##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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For the quarterly period ended March 31, 2007

of



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|                        |  |     
|----------------------- |  | ----
|COMPUCREDIT CORPORATION |  | LOGO

a Georgia Corporation



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IRS Employer Identification
No. 58-2336689

SEC File Number 0-25751

245 Perimeter Center Parkway, Suite 600

Atlanta, Georgia 30346

(770) 206-6200



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CompuCredit has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months and has been subject to such filing requirements for the past 90 days.

CompuCredit is an accelerated filer
and is not a shell company.

As of May 2, 2007, 49,137,535 shares of Common Stock, no par value, of CompuCredit were outstanding.
(This excludes 5,677,950 loaned shares to be returned.)



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##### Table of Contents

COMPUCREDIT CORPORATION

FORM 10-Q

TABLE OF CONTENTS



|         |  |                       |  |                                                                                       |  |     
|-------- |  | --------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|         |  |                       |  |                                                                                       |  | Page
|PART I   |  | FINANCIAL INFORMATION |  |                                                                                      
|         |  | Item 1.               |  | Financial Statements (Unaudited)                                                      |  |     
|         |  |                       |  | Condensed Consolidated Balance Sheets                                                 |  | 1   
|         |  |                       |  | Condensed Consolidated Statements of Operations                                       |  | 2   
|         |  |                       |  | Condensed Consolidated Statement of Shareholders Equity                              |  | 3   
|         |  |                       |  | Condensed Consolidated Statement of Comprehensive (Loss) Income                       |  | 4   
|         |  |                       |  | Condensed Consolidated Statements of Cash Flows                                       |  | 5   
|         |  |                       |  | Notes to Condensed Consolidated Financial Statements                                  |  | 6   
|         |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 22  
|         |  | Item 3.               |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 43  
|         |  | Item 4.               |  | Controls and Procedures                                                               |  | 44  
|         |  |                      
|PART II. |  | OTHER INFORMATION     |  |                                                                                      
|         |  | Item 1.               |  | Legal Proceedings                                                                     |  | 45  
|         |  | Item 1A.              |  | Risk Factors                                                                          |  | 45  
|         |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 57  
|         |  | Item 3.               |  | Defaults Upon Senior Securities                                                       |  | 57  
|         |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                   |  | 57  
|         |  | Item 5.               |  | Other Information                                                                     |  | 57  
|         |  | Item 6.               |  | Exhibits                                                                              |  | 58  
|         |  |                       |  | Signatures                                                                            |  | 59  



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(Dollars in thousands)



|                                                                                                                                                                                                                                                                                                                                   |  |               |           |   |                   |   |           |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ----------------- | - | --------- | -
|                                                                                                                                                                                                                                                                                                                                   |  | March 31,2007 |           |   | December 31, 2006 |  
|                                                                                                                                                                                                                                                                                                                                   |  | (Unaudited)   |           |   |                   |  
|Assets                                                                                                                                                                                                                                                                                                                             |  |               |           |   |                   |   |           |  
|Cash and cash equivalents (including restricted cash of $16,778 at March 31, 2007 and $15,104 at December 31, 2006)                                                                                                                                                                                                                |  | $             | 140,184   |   |                   | $ | 110,412   |  
|Securitized earning assets                                                                                                                                                                                                                                                                                                         |  |               | 658,423   |   |                   |   | 801,715   |  
|Non-securitized earning assets, net:                                                                                                                                                                                                                                                                                               |  |               |           |   |                   |   |           |  
|Loans and fees receivable, net (of $118,756 and $118,005 in deferred revenue and $224,081 and $225,319 in allowances for uncollectible loans
and fees receivable at March 31, 2007 and December 31, 2006, respectively)                                                                                                            |  |               | 819,158   |   |                   |   | 653,716   |  
|Investments in previously charged-off receivables                                                                                                                                                                                                                                                                                  |  |               | 13,750    |   |                   |   | 12,871    |  
|Investments in securities                                                                                                                                                                                                                                                                                                          |  |               | 163,766   |   |                   |   | 141,657   |  
|U.S. government securities resale agreements                                                                                                                                                                                                                                                                                       |  |               | 50,809    |   |                   |   | 50,577    |  
|Deferred costs, net                                                                                                                                                                                                                                                                                                                |  |               | 24,858    |   |                   |   | 25,762    |  
|Software, furniture, fixtures and equipment, net                                                                                                                                                                                                                                                                                   |  |               | 67,644    |   |                   |   | 63,986    |  
|Investments in equity-method investees                                                                                                                                                                                                                                                                                             |  |               | 76,089    |   |                   |   | 83,038    |  
|Intangibles, net                                                                                                                                                                                                                                                                                                                   |  |               | 13,550    |   |                   |   | 12,382    |  
|Goodwill                                                                                                                                                                                                                                                                                                                           |  |               | 128,550   |   |                   |   | 120,115   |  
|Prepaid expenses and other assets                                                                                                                                                                                                                                                                                                  |  |               | 77,410    |   |                   |   | 37,666    |  
|                                                                                                                                                                                                                                                                                                                                   |  |               |           |   |                   |   |           |  
|Total assets                                                                                                                                                                                                                                                                                                                       |  | $             | 2,234,191 |   |                   | $ | 2,113,897 |  
|                                                                                                                                                                                                                                                                                                                                   |  |               |           |   |                   |   |           |  
|Liabilities                                                                                                                                                                                                                                                                                                                        |  |               |           |   |                   |   |           |  
|Accounts payable and accrued expenses                                                                                                                                                                                                                                                                                              |  | $             | 116,659   |   |                   | $ | 112,453   |  
|Notes payable and other borrowings                                                                                                                                                                                                                                                                                                 |  |               | 539,174   |   |                   |   | 358,694   |  
|Convertible senior notes                                                                                                                                                                                                                                                                                                           |  |               | 550,000   |   |                   |   | 550,000   |  
|Deferred revenue, primarily from forward flow agreement                                                                                                                                                                                                                                                                            |  |               | 49,900    |   |                   |   | 55,260    |  
|Current and deferred income tax liabilities                                                                                                                                                                                                                                                                                        |  |               | 89,524    |   |                   |   | 112,983   |  
|                                                                                                                                                                                                                                                                                                                                   |  |               |           |   |                   |   |           |  
|Total liabilities                                                                                                                                                                                                                                                                                                                  |  |               | 1,345,257 |   |                   |   | 1,189,390 |  
|Minority interests                                                                                                                                                                                                                                                                                                                 |  |               | 39,957    |   |                   |   | 40,567    |  
|Commitments and contingencies (Note 10)                                                                                                                                                                                                                                                                                            |  |               |           |   |                   |   |           |  
|Shareholders equity                                                                                                                                                                                                                                                                                                               |  |               |           |   |                   |   |           |  
|Common stock, no par value, 150,000,000 shares authorized: 61,879,156 shares issued and 54,762,793 shares outstanding at March 31, 2007
(including 5,677,950 loaned shares to be returned); and 59,464,216 shares issued and 55,093,686 shares outstanding at December 31, 2006 (including 5,677,950 loaned shares to be returned) |  |               |          |   |                   |   |          |  
|Additional paid-in capital                                                                                                                                                                                                                                                                                                         |  |               | 402,053   |   |                   |   | 321,010   |  
|Treasury stock, at cost, 7,116,363 and 4,370,530 shares at March 31, 2007 and December 31, 2006, respectively                                                                                                                                                                                                                      |  |               | (209,211  | ) |                   |   | (124,084  | )
|Warrants                                                                                                                                                                                                                                                                                                                           |  |               |          |   |                   |   | 25,610    |  
|Foreign currency translation adjustment                                                                                                                                                                                                                                                                                            |  |               | 343       |   |                   |   | 12        |  
|Retained earnings                                                                                                                                                                                                                                                                                                                  |  |               | 655,792   |   |                   |   | 661,392   |  
|                                                                                                                                                                                                                                                                                                                                   |  |               |           |   |                   |   |           |  
|Total shareholders equity                                                                                                                                                                                                                                                                                                         |  |               | 848,977   |   |                   |   | 883,940   |  
|                                                                                                                                                                                                                                                                                                                                   |  |               |           |   |                   |   |           |  
|Total liabilities and shareholders equity                                                                                                                                                                                                                                                                                         |  | $             | 2,234,191 |   |                   | $ | 2,113,897 |  
|                                                                                                                                                                                                                                                                                                                                   |  |               |           |   |                   |   |           |  

See accompanying notes.



1



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except per share data)



|                                                                                                                   |  |                                     |          |   |      |   |         |  
|------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------- | -------- | - | ---- | - | ------- | -
|                                                                                                                   |  | For the three months endedMarch 31, |         
|                                                                                                                   |  | 2007                                |          |   | 2006 |  
|Interest income:                                                                                                   |  |                                     |          |   |      |   |         |  
|Consumer loans, including past due fees                                                                            |  | $                                   | 80,634   |   |      | $ | 52,975  |  
|Other                                                                                                              |  |                                     | 5,510    |   |      |   | 4,575   |  
|                                                                                                                   |  |                                     |          |   |      |   |         |  
|Total interest income                                                                                              |  |                                     | 86,144   |   |      |   | 57,550  |  
|Interest expense                                                                                                   |  |                                     | (15,784  | ) |      |   | (11,450 | )
|                                                                                                                   |  |                                     |          |   |      |   |         |  
|Net interest income before fees and related income on non-securitized earning assets and provision for loan losses |  |                                     | 70,360   |   |      |   | 46,100  |  
|Fees and related income on non-securitized earning assets                                                          |  |                                     | 171,151  |   |      |   | 119,770 |  
|Provision for loan losses                                                                                          |  |                                     | (134,440 | ) |      |   | (77,829 | )
|                                                                                                                   |  |                                     |          |   |      |   |         |  
|Net interest income, fees and related income on non-securitized earning assets                                     |  |                                     | 107,071  |   |      |   | 88,041  |  
|Other operating income:                                                                                            |  |                                     |          |   |      |   |         |  
|Fees and related income on securitized earning assets                                                              |  |                                     | 19,702   |   |      |   | 50,469  |  
|Servicing income                                                                                                   |  |                                     | 18,895   |   |      |   | 27,810  |  
|Ancillary and interchange revenues                                                                                 |  |                                     | 11,761   |   |      |   | 8,194   |  
|Equity in income of equity-method investees                                                                        |  |                                     | 9,719    |   |      |   | 25,665  |  
|                                                                                                                   |  |                                     |          |   |      |   |         |  
|Total other operating income                                                                                       |  |                                     | 60,077   |   |      |   | 112,138 |  
|Other operating expense:                                                                                           |  |                                     |          |   |      |   |         |  
|Salaries and benefits                                                                                              |  |                                     | 18,609   |   |      |   | 13,801  |  
|Card and loan servicing                                                                                            |  |                                     | 70,987   |   |      |   | 62,153  |  
|Marketing and solicitation                                                                                         |  |                                     | 35,126   |   |      |   | 26,079  |  
|Depreciation                                                                                                       |  |                                     | 10,119   |   |      |   | 7,634   |  
|Goodwill impairment                                                                                                |  |                                     |         |   |      |   | 10,546  |  
|Other                                                                                                              |  |                                     | 35,526   |   |      |   | 28,659  |  
|                                                                                                                   |  |                                     |          |   |      |   |         |  
|Total other operating expense                                                                                      |  |                                     | 170,367  |   |      |   | 148,872 |  
|                                                                                                                   |  |                                     |          |   |      |   |         |  
|(Loss) income before minority interests and income taxes                                                           |  |                                     | (3,219   | ) |      |   | 51,307  |  
|Minority interests                                                                                                 |  |                                     | (712     | ) |      |   | (3,405  | )
|                                                                                                                   |  |                                     |          |   |      |   |         |  
|(Loss) income before income taxes                                                                                  |  |                                     | (3,931   | ) |      |   | 47,902  |  
|Income tax benefit (expense)                                                                                       |  |                                     | 1,415    |   |      |   | (17,244 | )
|                                                                                                                   |  |                                     |          |   |      |   |         |  
|Net (loss) income                                                                                                  |  | $                                   | (2,516   | ) |      | $ | 30,658  |  
|                                                                                                                   |  |                                     |          |   |      |   |         |  
|Net (loss) income per common sharebasic                                                                           |  | $                                   | (0.05    | ) |      | $ | 0.63    |  
|                                                                                                                   |  |                                     |          |   |      |   |         |  
|Net (loss) income per common sharediluted                                                                         |  | $                                   | (0.05    | ) |      | $ | 0.61    |  
|                                                                                                                   |  |                                     |          |   |      |   |         |  

See accompanying notes.



2



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Condensed Consolidated Statement of Shareholders Equity
(Unaudited)

For the Three Months Ended March 31, 2007

(Dollars in thousands)



|                                                            |  |               |   |                            |        |   |                |   |         |          |  |   |                                    |   |                   |   |         |                            |  |   |     |  |   |         |   |  |   |         |  
|----------------------------------------------------------- |  | ------------- | - | -------------------------- | ------ | - | -------------- | - | ------- | -------- |  | - | ---------------------------------- | - | ----------------- | - | ------- | -------------------------- |  | - | --- |  | - | ------- | - |  | - | ------- | -
|                                                            |  | Common Stock  |   | Additional Paid-In Capital |        |   | Treasury Stock |   |         | Warrants |  |   | CumulativeOtherComprehensiveIncome |   | Retained Earnings |   |         | Total Shareholders Equity | 
|                                                            |  | Shares Issued |   |                            | Amount |   |                |   |         |          | 
|Balance at December 31, 2006                                |  | 59,464,216    |   |                            | $      |  |                | $ | 321,010 |          |  | $ | (124,084                           | ) |                   | $ | 25,610  |                            |  | $ | 12  |  | $ | 661,392 |   |  | $ | 883,940 |  
|Stock options exercises and proceeds related thereto        |  | 72,016        |   |                            |        |  |                |   | 714     |          |  |   |                                   |   |                   |   |        |                            |  |   |    |  |   |        |   |  |   | 714     |  
|Warrant exercises and proceeds related thereto              |  | 2,400,000     |   |                            |        |  |                |   | 79,490  |          |  |   |                                   |   |                   |   | (25,610 | )                          |  |   |    |  |   |        |   |  |   | 53,880  |  
|Use of treasury stock for stock-based compensation plans    |  | (169,472      | ) |                            |        |  |                |   | (2,424  | )        |  |   | 2,424                              |   |                   |   |        |                            |  |   |    |  |   |        |   |  |   |        |  
|Issuance of restricted stock                                |  | 112,396       |   |                            |        |  |                |   |        |          |  |   |                                   |   |                   |   |        |                            |  |   |    |  |   |        |   |  |   |        |  
|Amortization of deferred stock-based compensation costs     |  |              |   |                            |        |  |                |   | 2,585   |          |  |   |                                   |   |                   |   |        |                            |  |   |    |  |   |        |   |  |   | 2,585   |  
|Purchase of treasury stock                                  |  |              |   |                            |        |  |                |   |        |          |  |   | (87,551                            | ) |                   |   |        |                            |  |   |    |  |   |        |   |  |   | (87,551 | )
|Tax benefit related to stock-based compensation plans       |  |              |   |                            |        |  |                |   | 678     |          |  |   |                                   |   |                   |   |        |                            |  |   |    |  |   |        |   |  |   | 678     |  
|Foreign currency translation adjustment                     |  |              |   |                            |        |  |                |   |        |          |  |   |                                   |   |                   |   |        |                            |  |   | 331 |  |   |        |   |  |   | 331     |  
|Cumulative effect of adopting FASB Interpretation Number 48 |  |              |   |                            |        |  |                |   |        |          |  |   |                                   |   |                   |   |        |                            |  |   |    |  |   | (3,084  | ) |  |   | (3,084  | )
|Net (loss)                                                  |  |              |   |                            |        |  |                |   |        |          |  |   |                                   |   |                   |   |        |                            |  |   |    |  |   | (2,516  | ) |  |   | (2,516  | )
|                                                            |  |               |   |                            |        |   |                |   |         |          |  |   |                                    |   |                   |   |         |                            |  |   |     |  |   |         |   |  |   |         |  
|Balance at March 31, 2007                                   |  | 61,879,156    |   |                            | $      |  |                | $ | 402,053 |          |  | $ | (209,211                           | ) |                   | $ |        |                            |  | $ | 343 |  | $ | 655,792 |   |  | $ | 848,977 |  
|                                                            |  |               |   |                            |        |   |                |   |         |          |  |   |                                    |   |                   |   |         |                            |  |   |     |  |   |         |   |  |   |         |  

See accompanying notes.



3



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##### Table of Contents

Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited)

For the Three Months Ended
March 31, 2007

(Dollars in thousands)



|                                                                          |  |                                     |        |   |      |   |        |  
|------------------------------------------------------------------------- |  | ----------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                          |  | For the three months endedMarch 31, |       
|                                                                          |  | 2007                                |        |   | 2006 |  
|Net (loss) income                                                         |  | $                                   | (2,516 | ) |      | $ | 30,658 |  
|Other comprehensive (loss) income:                                        |  |                                     |        |   |      |   |        |  
|Foreign currency translation adjustment                                   |  |                                     | 331    |   |      |   | (2     | )
|Income tax (expense) benefit related to other comprehensive (loss) income |  |                                     |       |   |      |   |       |  
|                                                                          |  |                                     |        |   |      |   |        |  
|Comprehensive (loss) income                                               |  | $                                   | (2,185 | ) |      | $ | 30,656 |  
|                                                                          |  |                                     |        |   |      |   |        |  

See accompanying notes.



4



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)



|                                                                                             |  |                                      |          |   |      |   |          |  
|-------------------------------------------------------------------------------------------- |  | ------------------------------------ | -------- | - | ---- | - | -------- | -
|                                                                                             |  | For the three months ended
March 31, |         
|                                                                                             |  | 2007                                 |          |   | 2006 |  
|Operating activities                                                                         |  |                                      |          |   |      |   |          |  
|Net (loss) income                                                                            |  | $                                    | (2,516   | ) |      | $ | 30,658   |  
|Adjustments to reconcile net (loss) income to net cash provided by operating activities:     |  |                                      |          |   |      |   |          |  
|Depreciation expense                                                                         |  |                                      | 10,119   |   |      |   | 7,634    |  
|Impairment of goodwill                                                                       |  |                                      |         |   |      |   | 10,546   |  
|Provision for loan losses                                                                    |  |                                      | 134,440  |   |      |   | 77,829   |  
|Amortization of intangibles                                                                  |  |                                      | 1,213    |   |      |   | 906      |  
|Accretion of deferred revenue                                                                |  |                                      | (7,696   | ) |      |   | (3,232   | )
|Stock-based compensation expense                                                             |  |                                      | 2,585    |   |      |   | 1,257    |  
|Minority interests                                                                           |  |                                      | 712      |   |      |   | 3,405    |  
|Retained interests income and securitization gains adjustments, net                          |  |                                      | (6,410   | ) |      |   | 4,999    |  
|Unrealized loss (gain) on debt and equity securities classified as trading securities        |  |                                      | 2,516    |   |      |   | (168     | )
|Income in excess of distributions from equity-method investments                             |  |                                      |         |   |      |   | (6,494   | )
|Changes in assets and liabilities, exclusive of business acquisitions:                       |  |                                      |          |   |      |   |          |  
|Net increase in debt, equity and U.S. government securities classified as trading securities |  |                                      | (412     | ) |      |   | (5,669   | )
|Decrease (increase) in uncollected fees on non-securitized earning assets                    |  |                                      | 46,466   |   |      |   | (21,054  | )
|Decrease in deferred costs                                                                   |  |                                      | 904      |   |      |   | 1,751    |  
|(Decrease) increase in current and deferred tax liability                                    |  |                                      | (25,865  | ) |      |   | (59,112  | )
|Increase in deferred revenue primarily from forward flow agreement                           |  |                                      | 2,336    |   |      |   | 1,378    |  
|Increase in prepaid expenses and deposits                                                    |  |                                      | (8,410   | ) |      |   | (1,655   | )
|Other                                                                                        |  |                                      | (3,321   | ) |      |   | 5,869    |  
|                                                                                             |  |                                      |          |   |      |   |          |  
|Net cash provided by operating activities                                                    |  |                                      | 146,661  |   |      |   | 48,848   |  
|                                                                                             |  |                                      |          |   |      |   |          |  
|Investing activities                                                                         |  |                                      |          |   |      |   |          |  
|Proceeds from equity-method investees                                                        |  |                                      | 6,949    |   |      |   |         |  
|Investments in securitized earning assets                                                    |  |                                      | (254,977 | ) |      |   | (347,884 | )
|Proceeds from securitized earning assets                                                     |  |                                      | 406,217  |   |      |   | 328,653  |  
|Investments in non-securitized earning assets                                                |  |                                      | (590,075 | ) |      |   | (553,135 | )
|Proceeds from non-securitized earning assets                                                 |  |                                      | 406,788  |   |      |   | 460,346  |  
|Increase in notes receivable                                                                 |  |                                      | (2,433   | ) |      |   |         |  
|Acquisitions of assets                                                                       |  |                                      | (191,376 | ) |      |   |         |  
|Purchases of and development of software, furniture, fixtures and equipment                  |  |                                      | (12,746  | ) |      |   | (7,785   | )
|                                                                                             |  |                                      |          |   |      |   |          |  
|Net cash used in investing activities                                                        |  |                                      | (231,653 | ) |      |   | (119,805 | )
|                                                                                             |  |                                      |          |   |      |   |          |  
|Financing activities                                                                         |  |                                      |          |   |      |   |          |  
|Minority interests distribution, net                                                         |  |                                      | (2,426   | ) |      |   | (6,344   | )
|Proceeds from exercise of stock options                                                      |  |                                      | 714      |   |      |   | 177      |  
|Proceeds from the exercise of warrants                                                       |  |                                      | 53,880   |   |      |   |         |  
|Purchase of treasury stock                                                                   |  |                                      | (87,551  | ) |      |   |         |  
|Proceeds from borrowings                                                                     |  |                                      | 166,050  |   |      |   | 11,054   |  
|Repayment of borrowings                                                                      |  |                                      | (15,903  | ) |      |   | (15,233  | )
|                                                                                             |  |                                      |          |   |      |   |          |  
|Net cash provided by (used in) financing activities                                          |  |                                      | 114,764  |   |      |   | (10,346  | )
|                                                                                             |  |                                      |          |   |      |   |          |  
|Net increase (decrease) in cash                                                              |  |                                      | 29,772   |   |      |   | (81,303  | )
|Cash and cash equivalents at beginning of period                                             |  |                                      | 110,412  |   |      |   | 240,655  |  
|                                                                                             |  |                                      |          |   |      |   |          |  
|Cash and cash equivalents at end of period                                                   |  | $                                    | 140,184  |   |      | $ | 159,352  |  
|                                                                                             |  |                                      |          |   |      |   |          |  
|Supplemental cash flow information                                                           |  |                                      |          |   |      |   |          |  
|Cash paid for interest                                                                       |  | $                                    | 16,914   |   |      | $ | 7,048    |  
|                                                                                             |  |                                      |          |   |      |   |          |  
|Cash paid for income taxes                                                                   |  | $                                    | 24,450   |   |      | $ | 76,272   |  
|                                                                                             |  |                                      |          |   |      |   |          |  
|Supplemental non-cash information                                                            |  |                                      |          |   |      |   |          |  
|Notes payable associated with capital leases                                                 |  | $                                    | 16,399   |   |      | $ | 13,834   |  
|                                                                                             |  |                                      |          |   |      |   |          |  
|Issuance of restricted stock and stock options                                               |  | $                                    | 4,069    |   |      | $ | 4,208    |  
|                                                                                             |  |                                      |          |   |      |   |          |  

See accompanying notes.



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2007

1. Basis of
Presentation

We have prepared our condensed consolidated financial statements in accordance with accounting principles generally
accepted in the United States of America (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission (SEC) Regulation S-X. Accordingly,
they do not include all of the information and notes required by GAAP for complete consolidated financial statements. In the opinion of management, all normal recurring adjustments considered necessary to fairly state the results for the interim
periods presented have been included. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of our consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Certain
estimates, such as credit losses, payment rates, discount rates and the yield earned on securitized receivables, significantly affect our reported gains on securitizations and income from retained interests in credit card receivables securitized
(both of which are components of fees and related income on securitized earning assets on our condensed consolidated statements of operations) and our reported value of securitized earning assets on our condensed consolidated balance sheets.
Additionally, estimates of future credit losses on our non-securitized loans and fees receivable have a significant effect on the provision for loan losses within our condensed consolidated statements of operations and loans and fees receivable,
net, which is a component of non-securitized earning assets, net on our condensed consolidated balance sheets. Operating results for the three months ended March 31, 2007 are not necessarily indicative of what our results will be for the year
ending December 31, 2007. Our unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements for our year ended December 31,
2006 contained in our Annual Report on Form 10-K filed with the SEC.

We have reclassified certain amounts in our prior period
consolidated financial statements to conform to current period presentation, and we have eliminated all significant intercompany balances and transactions for financial reporting purposes.

2. Summary of Significant Accounting Policies and Condensed Consolidated Financial Statement Components

The following is a summary of significant accounting policies followed in preparing our condensed consolidated financial statements, as well as a
description of the significant components of our condensed consolidated financial statements.

Non-Securitized Earning Assets, Net

We include loans and fees receivable, net, investments in previously charged-off receivables, investments in securities and U.S.
government securities resale agreements within non-securitized earning assets, net on our condensed consolidated balance sheets.

Loans and Fees Receivable, Net. Loans and fees receivable, net consist principally of receivables associated with our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range
(which for all purposes of discussion herein include those receivables associated with credit cards issued under our Investment in Previously Charged-Off Receivables segments balance transfer program), micro-loan activities and auto finance
business, none of which we have securitized in off-balance-sheet securitizations. As applicable, we show these receivables net of an allowance for uncollectible loans and fees receivable and net of unearned fees (or deferred revenue) in
accordance with Statement of Financial Accounting Standards No. 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Receivables and Initial Direct Costs of Leases.



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

March 31, 2007



The loans and fees receivables associated with our acquisition of ACC Consumer Finance
(ACC) are accounted for under the guidance of Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (SOP 03-3), which limits the yield that may be accreted
(accretable yield) to the excess of our estimate of undiscounted expected principal, interest, and other cash flows (including the effects of prepayments) expected to be collected on the date of acquisition over our initial investment in the loan.
The excess of contractual cash flows over cash flows expected to be collected (nonaccretable difference) is not recognized as an adjustment of yield, loss accrual, or valuation allowance. The following table shows (in thousands) a roll-forward of
accretable yield for our loans accounted for under SOP 03-3:



|                                                                    |  |                                  |         |  
|------------------------------------------------------------------- |  | -------------------------------- | ------- | -
|                                                                    |  | Three MonthsEnded March 31, 2007 |        
|Balance at beginning of period                                      |  | $                                |        |  
|Accretable yield at date of acquisition                             |  |                                  | 66,081  |  
|Accretion of yield                                                  |  |                                  | (4,966  | )
|                                                                    |  |                                  |         |  
|Balance at March 31, 2007                                           |  | $                                | 61,115  |  
|                                                                    |  |                                  |         |  
|Carrying amount of loans and fees receivable at date of acquisition |  | $                                | 158,195 |  
|                                                                    |  |                                  |         |  
|Carrying amount of loans and fees receivable at March 31, 2007      |  | $                                | 147,888 |  
|                                                                    |  |                                  |         |  
|Gross loans and fees receivable balance at date of acquisition      |  | $                                | 189,124 |  
|                                                                    |  |                                  |         |  
|Gross loans and fees receivable balance at March 31, 2007           |  | $                                | 176,298 |  
|                                                                    |  |                                  |         |  

The loans and fees receivable associated with our largely fee-based credit card offerings to
consumers at the lower end of the FICO scoring range consist of finance charges and fees (both billed and accrued) and principal balances. The fees associated with these product offerings include activation, annual, monthly maintenance, late
payment, over-limit, cash-advance and returned check fees. We recognize both activation and annual fees over a twelve-month period (i.e., the year to which they apply), while we recognize all other fees when assessed to cardholders. The loans and
fees receivable associated with our micro-loan activities include principal balances and associated fees due from customers, such fees being recognized as earnedgenerally over a two-week period. Loans and fees receivable associated with our
auto finance business include principal balances and associated fees and interest, net of the unearned portion of loan discounts due from customers, which we recognize over the life of each loan.

