3
4
26
290
290
290
299
293
278
287
295
 
87
3
3
3
4
4
3
3
4
27
288
288
288
297
291
276
284
293
 
88
3
3
3
4
3
3
3
3
28
288
288
288
297
291
276
285
293
 
89
3
3
3
3
3
3
3
3
29
278
278
278
287
281
267
275
283
 
90
3
3
3
3
3
3
3
3
30
209
209
209
216
211
201
207
213
 
91
3
3
3
3
3
3
3
3
31
181
181
181
186
183
174
179
184
 
92
3
3
3
3
3
3
3
3
32
160
160
160
165
162
154
158
163
 
93
3
3
3
3
3
3
3
3
33
165
165
165
170
167
158
163
168
 
94
3
3
3
3
3
3
3
3
34
210
210
210
216
212
202
208
214
 
95
3
3
3
3
3
3
3
3
35
195
195
195
201
197
187
193
198
 
96
3
3
3
3
3
3
3
3
36
170
170
170
175
171
163
168
173
 
97
3
3
3
3
3
3
3
3
37
163
163
163
168
164
156
161
165
 
98
2
2
2
3
2
2
2
3
38
149
149
149
154
151
143
147
152
 
99
2
2
2
2
2
2
2
2
39
138
138
138
143
140
133
137
141
 
100
2
2
2
2
2
2
2
2
40
134
134
134
138
135
128
132
136
 
101
2
2
2
2
2
2
2
2
41
121
121
121
124
122
116
119
123
 
102
2
2
2
2
2
2
2
2
42
112
112
112
115
113
107
110
114
 
103
2
2
2
2
2
2
2
2
43
93
93
93
96
94
89
92
95
 
104
2
2
2
2
2
2
2
2
44
75
75
75
77
75
72
74
76
 
105
1
1
1
1
1
1
1
1
45
65
65
65
67
65
62
64
66
 
106
1
1
1
1
1
1
1
1
46
70
70
70
72
71
67
69
71
 
107
1
1
1
1
1
1
1
1
47
55
55
55
57
56
53
54
56
 
108
2
2
2
2
2
1
2
2
48
38
38
38
39
38
37
38
39
 
109
2
2
2
2
2
2
2
2
49
25
25
25
26
26
24
25
26
 
110
2
2
2
2
2
2
2
2
50
17
17
17
17
17
16
16
17
 
111
2
2
2
2
2
2
2
2
51
10
10
10
10
10
10
10
10
 
112
2
2
2
2
2
2
2
2
52
5
5
5
5
5
5
5
5
 
113
2
2
2
2
2
2
2
2
53
5
5
5
6
6
5
5
6
 
114
2
2
2
2
2
2
2
2
54
6
6
6
6
6
6
6
6
 
115
2
2
2
2
2
2
2
2
55
6
6
6
6
6
6
6
6
 
116
2
2
2
2
2
2
2
2
56
2
2
2
2
2
2
2
2
 
117
3
3
3
3
3
2
2
3
57
2
2
2
2
2
2
2
2
 
118
3
3
3
3
3
3
3
3
58
5
5
5
5
5
4
4
5
 
119
3
3
3
3
3
3
3
3
59
4
4
4
4
4
4
4
4
 
120
3
3
3
3
3
3
3
3
60
3
3
3
4
3
3
3
3
 
 
 
 
 
 
 
 
 
 

2


The following table details how we would account for this example over the first seven months of the loan:
 
Loan Receivable Balance
Income Statement
Net Cash Flows
Yield (Monthly)
Month
Gross
Allowance
Net
Revenue
Provision
Actual
PV of Future
Initial
Revised
Revenue
 
(A)
(B)
(C)
(D)
(E)
(F)
(G)
(H)
(I)
(J)
0
7,955

—

7,955

 
 
(7,955
)
7,955

2.35
%
 
2.35
%
1
7,792

—

7,792

187

—

350

7,840

2.35
%
2.39
%
2.39
%
2
7,628

—

7,628

186

—

350

7,709

2.35
%
2.42
%
2.42
%
3
7,463

—

7,463

185

—

350

7,790

2.35
%
2.64
%
2.64
%
4
7,460

—

7,460

197

—

200

7,469

2.35
%
2.36
%
2.36
%
5
7,636

(697
)
6,939

176

697

—

6,939

2.35
%
1.71
%
2.35
%
6
7,099

(130
)
6,970

163

(567
)
700

6,970

2.35
%
2.22
%
2.35
%
7
6,913

—

6,913

164

(130
)
350

6,997

2.35
%
2.44
%
2.44
%
Note: Amounts may not recalculate exactly due to rounding.
Calculation of the Allowance for Credit Losses
•
The Allowance for Credit Losses (B) is calculated as the amount necessary, if any, to reduce the Gross Loan Receivable Balance (A) to the Present Value of Future Cash Flows (G).
•
The Present Value of Future Cash Flows (G) is calculated by discounting future net cash flows at the Initial Yield (H).
Calculation of Yields
•
The Initial Yield (H) is calculated as the rate necessary to discount future net cash flows at Month 0 to the Gross Loan Receivable Balance (A) at Month 0.
•
The Revised Yield (I) is calculated as the rate necessary to discount future net cash flows to the Gross Loan Receivable Balance (A).
•
The Revenue Yield (J) is calculated as the greater of the Initial Yield (H) or the Revised Yield (I).
Calculation of Revenue
•
Revenue (D) for the current month is calculated by multiplying the prior month Net Loan Receivable Balance (C) by the prior month Revenue Yield (J).

We provided the simple example above for ease of illustration. Our typical dealer loan is complicated by multiple consumer loan assignments per month over multiple years.
For dealer loans with consumer loan assignments in multiple months, the Initial Yield in the example above is replaced with a weighted average of the initial yields for each month’s consumer loan assignments (referred to as “Weighted Average Initial Yield” or “WAIY”), which is calculated as follows:
Current Month WAIY
=
Prior Month WAIY
x
Prior Month Net Loan Receivable Balance
+
Initial Yield on Current Month Assignments
x
Amount Advanced on Current Month Assignments
 
 
Prior Month Net Loan Receivable Balance
+
Amount Advanced on Current Month Assignments
 
 

* * * * *

In connection with the above response, the Company acknowledges that:
•
the Company is responsible for the adequacy and accuracy of the disclosure in the filing;
•
Staff comments or changes to disclosure in response to Staff comments do not foreclose the U.S. Securities and Exchange Commission from taking any action with respect to the filing; and
•
the Company may not assert Staff comments as a defense in any proceeding initiated by the U.S. Securities and Exchange Commission or any person under the federal securities laws of the United States.

3


If you have any questions concerning the foregoing, please contact me at (248) 353-2700 ext. 4575.
Sincerely,
/s/ Kenneth S. Booth    
Kenneth S. Booth
Chief Financial Officer
Credit Acceptance Corporation

cc:    John Spitz, Division of Corporation Finance, U.S. Securities and Exchange Commission
Brett Roberts, Credit Acceptance Corporation

4