Company: CPSS
Filing Date: 2025-05-12
Form Type: 10-Q
Source: 0001683168-25-003436
Chunk: 121

Company: CONSUMER PORTFOLIO SERVICES, INC.
Filing Date: 2025-05-12
Form: 10-Q
Item: Part I, Item 8
Chunk 121
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 recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.

Deferred tax assets are recognized
subject to management’s judgment that realization is more likely than not. A valuation allowance is recognized for a deferred tax
asset if, based on the weight of the available evidence, it is more likely than not that some portion of the deferred tax asset will not
be realized. In making such judgments, significant weight is given to evidence that can be objectively verified. Although realization
is not assured, we believe that the realization of the recognized net deferred tax asset of $826,000 as of March 31, 2025, is more likely
than not based on forecasted future net earnings. Our net deferred tax asset of $826,000 consists of approximately $338,000 of net U.S.
federal deferred tax assets and $488,000 of net state deferred tax assets.

Income tax expense was $2.1
million for the three months ended March 31, 2025, representing effective income tax rates of 31%, compared to income tax expense of $2.0
million for the three months ended March 31, 2024, and representing effective income tax rates of 30% respectively.

(8) Legal Proceedings

Consumer
Litigation. We are routinely involved in various legal proceedings resulting from our consumer finance
activities and practices, both continuing and discontinued. Consumers can and do initiate lawsuits against us alleging violations of law
applicable to collection of receivables, and such lawsuits sometimes allege that resolution as a class action is appropriate. For the
most part, we have legal and factual defenses to consumer claims, which we routinely contest or settle (for immaterial amounts) depending
on the particular circumstances of each case.

Following
our filing of a complaint for a deficiency judgment in the Superior Court at Waterbury, Connecticut, the defendant filed a cross-claim
on October 16, 2019, alleging that our deficiency notices were not compliant with Connecticut law, and seeking relief on behalf of a class
of Connecticut obligors whose vehicles we had repossessed. The complaint seeks primarily damages, injunctive relief, waiver of contract
deficiencies, and attorney fees and interest. The defendant’s contract provided for resolution of disputes exclusively by arbitration,
and exclusively on an individual basis, not a class basis. Nevertheless, in August 2021, the court denied our motion to compel arbitration,
without opinion. In