We provide an allowance for uncollectible loans and fees receivable for loans and fees receivable we believe we ultimately will not collect. In the
fourth quarter of 2006, we changed our business practices such that we no longer bill finance charges and fees on credit card accounts that become more than 90 days delinquent. For credit card accounts that became more than 90 days delinquent prior
to our change in billing practices, however, we billed finance charges and fees, but we excluded those billed finance charges and fees from loans and fees receivable, gross and the allowance for uncollectible loans and fees receivable (as well as
from related income and provision for loan loss amounts on our condensed consolidated statements of operations) because we concluded that collections of those finance charges and fee billings on those late-stage delinquent receivables were unlikely.
We determine the necessary allowance for uncollectible loans and fees receivable by analyzing some or all of the following: historical loss rates; current delinquency and roll-rate trends; vintage analyses based on the number of months an account is
open; the forecasted effects of changes in the economy on our customers; changes in underwriting criteria; and estimated recoveries. A considerable amount of judgment is required to assess the ultimate amount of uncollectible loans and fees
receivable, and we continuously evaluate and update our methodologies to determine the most appropriate allowance necessary.

The
components of loans and fees receivable, net (in millions) are as follows:



|                                                      |  |                             |        |   |           |   |        |              |  |              |       |  |                          |        |   |  |   |         |  
|----------------------------------------------------- |  | --------------------------- | ------ | - | --------- | - | ------ | ------------ |  | ------------ | ----- |  | ------------------------ | ------ | - |  | - | ------- | -
|                                                      |  | Balance atDecember 31, 2006 |        |   | Additions |   |        | Acquisitions |  | Subtractions |       |  | Balance atMarch 31, 2007 |       
|Loans and fees receivable, gross                      |  | $                           | 997.0  |   |           | $ | 743.7  |              |  | $            | 163.7 |  | $                        | (742.4 | ) |  | $ | 1,162.0 |  
|Deferred revenue                                      |  |                             | (118.0 | ) |           |   | (74.3  | )            |  |              |      |  |                          | 73.5   |   |  |   | (118.8  | )
|Allowance for uncollectible loans and fees receivable |  |                             | (225.3 | ) |           |   | (134.4 | )            |  |              |      |  |                          | 135.7  |   |  |   | (224.0  | )
|                                                      |  |                             |        |   |           |   |        |              |  |              |       |  |                          |        |   |  |   |         |  
|Loans and fees receivable, net                        |  | $                           | 653.7  |   |           | $ | 535.0  |              |  |              | 163.7 |  | $                        | (533.2 | ) |  | $ | 819.2   |  
|                                                      |  |                             |        |   |           |   |        |              |  |              |       |  |                          |        |   |  |   |         |  

Subtractions from the allowance for uncollectible loans and fees receivable in the above table are
net of $4.3 million in recoveries on loans and fees receivable previously charged off. Recoveries on loans and fees receivable typically have represented less than 1% of average loans and fees receivable, gross balances.



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

March 31, 2007



We include interest income associated with loans and fees receivable in interest income under the
consumer loans, including past due fees category on our accompanying condensed consolidated statements of operations. Additionally, we reflect $147.2 million and $108.3 million of fee income associated with these loans and fees receivable for
the three months ended March 31, 2007 and 2006, respectively, in fees and related income from non-securitized earning assets on our condensed consolidated statements of operations. As of March 31, 2007, the weighted-average remaining
accretion period for the $118.8 million of deferred revenue reflected in the above table was 8.7 months; deferred revenue associated with any accounts that may charge off is not accreted into revenue after the charge-off date.

Investments in Previously Charged-off Receivables. The following table shows (in thousands) a roll-forward of our investments in previously
charged-off receivables activities:



|                                                                                                                                                                                            |  |                                  |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------- | -
|                                                                                                                                                                                            |  | Three MonthsEnded March 31, 2007 |        
|Unrecovered balance at beginning of period                                                                                                                                                  |  | $                                | 12,871  |  
|Acquisitions of defaulted accounts                                                                                                                                                          |  |                                  | 12,816  |  
|Cash collections                                                                                                                                                                            |  |                                  | (24,385 | )
|Accretion of deferred revenue associated with Encore Capital Group, Inc. forward flow contract                                                                                              |  |                                  | (4,736  | )
|Cost-recovery method income recognized on defaulted accounts (included in fees and related income on non-securitized earning assets on our
condensed consolidated statements of operations) |  |                                  | 17,184  |  
|                                                                                                                                                                                            |  |                                  |         |  
|Balance at March 31, 2007                                                                                                                                                                   |  | $                                | 13,750  |  
|                                                                                                                                                                                            |  |                                  |         |  
|Estimated remaining collections (ERC)                                                                                                                                                     |  | $                                | 67,093  |  
|                                                                                                                                                                                            |  |                                  |         |  

In June 2005, our debt collections subsidiary sold a significant pool of previously
charged-off receivables. Remaining after this sale are the subsidiarys pools of previously charged-off receivables primarily associated with accounts for which debtors have filed for bankruptcy protection under Chapter 13 of the United States
Bankruptcy Code (Chapter 13 Bankruptcies) and accounts participating in or acquired in connection with the subsidiarys balance transfer program.

We estimate the life of each pool of previously charged-off receivables acquired by us generally to be between 24 and 36 months for normal delinquency charged-off accounts and approximately 60 months for Chapter
13 Bankruptcies. We anticipate collecting approximately 42.7% of the ERC of the existing accounts over the next twelve months, with the balance to be collected thereafter.

Investments in Securities. We periodically invest through the open market in debt and equity securities we believe will provide us with an
adequate return. We purchase these debt and equity securities either outright for cash or through a combination of cash and borrowings; see Note 8, Notes Payable, Other Borrowings and Convertible Senior Notes. We generally classify
our purchased debt and equity securities as trading securities. Additionally, we occasionally have received distributions of debt securities from our equity-method investees, and we have classified such distributed debt securities as held to
maturity. The carrying values (in thousands) of our investments in debt and equity securities are as follows:



|                                                          |  |                    |         |                       |   |        
|--------------------------------------------------------- |  | ------------------ | ------- | --------------------- | - | -------
|                                                          |  | As ofMarch 31,2007 |         | As ofDecember 31,2006
|Held to maturity:                                         |  |                    |         |                       |   |        
|Investments in debt securities of equity-method investees |  | $                  | 9,262   |                       | $ | 10,800 
|Trading:                                                  |  |                    |         |                       |   |        
|Investments in equity securities                          |  |                    | 5,154   |                       |   | 5,211  
|Asset-backed credit default SWAP index open asset         |  |                    | 6,354   |                       |   |       
|Investments in asset-backed securities                    |  |                    | 142,996 |                       |   | 125,646
|                                                          |  |                    |         |                       |   |        
|Total investments in debt and equity securities           |  | $                  | 163,766 |                       | $ | 141,657
|                                                          |  |                    |         |                       |   |        

Our investments in asset-backed securities include a mix of investment grade, non-investment
grade, subordinated and distressed asset-backed securities, including CDOs (Collateralized Debt Obligations), CMBS (Collateralized Mortgage Backed Securities), and CMOs (Collateralized Mortgage Obligations).



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

March 31, 2007



U.S. Government Securities Resale Agreements.Our investments in U.S. government
securities resale agreements generally consist of contracts to repurchase specific U.S. Treasury Bills of varying maturities at fixed prices within 30 days, subject to renewal. The underlying U.S. Treasury Bills are the same securities included as
U.S. government securities sold not yet purchased included in notes payable and other borrowings in our accompanying condensed consolidated balance sheets. The investment contracts settle at a stated price, whereas the borrowed securities settle at
the market price on the date the contracts expire. Certain of our investments in asset-backed securities are subject to changes in value due to changes in market interest rates. We intend for the change in value of the borrowed securities to offset
the change in the value of the investments in asset-backed securities, if any, resulting from changes in market interest rates.

Prepaid expenses and
other assets

Prepaid expenses and other assets include amounts paid to third parties for marketing and other services. These
amounts are expensed once services have been performed or marketing efforts are undertaken. Also, in March 2007, we placed in escrow £11.6 million ($22.3 million) related to our acquisition of MEM Capital Limited and its subsidiaries
(MEM). This deposit has been included within prepaid expenses and other assets as of March 31, 2007 and will be reclassified and assigned to various acquired assets in the second quarter of 2007 in accordance with Statement of
Financial Accounting Standards No. 141, Business Combinations. See Note 13, Acquisitions, for further discussion of the MEM acquisition.

Fees and Related Income on Securitized Earning Assets

Fees and related income on securitized
earning assets include (1) securitization gains, (2) income from retained interests in credit card receivables securitized and (3) returned-check, cash advance and other fees associated with our securitized credit card receivables,
each of which is detailed (in thousands) in the following table.



|                                                                      |  |                                     |        |      |   |       
|--------------------------------------------------------------------- |  | ----------------------------------- | ------ | ---- | - | ------
|                                                                      |  | For the three monthsended March 31,
|                                                                      |  | 2007                                |        | 2006
|Securitization gains                                                  |  | $                                   |       |      | $ | 863   
|Income from retained interests in credit card receivables securitized |  |                                     | 14,562 |      |   | 44,796
|Fees on securitized receivables                                       |  |                                     | 5,140  |      |   | 4,810 
|                                                                      |  |                                     |        |      |   |       
|Total fees and related income on securitized earning assets           |  | $                                   | 19,702 |      | $ | 50,469
|                                                                      |  |                                     |        |      |   |       

We assess fees on credit card accounts underlying our securitized receivables according to the
terms of the related cardholder agreements and, except for annual membership fees, we recognize these fees as contributing to income from retained interests in credit card receivables securitized or as fees on securitized receivables when they are
charged to the cardholders accounts. We accrete annual membership fees associated with our securitized credit card receivables as a contribution to our income from retained interests in credit card receivables securitized on a straight-line
basis over the twelve-month cardholder privilege period. We amortize direct receivables origination costs against fees on securitized receivables. See Note 7, Off-Balance-Sheet Arrangements, for further discussion on securitization gains
and income from retained interests in credit card receivables securitized (including the effects of changes in retained interest valuations).

Fees
and Related Income on Non-Securitized Earning Assets

Fees and related income on non-securitized earning assets include:
(1) lending fees associated with our retail and Internet-based micro-loan activities; (2) fees associated with our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range and our Fingerhut
receivables during periods in which we have held them on balance sheet; (3) income associated with our investments in previously charged-off receivables; (4) transactional, referral and other fees associated with stored-value card,
merchant credit and other financial products and services; and (5) gains and losses associated with our investments in securities.



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

March 31, 2007



The components (in thousands) of our fees and related income on non-securitized earning assets are as
follows:



|                                                                |  |                                     |         |      |   |        
|--------------------------------------------------------------- |  | ----------------------------------- | ------- | ---- | - | -------
|                                                                |  | For the three monthsended March 31,
|                                                                |  | 2007                                |         | 2006
|Retail micro-loan fees                                          |  | $                                   | 26,163  |      | $ | 20,939 
|Fees on non-securitized credit card receivables                 |  |                                     | 120,959 |      |   | 87,351 
|Investments in previously charged-off receivables               |  |                                     | 17,184  |      |   | 9,297  
|Other                                                           |  |                                     | 6,845   |      |   | 2,183  
|                                                                |  |                                     |         |      |   |        
|Total fees and related income on non-securitized earning assets |  | $                                   | 171,151 |      | $ | 119,770
|                                                                |  |                                     |         |      |   |        

Recent Accounting Pronouncements

In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, Accounting for Servicing of Financial Assets  an
amendment of FASB Statement No. 140, (Statement No. 156). Statement No. 156 amends Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, (Statement No. 140) with respect to the accounting for separately recognized servicing assets and servicing liabilities and requires all separately recognized servicing assets and servicing
liabilities to be initially measured at fair value, if practicable. The standard permits an entity to subsequently measure each class of servicing assets or servicing liabilities at fair value and report changes in fair value in the statement of
income in the accounting period in which the changes occur. Statement No. 156 was effective for fiscal years beginning after September 15, 2006. The adoption of Statement No. 156 did not result in a material impact on our consolidated
results of operations, financial position and cash flows.

In June 2006, the FASB issued Interpretation Number 48, Accounting for
Uncertainty in Income Taxes, (Interpretation No. 48). Interpretation No. 48 requires companies to assess the probability that a tax position taken may not ultimately be sustained. For those positions that do not meet
the more-likely-than-not recognition threshold required under Interpretation No. 48, no benefit may be recognized. We adopted Interpretation No. 48 as of January 1, 2007 and have increased our tax liabilities and reduced retained
earnings by $3.1 million in connection with its adoption. As of the adoption date, we had gross tax effected unrecognized tax benefits of $52.5 million of which $11.7 million, if recognized, would affect our effective tax rate.

We conduct business globally and, as a result, one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various
state and foreign jurisdictions. In the normal course of business we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as the United Kingdom, the Netherlands and the United States. With few
exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2003.

We
recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. In conjunction with our adoption of Interpretation No. 48, we recognized $5.6 million for the payment of interest and penalties at
January 1, 2007, which is included as a component of the $52.5 million unrecognized tax benefits noted above. During the three months ended March 31, 2007, we recognized $0.6 million in potential interest and penalties associated with
uncertain tax positions. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of income tax expense.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, (Statement
No. 157). Statement No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or
permit fair value measurements, except accounting pronouncements that address share-based payment transactions and their related interpretive accounting pronouncements, and does not eliminate the practicability exceptions to fair value measurements
in accounting pronouncements within the scope of this Statement. Statement No. 157 is effective for fiscal years beginning after November 15, 2007 and is required to be adopted by us beginning January 1, 2008. Although not reasonably
estimable at this time, we currently are evaluating the effects that the adoption of Statement No. 157 could have on our consolidated results of operations, financial position and cash flows.



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

March 31, 2007



In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159,
The Fair Value Option for Financial Assets and Liabilities, (Statement No. 159). Statement No. 159 allows companies to carry the vast majority of financial assets and liabilities at fair value, with changes
in fair value recorded into earnings. Statement No. 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted provided a company makes the election to do so within 120 days of to the beginning of the
fiscal year of adoption. We currently are evaluating the effects that the adoption of Statement No. 159 could have on our consolidated results of operations, financial position and cash flows.

3. Segment Reporting

We operate primarily within one
industry consisting of five reportable segments by which we manage our business. Our five reportable segments are: Credit Cards; Investments in Previously Charged-off Receivables; Retail Micro-Loans; Auto Finance; and Other.

During the first quarter of 2007, we acquired (1) the assets of ACC, an originator of auto loans generated through its relationships with franchised
auto dealers, and a related portfolio of auto loans for which ACC acts as servicer and (2) a 75-percent ownership interest in Just Right Auto Sales (JRAS), which sells vehicles to consumers and provides the underlying consumer
financing associated with these vehicle sales. The post-acquisition financial results from these operations are included in our condensed consolidated financial statements and Auto Finance segment data for the first quarter of 2007.

Historically, we had included within our Investments in Previously Charged-off Receivables segment only a portion of the transactions associated with
this segments balance transfer program operationsthat portion representing the transactions and financial results thereof for the period from acquisition of a debtors account balance through the date the debtor became eligible to
receive a credit card under the terms of the balance transfer program. Beginning in 2007, however, we are including within our Investments in Previously Charged-off Receivables segment the balance transfer program transactions and financial results
thereof for all pre- and post-credit card issuance activities. We have reclassified 2006 balance transfer program data within our segment table below to conform to this new presentation.

We measure the profitability of our reportable segments based on their income after allocation of specific costs and corporate overhead. Overhead costs
are allocated based on headcounts and other applicable measures to better align costs with the associated revenues. Summary operating segment information (in thousands) is as follows:



|                                                                                      |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |   |         |   |  |   |           |  
|------------------------------------------------------------------------------------- |  | ------------ | --------- | - | ---------------------------------------------- | - | ----------------- |  | - | ------------ | - |  | ----- | ------- | - | ----- | - | ------- | - |  | - | --------- | -
|Three months ended March 31, 2007                                                     |  | Credit Cards |           |   | Investments inPreviouslyCharged-OffReceivables |   | RetailMicro-Loans |  |   | Auto Finance |   |  | Other |         |   | Total |  
|Net interest income, fees and related income (loss) on non-securitized earning assets |  | $            | 54,711    |   |                                                | $ | 17,730            |  | $ | 21,364       |   |  | $     | 13,304  |   |       | $ | (38     | ) |  | $ | 107,071   |  
|                                                                                      |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |   |         |   |  |   |           |  
|Total other operating income                                                          |  | $            | 59,216    |   |                                                | $ | 316               |  | $ |             |   |  | $     | 545     |   |       | $ |        |   |  | $ | 60,077    |  
|                                                                                      |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |   |         |   |  |   |           |  
|(Loss) income before income taxes                                                     |  | $            | (8,140    | ) |                                                | $ | 11,439            |  | $ | 1,011        |   |  | $     | (593    | ) |       | $ | (7,648  | ) |  | $ | (3,931    | )
|                                                                                      |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |   |         |   |  |   |           |  
|Loans and fees receivable, gross                                                      |  | $            | 787,929   |   |                                                | $ | 13,452            |  | $ | 73,077       |   |  | $     | 280,793 |   |       | $ | 6,744   |   |  | $ | 1,161,995 |  
|                                                                                      |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |   |         |   |  |   |           |  
|Loans and fees receivable, net                                                        |  | $            | 477,221   |   |                                                | $ | 10,964            |  | $ | 65,918       |   |  | $     | 259,928 |   |       | $ | 5,127   |   |  | $ | 819,158   |  
|                                                                                      |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |   |         |   |  |   |           |  
|Total assets                                                                          |  | $            | 1,613,526 |   |                                                | $ | 45,118            |  | $ | 204,456      |   |  | $     | 332,537 |   |       | $ | 38,554  |   |  | $ | 2,234,191 |  
|                                                                                      |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |   |         |   |  |   |           |  
|                                                                                      |  |              |           |   |                                                |  
|Three months ended March 31, 2006                                                     |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |  
|Net interest income, fees and related income on non-securitized earning assets        |  | $            | 57,139    |   |                                                | $ | 9,645             |  | $ | 12,897       |   |  | $     | 7,852   |   |       | $ | 508     |   |  | $ | 88,041    |  
|                                                                                      |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |   |         |   |  |   |           |  
|Total other operating income                                                          |  | $            | 108,153   |   |                                                | $ | 61                |  | $ | 3,735        |   |  | $     | 164     |   |       | $ | 25      |   |  | $ | 112,138   |  
|                                                                                      |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |   |         |   |  |   |           |  
|Income (loss) before income taxes                                                     |  | $            | 69,365    |   |                                                | $ | 5,391             |  | $ | (17,039      | ) |  | $     | 847     |   |       | $ | (10,662 | ) |  | $ | 47,902    |  
|                                                                                      |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |   |         |   |  |   |           |  
|Loans and fees receivable, gross                                                      |  | $            | 418,528   |   |                                                | $ | 5,006             |  | $ | 51,312       |   |  | $     | 142,191 |   |       | $ | 12,246  |   |  | $ | 629,283   |  
|                                                                                      |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |   |         |   |  |   |           |  
|Loans and fees receivable, net                                                        |  | $            | 249,496   |   |                                                | $ | 3,820             |  | $ | 42,193       |   |  | $     | 115,422 |   |       | $ | 6,923   |   |  | $ | 417,854   |  
|                                                                                      |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |   |         |   |  |   |           |  
|Total assets                                                                          |  | $            | 1,387,472 |   |                                                | $ | 34,841            |  | $ | 183,372      |   |  | $     | 155,232 |   |       | $ | 28,890  |   |  | $ | 1,789,807 |  
|                                                                                      |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |   |         |   |  |   |           |  



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Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

March 31, 2007



4. Treasury Stock

During the three months ended March 31, 2007, we repurchased an aggregate of 2,884,163 shares of our common stock in a privately negotiated transaction, and we have placed the repurchased shares in treasury. At
our discretion, we use treasury shares to satisfy option exercises and restricted stock vesting, and we use the cost approach when accounting for the repurchase and reissuance of our treasury stock. During the three months ended March 31, 2007,
we reissued 169,472 treasury shares at an approximate gross cost of $2.4 million in satisfaction of option exercises and share vestings under our restricted stock plan, and we effectively purchased 31,142 shares at a cost of $1.0 million by having
employees who were exercising options or vesting in their restricted stock grants exchange a portion of their stock for our payment of required minimum tax withholdings.

5. Warrants

In connection with a securitization facility into which we entered during the first
quarter of 2004, we issued warrants to acquire 2.4 million shares of our common stock at an exercise price of $22.45 per share. The costs associated with this warrant were recorded at fair value ($25.6 million determined using the
Black-Scholes model) within deferred costs, net, on our condensed consolidated balance sheets, and the initial deferred cost amount was amortized against income from retained interests in credit card receivables securitized (which is a component of
fees and related income from securitized earning assets) over the vesting period of the warrant. In January 2007 the warrants were exercised by paying us an aggregate $53.9 million in exercise price.

6. Investments in Equity-Method Investees

As of
March 31, 2007 we held a 61.25% interest in CSG, LLC (CSG). Because of specific voting and veto rights held by each investor in CSG, we do not control (as defined by FASB Statement of Financial Accounting Standards No. 94,
Consolidation of All Majority-Owned Subsidiaries) this entity. We account for our CSG investment using the equity method of accounting. As of March 31, 2007, we also held a 47.5% interest in a joint venture in which we
invested in 2005 and 33.3% interests in each of Transistor Holdings, LLC (Transistor) and Capacitor Holdings, LLC (Capacitor) in which we invested in 2004. We account for our investment interests in these entities using the
equity method of accounting, and these investments are included in investments in equity-method investees on our condensed consolidated balance sheets.

In the following tables, we summarize (in thousands) combined balance sheet and results of operations data for our equity-method investees:



|                           |  |                     |         |                        |   |        
|-------------------------- |  | ------------------- | ------- | ---------------------- | - | -------
|                           |  | As of March 31,2007 |         | As of December 31,2006
|Securitized earning assets |  | $                   | 157,023 |                        | $ | 168,288
|                           |  |                     |         |                        |   |        
|Total assets               |  | $                   | 164,983 |                        | $ | 179,107
|                           |  |                     |         |                        |   |        
|Total liabilities          |  | $                   | 9,218   |                        | $ | 10,147 
|                           |  |                     |         |                        |   |        
|Members capital           |  | $                   | 155,765 |                        | $ | 168,960
|                           |  |                     |         |                        |   |        



|                                                                               |  |                                     |        |      |   |       
|------------------------------------------------------------------------------ |  | ----------------------------------- | ------ | ---- | - | ------
|                                                                               |  | For the three monthsended March 31,
|                                                                               |  | 2007                                |        | 2006
|Net interest income, fees and related income on non-securitized earning assets |  | $                                   | 2      |      | $ | 40,178
|                                                                               |  |                                     |        |      |   |       
|Fees and related income on securitized earning assets                          |  | $                                   | 18,883 |      | $ | 23,237
|                                                                               |  |                                     |        |      |   |       
|All other operating income                                                     |  | $                                   | 22,147 |      | $ | 27,666
|                                                                               |  |                                     |        |      |   |       
|Net income                                                                     |  | $                                   | 20,778 |      | $ | 60,320
|                                                                               |  |                                     |        |      |   |       



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Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

March 31, 2007



7. Off-Balance-Sheet Arrangements

With the exception of our credit card receivables associated with our largely fee-based credit card offerings to consumers at the lower end of the FICO
scoring range and our Fingerhut Trust III desecuritization, we securitize substantially all of the credit card receivables that we purchase on a daily basis through our third-party financial institution relationships. We transfer receivables
associated with credit card accounts originated by our third-party financial institution relationships to a master trust (the originated portfolio master trust), which issues notes representing undivided ownership interests in the assets
of the master trust. Additionally, in various prior year transactions, the latest of which was during the first quarter of 2005, we have acquired portfolios of receivables from third parties and subsequently securitized them.

Our only interest in the credit card receivables we securitize is in the form of retained interests in the securitization trusts. GAAP requires us to
treat our transfers to the securitization trusts as sales and to remove the receivables from our consolidated balance sheets. Under Statement No. 140, an entity recognizes the assets it controls and liabilities it has incurred, and derecognizes
the financial assets for which control has been surrendered and all liabilities that have been extinguished. An entity is considered to have surrendered control over the transferred assets and, therefore, to have sold the assets if the following
conditions are met:



| | 1. | The transferred assets have been isolated from the transferor and put presumptively beyond the reach of the transferor and its creditors.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------



| | 2. | Each transferee has the right to pledge or exchange the assets it has received, and no condition both constrains the transferee from taking advantage of its right to pledge or
exchange and provides more than a trivial benefit to the transferor.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | The transferor does not maintain effective control over the transferred assets through either (i) an agreement that both entitles and obligates the transferor to repurchase or
redeem them before their maturity, or (ii) the ability to unilaterally cause the holder to return specific assets, other than through a clean-up call.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our securitization transactions do not affect the relationship we have with our customers, and we continue to service the securitized credit card receivables.

The table below summarizes (in thousands) our securitization activity for the periods presented. As with other tables included herein, it does not
include the securitization activities of our equity-method investees:



|                                                                         |  |                                      |           |      |   |          
|------------------------------------------------------------------------ |  | ------------------------------------ | --------- | ---- | - | ---------
|                                                                         |  | For the three months ended March 31,
|                                                                         |  | 2007                                 |           | 2006
|Gross amount of receivables securitized at period end                    |  | $                                    | 1,522,031 |      | $ | 1,638,014
|                                                                         |  |                                      |           |      |   |          
|Proceeds from collections reinvested in revolving-period securitizations |  | $                                    | 253,929   |      | $ | 303,722  
|                                                                         |  |                                      |           |      |   |          
|Excess cash flows received on retained interests                         |  | $                                    | 48,753    |      | $ | 70,984   
|                                                                         |  |                                      |           |      |   |          
|Securitization gains                                                     |  | $                                    |          |      | $ | 863      
|Income from retained interests in credit card receivables securitized    |  |                                      | 14,562    |      |   | 44,796   
|Fees on securitized receivables                                          |  |                                      | 5,140     |      |   | 4,810    
|                                                                         |  |                                      |           |      |   |          
|Total fees and related income on securitized earning assets              |  | $                                    | 19,702    |      | $ | 50,469   
|                                                                         |  |                                      |           |      |   |          

The investors in our securitization transactions have no recourse against us for our
customers failure to pay their credit card receivables. However, most of our retained interests are subordinated to the investors interests until the investors have been fully paid.

Generally, we include all collections received from the cardholders underlying each securitization in the securitization cash flows. This includes
collections from the cardholders for interest, fees and other charges on the accounts and collections from those cardholders repaying the principal portion of their account balances. In general, the cash flows are then distributed to us as servicer
in the amounts of our contractually negotiated servicing fees, to the investors as interest on their outstanding notes, to the investors to repay any portion of their outstanding notes that become due and payable and to us as the seller to fund new
purchases. Any collections from cardholders remaining each month after making the various payments noted above generally are paid to us on our retained interests.



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Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

March 31, 2007



We carry the retained interests associated with the credit card receivables we have securitized at
estimated fair market value within the securitized earning assets category on our condensed consolidated balance sheets, and because we classify them as trading securities, we include any changes in fair value in income. Because quoted market prices
for our retained interests generally are not available, we estimate fair value based on the estimated present value of future cash flows using our best estimates of key assumptions.

The measurements of retained interests associated with our securitizations are dependent upon our estimate of future cash flows using the cash-out
method. Using the cash-out method, we record the future cash flows at a discounted value. We discount the cash flows based on the timing of when we expect to receive the cash flows. We base the discount rates on our estimates of returns that would
be required by investors in investments with similar terms and credit quality. We estimate yields on the credit card receivables based on stated annual percentage rates and applicable terms and conditions governing fees as set forth in the credit
card agreements, and we base estimated default and payment rates on historical results, adjusted for expected changes based on our credit risk models. We typically charge off credit card receivables when the receivables become 180 days past
due, although earlier charge offs may occur specifically related to accounts of bankrupt or deceased customers. We generally charge off bankrupt and deceased customers accounts within 30 days of verification.

Our retained interests in credit card receivables securitized (labeled as securitized earning assets on our condensed consolidated balance sheets)
include the following (in thousands):



|                                 |  |               |         |   |                   |   |         |  
|-------------------------------- |  | ------------- | ------- | - | ----------------- | - | ------- | -
|                                 |  | March 31 2007 |         |   | December 31, 2006 |  
|Interest only (I/O) strip      |  | $             | 80,238  |   |                   | $ | 81,129  |  
|Accrued interest and fees        |  |               | 13,933  |   |                   |   | 15,976  |  
|Servicing liability              |  |               | (8,838  | ) |                   |   | (8,838  | )
|Amounts due from securitization  |  |               | 8,892   |   |                   |   | 8,738   |  
|Fair value of retained interests |  |               | 564,198 |   |                   |   | 704,710 |  
|                                 |  |               |         |   |                   |   |         |  
|Securitized earning assets       |  | $             | 658,423 |   |                   | $ | 801,715 |  
|                                 |  |               |         |   |                   |   |         |  

The I/O strip reflects the fair value of our rights to future income from securitizations arranged
by us and includes certain credit enhancements. Accrued interest and fees represent the estimated collectible portion of fees earned but not billed to the cardholders underlying the credit card receivables portfolios we have securitized. The
servicing liability reflects, for those securitization structures for which servicing compensation is not adequate, the fair value of the costs to service the receivables above and beyond the servicing income we expect to receive from the
securitizations. Amounts due from securitization represent cash flows that are distributable to us from the prior months cash flows within each securitization trust; we generally expect to receive these amounts within 30 days from the close of
each respective month. Lastly, we measure retained interests at fair value as set forth within the fair value of retained interests category in the above table.

Changes in any of the assumptions used to value our retained interests in our securitizations could affect our fair value estimates. The weighted-average key assumptions we used to estimate the fair value of our
retained interests in the receivables we have securitized are presented below:



|                                                 |  |                |   |  |                   |   |  |                |  
|------------------------------------------------ |  | -------------- | - |  | ----------------- | - |  | -------------- | -
|                                                 |  | March 31, 2007 |   |  | December 31, 2006 |   |  | March 31, 2006 |  
|Net collected yield (annualized)                 |  | 26.9           | % |  | 26.2              | % |  | 30.0           | %
|Payment rate (monthly)                           |  | 6.6            |   |  | 6.7               |   |  | 6.8            |  
|Expected principal credit loss rate (annualized) |  | 9.4            |   |  | 9.3               |   |  | 14.0           |  
|Residual cash flows discount rate                |  | 17.7           |   |  | 16.9              |   |  | 13.5           |  
|Servicing liability discount rate                |  | 14.0           |   |  | 14.0              |   |  | 14.0           |  

During the third quarter of 2006, we re-aligned our net collected yield and expected principal
credit loss rate assumptions to better reflect the specific categories of expected returns on our retained interests. In prior periods, these two assumptions represented gross billed yield (exclusive of certain fees earned on securitized
receivables) and expected credit loss rates (which were inclusive of expected losses of both billed yield and principal), respectively. Accordingly, the effects of this re-alignment were to reduce the yield used in our Statement No. 140 models
to reflect only those cash flows associated with yield that we expect to collect, as well as to correspondingly reduce our expected credit loss rate to reflect only the principal losses we expect to incur. The trending increase in



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Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

March 31, 2007



the residual cash flows discount rates reflects reduced levels of excess collateral within our securitization trusts between the first quarter of 2006 and
the first quarter of 2007 and some increases throughout 2006 in the LIBOR interest rate index underlying our asset-backed securitization facilities and those in the market generally. Our Statement No. 140 models recognize in computing the
residual cash flows discount rate that variations in collateral enhancement levels affect the returns that investors require on residual interests within securitization structures; specifically, at lower levels of collateral enhancement (and hence
greater investment risk), investors in securitization structure residual interests will require higher investment returns.

The following
illustrates the hypothetical effect on the March 31, 2007 value of our retained interests in credit card receivables securitized (dollars in thousands) of an adverse 10 and 20 percent change in our key valuation assumptions:



|                                                 |  |                         |         |  
|------------------------------------------------ |  | ----------------------- | ------- | -
|                                                 |  | Credit Card Receivables |        
|Net collected yield (annualized)                 |  |                         | 26.9    | %
|Impact on fair value of 10% adverse change       |  | $                       | (22,778 | )
|Impact on fair value of 20% adverse change       |  | $                       | (45,556 | )
|Payment rate (monthly)                           |  |                         | 6.6     | %
|Impact on fair value of 10% adverse change       |  | $                       | (2,740  | )
|Impact on fair value of 20% adverse change       |  | $                       | (5,579  | )
|Expected principal credit loss rate (annualized) |  |                         | 9.4     | %
|Impact on fair value of 10% adverse change       |  | $                       | (8,683  | )
|Impact on fair value of 20% adverse change       |  | $                       | (17,366 | )
|Residual cash flows discount rate                |  |                         | 17.7    | %
|Impact on fair value of 10% adverse change       |  | $                       | (4,086  | )
|Impact on fair value of 20% adverse change       |  | $                       | (8,085  | )
|Servicing liability discount rate                |  |                         | 14.0    | %
|Impact on fair value of 10% adverse change       |  | $                       | (49     | )
|Impact on fair value of 20% adverse change       |  | $                       | (99     | )

These sensitivities are hypothetical and should be used with caution. As the figures indicate,
changes in fair value based on a 10% and a 20% variation in assumptions generally cannot be extrapolated because the relationship of a change in assumption to the change in fair value of our retained interests in credit card receivables securitized
may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the retained interests is calculated without changing any other assumptions; in reality, changes in one assumption may result in
changes in another. For example, increases in market interest rates may result in lower prepayments and increased credit losses, which could magnify or counteract the sensitivities.

Our managed receivables portfolio underlying our securitizations (including only those of our consolidated subsidiaries) is comprised of our retained
interests in the credit card receivables we have securitized and other investors shares of these securitized receivables. The investors shares of securitized credit card receivables are not assets of ours. The following table summarizes
(in thousands) the balances included within, and certain operating statistics associated with, our managed receivables portfolio underlying both the outside investors shares of and our retained interests in credit card receivables
securitizations.



|                                           |  |                |           |                   |   |          
|------------------------------------------ |  | -------------- | --------- | ----------------- | - | ---------
|                                           |  | March 31, 2007 |           | December 31, 2006
|Total managed principal balance            |  | $              | 1,381,681 |                   | $ | 1,468,533
|Total managed finance charge balance       |  |                | 140,350   |                   |   | 155,289  
|                                           |  |                |           |                   |   |          
|Total managed receivables                  |  | $              | 1,522,031 |                   | $ | 1,623,822
|                                           |  |                |           |                   |   |          
|Receivables delinquent  60 or more days   |  | $              | 140,507   |                   | $ | 165,555  
|                                           |  |                |           |                   |   |          
|Net charge offs for the three months ended |  | $              | 49,908    |                   | $ | 43,498   
|                                           |  |                |           |                   |   |          



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Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

March 31, 2007



8. Notes Payable, Other Borrowings and Convertible Senior Notes

As of March 31, 2007, we had total notes payable and other borrowings of $539.2 million and Convertible Senior debt of $550.0 million, compared to
$358.7 million and $550.0 million, respectively, at December 31, 2006. As of March 31, 2007, our notes payable and other borrowings balances (in millions), interest rates and maturities were as follows:



|                                                          |  |                   |       |               |             |   |               |                            
|--------------------------------------------------------- |  | ----------------- | ----- | ------------- | ----------- | - | ------------- | ---------------------------
|                                                          |  | AmountOutstanding |       | Interest Rate |             |   | Maturity Date
|Notes payable:                                            |  |                   |       |               |             |   |               |                            
|Structured financing within our Credit Cards segment      |  | $                 | 150.0 |               | 7.1         | % |               | March 2008                 
|Structured financings within our Auto Finance segment     |  |                   | 209.2 |               | 7.3% to 7.8 | % |               | September 2008  April 2013
|Third-party financing of Auto Finance segment receivables |  |                   | 3.8   |               | 10.3        | % |               | January 2009               
|Third-party financing of Auto Finance segment inventory   |  |                   | 1.2   |               | 24.0        | % |               | May 2007                   
|Vendor-financed acquisitions of software and equipment    |  |                   | 16.4  |               | 2% to 7     | % |               | October 2006  August 2009 
|Seller note within our Retail Micro-Loans segment         |  |                   | 5.0   |               | 10.0        | % |               | August 2007                
|Repurchase agreements                                     |  |                   | 83.8  |               | 5.88        | % |               | April 2007                 
|                                                          |  |                   |       |               |             |   |               |                            
|Total notes payable                                       |  | $                 | 469.4 |               |             |   |               |                            
|Other borrowings:                                         |  |                   |       |               |             |   |               |                            
|U.S. government securities sold not yet purchased         |  |                   | 50.1  |               | 5.0         | % |               | June 2008  August 2016    
|Asset backed credit default SWAP index open liability     |  |                   | 19.7  |               | 0.0         | % |               | 2046                       
|                                                          |  |                   |       |               |             |   |               |                            
|Balance as of March 31, 2007                              |  | $                 | 539.2 |               |             |   |               |                            
|                                                          |  |                   |       |               |             |   |               |                            

To finance our February 2007 acquisition of the portfolio of ACC-serviced auto finance receivables
that we acquired contemporaneous with our ACC acquisition, we entered into a financing facility with a maximum capacity of $146.0 million. This facility has an interest rate at LIBOR plus 200 basis points, matures in April 2013, and is recourse only
to the acquired portfolio of ACC-serviced auto finance receivables. This financing facility will be repaid as the portfolio of acquired ACC-serviced auto finance receivables is repaid.

In February 2007, we also amended the other financing facility within our Auto Finance segment to provide for greater operational flexibility as well as
lower pricing, to extend the facility through September 2008 and to reduce its size to $100.0 million.

JRAS, acquired within the Auto
Finance segment in January 2007, has a financing facility with a maximum capacity of $10.0 million that is recourse only to its assets and a revolving financing facility to fund inventory.

The repurchase agreements relate to our investments in debt securities, are made through a wholly owned subsidiary and are recourse only to the specific
debt security investments underlying each individual repurchase agreement.

We are in compliance with the covenants underlying all of our
various notes payable and debt facilities.

9. Goodwill and Intangible Assets

Goodwill

Goodwill represents the excess of the purchase price and related costs over the
value assigned to net tangible and identifiable intangible assets acquired and accounted for under the purchase method. Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets,
(Statement No. 142) requires that entities assess the fair value of all acquisition-related goodwill on a reporting unit basis. We review the recorded value of goodwill for impairment at least annually at the beginning of the fourth
quarter of each year, or earlier if events or changes in circumstances indicate that the carrying amount may exceed fair value.

During the
first quarter of 2007, we recorded goodwill of $6.8 million and $1.6 million, respectively, as part of our preliminary purchase price allocations for our Auto Finance segments acquisitions of ACC and JRAS.

During February 2006, we learned from our principal Retail Micro-Loans segment bank partner that the FDIC had effectively asked insured financial
institutions to cease deferred-presentment and installment micro-loan activities conducted through processing and servicing agents. Cessation of these activities directly affected our micro-loan subsidiaries ability to continue operating as a



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Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

March 31, 2007



processing and servicing agent in four states. As such, we conducted an assessment of the fair value of our Retail Micro-Loans segment using, in accordance
with Statement No. 142, a combination of the expected present value of future cash flows associated with the business and prices of comparable businesses. Based on this assessment, we recorded during the first quarter of 2006 a goodwill
impairment charge of $10.5 million to properly report goodwill at its fair value.

Changes in the carrying amount (in thousands) of
goodwill by reportable segment for the three months ended March 31, 2006 and 2007 are as follows:



|                                    |  |                     |         |   |              |   |        |  |              |     |  |   |         |  
|----------------------------------- |  | ------------------- | ------- | - | ------------ | - | ------ |  | ------------ | --- |  | - | ------- | -
|                                    |  | Retail Micro- Loans |         |   | Auto Finance |   | Other  |  | Consolidated |    
|Balance as of December 31, 2005     |  | $                   | 108,501 |   |              | $ | 22,160 |  | $            | 139 |  | $ | 130,800 |  
|Impairment loss                     |  |                     | (10,546 | ) |              |   |       |  |              |     |  |   | (10,546 | )
|                                    |  |                     |         |   |              |   |        |  |              |     |  |   |         |  
|Balance as of March 31, 2006        |  | $                   | 97,955  |   |              | $ | 22,160 |  | $            | 139 |  | $ | 120,254 |  
|                                    |  |                     |         |   |              |   |        |  |              |     |  |   |         |  
|                                    |  |                     |         |  
|Balance as of December 31, 2006     |  | $                   | 97,955  |   |              | $ | 22,160 |  | $            |    |  | $ | 120,115 |  
|Goodwill acquired during the period |  |                     |        |   |              |   | 8,435  |  |              |    |  |   | 8,435   |  
|                                    |  |                     |         |   |              |   |        |  |              |     |  |   |         |  
|Balance as of March 31, 2007        |  | $                   | 97,955  |   |              | $ | 30,595 |  | $            |    |  | $ | 128,550 |  
|                                    |  |                     |         |   |              |   |        |  |              |     |  |   |         |  

Intangible Assets

As of March 31, 2007, we had $3.8 million of intangible assets that we determined had an indefinite benefit period, compared to $3.2 million as of December 31, 2006. As part of our preliminary purchase price
allocations for the acquisitions of ACC and JRAS during the first quarter of 2007, we recorded $1.8 million of intangible assets subject to amortization related to customer relationships, and we recorded $0.6 million of intangible assets related to
trade names that we determined had an indefinite benefit period. The net unamortized carrying amount of intangible assets subject to amortization was $9.7 million as of March 31, 2007 and $9.1 million as of December 31, 2006. Intangible
asset-related amortization expense was $1.2 million for the three months ended March 31, 2007 and $0.9 million for the three months ended March 31, 2006.

10. Commitments and Contingencies

In the normal course of business through the origination of unsecured credit card
receivables, we incur off-balance-sheet risks. These risks include our commitments of $1.9 billion at March 31, 2007 to purchase receivables associated with cardholders who have the right to borrow in excess of their current balances up to the
maximum credit limit on their credit card accounts. These commitments involve, to varying degrees, elements of credit risks in excess of the amounts we have securitized. We have not experienced a situation in which all of our customers have
exercised their entire available line of credit at any given point in time, nor do we anticipate that this will ever occur in the future. We also have the effective right to reduce or cancel these available lines of credit at any time.

For various receivables portfolio investments we have made through majority-owned subsidiaries and equity-method investees, we have entered into
guarantee agreements whereby we have agreed to guarantee the purchase of additional interests in portfolios of credit card receivables owned by trusts, the retained interests in which are owned by our majority-owned subsidiaries and equity-method
investees, should there be net new growth in the receivables or should collections not be available to fund new cardholder purchases. As of March 31, 2007, none of our majority-owned subsidiaries or equity-method investees had purchased nor
were they required to purchase any additional notes under the note purchase agreements. Our guarantee is limited to our respective ownership percentages in the various majority-owned subsidiaries and equity-method investees multiplied by the total
amount of the notes that each of the majority-owned subsidiaries and equity-method investees could be required to purchase. As of March 31, 2007, the maximum amount of our collective guarantees related to all of these majority-owned
subsidiaries and equity-method investees was $369.0 million. In general, this aggregate contingency amount will decline as the amounts of credit available to cardholders for future purchases declines. The portfolios of all these majority-owned
subsidiaries and equity-method investees have declined and we expect them to continue to decline as we expect payments to exceed new purchases each month. We currently do not have any liability recorded with respect to these guarantees, but we will
record one if events occur that make payment probable under the guarantees. The fair value of these guarantees is not material.



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

March 31, 2007



Our agreements with our third-party originating financial institutions require us to purchase on a
daily basis the credit card receivables that are originated in the accounts maintained for our benefit. To secure this obligation for one of our third-party originating financial institutions, we have provided the financial institution a
$10.0 million standby letter of credit and have pledged retained interests carried at $95.7 million. Our arrangements with this particular originating financial institution expire in March 2009. If we were to terminate a sub-service
agreement under which this institution also provides certain services for us, we would incur penalties of $10.6 million as of March 31, 2007. Our other third-party originating financial institution relationships require similar
arrangements for which we have pledged $14.5 million in collateral as of March 31, 2007. In addition, in connection with our April 2007 acquisition of Monument branded credit card receivables in the United Kingdom, we guaranty certain
obligations of our third-party originating financial institution to Visa Europe.

Also under the agreements with our third-party
originating financial institutions, we have agreed to indemnify the financial institutions for certain costs associated with the financial institutions card issuance and other lending activities on our behalf. Our indemnification obligations
generally are limited to instances in which we either (1) have been afforded the opportunity to defend against any potentially indemnifiable claims or (2) have reached agreement with the financial institutions regarding settlement of
potentially indemnifiable claims.

Commencing in June 2006, the FDIC began investigating the policies, practices and procedures used in
connection with our credit card originating financial institution relationships. In December 2006, the Federal Trade Commission (FTC) commenced a related investigation. In general, the investigations focus upon whether marketing and
other materials contained misrepresentations regarding, among other things, fees and credit limits and whether servicing and collection practices were conducted in accordance with applicable law. We have provided substantial information to both the
FDIC and FTC, and we continue to respond to their requests. The FDIC and FTC have proposed limitations on certain marketing, servicing and collection practices, reimbursement of significant fees to affected customers and the payment of fines. We
believe that our marketing and other materials and servicing and collection practices comply with applicable law, and we are vigorously contesting the proposed reimbursement of fees and payment of fines. The matters under investigation involve a
significant amount of fees and a substantial number of accounts, and although it is premature to determine the outcomes of these investigations or their effects on our financial condition, results of operations, business position and consolidated
financial statements, an adverse outcome could have a materially adverse effect upon us.

Certain of our subsidiaries had agreements with
third-party financial institutions pursuant to which the applicable subsidiaries serviced micro-loans on behalf of the financial institutions in exchange for servicing fees; these servicing activities ceased in May 2006 as a result of the
FDICs decision effectively asking FDIC-insured financial institutions to cease loan origination activities through these types of servicing arrangements. As a result of this guidance, the originating bank for which we previously serviced loans
in four states exited that business and liquidated its existing loans through a loan participation relationship with Maverick Management Company LLC (Maverick). To facilitate that transaction and our orderly exit from these servicing
operations, we agreed to indemnify Maverick for up to $2.8 million in losses that it may incur as a result of its being a successor to the banks interest in the loans and their liquidation. Richard W. Gilbert, a member of our Board of
Directors and our Chief Operating Officer, has a 20% economic interest in Maverick, and Mr. Gilberts son is its manager. As of March 31, 2007, we had paid claims submitted by Maverick of $1.7 million against this indemnification
obligation. We do not anticipate any further claims to be made against this indemnification.

One of our most significant sources of
liquidity is the securitization of credit card receivables. The maturity terms of our securitizations vary. As of March 31, 2007, securitization facilities underlying our securitization trusts included: a six-year term securitization facility
(expiring October 2010), a five-year term securitization facility (expiring October 2009), a two-year variable funding securitization facility with renewal options (initial term expiring January 2008) and a one-year conduit securitization facility
with renewal options (initial term expiring September 2007) issued out of our originated portfolio master trust; a ten-year amortizing term securitization facility issued out of our Embarcadero Trust (expiring January 2014); and a multi-year
variable funding securitization facility issued out of the trust associated with our securitization of $92.0 million and $72.1 million (face amount) in credit card receivables acquired during 2004 and in the first quarter of 2005, respectively
(expiring September 2014). While we have never triggered an early amortization within any of the series underlying our arranged securitization facilities and do not believe that we will, we may trigger an early amortization of one or more of the
outstanding series within our securitization trusts. As each securitization facility expires or comes up for renewal, there can be no assurance that the facility will be renewed, or if renewed, there can be no assurance that the terms will be as
favorable as the terms that currently exist. Either of these events could significantly increase our need for additional liquidity.



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CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

March 31, 2007



We are subject to various legal proceedings and claims that arise in the ordinary course of business.
In one of these legal proceedings, CompuCredit Corporation and five of our subsidiaries are defendants in a purported class action lawsuit entitled Knox, et al. vs. First Southern Cash Advance, et al., No 5 CV 0445, filed in the
Superior Court of New Hanover County, North Carolina, on February 8, 2005. The plaintiffs allege that in conducting a so-called payday lending business, certain of our Retail Micro-Loans segment subsidiaries violated various laws
governing consumer finance, lending, check cashing, trade practices and loan brokering. The plaintiffs further allege that CompuCredit is the alter ego of its subsidiaries and is liable for their actions. The plaintiffs are seeking damages of up to
$75,000 per class member. We intend to vigorously defend this lawsuit. These claims are similar to those that have been asserted against several other market participants in transactions involving small balance, short-term loans made to consumers in
North Carolina. There are no other material pending legal proceedings to which we are a party. We do not believe the pending legal proceedings will have a material impact on our financial position.

11. Net (Loss) Income Per Common Share

The following
table sets forth the computation (in thousands, except per share data) of net (loss) income per common share:



|                                                                 |  |                                      |        |   |      |   |       
|---------------------------------------------------------------- |  | ------------------------------------ | ------ | - | ---- | - | ------
|                                                                 |  | For the three months ended March 31,
|                                                                 |  | 2007                                 |        |   | 2006
|Numerator:                                                       |  |                                      |        |   |      |   |       
|Net (loss) income                                                |  | $                                    | (2,516 | ) |      | $ | 30,658
|                                                                 |  |                                      |        |   |      |   |       
|Denominator:                                                     |  |                                      |        |   |      |   |       
|Basic weighted-average shares outstanding                        |  |                                      | 50,262 |   |      |   | 48,632
|Effect of dilutive stock options, warrants and restricted shares |  |                                      |       |   |      |   | 1,672 
|                                                                 |  |                                      |        |   |      |   |       
|Diluted adjusted weighted-average shares outstanding             |  |                                      | 50,262 |   |      |   | 50,304
|                                                                 |  |                                      |        |   |      |   |       
|Net (loss) income per common share  basic                       |  | $                                    | (0.05  | ) |      | $ | 0.63  
|                                                                 |  |                                      |        |   |      |   |       
|Net (loss) income per common share  diluted                     |  | $                                    | (0.05  | ) |      | $ | 0.61  
|                                                                 |  |                                      |        |   |      |   |       

As their effects were anti-dilutive due to our net loss for the period, we excluded all of our
stock options and unvested restricted shares from the three months ended March 31, 2007 net (loss) per common share calculation. For the three months ended March 31, 2006, we excluded 36,500 of stock options from our net income per common
share calculation.

12. Stock-Based Compensation

As of March 31, 2007, we had five stock-based employee compensation plans (an employee stock purchase plan, three stock option plans and a restricted stock plan).

Stock Options

Effective January 1, 2006,
we adopted Statement No. 123(R) using the modified prospective application. For the three months ended March 31, 2007 and 2006, we expensed compensation costs of $0.5 million and $0.2 million, respectively, related to our stock option
plans. For the three months ended March 31, 2007 and 2006, we recognized income tax benefit within additional paid-in capital of $0.7 million and $84,000, respectively, related to our stock option plans. We recognize stock-option-related
compensation expense for any awards with graded vesting on a straight-line basis over the vesting period for the entire award.

The
following table provides the reserved common shares and common shares available for future issuance for each of our stock option plans as of March 31, 2007:



|                       |  |                 |  |                       |  |            
|---------------------- |  | --------------- |  | --------------------- |  | -----------
|                       |  | Shares Reserved |  | Available forIssuance |  | Outstanding
|1998 Stock Option Plan |  | 1,200,000       |  | 307,281               |  | 341,000    
|2000 Stock Option Plan |  | 1,200,000       |  | 92,911                |  | 116,043    
|2003 Stock Option Plan |  | 1,200,000       |  | 616,915               |  | 550,830    



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

March 31, 2007



A summary of the status of our stock options as of March 31, 2007 and changes for the three
months then ended is presented below:



|                               |  |                 |   |  |                                |       |                                            |      |                          |   |           
|------------------------------ |  | --------------- | - |  | ------------------------------ | ----- | ------------------------------------------ | ---- | ------------------------ | - | ----------
|                               |  | Number ofShares |   |  | Weighted-AverageExercise Price |       | WeightedAverage ofRemainingContractualLife |      | AggregateIntrinsic value
|Outstanding at January 1, 2007 |  | 1,079,889       |   |  | $                              | 23.96 |                                            |      |                          |   |           
|Granted                        |  |                |   |  |                                |      |                                            |      |                          |   |           
|Exercised                      |  | (72,016         | ) |  |                                | 9.91  |                                            |      |                          |   |           
|Cancelled/Forfeited            |  |                |   |  |                                |      |                                            |      |                          |   |           
|                               |  |                 |   |  |                                |       |                                            |      |                          |   |           
|Outstanding at March 31, 2007  |  | 1,007,873       |   |  | $                              | 24.96 |                                            | 3.54 |                          | $ | 6,307,463 
|                               |  |                 |   |  |                                |       |                                            |      |                          |   |           
|Exercisable at March 31, 2007  |  | 499,962         |   |  | $                              | 9.05  |                                            | 0.99 |                          | $ | 11,083,262
|                               |  |                 |   |  |                                |       |                                            |      |                          |   |           

As of March 31, 2007, our unamortized deferred compensation costs associated with non-vested
stock options were $6.9 million. We received $0.7 million in cash proceeds from stock option exercises during the three months ended March 31, 2007, and we did not issue any options during the three months ended March 31, 2007.

Restricted Share Awards

During the three
months ended March 31, 2007, we granted 112,396 shares of restricted stock with a fair value of $4.1 million under our 2004 Restricted Stock Plan. Our restricted share grants generally vest over a range of 24 to 60 months, and we are
amortizing associated deferred compensation amounts to compensation expense ratably over the vesting period. As of March 31, 2007, our unamortized deferred compensation costs associated with non-vested restricted stock awards were $17.2 million
with a weighted average remaining amortization period of 2.93 years.

Occasionally, we issue or sell stock in our subsidiaries to certain
members of the subsidiaries management teams. The terms of these awards vary but generally include vesting periods comparable to those of stock issued under our restricted stock plan. Generally, these shares can be converted to cash or our
stock at our discretion after the specified vesting period or the occurrence of other contractual events. Ownership in these shares constitutes minority interests in the subsidiaries. We are amortizing this compensation cost commensurate with the
applicable vesting period. The weighted average remaining vesting period was 3.9 years as of March 31, 2007.

13. Acquisitions

In January 2007, we acquired a 75% ownership interest in JRAS for $3.3 million from its former owners, and we intend to expand its operations over the
next year. At its acquisition date, JRAS operated 4 retail locations in Georgia. As of March 31, 2007, JRAS has procured three additional locations which will open over the next few months. JRAS sells vehicles to consumers and provides the
underlying financing associated with the vehicle sales. Customer purchases are financed for periods of time between 24 and 30 months, credit is approved and payments are received in each store front, and this type of operation is commonly referred
to as a Buy Here/Pay Here operation. JRAS currently retains all loans and servicing for all contracts and has a $10.0 million line of credit provided by a commercial finance company, $3.8 million of which was outstanding at
March 31, 2007. As part of the JRAS acquisition transaction, we have recorded $1.6 million of goodwill and $0.7 million of intangible assets.

In February 2007, we acquired all of the assets of San Diego, California-based ACC. At acquisition date, ACC serviced approximately $275 million in auto finance receivables. ACC operates in 12 states with collection centers in San Diego,
California and Denver, Colorado and has approximately 170 employees. Contemporaneous with this purchase, we also acquired a $195.0 million auto loan portfolio from Patelco Credit Union. These assets were originated by ACC and were serviced by ACC on
behalf of Patelco. The total purchase price paid for the two acquisitions was $168.5 million. ACC serves a consumer niche that, from a credit quality perspective, is slightly above the niche served by CAR, which we acquired in April 2005. As part of
the ACC transaction, we recorded $6.8 million of goodwill and $1.7 million of intangible assets.



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

March 31, 2007



On April 2, 2007, we acquired 95% of the outstanding shares of MEM for £11.6 million
($22.3 million) in cash. A contingent performance-related earnout could be payable to the sellers on achievement of certain earnings measurements for the years ended 2007, 2008 and 2009. The maximum amount payable under for this earnout is
£120.0 million. MEM operates in England and Wales, originates weekly, 1-month and 3-month micro-loans over the Internet and sells and finances telephone handsets with financing terms up to 7 months.

On April 4, 2007, we acquired approximately £490 million ($970 million) in face amount of Monument branded credit card receivables in the
United Kingdom from Barclaycard, a division of Barclays Bank PLC. We paid the purchase price of approximately £390 million ($770 million) in cash. The amount of the consideration is subject to final adjustment following determination of
the actual amount of the gross receivables sold, which is expected to occur during the second quarter of 2007. A substantial portion of the cash purchase price obligation was funded through a traditional securitization financing arranged by Banc of
America Securities Limited and related entities.



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##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes included herein and
our Annual Report on Form 10-K for the year ended December 31, 2006, where certain terms (including trust, subsidiary and other entity names and financial, operating and statistical measures) have been defined.

This Managements Discussion and Analysis of Financial Condition and Results of Operations includes forward-looking statements. We have based these
forward-looking statements on our current plans, expectations and beliefs about future events. Actual results could differ materially because of factors discussed in Risk Factors in Part II, Item 1A and elsewhere in this report.

OVERVIEW

We are a provider of various
credit and related financial services and products to or associated with the underserved, or sub-prime, consumer credit market, and to un-banked consumers. We serve these markets principally through our marketing and solicitation of
credit card accounts and our servicing of various credit card receivables underlying both originated and acquired accounts. Because only financial institutions can issue general-purpose credit cards, we contract with third-party financial
institutions pursuant to which the financial institutions issue general purpose Visa and MasterCard credit cards and we purchase the receivables relating to such accounts on a daily basis. We market to cardholders other fee-based products, including
credit and identity theft monitoring, health discount programs, shopping discount programs, debt waiver and life insurance. Our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range are now a significant
source of growth and profitability for us. At March 31, 2007, the gross face amount of credit card receivables underlying these product offerings was $801.4million.

Our product and service offerings also include small-balance, short-term cash advance loans (generally less than $500 for less than 30 days and to which we refer as micro-loans), installment loans and
stored-value cards marketed through various channels, including retail branch locations, direct marketing, telemarketing and the Internet. We also (1) originate auto loans through franchised auto dealers, (2) purchase and/or service auto
loans from or for a pre-qualified network of dealers in the Buy Here/Pay Here used car business, (3) originate, purchase and/or service motorcycle, all-terrain vehicle, personal watercraft and similar loans through, from or for pre-qualified
networks of dealers in these products, and (4) sell used automobiles through our own Buy Here/Pay Here lots, originating the loans under which these automobile sales are financed. Lastly, our licensed debt collections subsidiary purchases and
collects previously charged-off receivables from us, the trusts that we service and third parties.

Our business experienced several
significant changes during the three months ended March 31, 2007:



| |  |  | In January 2007, we acquired a 75% ownership interest in JRAS, which sells vehicles to consumers and provides the underlying financing associated with the vehicle
sales;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In January 2007, warrants to purchase 2.4 million shares of our common stock were exercised, and we received $53.9 million;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | In February 2007, we acquired the business of ACC, an originator and servicer of auto loans generated by franchised auto dealers, and a related portfolio of
ACC-serviced auto loans; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In March 2007, we repurchased 2.9 million shares of our common stock for $86.5 million.
| | - |  | ---------------------------------------------------------------------------------------

Our shareholders should expect us to continue to evaluate and pursue for acquisition additional credit card receivables portfolios and other business
activities and asset classes that are complementary to our historic sub-prime credit card business. For example, in April 2007, we completed two additional acquisitions: our acquisition of MEM, a U.K. online micro-loan originator and our acquisition
of £490 million ($970 million) in face amount of Monument branded credit card receivables in the United Kingdom from Barclaycard, a division of Barclays Bank PLC.

We also expect to continue marketing accounts within our traditional originated portfolio and to grow the accounts and receivables underlying our largely
fee-based credit card offerings to consumers at the lower end of the FICO scoring range. However, these operations are heavily regulated, and over time there will be changes to how we conduct our operations. For example, in response to comments
about minimum payments and negative amortization received from the FDIC in the course of its examinations of the banks that issue credit cards on our behalf, during the third and fourth quarters of 2006 we discontinued billing finance charges and
fees on credit card accounts that become over 90 days delinquent. This change had significant adverse effects on our fourth quarter 2006 and first quarter 2007 managed receivables net interest margins and other income ratios.



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Commencing in June 2006, the FDIC began investigating the policies, practices and procedures used in
connection with our credit card originating financial institution relationships. In December 2006, the FTC commenced a related investigation. In general, the investigations focus upon whether marketing and other materials contained
misrepresentations regarding, among other things, fees and credit limits and whether servicing and collection practices were conducted in accordance with applicable law. We have provided substantial information to both the FDIC and FTC, and we
continue to respond to their requests. The FDIC and FTC have proposed limitations on certain marketing, servicing and collection practices, reimbursement of significant fees to affected customers and the payment of fines. We believe that our
marketing and other materials and servicing and collection practices comply with applicable law, and we are vigorously contesting the proposed reimbursement of fees and payment of fines. The matters under investigation involve a significant amount
of fees and a substantial number of accounts, and although it is premature to determine the outcomes of these investigations or their effects on our financial condition, results of operations, business position and consolidated financial statements,
an adverse outcome could have a materially adverse effect upon us.

We remain focused on making good economic decisions that will result in
high returns on equity to our shareholders over a long-term horizon. While our decisions may make economic sense, they may also result in volatile earnings under GAAP as a result of the accounting requirements for securitizations under Statement
No. 140. To the extent that we grow our overall portfolio of credit card receivables (through origination, acquisition or other new channels) and then securitize these assets, we will have securitization gains or losses, which may be material.
For further discussion of our historic results and the impact of securitization accounting on our results, see the Results of Operations and Liquidity, Funding and Capital Resources sections below, as well as our condensed
consolidated financial statements and the notes thereto included herein.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2007, Compared to the Three Months Ended March 31, 2006

Total interest income. Total interest income consists primarily of finance charges and late fees earned on loans and fees receivable that we
have not securitized in off-balance-sheet securitization transactionsprincipally receivables associated with our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range and our Auto Finance segment. The
$28.6 million increase when comparing the three months ended March 31, 2007 to the three months ended 2006 is primarily due to growth in credit card receivables associated with our largely fee-based credit card offerings to consumers at the
lower end of the FICO scoring range. In addition, our newly acquired ACC and JRAS subsidiaries contributed $5.2 million of interest income during the three months ended March 31, 2007. Also included within total interest income (under the other
category) is the interest income that we earned on our various investments in debt securities, including interest earned on bonds distributed to us from our equity-method investees and on our subordinated, certificated interest in the Embarcadero
Trust. Principal amortization has caused reductions in interest income levels associated with some of our bonds and the Embarcadero Trust interest. Nevertheless, our other interest income levels for the three months ended March 31, 2007 have
increased relative to the three months ended March 31, 2006 as interest paid on our investments in debt securities (typically in bonds issued by other third party asset-backed securitizations) has increased with our additional investments in
these securities.

We expect continued growth in receivables associated with our largely fee-based credit card offerings to consumers at
the lower end of the FICO scoring range and within our Auto Finance segment. Unless we securitize these receivables in off-balance-sheet arrangements, this expected growth should translate into continued growth in our total interest income.

Interest Expense. Interest expense increased $4.3 million principally due to interest expense related to our March 2006
structured financing associated with our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range and from debt related to our newly acquired ACC and JRAS subsidiaries which contributed an additional $1.3
million in interest expense.



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##### Table of Contents

Fees and related income on non-securitized earning assets. The following table details (in
thousands) the components of fees and related income on non-securitized earning assets:



|                                                                |  |                                     |         |      |   |        
|--------------------------------------------------------------- |  | ----------------------------------- | ------- | ---- | - | -------
|                                                                |  | For the three monthsended March 31,
|                                                                |  | 2007                                |         | 2006
|Retail micro-loan fees                                          |  | $                                   | 26,163  |      | $ | 20,939 
|Fees on non-securitized credit card receivables                 |  |                                     | 120,959 |      |   | 87,351 
|Investments in previously charged-off receivables               |  |                                     | 17,184  |      |   | 9,297  
|Other                                                           |  |                                     | 6,845   |      |   | 2,183  
|                                                                |  |                                     |         |      |   |        
|Total fees and related income on non-securitized earning assets |  | $                                   | 171,151 |      | $ | 119,770
|                                                                |  |                                     |         |      |   |        

The increase of $51.4 million in fees and related income on non-securitized earning assets
for the three months ended March 31, 2007 was largely attributable to:



| |  |  | growth in fees on our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range, which increased $33.6 million principally due
to increased originations;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | growth in our Retail Micro-Loans segment, in which fees increased $5.2 million primarily due to our expansion into Michigan, Texas and Nevada and our conversion of
operations in Arkansas and Florida from bank-model servicing operations to direct lending operations in 2006;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an increase in income within our Investments in Previously Charged-Off Receivables segment of $7.9 million, which included accretion of deferred revenue associated
with our forward flow contract with Encore of $4.7 million in 2007 compared to $2.0 million in 2006;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an increase in gains on our investments in debt and equity securities of $2.0 million; and
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | automotive vehicle sales of $2.5 million by our newly acquired JRAS subsidiary.
| | - |  | -------------------------------------------------------------------------------

The other category above includes unrealized gains and losses in both 2007 and 2006 associated with our investments in debt and equity securities that we
classify as trading securities as well as the automotive vehicle sales of our newly acquired JRAS subsidiary. We expect to see continued income growth within the other category, as well as within our retail micro-loans fees and fees on
non-securitized credit card receivables categories, throughout 2007 and beyond. We have these expectations in part because we significantly increased our purchases of debt and equity securities classified as trading securities during the third
quarter of 2006. We expect future long-term earnings and activity levels with respect to these securities commensurate with or even greater than 2006 levels. However, we do note that the nature of these assets coupled with the mark-to-market
accounting that we employ for them can be expected to introduce greater future earnings volatility than we experience for some of our other asset classes.

Provision for loan losses. Our provision for loan losses increased $56.6 million for the three months ended March 31, 2007, when compared to the same period of 2006. This increase corresponds
with our significant year-over-year growth in on-balance-sheet loans and fees receivable principally related to our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range.

Our provision for loan losses covers aggregate loss exposures on (1) principal receivable balances, (2) finance charges and late fees
receivable underlying income amounts included within our total interest income category, and (3) other fees receivable. Although we do not expect to see any significant near-term degradation in the credit quality of our on-balance-sheet loans
and fees receivable, and while current delinquency and credit loss trends for these receivables generally look neutral to favorable on a vintage basis and with reference to our expectations, we do expect our provision for loan losses to increase in
future quarters based on expected loans and fees receivable growth.

The percentage of our allowance for uncollectible loans and fees
receivable to gross period-end loans and fees receivable at March 31, 2007 (19.3%) is lower than it was at December 31, 2006 (22.6%) and higher than it was at March 31, 2006 (15.4%). Additionally, our provision for loan
losses as a percentage of average gross loans and fees receivable in the first quarter of 2007 (12.5%) is lower than it was in the fourth quarter of 2006 (18.8%) and in the first quarter of 2006 (13.4%). The above figures include the
acquisition of ACC which under the accounting guidance of SOP 03-3 results in a net loan balance presentation with no corresponding allowance for uncollectible loans and fees receivable. Removing the balances attributable to the ACC acquisition
would result in a 22.2% allowance for uncollectible loans and fees receivable as a percentage of gross period-end loans and fees receivable at March 31, 2007 and a 13.4% provision for loan losses as a percentage of average gross loans and fees
receivable for the three months ended March 31, 2007. The above statistics are overwhelmingly influenced by the receivables associated with our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range,
which is by far the most significant category of receivables reflected on our consolidated balance sheets:



| |  |  | The year over year statistics reflect the mix change over the past year in the receivables comprising our gross loans and fees receivable, such that an increasing
percentage of the overall balance is comprised of receivables associated with our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range, for which loss rates are higher than for the remaining receivables
within our gross loans and fees receivable balance, which consist primarily of receivables within our Auto Finance segment and our Retail Micro-Loans segment.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | The first quarter of 2007 to fourth quarter of 2006 changes principally reflect the effects of marketing volume-based volatility for the receivables associated with
our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range. This class of receivables reaches peak charge off on a vintage basis between approximately eight to nine months after card activation, and we
experienced marketing-based volatility in our volumes associated with this product offering as we ramped up its growth rates significantly late in 2005 and in the first half of 2006. As such, we experienced a heightened level of charge offs and
delinquencies for this class of receivables in both the fourth quarter of 2006 and the first quarter of 2007 as significant vintages of receivables reached their charge-off peak during these quarters. Appropriately, our allowance for uncollectible
loans and fees receivable methodologies (and hence provision for loan losses) are heavily influenced by delinquency levels, which dropped significantly for this class of receivables between December 31, 2006 and March 31, 2007. Some of
this decline in delinquencies is attributable to normal seasonal patterns, but most of it is attributable to the marketing-based volatility and peak charge off factors noted above. As growth rates for the receivables associated with our largely
fee-based credit card offerings to consumers at the lower end of the FICO scoring range normalize as we expect they will and as our asset base for this pool of receivables grows, we are less likely to experience the same degree of marketing
volume-based volatility in peak charge-off vintages that we experienced over the past two quarters.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Fees and
related income on securitized earning assets. Fees and related income on securitized earning assets include (1) securitization gains, (2) income from retained interests in credit card receivables securitized and
(3) returned-check, cash advance and other fees associated with our securitized credit card receivables, each of which is detailed (in thousands) in the following table.



|                                                                      |  |                                      |        |      |   |       
|--------------------------------------------------------------------- |  | ------------------------------------ | ------ | ---- | - | ------
|                                                                      |  | For the three months ended March 31,
|                                                                      |  | 2007                                 |        | 2006
|Securitization gains                                                  |  | $                                    |       |      | $ | 863   
|Income from retained interests in credit card receivables securitized |  |                                      | 14,562 |      |   | 44,796
|Fees on securitized receivables                                       |  |                                      | 5,140  |      |   | 4,810 
|                                                                      |  |                                      |        |      |   |       
|Total fees and related income on securitized earning assets           |  | $                                    | 19,702 |      | $ | 50,469
|                                                                      |  |                                      |        |      |   |       

The $30.8 million decrease in total fees and related income on securitized earning assets for the
three months ended March 31, 2007, when compared to the same period in 2006 reflects:



| |  |  | the fact that we did not experience any securitization gains in the first quarter of 2007 as we did not grow the receivables within our originated portfolio master
trust during the first quarter of 2007;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a reduction in the income from retained interests in credit card receivables attributable to the fourth quarter 2006 implementation of our billing practice change
to no longer bill finance charges and fees on credit card accounts that become more than 90 days delinquent;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the desecuritization of the Fingerhut Trust III receivables in the fourth quarter of 2006; and
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | contraction in income from retained interests in our purchased portfolios of securitized credit card receivables due to (a) continued reductions in managed
receivables levels within their respective securitization trusts throughout 2006 and in the first quarter of 2007, and (b) a decrease in the favorable effects of purchase discounts underlying our retained interests in the Embarcadero Trust
throughout both periods. The benefits of purchase discounts associated with the managed receivables underlying our retained interests in the Embarcadero Trust abated significantly during these periods. We anticipated this change as the mix of
managed receivables within the Embarcadero Trust has continued to shift over time (i.e., from receivables to which purchase discounts applied at the date of acquisition to new receivables generated from post-acquisition cardholder purchases for
which there are no purchase discounts). Related to these mix changes are higher principal charge offs being netted against our income from retained interests in credit card receivables securitized, as well as lower inclusions of accretable yield as
a component of our income from retained interests in credit card receivables securitized.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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In our Credit Cards segment discussion below, we provide further details concerning delinquency and
credit quality trends, which affect the level of our income from retained interests in credit card receivables securitized and fees on securitized receivables.

Servicing income. Servicing income decreased $8.9 million for the three months ended March 31, 2007 as compared to three months ended March 31, 2006, principally due to receivables
liquidations within our securitized purchased credit card portfolios. Based on our April 2007 acquisition and securitization of £490 million ($970 million) in face amount of Monument branded credit card receivables in the United Kingdom
for which we have been engaged as servicer, we expect an increase in servicing income in the second quarter of this year. Absent further acquisitions, however, we expect a decline from this heightened second quarter 2007 servicing income level
thereafter as we do not expect to experience growth in our originated portfolio master trust receivables at levels that will exceed net liquidations of the securitized acquired portfolios for which we have been engaged as servicer.

Servicing income also declined because the FDIC effectively asked FDIC-insured financial institutions in February 2006 to cease cash advance and
installment micro-loan activities conducted through processing and servicing agents such as our Retail Micro-Loans segment subsidiaries. As such, we did not earn any servicing income within our Retail Micro-Loans segment during the three months
ended March 31, 2007, while we earned $3.7 million of servicing income in this segment for the three months ended March 31, 2006. We subsequently converted the Retail Micro-Loans segments operations in two of the four states affected
by this FDIC action to a direct lending model; as such, this lost servicing income has been replaced by lending fees, which are reported within fees and related income on non-securitized earning assets.

Ancillary and interchange revenues. Ancillary and interchange revenues increased $3.6 million for the three months ended March 31,
2007, compared to the same period in 2006 correlating with both growth in our managed receivables levels based our origination of new credit card accounts and a commensurate mix change in our cardholder account base for which a greater percentage of
our cardholder account base now is comprised of newer credit card accounts for which we typically experience higher ancillary revenues and higher purchasing volumes and associated interchange fees than for more mature cardholder accounts. Throughout
the remainder of 2007 and beyond, we expect further growth in our ancillary and interchange revenues based on our current emphasis on new account originations.

Equity in income of equity-method investees. Notwithstanding our July 2006 purchase of an additional 11.25% interest in CSG and a correspondingly higher income allocation there from, equity in income of
equity-method investees decreased $15.9 million for the three ended March 31, 2007 primarily due to diminished earnings over time as we continue to liquidate the receivables balances associated with these equity-method investees.

Total other operating expense. Total other operating expense increased by $21.5 million for the three months ended
March 31, 2007 due principally to:



| |  |  | a $4.8 million increase in salaries and benefits primarily due to (a) growth in receivables within our originated portfolio master trust and receivables
associated with our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range, (b) personnel additions in connection with our acquisitions of JRAS in January 2007 and ACC in February 2007,
(c) additional information technology and other management personnel that we have hired associated with several new product and systems launches within our Credit Cards, Retail Micro-Loans, Auto Finance and Other segments and (d) $1.3
million in increased salaries and benefits expense associated with the amortization of restricted stock and stock option grants based in large part on sizable grants to our President in May 2006;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an $8.8 million increase in card and loan servicing expense due to (a) servicing costs related to growth in receivables associated with our largely fee-based
credit card offerings to consumers at the lower end of the FICO scoring range and net growth in our originated portfolio master trust receivables, (b) higher servicing costs associated with our expanding number of issuing bank relationships and
new product lines and (c) servicing costs now incurred for our newly acquired JRAS and ACC subsidiaries, all such increases being offset partially by diminished servicing costs associated with our acquired credit card portfolios given their
continuing liquidations during 2006 and 2007;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a $9.0 million increase in marketing and solicitation costs (including significantly higher advertising costs through television and the Internet, which
represent significant expanded marketing channels for us) aimed at growing account originations within our originated portfolio master trust, with respect to our largely fee-based credit card offerings to consumers at the lower end of the FICO
scoring range, and within our Retail Micro-Loans segment; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | a $9.4 million increase in other expenses, including depreciation and occupancy and related expenses, due primarily to (a) increased costs associated with
infrastructure build-out to handle growth within our originated portfolio and our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range (along with associated customer service enhancements), (b) our
implementation of an advanced data analytics platform that allows us to access, query and analyze our large data sets with increased efficiency, speed and power, thereby decreasing our unit costs for data management while contributing to our
competitive advantage in data analysis, (c) heightened legal, regulatory and compliance efforts and costs associated with the FDIC and FTC investigations and our establishment of an expanded number of issuing bank relationships and new product
offerings, (d) several new product and systems launches within our Credit Cards, Retail Micro-Loans, Auto Finance and Other segments, (e) added expense related to our newly acquired JRAS and ACC subsidiaries, (f) accelerated
depreciation associated with shortened useful lives of our leasehold improvements within our existing Atlanta, Georgia headquarters office facilities given our anticipated mid-2007 move out of these facilities and (g) additional rent expense
related to our new office lease as we have now taken possession of the new facilities in anticipation of our mid-2007 move to these facilities;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

partially offset, however, by:



| |  |  | $10.5 million for goodwill impairment recorded during the first quarter of 2006, within our Retail Micro-Loans segment associated with the February 2006 FDIC
decision effectively asking FDIC-insured financial institutions to cease cash advance and installment micro-loan activities conducted through processing and servicing agents such as our Retail Micro-Loans segment subsidiaries.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

While we incur certain base levels of fixed costs associated with the infrastructure that we have built to support our
growth and diversification into new products and services, the majority of our operating costs are highly variable based on the levels of receivables that we service (both for our own account and for others) and the pace and breadth of our search
for, acquisition of and introduction of new business lines, products and services. We expect to continue growing and diversifying our business throughout 2007, and while certain unique expenses undertaken in the past may not be repeated and while we
continue to derive cost reductions through our outsourcing and other cost-control efforts, we do expect to see continued growth in our total other operating expense levels (on a year-over-year and quarter-over-quarter comparative basis) based on
growth that we plan to undertake. We also expect to incur some additional operating costs in 2007 associated with the move of our corporate headquarters and other Atlanta, Georgia facilities to new buildings; among these higher costs are the
physical costs of moving, heightened levels of technology spending associated with the move, potential loss recognition if we determine that we are unable to sublease our existing facilities at lease rates in excess of the costs of our existing
leases, and additional depreciation for leasehold improvements and any furniture and fixtures related to the new lease.

Minority interests. We reflect the ownership interests of minority holders of equity in our majority-owned subsidiaries (including management team holders of restricted shares in our subsidiary entities, See Note 12,
Stock-Based Compensation) as minority interests in our condensed consolidated statements of operations. The minority interests expense associated with these subsidiaries totaled $0.7 million and $3.4 million for the three months ended
March 31, 2007 and 2006, respectively. Generally, this expense is declining, which is consistent with (1) liquidations of acquired credit card portfolios within securitization trusts, the retained interests of which are owned by our
majority-owned subsidiaries and (2) the resulting relative decline in contributions of our majority-owned subsidiaries (as discussed in Fees and related income on securitized earning assets, above) to income from retained
interests in credit card receivables securitized as noted above. This decrease was offset slightly by minority interests expense related to income of JRAS, our new 75%-owned Auto Finance subsidiary that we acquired in January 2007.

Income taxes. Our effective tax rate was 36.0% for both the three months ended March 31, 2007and 2006.

Credit Cards Segment

Our Credit Cards segment
consists of our credit card investment and servicing activities, as conducted with respect to receivables underlying accounts originated and portfolios purchased by us. This segment represents aggregate activities associated with substantially all
of our credit card products, including our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range. Because we have not securitized the receivables associated with our largely fee-based credit card offerings
to consumers at the lower end of the FICO scoring range through an off-balance-sheet securitization, revenues associated with these offerings include interest income (along with late fees), fees and related income. With respect to our securitized
credit card receivables (which represent a substantial majority of our credit card receivables), our fees and related income on securitized earning assets within the Credit Cards segment include (1) securitization gains, (2) income from
retained interests in credit card receivables securitized and (3) returned-check, cash advance and other fees associated with our securitized credit card receivables. Also within our Credit Cards segment are equity in the income of
equity-method investees and servicing income revenue sources. We earn



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servicing income from the trusts underlying our securitizations and the securitizations of our equity-method investees. Our revenue categories most affected
by delinquency and credit loss trends are the net interest income, the fees and related income on non-securitized earnings assets (which are net of a provision for loan losses) and the income from retained interests in credit card receivables
securitized categories.

Background

For our credit card securitizations that qualify for sale treatment under GAAP, we remove the securitized receivables from our consolidated balance sheet. The performance of the underlying credit card receivables will nevertheless affect
the future cash flows we actually receive. Various references within this section are to our managed receivables, which include our non-securitized credit card receivables and the credit card receivables underlying our off-balance-sheet
securitization facilities. Managed receivables data also include our equity interest in the receivables that we manage for our equity-method investees but exclude minority interest holders shares of the receivables we manage for our
majority-owned subsidiaries.

Financial, operating and statistical data based on these aggregate managed receivables are key to any
evaluation of our performance in managing (including underwriting, valuing purchased receivables, servicing and collecting) the aggregate of the portfolios of credit card receivables reflected on our balance sheet and underlying our securitization
facilities. In allocating our resources and managing our business, management relies heavily upon financial data and results prepared on a so-called managed basis. It is also important to analysts, investors and others that we provide
selected financial, operating and statistical data on a managed basis because this allows a comparison of us to others within the specialty finance industry. Moreover, our management, analysts, investors and others believe it is critical that they
understand the credit performance of the entire portfolio of our managed receivables because it reveals information concerning the quality of loan originations and the related credit risks inherent within the securitized portfolios and our retained
interests in our securitization facilities.

Managed receivables data assume that none of the credit card receivables underlying our
off-balance-sheet securitization facilities was ever transferred to securitization facilities and present the net credit losses and delinquent balances for the receivables as if we still owned the receivables. Reconciliation of the managed
receivables data to our GAAP financial statements requires: (1) recognition that a significant majority of our credit card loans and fees receivable (i.e., all but $787.9 million of GAAP credit card loans and fees receivable at gross face
value) had been sold in securitization transactions as of March 31, 2007; (2) an understanding that our managed receivables data are based on billings and actual charge offs as reported to us through underlying systems of record (i.e.,
without regard to an allowance for uncollectible loans and fees receivable); (3) a look-through to our economic share of (or equity interest in) the receivables that we manage for our equity-method investees; (4) removal of our minority
interest holders interests in the managed receivables underlying our GAAP consolidated results; and (5) recognition that our Fingerhut managed receivables were recorded at a $0.0 basis in our GAAP financial statements prior to our
re-securitization of these receivables in September 2005.

The period-end and average managed receivables data (as well as delinquency and
charge off statistics) that follow within this section exclude receivables associated with accounts in late delinquency status in sellers hands as of the dates of our acquisitions of the receivables or interests therein. Pursuant to this
treatment, the only activity within the following statistical data associated with these excluded accounts are recoveries, which we include within the numerator of the other income ratio computation, as well as the costs of pursuing these
recoveries, which we include within the numerator of the operating ratio computation.

We typically have purchased credit card receivables
portfolios at substantial discounts. A portion of each acquisition discount is related to the excluded receivables and accounts described above. Another portion of each discount relates to the credit quality of the remaining acquired receivables,
which we calculate as the difference between the face amounts of the receivables purchased (less the excluded receivables described above) and the future cash flows we expect to collect from the receivables. We refer to the balance of the discount
for each purchase not needed for credit quality as accretable yield, which we accrete into net interest margin using the interest method over the estimated life of each acquired portfolio. As of the close of each financial reporting period, we
evaluate the appropriateness of the credit quality discount component of our acquisition discount and the accretable yield component of our acquisition discount based on actual and projected future results.

We did not acquire any credit card receivables portfolios during the three months ended March 31, 2007 and 2006.

Asset Quality

Our delinquency and charge off
data at any point in time reflect the credit performance of our managed receivables. The average age of our credit card accounts, the timing of portfolio purchases, the success of our collection and recovery efforts and general economic conditions
all affect our delinquency and charge off rates. The average age of our credit card receivables portfolio also affects the stability of our delinquency and loss rates. We consider the delinquency and charge off data reflected herein in



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determining our allowance for uncollectible loans and fees receivable with respect to our non-securitized earning assets, net on our condensed consolidated
balance sheets, as well as the valuation of our retained interests in credit card receivables securitized which is a component of securitized earning assets on our condensed consolidated balance sheets. As we charge off receivables, we reflect the
charge offs of non-securitized receivables within our provision for loan losses, and we reflect the charge offs of securitized receivables as an offset in determining income from retained interests in credit card receivables securitized (within fees
and related income on securitized earning assets) on our condensed consolidated statements of operations.

Late in the third quarter and
continuing into the fourth quarter of 2006, we discontinued our practice of billing finance charges and fees on credit card accounts that become over 90 days delinquent. Prior to this change our policy was to bill finance charges and fees on all
credit card accounts, except in limited circumstances, until we charged off the account and all related receivables, finance charges and other fees. In such prior periods, however, we excluded from our GAAP income and gross yield, net interest
margin and other income ratio managed receivables data the finance charge and fee income on all significantly delinquent on-balance-sheet credit card receivables for which we believed that collectibility was significantly in doubt on the date of
billing. As such, managed receivables charge-off data associated with our on-balance-sheet credit card receivables were largely unaffected by our billing practice change. This change in billing practice, has affected, however, our securitized
off-balance-sheet managed receivables data.

Our strategy for managing delinquency and receivables losses consists of account management
throughout the customer relationship. This strategy includes credit line management and pricing based on the risks of the credit card accounts.

Delinquencies. Delinquencies have the potential to impact net income in the form of net credit losses. Delinquencies are also costly in terms of the personnel and resources dedicated to resolving them. We intend for the account
management strategies that we use on our portfolio to manage and, to the extent possible, reduce the higher delinquency rates that can be expected in a more mature managed portfolio such as ours. These account management strategies include
conservative credit line management, purging of inactive accounts and collection strategies (as described under the heading How Do We Collect from Our Customers? in Item 1. Business of our Annual Report on Form 10-K for
the year ended December 31, 2006) intended to optimize the effective account-to-collector ratio across delinquency buckets. We measure the success of these efforts by measuring delinquency rates. These rates exclude accounts that have been
charged off.

The following table presents the delinquency trends of the credit card receivables that we manage (dollars in thousands;
percentages of total):



|                                                 |  |                                  |           |   |         |   |           |         |  |   |           |   |  |         |           |   |         |   |           |         |  |   |           |   |  |   |           |   |  |   |           |  
|------------------------------------------------ |  | -------------------------------- | --------- | - | ------- | - | --------- | ------- |  | - | --------- | - |  | ------- | --------- | - | ------- | - | --------- | ------- |  | - | --------- | - |  | - | --------- | - |  | - | --------- | -
|                                                 |  | At or for the three months ended |          
|                                                 |  | 2007                             |           |   | 2006    |   |           | 2005    | 
|                                                 |  | Mar. 31                          |           |   | Dec. 31 |   |           | Sep. 30 |  |   | Jun. 30   |   |  | Mar. 31 |           |   | Dec. 31 |   |           | Sep. 30 |  |   | Jun. 30   |  
|Period-end managed receivables                   |  | $                                | 2,525,856 |   |         | $ | 2,599,477 |         |  | $ | 2,544,797 |   |  | $       | 2,472,122 |   |         | $ | 2,351,667 |         |  | $ | 2,317,751 |   |  | $ | 2,230,108 |   |  | $ | 2,198,703 |  
|Period-end managed accounts                      |  |                                  | 3,797     |   |         |   | 3,700     |         |  |   | 3,611     |   |  |         | 3,502     |   |         |   | 3,414     |         |  |   | 3,248     |   |  |   | 3,039     |   |  |   | 2,868     |  
|Receivables delinquent:                          |  |                                  |           |   |         |   |           |         |  |   |           |   |  |         |           |   |         |   |           |         |  |   |           |   |  |   |           |   |  |   |           |  
|30 to 59 days past due                           |  | $                                | 104,051   |   |         | $ | 121,149   |         |  | $ | 119,432   |   |  | $       | 115,441   |   |         | $ | 84,081    |         |  | $ | 93,583    |   |  | $ | 82,070    |   |  | $ | 83,175    |  
|60 to 89 days past due                           |  |                                  | 91,156    |   |         |   | 101,615   |         |  |   | 102,920   |   |  |         | 89,164    |   |         |   | 71,213    |         |  |   | 68,531    |   |  |   | 66,287    |   |  |   | 61,882    |  
|90 or more days past due                         |  |                                  | 258,918   |   |         |   | 277,896   |         |  |   | 269,752   |   |  |         | 206,234   |   |         |   | 184,693   |         |  |   | 156,414   |   |  |   | 158,161   |   |  |   | 128,351   |  
|                                                 |  |                                  |           |   |         |   |           |         |  |   |           |   |  |         |           |   |         |   |           |         |  |   |           |   |  |   |           |   |  |   |           |  
|Total 30 or more days past due                   |  | $                                | 454,125   |   |         | $ | 500,660   |         |  | $ | 492,104   |   |  | $       | 410,839   |   |         | $ | 339,987   |         |  | $ | 318,528   |   |  | $ | 306,518   |   |  | $ | 273,408   |  
|                                                 |  |                                  |           |   |         |   |           |         |  |   |           |   |  |         |           |   |         |   |           |         |  |   |           |   |  |   |           |   |  |   |           |  
|Total 60 or more days past due                   |  | $                                | 350,074   |   |         | $ | 379,511   |         |  | $ | 372,672   |   |  | $       | 295,398   |   |         | $ | 255,906   |         |  | $ | 224,945   |   |  | $ | 224,448   |   |  | $ | 190,233   |  
|                                                 |  |                                  |           |   |         |   |           |         |  |   |           |   |  |         |           |   |         |   |           |         |  |   |           |   |  |   |           |   |  |   |           |  
|Receivables delinquent as % of period-end loans: |  |                                  |           |   |         |   |           |         |  |   |           |   |  |         |           |   |         |   |           |         |  |   |           |   |  |   |           |   |  |   |           |  
|30 to 59 days past due                           |  |                                  | 4.1       | % |         |   | 4.7       | %       |  |   | 4.7       | % |  |         | 4.7       | % |         |   | 3.6       | %       |  |   | 4.0       | % |  |   | 3.7       | % |  |   | 3.8       | %
|60 to 89 days past due                           |  |                                  | 3.6       | % |         |   | 3.9       | %       |  |   | 4.0       | % |  |         | 3.6       | % |         |   | 3.0       | %       |  |   | 3.0       | % |  |   | 3.0       | % |  |   | 2.8       | %
|90 or more days past due                         |  |                                  | 10.3      | % |         |   | 10.7      | %       |  |   | 10.6      | % |  |         | 8.3       | % |         |   | 7.9       | %       |  |   | 6.7       | % |  |   | 7.1       | % |  |   | 5.8       | %
|                                                 |  |                                  |           |   |         |   |           |         |  |   |           |   |  |         |           |   |         |   |           |         |  |   |           |   |  |   |           |   |  |   |           |  
|Total 30 or more days past due                   |  |                                  | 18.0      | % |         |   | 19.3      | %       |  |   | 19.3      | % |  |         | 16.6      | % |         |   | 14.5      | %       |  |   | 13.7      | % |  |   | 13.8      | % |  |   | 12.4      | %
|                                                 |  |                                  |           |   |         |   |           |         |  |   |           |   |  |         |           |   |         |   |           |         |  |   |           |   |  |   |           |   |  |   |           |  
|Total 60 or more days past due                   |  |                                  | 13.9      | % |         |   | 14.6      | %       |  |   | 14.6      | % |  |         | 11.9      | % |         |   | 10.9      | %       |  |   | 9.7       | % |  |   | 10.1      | % |  |   | 8.6       | %
|                                                 |  |                                  |           |   |         |   |           |         |  |   |           |   |  |         |           |   |         |   |           |         |  |   |           |   |  |   |           |   |  |   |           |  

While we have experienced modest increases in delinquency rates for most of our managed credit
card receivables portfolios between March 31, 2006 and March 31, 2007, the increases in our 30-plus and 60-plus day delinquencies between March 31, 2006 and March 31, 2007 are predominantly attributable to a mix change resulting
from disproportionate growth in our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range, the receivables of which experience greater delinquency and charge-off levels than we experience with respect to our
other credit card receivables. As these receivables underlying our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range become a larger



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component of our overall managed receivables balance, this mix change tends to cause further trending increases in our overall delinquency and charge-off
levels. Nevertheless, we believe that the heightened delinquency and charge-off levels associated with our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range are reasonable based on the relative returns
offered.

Notwithstanding our general expectation of trending increases in our overall delinquency rates due to the mix change toward a
greater proportion of our credit card receivables being comprised of those receivables associated with our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range, we did see a decline in delinquency rates
between December 31, 2006 and March 31, 2007; whereas, delinquency rates actually increased between December 31, 2005 and March 31, 2006. Factors contributing to this disparity include:



| |  |  | better than expected roll rates and hence lower than expected delinquencies, throughout the first quarter of 2007, which as noted below caused lower than expected
late fee and over-limit fee income in the first quarter of 2007 and can be expected to result in reduced charge-off levels in second and third quarters of this year;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | some reductions in delinquency levels associated with our change in billing practices late in the third quarter of 2006 and into the fourth quarter of 2006 to cease
finance charge and fee billings on credit card accounts once they become over 90 days delinquent;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | somewhat lower than normal December 31, 2005 delinquency rates associated with the pull-forward effects of an October 2005 bankruptcy law change (under which
some consumers who otherwise would have been delinquent at December 31, 2005 rushed to file for bankruptcy prior to the October 2005 effective date of new, less-debtor-friendly bankruptcy laws); and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | marketing volume-based volatility for the receivables associated with our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring
range, which caused a peak in delinquencies at the end of the third and fourth quarters of 2006 and higher charge-off levels in the fourth quarter of 2006 and first quarter of 2007. (This class of receivables reaches peak charge off on a vintage
basis between approximately eight to nine months after card activation, and we experienced marketing-based volatility in our volumes associated with this product offering as we ramped up its growth rates significantly late in 2005 and in the first
half of 2006. As such, we experienced a heightened level of charge offs and delinquencies for this class of receivables in both the fourth quarter of 2006 and the first quarter of 2007 as significant vintages of receivables reached their charge-off
peak during these quarters. As growth rates for the receivables associated with our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range normalize as we expect they will and as our asset base for this pool
of receivables grows, we are less likely to experience the same degree of marketing volume-based volatility in peak charge-off vintages that we experienced over the past two quarters.)
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our credit card receivables continue to perform in line with or better than our expected vintage performance levels. Moreover, based on our analyses of
vintage data, we continue to be pleased with the overall credit quality of our managed receivables, including those underlying our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range. In fact, we
experienced better than expected roll rates and lower than expected delinquency rates in the first quarter of 2007, which should translate into lower than expected charge offs in the second and third quarters of 2007.

We also note that our April 4, 2007 acquisition of approximately £490 million ($970 million) in face amount of Monument branded credit
card receivables in the United Kingdom is expected to significantly mute the delinquency rate effects of the above-noted structural change in the mix of our receivables toward a greater proportion of our receivables being comprised of receivables
associated with our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range. This acquisition is expected to significantly reduce our overall delinquency rates in the second quarter, and as this portfolio of
acquired receivables is liquidated, we expect to again see rising delinquency rates solely by reason of the mix change phenomenon.

Charge offs. We generally charge off credit card receivables when they become contractually 180 days past due or within 30 days of notification and confirmation of a customers bankruptcy or death. However, if a
cardholder makes a payment greater than or equal to two minimum payments within a month of the charge off date, we may reconsider whether charge off status remains appropriate. Additionally, in some cases of death, receivables are not charged off
if, with respect to the deceased customers account, there is a surviving, contractually liable individual or an estate large enough to pay the debt in full.



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The following table presents charge-off and other data (dollars in thousands; percentages annualized)
for: (1) all of the credit card receivables underlying the securitizations by our consolidated subsidiaries (adjusted to exclude the receivables associated with minority interest holders equity in our majority-owned consolidated
subsidiaries); (2) our respective 61.25%, 33.3% and 47.5% shares of the receivables that we manage on behalf of our equity-method investees; and (3) all non-securitized credit card receivables ($787.9 million face amount of receivables at
March 31, 2007), including the Fingerhut receivables while they were held on balance sheet and the receivables associated with our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range.



|                                |  |                            |           |   |         |   |           |         |  |   |           |   |  |         |           |   |         |   |           |         |  |   |           |   |  |   |           |   |  |   |           |  
|------------------------------- |  | -------------------------- | --------- | - | ------- | - | --------- | ------- |  | - | --------- | - |  | ------- | --------- | - | ------- | - | --------- | ------- |  | - | --------- | - |  | - | --------- | - |  | - | --------- | -
|                                |  | For the three months ended |          
|                                |  | 2007                       |           |   | 2006    |   |           | 2005    | 
|                                |  | Mar. 31                    |           |   | Dec. 31 |   |           | Sep. 30 |  |   | Jun. 30   |   |  | Mar. 31 |           |   | Dec. 31 |   |           | Sep. 30 |  |   | Jun. 30   |  
|Average managed receivables     |  | $                          | 2,576,300 |   |         | $ | 2,557,897 |         |  | $ | 2,512,066 |   |  | $       | 2,420,272 |   |         | $ | 2,341,712 |         |  | $ | 2,256,994 |   |  | $ | 2,211,547 |   |  | $ | 2,212,378 |  
|Gross yield ratio               |  |                            | 28.8      | % |         |   | 32.9      | %       |  |   | 35.3      | % |  |         | 32.6      | % |         |   | 32.9      | %       |  |   | 31.1      | % |  |   | 30.2      | % |  |   | 29.1      | %
|Combined gross charge offs      |  | $                          | 222,805   |   |         | $ | 227,869   |         |  | $ | 196,697   |   |  | $       | 173,709   |   |         | $ | 129,111   |         |  | $ | 162,917   |   |  | $ | 120,989   |   |  | $ | 129,921   |  
|Net charge offs                 |  | $                          | 86,067    |   |         | $ | 76,384    |         |  | $ | 64,773    |   |  | $       | 57,572    |   |         | $ | 47,571    |         |  | $ | 75,708    |   |  | $ | 58,473    |   |  | $ | 67,602    |  
|Adjusted charge offs            |  | $                          | 84,201    |   |         | $ | 68,377    |         |  | $ | 59,642    |   |  | $       | 51,225    |   |         | $ | 39,344    |         |  | $ | 62,078    |   |  | $ | 42,463    |   |  | $ | 44,900    |  
|Combined gross charge off ratio |  |                            | 34.6      | % |         |   | 35.6      | %       |  |   | 31.3      | % |  |         | 28.7      | % |         |   | 22.1      | %       |  |   | 28.9      | % |  |   | 21.9      | % |  |   | 23.5      | %
|Net charge off ratio            |  |                            | 13.4      | % |         |   | 11.9      | %       |  |   | 10.3      | % |  |         | 9.5       | % |         |   | 8.1       | %       |  |   | 13.4      | % |  |   | 10.6      | % |  |   | 12.2      | %
|Adjusted charge off ratio       |  |                            | 13.1      | % |         |   | 10.7      | %       |  |   | 9.5       | % |  |         | 8.5       | % |         |   | 6.7       | %       |  |   | 11.0      | % |  |   | 7.7       | % |  |   | 8.1       | %
|Net interest margin             |  |                            | 17.9      | % |         |   | 22.6      | %       |  |   | 25.6      | % |  |         | 23.7      | % |         |   | 25.2      | %       |  |   | 22.6      | % |  |   | 23.3      | % |  |   | 22.5      | %
|Other income ratio              |  |                            | 10.6      | % |         |   | 11.2      | %       |  |   | 10.3      | % |  |         | 12.4      | % |         |   | 14.9      | %       |  |   | 12.4      | % |  |   | 10.4      | % |  |   | 8.6       | %
|Operating ratio                 |  |                            | 12.0      | % |         |   | 13.7      | %       |  |   | 11.2      | % |  |         | 10.0      | % |         |   | 10.7      | %       |  |   | 12.9      | % |  |   | 9.0       | % |  |   | 8.9       | %

Through the third quarter of 2006 we experienced a general trend-line of improving gross yield
ratios, net interest margin and other income ratios due to the change in mix of our managed receivables toward a greater proportion of them being comprised of receivables associated with our largely fee-based credit card offerings to consumers at
the lower end of the FICO scoring range. This trend was largely reversed in the fourth quarter of 2006, and these ratios were significantly depressed in the first quarter of 2007 by one or more of the following factors:



| |  |  | Our late third quarter 2006 decision to discontinue finance charge and fee billings on credit card accounts that become over 90 days delinquent reduced our first
quarter 2007 gross yield ratio as this is the first quarter for which we billed no finance charges and fees on any accounts over 90 days delinquent; this billing practice change also carried through to reduce our net interest margin and other income
ratio for the same reason. Moreover, our net interest margin and other income ratio were more dramatically affected by the billing practice change because charge offs of finance charges and fees netted against these ratios included balances
attributable to finance charges and fees assessed on accounts that became over 90 days delinquent prior to the fourth quarter 2006 implementation of our change to discontinue such billings.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Marketing volume-based volatility for the receivables associated with our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring
range caused a peak in delinquencies at the end of the third and fourth quarters of 2006 and higher charge-off levels in the fourth quarter of 2006 and first quarter of 2007. This class of receivables reaches peak charge off on a vintage basis
between approximately eight to nine months after card activation, and we experienced marketing-based volatility in our volumes associated with this product offering as we ramped up its growth rates significantly late in 2005 and in the first half of
2006. As such, we experienced a heightened level of charge offs and delinquencies for this class of receivables in both the fourth quarter of 2006 and the first quarter of 2007 as significant vintages of receivables reached their charge-off peak
during these quarters. As growth rates for the receivables associated with our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range normalize as we expect they will and as our asset base for this pool of
receivables grows, we are less likely to experience the same degree of marketing volume-based volatility in peak charge-off vintages that we experienced over the past two quarters. The higher charge offs cited here depressed our net interest margin
(which is net of finance charge and late fee charge offs) and our other income ratio (which is net of other fee charge offs) in both the fourth quarter of 2006 and the first quarter of 2007.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We experienced better than expected early bucket roll rates and lower than expected delinquencies in the first quarter of 2007, which significantly reduced our
expected late fee assessments, thereby resulting in a lower first quarter of 2007 gross yield ratio and net interest margin. This phenomenon also cause some marginal depression in our other income ratio as over-limit billings included in the other
income ratio are typically higher for delinquent cardholder accounts. While adversely affecting first quarter 2007 income, the lower than expected first quarter 2007 delinquencies are expected to result in lower charge offs for us in predominantly
the third quarter of this year.
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| |  |  | Our gross yield, net interest margin and other income ratios have been affected by the ongoing investigations by the FDIC and FTC. Throughout the course of the
investigations and in the first quarter of 2007 in particular, we have made certain account management decisions in deference to our relationships with our issuing bank partners. For example, in the first quarter of 2007, we systematically issued
certain late fee and over-limit fee billing credits to 85,000 customer accounts related to the potential for customer confusion over a change we made to their minimum payment requirements.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other factors relevant to an analysis of the above table include:



| |  |  | Higher trending quarterly gross yield ratios since the quarter ending June 30, 2005 correlate with (1) interest rate increases associated with cardholder
accounts, such rates being indexed to prime rates which have increased along with Federal Reserve Board rate increases over the past several quarters, (2) higher quarterly delinquency rates (and hence higher quarterly late fee billings)
experienced in the latter half of 2006 for the receivables within our originated portfolio master trust and purchased portfolios, and most significantly (3) higher trending quarterly delinquency rates (and hence higher quarterly late fee
billings) associated with our change in receivables mix toward a greater percentage of our receivables being comprised of those receivables associated with our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring
range. As noted previously, these receivables experience greater delinquency and charge-off levels than we experience with respect to our other credit card receivables.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Given our late third quarter 2006 decision to discontinue finance charge and fee billings on credit card accounts that become over 90 days delinquent, our gross
yield ratio declined as expected in the fourth quarter of 2006.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | While our charge off levels and ratios have recently benefited from our marketing of new accounts underlying our originated portfolio master trust, the favorable
effects of new account additions have been offset by growth in our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range, the receivables of which experience (a) greater gross charge off levels than we
experience within our originated portfolio master trust and with respect to any of our acquired receivables portfolios, and (b) adjusted net charge off rates higher than with those we experience within our originated portfolio master trust and
with respect to our acquired receivables portfolios.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The rush of consumers to file for bankruptcy prior to the October 2005 effective date of the new bankruptcy laws caused unusually high fourth quarter 2005 charge
offs that exceeded our expectations coming into that fourth quarter. This rush of bankruptcy filings served to accelerate certain charge offs that we otherwise would have experienced in 2006; as such, we experienced significantly lower bankruptcy
and other delinquency charge offs than normal during the first quarter of 2006. Bankruptcy-related charge offs during the subsequent quarters of 2006 also were somewhat lower than normal as well due to the October 2005 bankruptcy law changes, but
the effects of these lower bankruptcy-related charge offs were and continue to be offset by increased charge offs associated with our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range, which was
particularly evident in the fourth quarter of 2006 and the first quarter of 2007.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Trending overall improvements in our net interest margin over the past two years can be attributed to (1) the favorable effects of new account additions (which
experience lower finance charge and late fee charge off levels than do more mature account vintages that are moving through their peak charge off periods), and (2) growth in our largely fee-based credit card offerings to consumers at the lower
end of the FICO scoring range, the receivables of which have significantly higher delinquency rates and late fee assessments than do our other originated and purchased receivables portfolios. These higher late fee assessments associated with our
largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range overshadow the fact that these offerings bear lower APRs than our other credit card product offerings.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Given the shorter life cycle of many of the accounts underlying the receivables associated with our largely fee-based credit card offerings to consumers at the
lower end of the FICO scoring range, we can experience greater volatility in our charge offs depending on the timing and relative volumes of quarterly account originations underlying these receivables in the months preceding their charge off. As
noted above, we experienced significant adverse effects of this volatility in the
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| | fourth quarter of 2006 and first quarter of 2007 as a significant level of high volume vintages reached peak charge-off vintage during these two quarters.
Not only did these peak charge-off vintages adversely affect our net interest margin and other income ratio as noted above, but they also significantly increased our net charge off and adjusted charge off ratios in the fourth quarter of 2006 and to
a much greater degree in the first quarter of 2007.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our net interest margin declined between the first and second quarter of 2006 principally due to (1) diminished second quarter 2006 beneficial effects of the
October 2005 bankruptcy law changes on finance charge and late fee charge offs, (2) interest costs on $150.0 million of draws that we made in the second quarter of 2006 on the structured financing facility secured by those receivables
associated with our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range and (3) heightened levels of finance charge and late fee non-accruals into our net interest margin associated with greater
amounts of delinquent receivables underlying our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range, which we marketed heavily in the last two quarters of 2005. This general decline reversed in the third
quarter (1) in part because the percentage of managed receivables against which we have leverage and incur interest costs as an offset to our net interest margin decreased in the third quarter and (2) in part due to lower levels of finance
charge and late fee non-accruals into our net interest margin in the third quarter given normalization of delinquencies for our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range coming into that
particular quarter.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our general trend line of improving net interest margins (through the first three quarters of 2006) correlates with improved gross yield ratios experienced in
recent quarters. Additionally, the October 2005 bankruptcy law changes discussed above resulted in significantly diminished first quarter 2006 and somewhat lower second and third quarter 2006 bankruptcy charge offsthereby favorably influencing
our net interest margin during those quarters.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Growth in our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range accounts for much of the increase in the combined
gross charge off ratio throughout 2006 and into 2007 relative to the respective quarters of 2005 and 2006, notwithstanding that the net charge off ratio actually declined slightly in the third and fourth quarters of 2006 relative to the third and
fourth quarters of 2005. The mix change in our receivables based on disproportionately larger growth in our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range can be expected to increase our combined
gross charge off ratios; however, the fact that the ratio of principal receivables to total receivables for this category of receivables is smaller than for our other originated and purchased credit card receivables means that the effects of the mix
change are not as great for our net charge off and adjusted charge off ratios as they are for our combined gross charge off ratio.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | While some of the significant rise in the combined gross charge off ratio between the third quarter of 2006 and the fourth quarter of 2006 can be explained by our
receivables mix change as discussed previously, much of this increase is attributable to marketing volume-based volatility for our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range. Given the shorter
life cycle of many of the accounts underlying the receivables associated with our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range, we can experience greater volatility in our combined gross charge off
statistics depending on the timing and relative volumes of quarterly account originations underlying these receivables in the months preceding their charge off. We experienced adverse effects of this volatility in the fourth quarter of 2006 and the
first quarter of 2007 as a significant level of high volume vintages flowed through to peak charge-off vintage during these two quarters.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Credit quality improvements within our portfolios and the pull-through effects of the October 2005 bankruptcy law changes discussed above contributed to trending
lower net charge off ratios when comparing 2006 quarterly data to 2005 quarterly data. The change in receivables mix toward greater percentages of our receivables being comprised of those receivables associated with our largely fee-based credit card
offerings to consumers at the lower end of the FICO scoring range has adversely affected our net charge off ratios throughout 2006 and in the first quarter of 2007 as these offerings experience higher principal charge offs and principal charge off
ratios than we generally experience for our other originated and purchased credit card receivables. The magnitude of these adverse effects on our net charge off ratio increased in the fourth quarter of 2006 and into the first quarter of 2007 as a
significant level of high volume vintages is flowing through to peak charge-off vintage during these two quarters.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | The gap between our net charge off ratio and our adjusted charge off ratio generally narrowed throughout 2005 and 2006. With each passing quarter since the purchase
of our last portfolio purchased at a discount to the face amount of the portfolios receivables (the last of which occurred in the first quarter of 2005), there is a greater percentage of our total managed receivables and charge offs thereon
that is comprised of receivables that we have originated at par rather than purchased at discounts off of their par value; this phenomenon causes the gap between our net charge offs and adjusted charge offs (and their associated ratios) to narrow
with each such passing quarter. With our acquisition of approximately £490 million ($970 million) in face amount of Monument branded credit card receivables in the United Kingdom at a discount to face, we expect the gap between our net
charge off ratio and adjusted charge off ratio to widen significantly in the second quarter of 2007 and then to taper off again over time as we fund cardholder purchases within that portfolio dollar for dollar.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our decision in the third quarter of 2006 to discontinue billing finance charges and fees on credit card accounts that become over 90 days past due was in part in
response to prior discussions with the FDIC concerning negative amortization and minimum payments. Leading to this decision, we also experimented with potential revisions to our over-limit fee billing practices, which had the effect of depressing
our other income ratio in the third quarter relative to its level in prior quarters. While we have not ruled out potential future changes to our over-limit fee billing practices, some of which, if implemented, would adversely affect our other income
ratio, we concluded late in the third quarter that the discontinuation of billing finance charges and fees on credit card accounts that become over 90 days past due was an appropriate step in response to concerns regarding negative amortization.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | While the fulfillment of our commitments under the assurance agreement with the New York Attorney General contributed to the increase in our operating ratio in the
second quarter of 2006, the general trending increase in 2006 and 2007 operating ratios compared to similar quarter 2005 operating ratios is principally associated with a mix change in our receivables toward lower balance receivables associated with
our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range. This disproportionately growing category of receivables is comprised of accounts with smaller receivables balances than those accounts underlying
our originated portfolio master trust and acquired portfolios. The addition of these many new accounts with small receivables balances means many more customer service interactions, and hence higher costs as a percentage of average managed
receivables, than we have historically experienced with our originated portfolio master trust and acquired portfolios receivables. Also throughout 2006 and into the first quarter of 2007, we have experienced heightened legal, regulatory and
compliance efforts and costs associated with the New York Attorney General, FDIC and FTC investigations and our establishment of an expanded number of issuing bank relationships and new product offerings. Our expanding number of issuing bank
relationships and new product lines also has contributed to higher credit card servicing costs. We summarize other factors influencing a shift to higher operating ratio levels in the explanation of total other operating expense within the
Results of Operations section of this Managements Discussion and Analysis of Financial Condition and Results of Operations.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our fourth quarter 2006 and 2005 operating ratios bear the respective effects of a $15.0 million charitable contribution and a $12.0 million charitable
contribution.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

Some of our future expectations regarding the financial, operating and statistical data noted in the above
table include:



| |  |  | Our acquisition of approximately £490 million ($970 million) in face amount of Monument branded credit card receivables in the United Kingdom at a
discount to face is expected to have profound effects on the above financial, operating and statistical data. Considering the effects of this acquisition (coupled with the mix change dynamics for our largely fee-based credit card offerings to
consumers at the lower end of the FICO scoring range), we expect to see (1) a spike in our second quarter 2007 combined gross charge off ratio, (2) a spike in our second quarter 2007 net charge off ratio followed by a gradually declining
net charge off ratio in subsequent quarters of 2007, (3) a significant reduction in our adjusted charge off ratio in the second quarter of 2007 followed by a gradually increasing adjusted charge off ratio in the succeeding quarters of 2007 as
the gap between our net charge off ratio and adjusted charge off ratio narrows with our funding of cardholder purchases within the United Kingdom portfolio dollar for dollar and (4) a reduction in our operating ratio based on the fact that the
United Kingdom portfolio is comprised of accounts with larger balance receivables than those receivables associated with our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We expect to see a permanently lower gross yield ratio and combined gross charge offs ratio (all other factors being equal) associated with the now complete
implementation of our decision to cease billing finance charges and fees on credit card accounts that become over 90 days past due.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | We expect our net interest margins and other income ratios to show improvement in each successive 2007 quarter now that the large vintage of peak charge off
receivables associated with our largely fee-based credit card offerings to consumers at the lower end of the FICO scoring range has charged off in the first quarter of 2007.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Investments in Previously Charged-off Receivables Segment

The following table shows a roll-forward (in thousands) of our investments in previously charged-off receivables activities:



|                                                                                                                                                                                                           |  |                                  |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------- | -
|                                                                                                                                                                                                           |  | Three Months EndedMarch 31, 2007 |        
|Unrecovered balance at beginning of period                                                                                                                                                                 |  | $                                | 12,871  |  
|Acquisitions of defaulted accounts                                                                                                                                                                         |  |                                  | 12,816  |  
|Cash collections                                                                                                                                                                                           |  |                                  | (24,385 | )
|Accretion of deferred revenue associated with Encore Capital Group, Inc. forward flow contract                                                                                                             |  |                                  | (4,736  | )
|Cost-recovery method income recognized on defaulted accounts (included as a component of fees and related income on non-securitized earning
assets on our condensed consolidated statements of operations) |  |                                  | 17,184  |  
|                                                                                                                                                                                                           |  |                                  |         |  
|Balance at the March 31, 2007                                                                                                                                                                              |  | $                                | 13,750  |  
|                                                                                                                                                                                                           |  |                                  |         |  
|Estimated remaining collections (ERC)                                                                                                                                                                    |  | $                                | 67,093  |  
|                                                                                                                                                                                                           |  |                                  |         |  

The above table reflects our use of the cost recovery method of accounting for our investments in
previously charged-off receivables. Under this method, we establish static pools consisting of homogenous accounts and receivables for each portfolio acquisition. Once we establish a static pool, we do not change the receivables within the pool. We
record each static pool at cost and account for it as a single unit for payment application and income recognition purposes. Under the cost recovery method, we do not recognize income associated with a particular portfolio until cash collections
have exceeded the investment. Additionally, until such time as cash collected for a particular portfolio exceeds our investment in the portfolio, we will incur commission costs and other internal and external servicing costs associated with the cash
collections on the portfolio investment that we will charge as an operating expense without any offsetting income amounts.

Previously
charged-off receivables held as of March 31, 2007 are principally comprised of those associated with Chapter 13 Bankruptcies and our balance transfer program, which we expect to continue to service and grow through future acquisitions. We
expect our Investments in Previously Charged-Off Receivables segment to continue its acquisition and collection of Chapter 13 Bankruptcies, its balance transfer program and other previously charged-off receivables activities throughout 2007 and
beyond. Such activities will include its acquisition of previously charged-off receivables from the securitization trusts that we service and from us and the sale of these charge offs for a fixed sales price under its five-year forward flow contract
with Encore Capital Group, Inc (Encore).

We generally estimate the life of each pool of charged-off receivables that we
typically acquire to be between 24 and 36 months for normal delinquency charged-off accounts and approximately 60 months for Chapter 13 Bankruptcies. We anticipate collecting approximately 42.7% of the ERC of the existing accounts over the next
twelve months, with the balance to be collected thereafter. Our acquisition of charged-off accounts through our balance transfer program results in receivables with a higher than typical expected collectible balance. As the composition of our
defaulted accounts includes more of this type of receivables, the resulting estimated remaining collectible portion per dollar invested is expected to increase.

During the three months ended March 31, 2007, our Investments in Previously Charged-off Receivables segments pre-tax income increased 112.2% compared with the same period in 2006, reflecting
increased volumes of charged off accounts sold under its 5-year forward flow agreement with Encore and continued growth in charged-off receivables purchases through its balance transfer and chapter 13 Bankruptcy purchasing niches. We
expect our Investments in Previously Charged-off Receivables segment to grow its revenues and income at a more modest rate throughout 2007 as its purchase and sale activities under the Encore forward flow agreement are expected to remain relatively
flat, while its balance transfer and chapter 13 bankruptcy activities are expected to grow at a double-digit percentage growth rate. During the past two quarters, Jefferson Capital has increased its purchases of third-party normal delinquency charge
offs (which are not connected to the Encore forward flow agreement) as it has seen pricing for certain charge-off portfolios become more attractive. Any significant portfolio acquisition of third-party normal delinquency charge offs could have a
short-term negative impact on Jefferson Capitals income as operating expenses would be incurred under its cost recovery accounting method, while revenue recognition would be delayed until basis in the acquired portfolio were completely
recovered.



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Retail Micro-Loans Segment

The Retail Micro-Loans segment consists primarily of a network of storefront locations that, depending on the location, provide some or all of the following products or services: (a) small-denomination,
short-term, unsecured cash advances that are typically due on the customers next payday; (b) installment loan and other credit products; and (c) money transfer and other financial services. As of March 31, 2007, our Retail
Micro-Loan segment subsidiaries operated a total of 469 storefront locations in 16 states as well as the United Kingdom.

In most of the
states in which they have historically operated, our Retail Micro-Loans subsidiaries have made cash advances and other micro-loans directly to customers. However, in four states (Arkansas, Florida, North Carolina and West Virginia), they previously
acted only as a processing and servicing agent for a state-chartered, FDIC-insured bank that issued loans to the customers pursuant to the authority of the laws of the state in which the bank was located and federal interstate banking laws,
regulations and guidelines. During February 2006, we learned from our bank partner that the FDIC had effectively asked insured financial institutions to cease deferred presentment and installment micro-loan activities conducted through processing
and servicing agents. In response to the FDICs actions, our subsidiaries began to evaluate strategic alternatives within these states, including the possibility of switching to a direct lending model in compliance with the regulatory
frameworks within each of the four states, or, alternatively, closing certain branch locations within the four affected states. In addition, effective March 11, 2006, our North Carolina Retail Micro-Loans subsidiary agreed with the Attorney
General of the State of North Carolina to cease its traditional marketing and servicing of deferred-presentment and installment micro-loans in North Carolina. As a result of this agreement, our North Carolina Retail Micro-Loans subsidiary began
pursuing a direct lending model in North Carolina in compliance with existing State regulatory frameworks, as well as closing several North Carolina locations. Subsequently, during the second quarter of 2006, our subsidiaries decided to abandon the
pursuit of these alternative lending models in both North Carolina and West Virginia, as they could not see the alternative lending products as providing acceptable long-term returns for the business. By the end of the third quarter of 2006, our
North Carolina subsidiary had closed all of its original 52 branch locations and our West Virginia subsidiary had closed all of its original 11 branch locations. In Arkansas, during the second quarter of 2006, we began offering loans directly to
customers under an alternative lending model, in compliance with state law. This alternative lending model has been well-received by our customers, and, during the third quarter of 2006, we succeeded in returning our Arkansas operations to
profitability. In Florida, the fourth state in which we previously processed and serviced micro-loans on behalf of our bank partner, we began offering loans directly to customers during the fourth quarter of 2006, and we expect our Florida
operations to return to profitability during 2007.

During the three months ended March 31, 2007, we opened 10 branch locations,
including 6 locations in Texas, 3 locations in the United Kingdom and 1 location in Louisiana. We plan to continue expanding our store operations in Texas and the United Kingdom during 2007. During the three months ended March 31, 2007, we
closed 16 branch locations, including all 7 of our branch locations in Virginia. The decision to close all of our Virginia locations was driven by our exit from North Carolina and West Virginia, which left our Virginia stores isolated geographically
and made it more difficult to scale our Virginia operations toward profitability. As of March 31, 2007, we operated 26 locations in the state of Texas, where our Texas micro-lending subsidiary offers and provides credit services under a credit
services organization (CSO) program to customers who apply for micro-loans offered by NCP Finance Limited Partnership, an independent third-party lender. In addition to assisting customers with loan applications, if the customer is
approved for and accepts the loan, our Texas subsidiary provides a letter of credit to the third-party lender to secure the customers payment obligations in the event of a customer default. The customer is charged a fee under the CSO program
(CSO fees) for the provision of these credit services. In addition to offering credit services in our Texas retail branch locations, we also began testing the marketing of credit services via the Internet to Texas residents during the
third quarter of 2006. Though representing a different marketing channel, these credit services are offered under the same CSO program as the retail branch locations.

During the first half of 2006, we began exploring potential international market opportunities for our Retail Micro-Loans segment. As part of this effort, we have focused on potential opportunities in the United
Kingdom, where we believe customers will be receptive to the kind of multi-line financial centers that have characterized our recent store expansion strategy in the United States. As of March 31, 2007 we had 4 de novo stores
operating in the greater London area.



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Financial, operating and statistical metrics for our Retail Micro-Loans segment are detailed (dollars in
thousands) in the following tables.



|                              |  |                                     |   |  |      |  
|----------------------------- |  | ----------------------------------- | - |  | ---- | -
|                              |  | For the three monthsended March 31, |  
|                              |  | 2007                                |   |  | 2006 |  
|Beginning number of locations |  | 475                                 |   |  | 509  |  
|Opened locations              |  | 10                                  |   |  |     |  
|Closed locations              |  | (16                                 | ) |  | (15  | )
|                              |  |                                     |   |  |      |  
|Ending locations              |  | 469                                 |   |  | 494  |  
|                              |  |                                     |   |  |      |  



|                                                                                                        |  |                                      |        |      |   |         |  
|------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | ------ | ---- | - | ------- | -
|                                                                                                        |  | For the three months ended March 31, |       
|                                                                                                        |  | 2007                                 |        | 2006 |  
|Gross retail micro-loans fees (exclusive of processing and servicing revenues from FDIC-chartered bank) |  | $                                    | 26,163 |      | $ | 20,939  |  
|Processing and servicing revenues from FDIC-chartered bank                                              |  |                                      |       |      |   | 3,735   |  
|                                                                                                        |  |                                      |        |      |   |         |  
|Total gross revenues                                                                                    |  | $                                    | 26,163 |      | $ | 24,674  |  
|                                                                                                        |  |                                      |        |      |   |         |  
|Income (loss) before income taxes                                                                       |  | $                                    | 1,011  |      | $ | (17,039 | )
|                                                                                                        |  |                                      |        |      |   |         |  
|Period end loans and fees receivable, gross                                                             |  | $                                    | 73,077 |      | $ | 51,312  |  
|                                                                                                        |  |                                      |        |      |   |         |  

The loss before income taxes for the first quarter of 2006 reflects impairment, indemnification,
loan loss and other charges of $15.5 million (including $10.5 million of associated goodwill impairment) primarily related to operating changes resulting from the FDICs actions in February 2006. While the FDICs February 2006 actions
resulted in the losses cited above, we are pleased with the revenue growth evident in our core direct storefront micro-loan operations. We believe this growth demonstrates positive momentum and favorable operating trends in the core ongoing business
of our Retail Micro-Loans segment. Throughout 2007, we expect the new products that we have been rolling out under our multi-product line strategy to contribute to revenue growth within our Retail Micro-Loans segment, and we expect to see improved
profitability, both overall and on a per-store basis.

Auto Finance Segment

Our Auto Finance segment now includes a variety of auto sales and lending activities through our CAR, JRAS and ACC platforms.

Our CAR platform acquired in April 2005 consists of a nationwide network of pre-qualified auto dealers in the Buy Here/Pay Here used car
business, from which CAR purchases auto loans at a discount or for which CAR services auto loans for a fee. CAR generates revenues on purchased loans through interest earned on the face value of the installment agreements combined with discounts on
loans purchased. CAR generally earns discount income over the life of the applicable loan. Additionally, CAR generates revenues from servicing loans on behalf of dealers for a portion of actual collections and by providing back-up servicing for
similar quality securitized assets. In the second quarter of 2006, CAR launched a new product, Dealer Equity Advance Loan (DEAL), whereby CAR earns interest income on a loan made directly to the dealer. In the DEAL program, the dealer
maintains the responsibility to service the customer accounts securing the loan to the dealer. Also during the second quarter of 2006, CAR launched a contract custodial program to service smaller line of credit loan providers in the markets it
services. CAR began a limited test launch of a second new product, Dealer Select Advance or DSA, in 2006 which continued into the first quarter of 2007. It is expected that this new product will see growth through the remainder of 2007 as it is
rolled out in a general release. In addition to these offerings, CAR is in the process of forming strategic alliances with aftermarket product and service providers in an effort to cross-sell to their existing customer base and is testing its
ability to cross-sell other CompuCredit and subsidiaries products to a select number of customers from within its existing customer base.

In January 2007, we acquired a 75% ownership interest in JRAS, a Buy Here/Pay Here dealer, for $3.3 million. JRAS sells vehicles to consumers and provides the underlying financing associated with the vehicle sales. Customer
purchases are financed for periods of time between 24 and 30 months and credit is approved and payments are received in each store front. JRAS currently retains all loans and servicing for all contracts. At its acquisition date, JRAS operated 4
retail locations in Georgia. As of March 31, 2007, JRAS had procured three additional locations that will open over the next few months. We intend to expand its operations over the next year.



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We also acquired the assets of San Diego, California-based ACC in February 2007. In conjunction with this
purchase, we also acquired a $195.0 million auto loan portfolio from Patelco Credit Union. These assets were originated and serviced by ACC on behalf of Patelco. The total purchase price paid for the two acquisitions was $168.5 million. ACC serves a
consumer niche that, from a customer quality perspective, is slightly above the niche served by CAR, which makes our acquisition of ACC quite complementary to our CAR operations. While our CAR platform acquires existing retail installment contracts
directly from dealers and small finance companies, ACC directly extends loans to consumers of predominantly franchise automobile dealerships.

Collectively, we serve 1,380 dealers through our Auto Finance segment in 44 states. Selected financial, operating and statistical data (dollars in thousands) for our Auto Finance segment are as follows:



|                                                |  |                                     |         |   |      |   |        
|----------------------------------------------- |  | ----------------------------------- | ------- | - | ---- | - | -------
|                                                |  | For the three monthsended March 31,
|                                                |  | 2007                                |         |   | 2006
|Gross revenue                                   |  | $                                   | 19,924  |   |      | $ | 11,721 
|                                                |  |                                     |         |   |      |   |        
|(Loss) income before income taxes               |  | $                                   | (593    | ) |      | $ | 847    
|                                                |  |                                     |         |   |      |   |        
|Period end loans and fees receivable, gross     |  | $                                   | 280,793 |   |      | $ | 142,191
|                                                |  |                                     |         |   |      |   |        
|Number of automobiles sold during quarter       |  |                                     | 258     |   |      |   |       
|                                                |  |                                     |         |   |      |   |        
|Auto loan originations/purchases during quarter |  |                                     | 41,837  |   |      |   | 46,194 
|                                                |  |                                     |         |   |      |   |        
|Number of loans held/serviced as of quarter end |  |                                     | 47,845  |   |      |   | 39,171 
|                                                |  |                                     |         |   |      |   |        

While we expect profitable growth throughout the remainder 2007 associated with our Auto Finance
segment and while we are very encouraged with the early sales and origination results we have seen for our JRAS and ACC acquisitions, the $0.6 million loss we experienced in the first quarter principally reflects contraction of loans receivable
within our CAR platform coupled with the fact that our CAR platform management team had not adjusted its expense levels to correspond with contractions in its loans receivable balances. In the latter part of first quarter, we saw some moderation in
the level of receivables contraction within the CAR platform, as well as improved delinquencies. Our CAR platform management team has also undertaken an expense reduction initiative to right-size expense levels based its lower loans receivable
levels. While we are uncertain whether we can see significant loans receivable growth within the CAR platform during 2007, we are optimistic that recent delinquency and charge off trends and the expense reduction initiative can produce acceptable
returns on the equity that we have invested in this platform. We also are quite optimistic about our ability to grow significantly throughout 2007 and beyond within our JRAS and ACC platforms and our ability to integrate our various platform
acquisitions together to the extent necessary to realize operating efficiencies in risk, collections, information technology and other infrastructure and overhead categories.

Other Segment

Our Other segment encompasses various activities that are start-up in nature. As
reflected in the financial data for the Other segment within our segment data (see Note 3, Segment Reporting, to our condensed consolidated financial statements included herein), we have invested significantly in a variety of start-up
businesses in keeping with our diversification strategy. Moreover, as with any start-up effort, there is testing that needs to occur as we work to refine our product offerings and businesses within our Other segment. For example, we have
experimented in recent months with different underwriting processes and thresholds for a variety of Internet-based micro-loan productsthis all in an effort to determine the right mix of marketing costs and systems costs versus first-pay
defaults. Through our April 2007 acquisition of MEM, we now have a platform for the expansion of Internet-based micro-loan underwriting in the United Kingdom. MEM is the UKs leading online provider of micro-loans, offering cash advances as its
core product, as well as term loans and other financial services products including financing for mobile telephone handsets.

Additionally,
our overall direction has shifted significantly over the past few years with respect to our stored-value card offering. Our customer responses to this product offering support our belief that un-banked consumers want the convenience and
flexibility of a stored-value card. Nevertheless, the financial investments associated with our initial strategy of tying our technologies together with third-party retail partners proved too great relative to the revenue potential of this product
offering. As such, we retooled our stored-value card offering to expand the utility of the product and to focus on distribution of this product as an adjunct to certain of our credit card offerings or as an offer to consumers who come to us through
Internet and other marketing channels and who may not be in a situation that currently warrants our extending credit to them through one of our lending products. Our expectations are that we can learn about the income and spending patterns of these
particular stored-value card customers so that we can graduate them into our credit products over time. We also continue to look at potential out-sourcing partnerships relative to this card offering to better align ourselves within the market and to
further reduce costs within this area.



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Beyond our shift in focus for our stored-value card offerings, we continue to develop an underwriting,
servicing and collections platform that utilizes non-traditional processes to offer credit products directly to consumers. These techniques include the utilization of external databases other than the traditional credit bureaus, the application of
proprietary scoring models built off of internal and external data attributes, proprietary application processing and approval methods and payment processing tools that currently are unique in the marketplace. We generally refer to these collective
methods, models and processes as our MEP, and we consider them proprietary in nature. To date (and after an extensive research and development effort), we have launched the Imagine MasterCard credit card product utilizing the MEP; we now include the
costs and revenues associated with this product within our Credit Cards segment. The MEP has enabled us to expand the scope of consumers we can approve profitably for these credit card products beyond what we traditionally could approve using our
credit bureau-oriented underwriting models. Customers acquired to date have lower average FICO scores than we see in our other credit card products, a very limited credit bureau history or no credit bureau history at all. The MEP also has allowed us
to market our products on television, the Internet and through retail distribution at the point-of-sale, channels that until now have proven to be unsuccessful in generating large numbers of profitable credit card customers for us. Starting in the
third quarter of last year, we began to utilize the MEP in connection with our installment lending activities, and we believe we can use it to enter other product lines, including retailer financing, auto lending and consumer receivables factoring,
in the future.

Our Other segment also is using its technologies to underwrite, service and collect a wide variety of third-party consumer
finance receivables. Through our dealer relationships and based on studies of asset quality that we performed over the past two years or so, we expect to be purchasing asset-secured consumer finance receivables such as loans secured by motorcycles,
all terrain vehicles, personal watercraft and the like during the second quarter of this year.

In summary, through our Other segment
activities and by employing our credit and underwriting knowledge and leveraging and improving upon an established technology infrastructure, we can continue to develop and test new credit delivery programs. We see tremendous opportunity to grow our
lending businesses through the use of Internet lead generators and search engines, and we expect most of the activities supported by the Other segment to ultimately be profitable for us. As an example, our Other segment has been instrumental in our
effort to marry the MEP underwriting technologies with credit card product offerings as discussed above. These product offerings are generating incremental profits for us within our Credit Cards segment, and we have reclassified costs initially
incurred within the Other segment to our Credit Cards segment so as to reflect a consistent matching of costs and revenues for these new products within the Credit Cards segment.

The following table details (in thousands) the pre-tax losses that we have incurred for our major initiatives within the Other segment:



|                                                                                 |  |                                      |        |   |      |   |         |  
|-------------------------------------------------------------------------------- |  | ------------------------------------ | ------ | - | ---- | - | ------- | -
|                                                                                 |  | For the three months ended March 31, |       
|                                                                                 |  | 2007                                 |        |   | 2006 |  
|Stored-value card                                                                |  | $                                    | (692   | ) |      | $ | (3,960  | )
|Internet micro-loans                                                             |  |                                      | (2,085 | ) |      |   | (3,287  | )
|Third-party receivables servicing and asset-secured consumer finance receivables |  |                                      | (2,513 | ) |      |   | (2,743  | )
|Other                                                                            |  |                                      | (2,358 | ) |      |   | (672    | )
|                                                                                 |  |                                      |        |   |      |   |         |  
|Total                                                                            |  | $                                    | (7,648 | ) |      | $ | (10,662 | )
|                                                                                 |  |                                      |        |   |      |   |         |  

Liquidity, Funding and Capital Resources

At March 31, 2007, we had $123.4 million in unrestricted cash. Because the characteristics of our assets and liabilities change, liquidity management
is a dynamic process affected by the pricing and maturity of our assets and liabilities. We finance our business through cash flows from operations, asset-backed securitizations and the issuance of debt and equity:



| |  |  | During the three months ended March 31, 2007, we generated $146.7 million in cash flow from operations, compared to $48.8 million during the three
months ended March 31, 2006. The $97.9 million increase is due in part to: (1) the returns and cash flows that we experience with respect to our growing portfolio of receivables associated with our largely fee-based credit card offering to
consumers at the lower end of the FICO scoring range; and (2) increased income and cash flows recognized with respect to our Investment in Previously Charged-Off Receivables segment based on increased sales under its 5-year forward flow
agreement with Encore Capital and continued growth in charged-off receivables purchases through its balance transfer and chapter 13 Bankruptcy purchasing. Partially offsetting these increases are (1) reductions in profitability associated
with our purchased portfolios as the receivables underlying these trusts continue to decline and (2) reductions in overall fee billings given our fourth quarter decision to no longer bill finance charges and fees on credit card accounts that
become more than 90 days delinquent
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | During the three months ended March 31, 2007, we used $231.7 million of cash in investing activities, compared to using $119.8 million of cash for
the three months ended March 31, 2006. This $111.9 million increase in cash used in investing activities is due to our use of $191.4 million related to our acquisitions of ACC and JRAS which closed during the three months ended March 31,
2007 and funds placed in escrow for the April 2007 acquisition of MEM. This increase is partially offset by the overall decline in cardholder purchases as receivables underlying our purchased portfolios continue to decline at a faster pace than the
rate at which they are replaced by principal receivables within our newly originated accounts.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During the three months ended March 31, 2007, our financing activities provided $114.8 million, compared to a use of $10.3 million during the same period
in 2006. The $125.1 million increase in provided cash flow is due primarily to $146.0 million of additional borrowings related to our acquisition of ACC and $53.9 million of proceeds from the exercise of warrants offset by the $86.5 million used to
purchase treasury stock during the three months ended March 31, 2007.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Beyond the effects on our liquidity position
and capital structure of the items noted in our consolidated statement of cash flows are (1) our April 2007 acquisition of 95% of the outstanding shares of MEM for £11.6 million ($22.3 million) in cash , (2) our April 2007
acquisition of approximately £490 million ($970 million) in face amount of Monument branded credit card receivables in the United Kingdom from Barclaycard, a division of Barclays Bank PLC for approximately £390 million ($770
million) in cash, and (3) continuing investments that we have made in originations within our business segments subsequent to March 31, 2007.

Considering these additional uses of our liquidity and the fact that a substantial portion of the cash purchase price obligation for the U.K. credit card receivables portfolio was funded through a traditional
securitization financing, we have approximately $425 million in immediately available liquidity as of the date of this report. This available liquidity is represented by cash balances and draw potential against our collateral base within our
originated portfolio master trust and our collateral base supporting our existing structured financing transaction that is secured by substantially all of the credit card receivables associated with our largely fee-based credit card offerings to
consumers at the lower end of the FICO scoring range. While we believe that our $425 million liquidity level is sufficient to support our organic growth plans throughout 2007, we anticipate the need for and use of securitization and other financing
facilities or equity issuance proceeds should we proceed with further acquisitions of significance in 2007. As we expect to explore acquisition opportunities throughout 2007 and beyond through our efforts to acquire other credit card receivables
portfolios and our expansion into product and service offerings complementary to our sub-prime consumer market, we expect to evaluate debt and equity issuances as a means to fund these activities and we expect to avail ourselves of opportunities to
raise additional capital if the terms and pricing are attractive to us.

Our repurchase of an aggregate 2,884,163 shares of our common
stock in a privately negotiated transaction was part of the share repurchase program that our board of directors authorized in May 2006. Following this repurchase, we are authorized to repurchase 7,115,837 additional shares under our repurchase
program. At our discretion, we may use acquired shares in treasury to satisfy option exercises and restricted stock grants. We will continue to evaluate our stock price relative to other investment opportunities and, to the extent we believe that
the repurchase of our stock represents an appropriate return of capital, we will repurchase additional shares of our stock.

Securitization
Facilities

Our most significant source of liquidity is the securitization of credit card receivables. As of March 31, 2007, we
had committed total securitization facilities of $2.1 billion, of which we had drawn $1.0 billion ($150.0 million of which remained within an originated portfolio master trust special funding account at March 31, 2007). At March 31,
2007, the weighted-average borrowing rate on our securitization facilities was approximately 6.7%. The maturity terms of our securitizations vary.



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##### Table of Contents

In the table below, we have noted the securitization facilities (in millions) with respect to which a
substantial majority of our managed credit card receivables serve as collateral as of March 31, 2007. Following the table are further details concerning each of the facilities.



|                  |  |                   |        
|----------------- |  | ----------------- | -------
|Maturity date     |  | Facility Limit(1)
|September 2007(2) |  | $                 | 306.0  
|January 2008(3)   |  |                   | 1,000.0
|October 2009(4)   |  |                   | 299.5  
|October 2010(4)   |  |                   | 299.5  
|January 2014(5)   |  |                   | 151.5  
|January 2014(6)   |  |                   | 28.4   
|                  |  |                   |        
|Total             |  | $                 | 2,084.9
|                  |  |                   |        

---

|(1) | Excludes securitization facilities related to receivables managed by our equity-method investees because such receivables and their related securitization facilities are
appropriately excluded from direct presentation in our condensed consolidated statements of operations or condensed consolidated balance sheet items included herein.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Represents the end of the revolving period for a $306.0 million conduit facility.
|--- | ---------------------------------------------------------------------------------



|(3) | This two-year variable funding note facility also contains one-year renewal periods (subject to certain conditions precedent) at the expiration of the term and an orderly
amortization of the facility at expiration.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | In October 2004, we completed two term securitization facilities that we issued out of our originated portfolio master trust: a 5-year facility represented by $299.5 million
aggregate principal notes and a 6-year facility also represented by $299.5 million aggregate principal notes. To date, we have elected to sell only $287.0 million of the principal notes underlying the 5-year facility and $264.0 million of the
principal notes underlying the 6-year facility. However, assuming the continuation of current market conditions and performance within our original portfolio master trust, we believe we can sell the remaining principal notes under terms advantageous
to us should we need additional liquidity from the sale of the notes during the life of the facilities.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Represents a ten-year amortizing term series issued out of the Embarcadero Trust.
|--- | ---------------------------------------------------------------------------------



|(6) | Represents the conduit notes associated with our 75.1% membership interest in our majority-owned subsidiary that securitized the $92.0 million (face amount) of receivables it
acquired in the third quarter of 2004 and the $72.1 million (face amount) of receivables it acquired in the first quarter of 2005.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We have never triggered an early amortization within any of the series underlying our originated portfolio master trust securitizations, and we do not believe that we will. Still, it is conceivable that, even with close management, we may
trigger an early amortization of one or more of the outstanding series within this trust. Early amortization for any of the originated portfolio master trust securitization series would have adverse effects on our liquidity, certainly during the
early amortization period and potentially beyond repayment of any such series as potential investors could elect to abstain from future CompuCredit-backed issuances.

Contractual Obligations, Commitments and Off-Balance-Sheet Arrangements

See Item 7,
Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2006.

Commitments and Contingencies

We also have certain contractual arrangements that would
require us to make payments or provide funding if certain circumstances occur (contingent commitments). We do not currently expect that these contingent commitments will result in any material amounts being paid by us. See Note 10,
Commitments and Contingencies, to our condensed consolidated financial statements for further discussion of these matters.

Recent
Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies and Condensed Consolidated Financial
Statement Components, to our condensed consolidated financial statements for a discussion of recent accounting pronouncements.



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Critical Accounting Estimates

We have prepared our financial statements in accordance with GAAP. These principles are numerous and complex. We have summarized our significant accounting policies in the notes to our condensed consolidated financial
statements. In many instances, the application of GAAP requires management to make estimates or to apply subjective principles to particular facts and circumstances. A variance in the estimates used or a variance in the application or interpretation
of GAAP could yield a materially different accounting result. It is impracticable for us to summarize every accounting principle that requires us to use judgment or estimates in our application. In our Annual Report on Form 10-K for the year
ended December 31, 2006, we discuss the six areas (valuation of retained interests, investments in previously charged-off receivables, non-consolidation of qualifying special purpose entities, allowance for uncollectible loans and fees,
goodwill and identifiable assets and impairment analyses, and investments in securities) where we believe that the estimations, judgments or interpretations that we have made, if different, would have yielded the most significant differences in our
financial statements, and we urge you to review that discussion. In addition, in Note 7, Off-Balance-Sheet Arrangements, to the condensed consolidated financial statements included in this report, we have updated a portion of our
sensitivity analysis with respect to retained interest valuations.

Related Party Transactions

Since 2001, we have been subleasing 7,316 square feet of excess office space to Frank J. Hanna, Jr., who is the father of our Chairman and Chief
Executive Officer, David G. Hanna, and one of our directors, Frank J. Hanna, III. The sublease rate of $24.19 per square foot is the same as the rate that we pay on the prime lease. Total rent for the three months ended March 31, 2007 for
the sublease was approximately $44,000.

See Note 2, Summary of Significant Accounting Policies and Consolidated Financial Statements
Components, to the consolidated financial statements included within our Annual Report on Form 10-K for the year ended December 31, 2006 for a discussion of the investments in previously charged-off receivables by one of our
subsidiaries from trusts serviced by us.

See Note 10, Commitments and Contingencies, to the condensed consolidated financial
statements included in this report for discussion of an indemnity agreement into which we have entered with Maverick associated with its participation in loans originated by a financial institution for which we have provided micro-loan servicing and
processing services. Richard W. Gilbert, a Director on our Board of Directors and our Chief Operating Officer, has a 20% economic interest in Maverick, and Mr. Gilberts son is its manager.

On December 4, 2006, the Company established a contractual relationship with Urban Trust Bank, a federally chartered savings bank (Urban
Trust), pursuant to which the Company purchases credit card receivables underlying specified Urban Trust credit card accounts. Under this arrangement, in general Urban Trust receives 5% of all payments received from cardholders and is
obligated to pay 5% of all net costs incurred by the Company in connection with managing the program, including the costs of purchasing, marketing, servicing and collecting the receivables. Frank J. Hanna, Jr., who is the father of our Chairman and
Chief Executive Officer, David G. Hanna, and one of our directors, Frank J. Hanna, III, owns a substantial minority interest in Urban Trust and serves on its Board of Directors. In December 2006, Urban Trust deposited $0.7 million with CompuCredit
to cover its share of future expenses of the program. Also in December 2006, CompuCredit deposited $0.3 million with Urban Trust to cover purchases by Urban Trust cardholders. Through March 31, 2007, Urban Trust used $0.4 million of the $0.7
million deposit to fund its share of the net costs of the program, and its share of cardholder accounts was approximately $88,000. In April 2007, we deposited an additional $2.0 million with Urban Trust to cover the growth in purchases by Urban
Trust cardholders.

Forward-Looking Information

We make forward-looking statements throughout this report including statements with respect to our expected revenue, income, receivables, income ratios, marketing-based volatility in peak charge-off vintages, acquisitions and other growth
opportunities, location openings, loss exposure and loss provisions, delinquency and charge-off rates, securitizations and gains and losses from securitizations, changes in the credit quality of our on-balance sheet loans and fees receivable,
account growth, the performance of investments that we have made, operating expenses, marketing plans, the profitability of our Auto Finance segment, expansion and growth of JRAS and ACC platforms, integration of our Auto Finance platforms, our
expansion in the United Kingdom, the impact of the acquisition of the Monument-branded credit card receivables on our financial performance, sources of funding acquisitions, our ability to raise funds, our income in equity-method investees, growth
in our ancillary and interchange revenues, our servicing income levels, gains and losses from investments in securities, experimentation with new products and other statements of our plans, beliefs or expectations are forward-looking statements. In
some cases these statements are identifiable through the use of words such as anticipate, believe, estimate, expect, intend, plan, project, target,
can, could, may, should, will, would and similar expressions.



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You are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements we make are not guarantees of future
performance and are subject to various assumptions, risks and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Actual results may differ materially from those suggested by
the forward-looking statements that we make for a number of reasons including those described in Part II, Item 1A, Risk Factors of this report.

We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

Interest Rate Sensitivity and Market Risk

Interest rate sensitivity is comprised of basis risk, gap risk and market risk.
Basis risk is caused by the difference in the interest rate indices used to price assets and liabilities. Gap risk is caused by the difference in repricing intervals between assets and liabilities. Market risk is the risk of loss from adverse
changes in market prices and rates. Our principal market risk is related to changes in interest rates. This affects us directly in our lending and borrowing activities, as well as indirectly as interest rates may impact the payment performance of
our customers.

We incur basis risk because we fund managed assets at a spread over commercial paper rates or LIBOR, while the rates on the
underlying managed assets are indexed to the prime rate. This basis risk results from the potential variability over time in the spread between the prime rate on the one hand, and commercial paper rates and LIBOR on the other hand. We have not
hedged our basis risk because we believe that the cost of hedging this risk is greater than the benefits we would get from elimination of this risk. We incur gap risk because the debt underlying our securitization trust facilities reprices monthly;
whereas, our receivables do not adjust unless we specifically adjust them with appropriate notification. This gap risk, however, is relatively minor as we can reprice the substantial majority of our receivables very quickly in response to a rate
change.

As to the issue of market risk, we attempt to minimize the impact of interest rate fluctuations on net income by regularly
evaluating the risk inherent within our asset and liability structure, especially our off-balance-sheet assets (such as securitized receivables) and their corresponding liabilities. The impact of interest rate fluctuations on our securitized
receivables is reflected in the valuation of our retained interests in credit card receivables securitized. This risk arises from continuous changes in our asset and liability mix, changes in market interest rates (including such changes that are
caused by fluctuations in prevailing interest rates, payment trends on our interest-earning assets and payment requirements on our interest-bearing liabilities) and the general timing of all other cash flows. To manage our direct risk to interest
rates, management actively monitors interest rates and the interest sensitive components of our securitization structures. Management seeks to minimize the impact of changes in interest rates on the fair value of assets, net income and cash flows
primarily by matching asset and liability repricings. There can be no assurance, however, that we will be successful in our attempts to manage such risks.

At March 31, 2007, a substantial portion of our managed credit card receivables, including those related to our equity-method investees, and other interest-earning assets had variable rate pricing, with
receivables carrying annual percentage rates at a spread over the prime rate (8.25% at March 31, 2007), subject to interest rate floors. At March 31, 2007, $20.3 million of our total managed receivables were priced at their floor
rate, of which, $10.5 million of these receivables were closed and therefore ineligible to be repriced and the remaining $9.8 million were open and eligible to be repriced. Every 10% increase in LIBOR that we experience until the
$10.5 million in closed account receivables reach their floor rate would result in an approximate $39,000 after-tax negative impact on our annual cash flows. Nevertheless, to the extent we choose to reprice any of the $9.8 million of
receivables underlying the open accounts that are below their floor rate, we can mitigate against any possible adverse impact on our cash flows.

Foreign Currency Risk

The translation of the balance sheets of our newly launched and acquired non-U.S. operations from
local currencies into U.S. dollars is sensitive to changes in foreign currency exchange rates. These translation gains and losses are recorded as foreign currency translation adjustments within shareholders equity. We will also have
transactional gains and losses that are caused by changes in foreign currency exchange rates compared to the U.S. dollar. These transaction gains and losses flow through our condensed consolidated statement of operations.



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Commodity Price Risk

From time-to-time we purchase debt and securities of others, principally those issued by asset-backed securitization trusts (e.g., notes secured or backed by pools of assets) that represent sub-prime
credit risks of individuals. These securities in many cases are junior, including below investment grade, traunches of securities issued by the trusts. The assets underlying these securities are not originated by us and, accordingly, may
not meet the underwriting standards that we follow in originating receivables. Further, we do not have direct control over the management of the underlying assets and, similarly, they may not be managed as effectively as we would manage similar
assets. As a result, the securities in which we invest may carry higher risks, including risks of higher delinquencies and charge offs, risks of covenant violations and risks of value impairment due to the claims of more senior securities
issued by the trusts, than similar assets originated and owned by us. These higher risks can cause much greater valuation volatility for these securities than we typically have experienced and would expect to experience on our holdings of
securities underlying the trusts that we service. Although these securities generally are traded in an active secondary market, valuation volatility also can be expected to result from liquidity needs that we might have in the future, including any
need that we may have for quick liquidity or to meet margin requirements related to our investments in these securities should their prices decline. In turn, this could result in steep and immediate impairments in the values of the securities as
presented within our financial statements and could cause our financial position and results of operations to deteriorate, possibly materially. At March 31, 2007, we had investments in the debt and similar securities of others of $163.8
million.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

(a) Disclosure controls
and procedures.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the
participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the
Exchange Act). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective at meeting
their objectives.

(b) Internal control over financial reporting.

There were not any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART IIOTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

We are involved in various legal
proceedings that are incidental to the conduct of our business. In one of these legal proceedings, CompuCredit Corporation and five of our subsidiaries are defendants in a purported class action lawsuit entitled Knox, et al., vs. First Southern Cash
Advance, et al., No 5 CV 0445, filed in the Superior Court of New Hanover County, North Carolina, on February 8, 2005. The plaintiffs allege that in conducting a so-called payday lending business, certain of our
Retail Micro-Loans segment subsidiaries violated various laws governing consumer finance, lending, check cashing, trade practices and loan brokering. The plaintiffs further allege that CompuCredit is the alter ego of our subsidiaries and is liable
for their actions. The plaintiffs are seeking damages of up to $75,000 per class member. We are vigorously defending this lawsuit. These claims are similar to those that have been asserted against several other market participants in transactions
involving small balance, short-term loans made to consumers in North Carolina. As of March 31, 2007 we have not recorded any accruals related to this lawsuit.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

An investment in our common stock or
other securities involves a number of risks. You should carefully consider each of the risks described below before deciding to invest in our common stock. If any of the following risks develops into actual events, our business, financial condition
or results of operations could be negatively affected, the market price of our common stock or other securities could decline and you may lose all or part of your investment.

Our Cash Flows Are Dependent Upon the Cash Flows Received on the Receivables Underlying Our Securitizations and From Our Other Credit Products.

The collectibility of the receivables underlying our securitizations and those that we hold and do not securitize is a function of many factors including
the criteria used to select who is issued credit, the pricing of the credit products, the lengths of the relationships, general economic conditions, the rate at which customers repay their accounts or become delinquent, and the rate at which
cardholders use their cards. To the extent we have over estimated collectibility, in all likelihood we have over estimated our financial performance. Some of these concerns are discussed more fully below.

We may not successfully evaluate the creditworthiness of our customers and may not price our credit products so as to remain profitable.
The creditworthiness of our target market generally is considered sub-prime based on guidance issued by the agencies that regulate the banking industry. Thus, our customers generally have a higher frequency of delinquencies, higher risk
of nonpayment and, ultimately, higher credit losses than consumers who are served by more traditional providers of consumer credit. Some of the consumers included in our target market are consumers who are dependent upon finance companies, consumers
with only retail store credit cards and/or lacking general purpose credit cards, consumers who are establishing or expanding their credit, and consumers who may have had a delinquency, a default or, in some instances, a bankruptcy in their credit
histories, but have, in our view, demonstrated recovery. We price our credit products taking into account the perceived risk level of our customers. If our estimates are incorrect, customer default rates will be higher, we will receive less cash
from the receivables, the value of our retained interests and our loans and fees receivable will decline, and we will experience reduced levels of net income.

An economic slowdown could increase credit losses and/or decrease our growth. Because our business is directly related to consumer spending, any period of economic slowdown or recession could make it
more difficult for us to add or retain accounts and receivables. In addition, during periods of economic slowdown or recession, we expect to experience an increase in rates of delinquencies and frequency and severity of credit losses. Our actual
rates of delinquencies and frequency and severity of credit losses may be higher during periods of economic abundance or recession than those experienced by more traditional providers of consumer credit because of our focus on the sub-prime market.
Changes in credit use, payment patterns and the rate of defaults by account holders may result from a variety of unpredictable social, economic and geographic factors. Social factors include, among other things, changes in consumer confidence
levels, the publics perception of the use of credit and changing attitudes about incurring debt and the stigma of personal bankruptcy. Economic factors include, among other things, the rates of inflation, the unemployment rates and the
relative interest rates offered for various types of credit. Moreover, adverse changes in economic conditions in states where customers are located, including as a result of severe weather, could have a direct impact on the timing and amount of
payments of receivables.

We recently purchased a substantial portfolio of receivables in the United Kingdom and now will have
greater exposure to the U.K. economy and currency exchange rates.In April 2007, we purchased a portfolio of credit card receivables having a face value of £490 million ($970 million) as of the date of purchase. Although we have
had minor operations in the United Kingdom previously, this is our first significant investment there, and we now will have substantially greater exposure to fluctuations in the United Kingdom economy. As a result of this investment, we also will
have greater exposure to fluctuations in the relative values of the United States dollar and the British pound.



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Because a significant portion of our reported income is based on managements estimates of the
future performance of securitized receivables, differences between actual and expected performance of the receivables may cause fluctuations in net income. Income from the sale of receivables in securitization transactions and income from
retained interests in receivables securitized have constituted, and are likely to continue to constitute, a significant portion of our income. Significant portions of this income are based on managements estimates of cash flows we expect to
receive from the interests that we retain when we securitize receivables. The expected cash flows are based on managements estimates of interest rates, default rates, payment rates, cardholder purchases, costs of funds paid to investors in the
securitizations, servicing costs, discount rates and required amortization payments. These estimates are based on a variety of factors, many of which are not within our control. Substantial differences between actual and expected performance of the
receivables will occur and will cause fluctuations in our net income.

Increases in expected losses and delinquencies may prevent us
from securitizing future receivables on terms similar to those that currently are available or otherwise from obtaining favorable financing for non-securitized receivables. Greater than expected delinquencies and losses also could impact our
ability to complete other securitization or financing transactions on acceptable terms or at all, thereby decreasing our liquidity and forcing us to either decrease or stop our growth or rely on alternative, and potentially more expensive, funding
sources if even available.

Increased utilization of existing credit lines by cardholders would require us to establish additional
securitization and financing facilities or curtail credit lines. Our existing commitments to extend credit to cardholders exceed our available securitization and financing facilities. If all of our cardholders were to use their entire lines
of credit at the same time, we would not have sufficient capacity to fund card use. However, in that event, we could either reduce our cardholders available credit lines or establish additional securitization and financing facilities. This
would subject us to several of the other risks that we have described in this section.

Increases beyond expected losses and
delinquencies may cause us to incur losses on our retained interests and losses on our loans and fees receivable. If the actual amounts of delinquencies and losses that occur in our securitized receivables or our on-balance-sheet receivables
are greater than expected, the value of our retained interests in the securitization transactions and our loans and fees receivable, net on our condensed consolidated balance sheet will decrease. Since we derive substantial income from our retained
interests and loans and fees receivable, higher than expected rates of delinquency and loss could cause our net income to be lower than expected. In addition, under the terms of our securitizations agreements, levels of loss and delinquency could
result in us being required to repay our securitization investors earlier than expected, reducing funds available to us for future growth. Similarly with respect to financing agreements secured by our on-balance-sheet receivables, levels of loss and
delinquency could result in our being required to repay our lenders earlier than expected, thereby reducing funds available to us for future growth.

Our portfolio of receivables is not diversified and originates from customers whose creditworthiness is considered sub-prime. We obtain the receivables that we securitize and retain on our balance sheet
in one of two wayswe either originate the receivables or purchase pools of receivables from other issuers. In either case, substantially all of our receivables originate from sub-prime borrowers. Our reliance on sub-prime receivables has in
the past (and may in the future) negatively impacted our performance. For example, in 2001, we suffered a substantial loss after we increased the discount rate that we use in valuing our retained interests to reflect the higher rate of return
required by securitization investors in sub-prime markets. These losses might have been mitigated had our portfolios consisted of higher-grade receivables in addition to our sub-prime receivables. Because our portfolios are undiversified, negative
market forces have the potential to cause a widespread adverse impact. We have no immediate plans to issue or acquire significant higher-grade receivables.

Seasonal factors may result in fluctuations in our net income. Our quarterly income may substantially fluctuate as a result of seasonal consumer spending. In particular, our credit card customers may
charge more and carry higher balances during the year-end holiday season and during the late summer vacation and back-to-school period, resulting in corresponding increases in the receivables we manage and subsequently securitize or finance during
those periods.

The timing and volume of originations with respect to our largely fee-based credit card offerings to consumers at the
lower end of the FICO scoring range may cause significant fluctuations in quarterly income. Fluctuations in the timing or the volume of receivables will cause fluctuations in our quarterly income. Factors that affect the timing or volume
include marketing efforts, the general economy and the other factors discussed in this section. Given the significant and variable growth rates that we have experienced for our largely fee-based credit card offerings to consumers at the lower end of
the FICO scoring range and given the appreciably shorter vintage life cycles for these offerings relative to our more traditional credit card offerings, we have experienced, and in the future expect to experience, significant volatility of quarterly
earnings from these offerings based on the varying levels of marketing and receivables origination in the quarters preceding peak vintage charge-off periods.



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Increases in interest rates will increase our cost of funds and may reduce the payment performance
of our customers. Increases in interest rates will increase our cost of funds, which could significantly affect our results of operations and financial condition. Our credit card accounts have variable interest rates. Significant increases
in these variable interest rates may reduce the payment performance of our customers.

Due to the lack of historical experience with
Internet customers, we may not be able to successfully target these customers or evaluate their creditworthiness. There is less historical experience with respect to the credit risk and performance of customers acquired over the Internet. As
part of our growth strategy, we are expanding our origination of accounts over the Internet; however, we may not be able to successfully target and evaluate the creditworthiness of these potential customers. Therefore, we may encounter difficulties
managing the expected delinquencies and losses and appropriately pricing our products.

We Are Substantially Dependent Upon Securitizations and Other
Borrowed Funds to Fund the Receivables That We Originate or Purchase.

All of our securitization and financing facilities are of finite
duration (and ultimately will need to be extended or replaced) and contain conditions that must be fulfilled in order for funding to be available. Although our primary credit card receivables securitization facility with Merrill Lynch alleviates for
the foreseeable future our principal exposure to advance rate fluctuations within our originated portfolio master trust, in the event that future advance rates (i.e., the percentage on a dollar of receivables that lenders will lend us) for
securitizations or financing facilities are reduced, investors in securitizations or financing facilities lenders require a greater rate of return, we fail to meet the requirements for continued funding or securitizations, or financing arrangements
otherwise become unavailable to us, we may not be able to maintain or grow our base of receivables or it may be more expensive for us to do so. In addition, because of advance rate limitations, we retain subordinate interests in our securitizations,
so-called retained interests, that must be funded through profitable operations, equity raised from third parties or funds borrowed elsewhere. The cost and availability of equity and borrowed funds is dependent upon our financial
performance, the performance of our industry generally and general economic and market conditions, and at times equity and borrowed funds have been both expensive and difficult to obtain. Some of these concerns are discussed more fully below.

Our growth is dependent on our ability to add new securitization and financing facilities. We finance our receivables
through securitizations and financing facilities. To the extent we grow our receivables significantly, our cash requirements are likely to exceed the amount of cash we generate from operations, thus requiring us to add new securitization or
financing facilities. Our historic and projected performance impact whether, on what terms and at what cost we can sell interests in our securitizations or obtain financing from lenders. If additional securitization and financing facilities are not
available on terms we consider acceptable, or if existing securitization and financing facilities are not renewed on terms as favorable as we have now or are not renewed at all, we may not be able to grow our business and it may contract in size.

As our securitization and financing facilities mature, they will be required to accumulate cash that therefore will not be available
to us for reinvestment or other purposes. Repayment for our securitization facilities begins as early as one year prior to their maturity dates. Once repayment begins and until the facility is paid, payments from customers on receivables are
accumulated to repay the investors and no longer are reinvested in new receivables. When a securitization facility matures, the underlying trust continues to own the receivables and effectively the maturing facility maintains its priority in its
right to payments following collections on the underlying receivables until it is repaid in full. As a result, new purchases need to be funded using debt, equity or a replacement facility subordinate to the maturing facilitys interest in the
underlying receivables. Although this subordination historically has not made it more difficult to obtain replacement facilities, it may do so in the future. If our securitization facilities begin to accumulate cash and we also are unable to obtain
alternative sources of liquidity, such as debt, equity or new securitization facilities that are structurally subordinate to the facilities accumulating cash, we may be forced to prohibit new purchases in some or all of our accounts in order to
significantly reduce our need for any additional cash.

The documents governing our securitization facilities provide that, upon the
occurrence of certain adverse events known as early redemption events, investors can accelerate payments. Early redemption events include portfolio performance triggers, the termination of the affinity agreement with CB&T, breach of
certain representations, warranties and covenants, insolvency or receivership, and servicer defaults, and may include the occurrence of an early redemption event with respect to another securitization transaction. In the Merrill Lynch facility, an
early redemption event also may be triggered based on a total consolidated equity test or a change of control in CompuCredit. If an early redemption event occurs, principal payments would be made to investors to reduce their interests in our
securitizations. As investors interests in our securitizations decrease, our liquidity would be negatively impacted and our financial results may suffer. We would need to obtain alternative sources of funding, and there is no certainty that we
would be able to do so. Similar triggers exist with respect to the financing facilities for our loans and fees receivable retained on our balance sheet, the refunding of which could be made more difficult or impossible at terms acceptable to us if
we hit such triggers.



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We may be unable to obtain capital from third parties needed to fund our existing securitizations
and loans and fees receivable or may be forced to rely on more expensive funding sources. We need equity or debt capital to fund our retained interests in our securitizations and the difference between our loans and fees receivable and the
amount that lenders will advance or lend to us against those receivables. Investors should be aware of our dependence on third parties for funding and our exposure to increases in costs for that funding. External factors, including the general
economy, impact our ability to obtain funds. For instance, in 2001, we needed additional liquidity to fund our operations and the growth in our retained interests, and we had a difficult time obtaining the needed cash. If in the future we need to
raise cash by issuing additional debt or equity or by selling a portion of our retained interests, there is no certainty that we will be able to do so or that we will be able to do so on favorable terms. Our ability to raise cash will depend on
factors such as our performance and creditworthiness, the performance of our industry, the performance of issuers of other non-credit card-based asset-backed securities and the general economy.

The performance of our competitors may impact the costs of our securitizations and financing facilities. Investors in our securitizations
and financing facilities compare us to other sub-prime credit card issuers and, to some degree, our performance is tied to many of the factors that impact their performance. Generally speaking, investors in our securitizations also invest in our
competitors securitizations, and lenders against our receivables also lend against our competitors receivables. These investors and lenders broadly invest in or lend against receivables, and when they evaluate their investments and
lending arrangements, they typically do so on the basis of overall industry performance. Thus, when our competitors perform poorly, we typically experience negative investor and lender sentiment, and the investors in our securitizations and lenders
against our receivables require greater returns, particularly with respect to subordinated interests in our securitizations. In 2001, for instance, investors demanded unprecedented returns.

In the event that investors require higher returns and we sell our retained interests in securitizations at that time, the total return to the buyer may
be greater than the discount rate we are using to value the retained interests in our financial statements. This would result in a loss for us at the time of the sale as the total proceeds from the sale would be less than the carrying amount of the
retained interests in our financial statements. We also might increase the discount rate used to value all of our other retained interests, which also would result in further losses. Conversely, if we sold our retained interests for a total return
to the investor that was less than our current discount rate, we would record income from the sale, and we would potentially decrease the rate used to value all of our other retained interests, which would result in additional income.

We may be required to pay to investors in our securitizations an amount equal to the amount of securitized receivables if representations and
warranties made to us by sellers of the receivables are inaccurate. The representations and warranties made to us by sellers of receivables we have purchased may be inaccurate. We rely on these representations and warranties when we
securitize these purchased receivables. In securitization transactions, we make representations and warranties to investors and, generally speaking, if there is a breach of our representations and warranties, then under the terms of the applicable
investment agreement we could be required to pay the investors the amount of the non-compliant receivables. Thus, our reliance on a representation or warranty of a receivables seller, which proves to be false and causes a breach of one of our
representations or warranties, could subject us to a potentially costly liability.

Our Financial Performance Is, in Part, a Function of the Aggregate
Amount of Receivables That Are Outstanding.

The aggregate amount of outstanding receivables is a function of many factors including
purchase rates, payment rates, interest rates, seasonality, general economic conditions, competition from other credit card issuers and other sources of consumer financing, access to funding as noted above and the success of our marketing efforts.
To the extent that we have over estimated the size or growth of our receivables, in all likelihood we have over estimated our future financial performance.

Intense competition for customers may cause us to lose receivables to competitors. We may lose receivables to competitors that offer lower interest rates and fees or other more attractive terms or
features. We believe that customers choose credit card issuers and other lenders largely on the basis of interest rates, fees, credit limits and other product features. For this reason, customer loyalty is often limited. Our future growth depends
largely upon the success of our marketing programs and strategies. Our credit card business competes with national, regional and local bank and other credit card issuers, including issuers of American Express®, Discover®, Visa® and MasterCard® credit cards. Our other businesses have substantial competitors as well. Some of these competitors already may use or may begin using many of the programs and strategies that we have
used to attract new accounts. In addition, many of our competitors are substantially larger than we are and have greater financial resources. Further, the Gramm-Leach-Bliley Act of 1999, which permits the affiliation of commercial banks, insurance
companies and securities firms, may increase the level of competition in the financial services market, including the credit card business.



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We may be unable to sustain and manage our growth. We may experience fluctuations in net
income or sustain net losses if we are not able to sustain or effectively manage our growth. Growth is a product of a combination of factors, many of which are not in our control. Factors include:



| |  |  | growth in both existing and new receivables;
| | - |  | --------------------------------------------



| |  |  | the degree to which we lose receivables to competitors;
| | - |  | -------------------------------------------------------



| |  |  | levels of delinquencies and charge offs;
| | - |  | ----------------------------------------



| |  |  | the availability of funding, including securitizations, on favorable terms;
| | - |  | ---------------------------------------------------------------------------



| |  |  | our ability to sell retained interests on favorable terms;
| | - |  | ----------------------------------------------------------



| |  |  | our ability to attract new customers through originations or portfolio purchases;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | the level of costs of soliciting new customers;
| | - |  | -----------------------------------------------



| |  |  | the level of response to our solicitations;
| | - |  | -------------------------------------------



| |  |  | our ability to employ and train new personnel;
| | - |  | ----------------------------------------------



| |  |  | our ability to maintain adequate management systems, collection procedures, internal controls and automated systems; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | general economic and other factors beyond our control.
| | - |  | ------------------------------------------------------

Our decisions regarding marketing can have a significant impact on our growth. We can increase or decrease the size of our outstanding receivables balances by increasing or decreasing our marketing
efforts. Marketing is expensive, and during periods when we have less liquidity than we like or when prospects for continued liquidity in the future do not look promising, we may decide to limit our marketing and thereby our growth. We decreased our
marketing during 2003, although we increased our marketing in 2004 through 2006 because of our improved access to capital.

Our
operating expenses and our ability to effectively service our accounts are dependent on our ability to estimate the future size and general growth rate of the portfolio. One of our servicing agreements causes us to make additional payments
if we overestimate the size or growth of our business. These additional payments compensate the servicer for increased staffing expenses it incurs in anticipation of our growth. If we grow more slowly than anticipated, we still may have higher
servicing expenses than we actually need, thus reducing our net income.

We Operate in a Heavily Regulated Industry.

Changes in bankruptcy, privacy or other consumer protection laws, or to the prevailing interpretation thereof, may expose us to litigation, adversely
affect our ability to collect account balances in connection with our traditional credit card business, our debt collection subsidiarys charged-off receivables operations, auto finance and micro-loan activities, or otherwise adversely affect
our operations. Similarly, regulatory changes could adversely affect our ability or willingness to market credit cards and other products and services to our customers. The accounting rules that govern our business are exceedingly complex, difficult
to apply and in a state of flux. As a result, how we value our receivables and otherwise account for our business (including whether we consolidate our securitizations) is subject to change depending upon the interpretation of, and changes in, those
rules. Some of these issues are discussed more fully below.

Reviews and enforcement actions by regulatory authorities under banking
and consumer protection laws and regulations may result in changes to our business practices, may make collection of account balances more difficult or may expose us to the risk of fines, restitution and litigation.Our operations, and the
operations of the issuing banks through which we originate credit products, are subject to the jurisdiction of federal, state and local government authorities, including the SEC, the FDIC, the Office of the Comptroller of the Currency, the FTC, U.K.
banking authorities, state regulators having jurisdiction over financial institutions and debt origination and collection and state attorneys general. Our business practices, including the terms of our products and our marketing, servicing and
collection practices, are subject to both periodic and special reviews by these regulatory and enforcement authorities. These reviews can range from the investigations of specific consumer complaints or concerns to broader inquiries into our
practices generally. If as part of these reviews the regulatory authorities conclude that we are not complying with applicable law, they could request or impose a wide range of remedies including requiring changes in advertising and collection
practices, changes in the terms of our products (such as decreases in interest rates or fees), the imposition of fines or penalties, or the paying of restitution or the taking of other remedial action with respect to affected customers. They also
could require us to stop offering some of our products, either nationally or in selected states. To the extent that these remedies are imposed on the issuing banks through which we originate credit products, we generally are responsible for the
remedies as a result of our indemnification obligations with those banks.



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Furthermore, negative publicity relating to any specific inquiry or investigation could hurt our ability to conduct business with various industry
participants or to attract new accounts and could negatively affect our stock price, which would adversely affect our ability to raise additional capital and would raise our costs of doing business.

As discussed in more detail below, in March 2006, one of our subsidiaries stopped processing and servicing micro-loans in North Carolina in settlement of
a review by the North Carolina Attorney General, and also in 2006, we terminated our processing and servicing of micro-loans for third-party banks in three other states in response to a position taken in February 2006 with respect to banks generally
by the FDIC.

In June 2006, we entered into an assurance agreement with the New York Attorney General in order to resolve an inquiry into
our marketing and other materials and our servicing and collection practices, principally as a result of New York Personal Property Law Section 413. Pursuant to this agreement, we agreed to pay a $0.5 million civil penalty to the State of New
York and to refund certain fees to New York cardholders, which resulted in cash payments of under $2.0 million and a charge against a $5.0 million liability that we accrued for this purpose. In addition, we assured the New York Attorney General that
we would not engage in certain marketing, billing, servicing and collection practices, a number of which we previously had discontinued.

Also, commencing in June 2006, the FDIC began investigating the policies, practices and procedures used in connection with our credit card originating financial institution relationships. In December 2006, the FTC commenced a related
investigation. In general, the investigations focus upon whether marketing and other materials contained misrepresentations regarding, among other things, fees and credit limits and whether servicing and collection practices were conducted in
accordance with applicable law. We have provided substantial information to both the FDIC and FTC, and we continue to respond to their requests. The FDIC and FTC have proposed limitations on certain marketing, servicing and collection practices,
reimbursement of significant fees to affected customers and the payment of fines. We believe that our marketing and other materials and servicing and collection practices comply with applicable law, and we are vigorously contesting the proposed
reimbursement of fees and payment of fines. The matters under investigation involve a significant amount of fees and a substantial number of accounts, and although it is premature to determine the outcomes of these investigations or their effects on
our financial condition, results of operations, business position and consolidated financial statements, an adverse outcome could have a materially adverse effect upon us.

If any additional deficiencies or violations of law or regulations are identified by us or asserted by any regulator, or if the FDIC, FTC or any other
regulator requires us to change any of our practices, there can be no assurance that the correction of such deficiencies or violations, or the making of such changes, would not have a material adverse effect on our financial condition, results of
operations or business. In addition, whether or not we modify our practices when a regulatory or enforcement authority requests or requires that we do so, there is a risk that we or other industry participants may be named as defendants in
litigation involving alleged violations of federal and state laws and regulations, including consumer protection laws. Any failure to comply with legal requirements by us or the issuing banks through which we originate credit products in connection
with the issuance of those products, or by us or our agents as the servicer of our accounts, could significantly impair our ability to collect the full amount of the account balances. The institution of any litigation of this nature, or any judgment
against us or any other industry participant in any litigation of this nature, could adversely affect our business and financial condition in a variety of ways.

Increases in required minimum payment levels could impact our business adversely. Recently, regulators of credit card issuers have requested or required that issuers increase their minimum monthly
payment requirements to prevent so-called negative amortization, in which the monthly minimum payment is not sufficient to reduce the outstanding balance even if new purchases are not made. This can be caused by, among other things, the
imposition of over-limit, late and other fees. We request a minimum payment from our credit cardholders equal to the greater of 3% or 4% (depending upon the credit card product) of their outstanding balance or an amount that is sufficient to cover
over-limit, late and other feesa minimum payment level that is designed to prevent negative amortization. However, we have followed a more consumer-friendly practice of not treating cardholders as delinquent (with commensurate adverse credit
agency reporting) provided they make a minimum payment of only 3% or 4% (depending on the credit card product) of their outstanding balance (i.e., exclusive of the requested over-limit, late and other fees). Because of this practice, as of
March 31, 2007, approximately 3.4% of our accounts (representing approximately 5.5% of our receivables) were experiencing negative amortization; this compares with 3.8% of accounts and 5.9% of our receivables experiencing negative amortization
as of December 31, 2006 and 3.4% of accounts and 6.0% of our receivables experiencing negative amortization as of March 31, 2006. In response to comments about minimum payments and negative amortization received from the FDIC in the course
of its routine examinations of the banks that issue credit cards on our behalf, during the second quarter of 2006 we began a review of our practices in this area. As a result of this review, commencing during the third and fourth quarters of 2006,
we discontinued billing finance charges and fees on credit card accounts once they become over 90 days delinquent. In addition, we are reviewing alternative



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minimum payment, fee and other credit terms designed to prevent negative amortization. We have not, however, made any assessment of the impact of any changes
on our business, although changes could adversely impact our delinquency and charge off statistics and the amounts ultimately collected from cardholders.

Adverse regulatory action with respect to issuing banks could adversely impact our business. It is possible that a regulatory position or action taken with respect to any of the issuing banks through
which we originate credit products or for whom we service receivables, might result in the banks inability or unwillingness to originate credit products on our behalf or in partnership with us. For instance, in February 2006 the FDIC
effectively asked insured financial institutions not to issue cash advance and installment micro-loans through third-party servicers. As a result of this request, the issuing bank for which we provided services in four states stopped making new
loans. Similarly, two of the banks through which we traditionally have opened accounts currently are not opening new accounts, principally because of the pendency of the FDIC investigations discussed above, although we expect them to resume opening
new accounts once these investigations are substantially complete. In the future, regulators may find other aspects of the products that we originate or service objectionable, including, for instance, the terms of the credit offerings (particularly
for our high fee products), the manner in which we market them or our servicing and collection practices. We are entirely dependent in our issuing relationships with these institutions, and their regulators could at any time limit their ability to
issue some or all products on our behalf, or that we service on their behalf, or to modify those products significantly. Any significant interruption of those relationships would result in our being unable to originate new receivables and other
credit products, which would have a materially adverse impact on our business.

Changes to consumer protection laws or changes in
their interpretation may impede collection efforts or otherwise adversely impact our business practices. Federal and state consumer protection laws regulate the creation and enforcement of consumer credit card receivables and other loans. As
an originator and servicer of sub-prime receivables, we typically charge higher interest rates and fees than lenders serving consumers with higher credit scores. Sub-prime lenders are commonly the target of legislation (and revised legislative
interpretations) intended to prohibit or curtail these and other industry-standard practices as well as non-standard practices. For instance, Congress recently enacted legislation that regulates loans to military personnel through imposing interest
rate and other limitations and requiring new disclosures, all as regulated by the Department of Defense. Among others, changes in the consumer protection laws could result in the following:



| |  |  | receivables not originated in compliance with law (or revised interpretations) could become unenforceable and uncollectible under their terms against the obligors;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may be required to refund previously collected amounts;
| | - |  | ----------------------------------------------------------



| |  |  | certain of our collection methods could be prohibited, forcing us to revise our practices or adopt more costly or less effective practices;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | federal and state laws may limit our ability to recover on charged-off receivables regardless of any act or omission on our part;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | reductions in statutory limits for fees and finance charges could cause us to reduce our fees and charges;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | some of our products and services could be banned in certain states or at the federal level; for example, in 2004 the State of Georgia made certain micro-loan
practices illegal and regulatory action and litigation has been brought in North Carolina alleging that certain micro-loan practices are prohibited in that state;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | federal or state bankruptcy or debtor relief laws could offer additional protections to customers seeking bankruptcy protection, providing a court greater leeway to
reduce or discharge amounts owed to us; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a reduction in our ability or willingness to lend to certain individuals, such as military personnel.
| | - |  | -----------------------------------------------------------------------------------------------------

Accordingly, our business is always subject to changes in the regulatory environment. Changes or additions to the consumer protection laws and related
regulations, or to the prevailing interpretations thereof, could invalidate or call into question a number of our existing products, services and business practices, including our credit card origination, charged-off receivable collection, auto
finance and micro-loan activities. Any material regulatory developments could adversely impact our results from operations.

Changes
in bankruptcy laws may have an adverse impact on our performance. Effective October 17, 2005, the federal bankruptcy code was amended in several respects. One of the changes made it substantially more difficult for individuals to
obtain a complete release from their debts through a bankruptcy filing. As a result, immediately prior to the effective date of the amendments there was a substantial increase in bankruptcy filings by individuals. While much of the impact of this
particular law change appears to have been simply to accelerate the bankruptcy filings by individuals who otherwise would have filed in due course and while this particular law may have ongoing future benefits to us through potential reductions in
future bankruptcy filings, other future bankruptcy law changes could potentially have a materially adverse effect on our business.



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The Retail Micro-Loans segment of our business operates in an increasingly hostile regulatory
environment. Most states have specific laws regulating micro-loan activities and practices. (One form of these activities is sometimes referred to as payday lending.) Moreover, during the last few years, legislation has been
adopted in some states that prohibits or severely restricts micro-loan cash advance services. For example, in 2004, a new law became effective in Georgia that effectively prohibits certain micro-loan practices in the state. Several other state
legislatures have introduced bills to restrict or prohibit cash advance micro-loans by limiting the amount of the advance and or reducing the allowable fees. In addition, Mississippi and Arizona have sunset provisions in their laws
permitting micro-loans that require renewal of the laws by the state legislatures at periodic intervals. Although states provide the primary regulatory framework under which we conduct our micro-loan services, certain federal laws also impact our
business. In March 2005 the FDIC issued guidance limiting the frequency of borrower usage of cash advance micro-loans offered by FDIC-supervised institutions and the period a customer may have cash advance micro-loans outstanding from any
lender to three months during the previous 12-month period. Subsequently, in February 2006, the FDIC effectively asked FDIC-insured financial institutions to cease cash advance and installment micro-loan activities conducted through a processing and
servicing agent such as us. Moreover, future laws or regulations (at the state, federal or local level) prohibiting micro-loan services or making them unprofitable could be passed at any time or existing micro-loan laws could expire or be amended,
any of which could have a material adverse effect on our business, results of operations and financial condition.

Additionally, state
attorneys general, banking regulators and others continue to scrutinize the micro-loan industry and may take actions that could require us to cease or suspend operations in their respective states. For example, one of our subsidiaries agreed with
the Attorney General of the State of North Carolina in March 2006 to stop servicing micro-loans for third-party banks, a practice that we also terminated in three other affected states based on the February 2006 FDIC action cited above. Also, a
group of plaintiffs brought a series of putative class action lawsuits in North Carolina claiming, among other things, that the cash advance micro-loan activities of the defendants violate numerous North Carolina consumer protection laws. The
lawsuits seek various remedies including treble damages. One of these lawsuits is pending against CompuCredit and five of our subsidiaries. If these cases are determined adversely to us, there could be significant consequences to us, including the
payment of monetary damages. In the future, we also might voluntarily (or with the encouragement of a regulator) withdraw particular products from particular states, which could have a similar effect.

Negative publicity may impair acceptance of our products. Critics of sub-prime credit and micro-loan providers have in the past focused on
marketing practices that they claim encourage consumers to borrow more money than they should, as well as on pricing practices that they claim are either confusing or result in prices that are too high. Consumer groups, Internet chat sites and media
reports frequently characterize sub-prime lenders as predatory or abusive toward consumers and may misinform consumers regarding their rights. If these negative characterizations and misinformation become widely accepted by consumers, demand for our
products and services could be adversely impacted. Increased criticism of the industry or criticism of us in the future could hurt customer acceptance of our products or lead to changes in the law or regulatory environment, either of which would
significantly harm our business.

We Recently Entered Into and Have Subsequently Expanded Our Automobile Lending Activities, and These Activities
Involve Risks in Addition to Those We Historically Have Faced.

In 2005, we acquired Wells Fargo Financials CAR business unit. We
are operating these assets in forty-four states through twelve branches, three regional processing centers and one national collection center based in Lake Mary, Florida under the name CAR Financial Services, Inc. In February 2007, we
acquired the business of ACC, also an automobile lender. Automobile lending is a new business for us, and we expect to expand further in this business over time. As a new business, we may not be able to integrate or manage the business effectively.
In addition, automobile lending exposes us to a range of risks to which we previously have not been exposed, including the regulatory scheme that governs installment loans and those attendant to relying upon automobiles and their liquidation value
as collateral. In addition, the CAR Financial Services business acquires loans on a wholesale basis from used car dealers, for which we will be relying upon the legal compliance and credit determinations by those dealers.

Our automobile lending business is dependent upon referrals from dealers. Currently we provide automobile loans only to or through new and
used car dealers. Providers of automobile financing have traditionally competed based on the interest rate charged, the quality of credit accepted and the flexibility of loan terms offered. In order to be successful, we not only will need to be
competitive in these areas, but also will need to establish and maintain good relations with dealers and provide them with a level of service greater than what they can obtain from our competitors. This is particularly true with our newly acquired
ACC business, which stopped originating loans in November 2006 and is in the process of reestablishing its relationships with dealers.



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The financial performance of our automobile loan portfolio is in part dependent upon the
liquidation of repossessed automobiles. Our newly acquired ACC business regularly repossesses automobiles and sells repossessed automobiles at wholesale auction markets located throughout the United States. Auction proceeds from these sales
and other recoveries rarely are sufficient to cover the outstanding balances of the contracts; where we experience these shortfalls, we will experience credit losses. Decreased auction proceeds resulting from depressed prices at which used
automobiles may be sold in periods of economic slowdown or recession will result in higher credit losses for us. Furthermore, depressed prices for automobiles also may result from significant liquidations of rental fleet inventories and from
increased volumes of trade-ins due to promotional programs offered by new vehicle manufacturers. Additionally, higher gasoline prices may decrease the auction value of certain types of vehicles, such as SUVs.

Repossession of Automobiles Entails the Risk of Litigation and Other Claims. Although we contract with reputable repossession firms to
repossess automobiles on defaulted loans, it is not uncommon for consumers to assert that we were not entitled to repossess an automobile or that the repossession was not conducted in accordance with applicable law. These claims increase the cost of
our collection efforts and, if correct, can result in awards against us.

We Routinely Explore Various Opportunities to Grow Our Business, to Make
Investments and to Purchase and Sell Assets.

We routinely consider acquisitions of, or investments in, portfolios and other businesses
as well as the sale of portfolios and portions of our business. There are a number of risks attendant to any acquisition, including the possibility that we will overvalue the assets to be purchased, that we will not be able to successfully integrate
the acquired business or assets and that we will not be able to produce the expected level of profitability from the acquired business or assets. Similarly, there are a number of risks attendant to sales, including the possibility that we will
undervalue the assets to be sold. As a result, the impact of any acquisition or sale on our future performance may not be as favorable as expected and actually may be adverse.

Portfolio purchases may cause fluctuations in reported credit card managed receivables data, which may reduce the usefulness of historical credit card
managed loan data in evaluating our business. Our reported managed credit card receivables data may fluctuate substantially from quarter to quarter as a result of recent and future credit card portfolio acquisitions. As of March 31, 2007,
credit card portfolio acquisitions account for 19.7% of our total credit card managed receivables portfolio based on our ownership percentages, and in April 2007 we purchased a portfolio in the United Kingdom having a face amount of $970 million
(£470 million) as of the date of purchase.

Receivables included in purchased portfolios are likely to have been originated using
credit criteria different from our criteria. As a result, some of these receivables have a different credit quality than receivables we originated. Receivables included in any particular purchased portfolio may have significantly different
delinquency rates and charge off rates than the receivables previously originated and purchased by us. These receivables also may earn different interest rates and fees as compared to other similar receivables in our receivables portfolio. These
variables could cause our reported managed receivables data to fluctuate substantially in future periods making the evaluation of our business more difficult.

Any acquisition or investment that we make, will involve risks different from and in addition to the risks to which our business is currently exposed. These include the risks that we will not be able to successfully
integrate and operate new businesses, that we will have to incur substantial indebtedness and increase our leverage in order to pay for the acquisitions, that we will be exposed to, and have to comply with, different regulatory regimes and that we
will not be able to apply our traditional analytical framework (which is what we expect to be able to do) in a successful and value-enhancing manner.

Other Risks of Our Business

Unless we obtain a bank charter, we cannot issue credit cards other than through
agreements with banks. Because we do not have a bank charter, we currently cannot issue credit cards other than through agreements with banks. Previously we applied for permission to acquire a bank and our application was denied. Unless we
obtain a bank or credit card bank charter, we will continue to rely upon banking relationships to provide for the issuance of credit cards to our customers. Even if we obtain a bank charter, there may be restrictions on the types of credit that it
may extend. Our longest standing issuing agreement is with CB&T and is scheduled to expire on March 31, 2009. If we are unable to execute a new agreement with CB&T or our other issuing banks at the expirations of our current agreements
with them, or if our existing or new agreements with our issuing banks were terminated or otherwise disrupted, there is a risk that we would not be able to enter into agreements with an alternate provider on terms that we consider favorable or in a
timely manner without disruption of our business.

We may not be able to purchase charged-off receivables at sufficiently favorable
prices or terms for our debt collection operations to be successful. The charged-off receivables that are acquired and serviced by Jefferson Capital, our debt collection subsidiary, or sold to third parties pursuant to forward flow contracts
have been deemed uncollectible and written off by the



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originators. Jefferson Capital seeks to purchase charged-off receivables portfolios only if it expects projected collections or prices received for sales of
such charged-off receivables to exceed its acquisition and servicing costs. Accordingly, factors causing the acquisition price of targeted portfolios to increase could reduce the ratio of collections (or sales prices received) to acquisitions costs
for a given portfolio, and thereby negatively affect Jefferson Capitals profitability. The availability of charged-off receivables portfolios at favorable prices and on favorable terms depends on a number of factors, including the continuation
of the current growth and charge off trends in consumer receivables, our ability to develop and maintain long-term relationships with key charged-off receivable sellers, our ability to obtain adequate data to appropriately evaluate the
collectibility of portfolios and competitive factors affecting potential purchasers and sellers of charged-off receivables, including pricing pressures, which may increase the cost to us of acquiring portfolios of charged-off receivables and reduce
our return on such portfolios.

Additionally, sellers of charged-off receivables generally make numerous attempts to recover on their
non-performing receivables, often using a combination of their in-house collection and legal departments as well as third-party collection agencies. Charged-off receivables are difficult to collect, and we may not be successful in collecting amounts
sufficient to cover the costs associated with purchasing the receivables and funding our Jefferson Capital operations.

The
analytical model we use to project credit quality may prove to be inaccurate. We assess credit quality using an analytical model that we believe predicts the likelihood of payment more accurately than traditional credit scoring models. For
instance, we have identified factors (such as delinquencies, defaults and bankruptcies) that under some circumstances we weight differently than do other credit providers. We believe our analysis enables us to better identify consumers within the
underserved market who are likely to be better credit risks than otherwise would be expected. Similarly, we apply our analytical model to entire portfolios in order to identify those that may be more valuable than the seller or other potential
purchasers might recognize. There can be no assurance, however, that we will be able to achieve the collections forecasted by our analytical model. If any of our assumptions underlying our model proves materially inaccurate or changes unexpectedly,
we may not be able to achieve our expected levels of collection, and our revenues will be reduced, which would result in a reduction of our earnings.

Because we outsource account-processing functions that are integral to our business, any disruption or termination of that outsourcing relationship could harm our business. We outsource account and
payment processing pursuant to agreements with CB&T and its affiliates. In 2006, we paid CB&T and its affiliates $36.5 million for these services. If these agreements were not renewed or were terminated or the services provided to us
otherwise disrupted, we would have to obtain these services from an alternative provider, such as First Data Resources, Inc., which currently provides only limited account and payment processing for us. There is a risk that we would not be able to
enter into a similar agreement with an alternate provider on terms that we consider favorable or in a timely manner without disruption of our business.

If we obtain a bank charter, any changes in applicable state or federal laws could adversely affect our business. From time-to-time we have explored the possibility of acquiring a bank or credit card
bank. If we obtain a bank or credit card bank charter, we will be subject to the various state and federal regulations generally applicable to similar institutions, including restrictions on the ability of the banking subsidiary to pay dividends to
us. We are unable to predict the effect of any future changes of applicable state and federal laws or regulations, but such changes could adversely affect the banks business and operations.

If we ever consolidate the entities that hold our receivables, the changes to our financial statements are likely to be significant. When
we securitize receivables, they are owned by special purpose entities that are not consolidated with us for financial reporting purposes. The rules governing whether these entities are consolidated are complex and evolving. These rules at some point
could be changed or interpreted in a manner that requires us to consolidate these entities. In addition, we might at some point modify how we securitize receivables, or propose modifications to existing securitization facilities, such that the
consolidation of these entities could be required. If this occurred, we would include the receivables as assets on our balance sheet and also would include a loan loss reserve. Similarly, we no longer would include the corresponding retained
interests as assets. There also would be significant changes to our statements of operations and cash flows. The net effect of consolidation would be dependent upon the amount and nature of the receivables at the time they were consolidated, and
although it is difficult to predict the net effect of consolidation, it is likely to be material.

Internet security breaches could
damage our reputation and business.Internet security breaches could damage our reputation and business. As part of our growth strategy, we may expand our origination of credit card accounts over the Internet. The secure transmission of
confidential information over the Internet is essential to maintaining consumer confidence in our products and services offered online. Advances in computer capabilities, new discoveries or other developments could result in a compromise or breach
of the technology used by us to protect customer application and transaction data transmitted over the Internet. Security breaches could damage our reputation and expose us to a risk of loss or litigation. Moreover, consumers generally are concerned
with security and privacy on the Internet, and any publicized security problems could inhibit the growth of the Internet as a means of conducting commercial transactions. Our ability to solicit new account holders over the Internet would be severely
impeded if consumers become unwilling to transmit confidential information online.



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Investments that we make in the securities of others may be more risky and volatile than similar
assets owned by us. From time-to-time we purchase debt and securities of others, principally those issued by asset-backed securitization trusts (e.g., notes secured or backed by pools of assets) that represent sub-prime
credit risks of individuals. These securities in many cases are junior, including below investment grade, traunches of securities issued by the trusts. The assets underlying these securities are not originated by us and, accordingly, may
not meet the underwriting standards that we follow in originating receivables. Further, we do not have direct control over the management of the underlying assets and, similarly, they may not be managed as effectively as we would manage similar
assets. As a result, the securities in which we invest may carry higher risks, including risks of higher delinquencies and charge offs, risks of covenant violations and risks of value impairment due to the claims of more senior securities
issued by the trusts, than similar assets originated and owned by us. These higher risks can cause much greater valuation volatility for these securities than we typically have experienced and would expect to experience on our holdings of
securities underlying the trusts that we service. And although these securities generally are traded in an active secondary market, valuation volatility also can be expected to result from liquidity needs that we might have in the future, including
any need that we may have for quick liquidity or to meet margin requirements related to our investments in these securities should their prices decline. In turn, this could result in steep and immediate impairments in the values of the securities as
presented within our financial statements and could cause our financial position and results of operations to deteriorate, possibly materially. At March 31, 2007, we had investments in the debt and similar securities of others of $163.8
million.

Risks Relating to an Investment in Our Common Stock

The price of our common stock may fluctuate significantly, and this may make it difficult for you to resell your shares of our common stock when you want or at prices you find attractive. The price
of our common stock on the NASDAQ Global Market constantly changes. We expect that the market price of our common stock will continue to fluctuate. The market price of our common stock may fluctuate in response to numerous factors, many of which are
beyond our control. These factors include the following:



| |  |  | actual or anticipated fluctuations in our operating results;
| | - |  | ------------------------------------------------------------



| |  |  | changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | the operating and stock performance of our competitors;
| | - |  | -------------------------------------------------------



| |  |  | announcements by us or our competitors of new products or services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital
commitments;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in interest rates;
| | - |  | --------------------------



| |  |  | the announcement of enforcement actions or investigations against us or our competitors or other negative publicity relating to us or our industry;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in accounting principles generally accepted in the United States of America (GAAP), laws, regulations or the interpretations thereof that affect
our various business activities and segments;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | general domestic or international economic, market and political conditions;
| | - |  | ----------------------------------------------------------------------------



| |  |  | additions or departures of key personnel; and
| | - |  | ---------------------------------------------



| |  |  | future sales of our common stock and the share lending agreement.
| | - |  | -----------------------------------------------------------------

In addition, the stock markets from time to time experience extreme price and volume fluctuations that may be unrelated or disproportionate to the operating performance of companies. These broad fluctuations may
adversely affect the trading price of our common stock, regardless of our actual operating performance.

Future sales of our common
stock or equity-related securities in the public market, including sales of our common stock pursuant to share lending agreements or in short sales transactions by purchasers of convertible notes securities, could adversely affect the trading price
of our common stock and our ability to raise funds in new stock offerings.Sales of significant amounts of our common stock or equity-related securities in the public market, including sales pursuant to share lending agreements, or the
perception that such sales will occur, could adversely affect prevailing trading prices of our common stock and could impair our ability to raise capital through future offerings of equity or equity-related securities. No prediction can be made as
to the effect, if any, that future sales of shares of common stock or the availability of shares of common stock for future sale, including sales of our common stock in short sales transactions by purchasers of the notes, will have on the trading
price of our common stock.



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We have the ability to issue preferred shares without shareholder approval. Our common
shares may be subordinate to classes of preferred shares issued in the future in the payment of dividends and other distributions made with respect to common shares, including distributions upon liquidation or dissolution. Our articles of
incorporation permit our board of directors to issue preferred shares without first obtaining shareholder approval. If we issued preferred shares, these additional securities may have dividend or liquidation preferences senior to the common shares.
If we issue convertible preferred shares, a subsequent conversion may dilute the current common shareholders interest.

Our
executive officers, directors and parties related to them, in the aggregate, control a majority of our voting stock and may have the ability to control matters requiring shareholder approval. Our executive officers, directors and
parties related to them own a large enough stake in us to have an influence on, if not control of, the matters presented to shareholders. As a result, these shareholders may have the ability to control matters requiring shareholder approval,
including the election and removal of directors, the approval of significant corporate transactions, such as any reclassification, reorganization, merger, consolidation or sale of all or substantially all of our assets and the control of our
management and affairs. Accordingly, this concentration of ownership may have the effect of delaying, deferring or preventing a change of control of us, impede a merger, consolidation, takeover or other business combination involving us or
discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could have an adverse effect on the market price of our common stock.

Note Regarding Risk Factors

The risk factors presented above
are all of the ones that we currently consider material. However, they are not the only ones facing our company. Additional risks not presently known to us, or which we currently consider immaterial, may also adversely affect us. There may be risks
that a particular investor views differently from us, and our analysis might be wrong. If any of the risks that we face actually occur, our business, financial condition and operating results could be materially adversely affected and could differ
materially from any possible results suggested by any forward-looking statements that we have made or might make. In such case, the trading price of our common stock could decline, and you could lose part or all of your investment. We expressly
disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.



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|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

In January 2007, we issued 2,400,000
shares of our Common Stock to certain holders of common stock purchase warrants (the Warrants) upon the exercise of such Warrants. The Warrants were originally issued in a private offering pursuant to Section 4(2) of the Securities Act.
The holders of the Warrants were accredited investors under Rule 501 of the Securities Act at the time of issuance and exercise of the Warrants, and we have registered the resale of such shares of common stock under the Securities Act. The issuance,
terms and conditions of the Warrants and the registration of the shares underlying the Warrants have been previously disclosed in our SEC filings. The exercise price of the Warrants was $22.45 per share. We received $53,880,000 in proceeds, which
will be used for general corporate purposes.

The following table sets forth information with respect to our repurchases of common stock
during the first quarter of 2007:



|                     |  |                                 |  |                             |       |                                                                                |           |                                                                            |           
|-------------------- |  | ------------------------------- |  | --------------------------- | ----- | ------------------------------------------------------------------------------ | --------- | -------------------------------------------------------------------------- | ----------
|Period               |  | Total Number ofShares Purchased |  | Average PricePaid per Share |       | Total Number ofShares Purchasedas Part ofPubliclyAnnounced Plansor Programs(1) |           | Maximum Numberof Shares that MayYet Be PurchasedUnder the Plans orPrograms
|January 1January 31 |  |                                |  |                             |      |                                                                                |          |                                                                            | 10,000,000
|FebruaryFebruary 28 |  |                                |  |                             |      |                                                                                |          |                                                                            | 10,000,000
|March 1March 31     |  | 2,884,163                       |  | $                           | 30.00 |                                                                                | 2,884,163 |                                                                            | 7,115,837 
|                     |  |                                 |  |                             |       |                                                                                |           |                                                                            |           
|Total                |  | 2,884,163                       |  | $                           | 30.00 |                                                                                | 2,884,163 |                                                                            |           
|                     |  |                                 |  |                             |       |                                                                                |           |                                                                            |           

---

|(1) | In May 2006, our board of directors authorized a program to repurchase up to 10 million shares of our outstanding common stock. Under the plan, we can repurchase shares of our
common stock from time to time, through June 30, 2008, either on the open market or through privately negotiated transactions in compliance with SEC guidelines.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

None.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

None.



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

None.



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##### Table of Contents

|ITEM 6. | EXHIBITS
|------- | --------



|               |  |                                                                                                              |  |                                                                                     
|-------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Exhibit                                                                                       |  | Incorporated by reference from CompuCredits SEC filings unless otherwise indicated:
|               |  |                                                                                                             
|31.1           |  | Certification per Section 302 of the Sarbanes-Oxley Act of 2002 for David G. Hanna                           |  | Filed herewith                                                                      
|               |  |                                                                                                             
|31.2           |  | Certification per Section 302 of the Sarbanes-Oxley Act of 2002 for J.Paul Whitehead, III                    |  | Filed herewith                                                                      
|               |  |                                                                                                             
|32.1           |  | Certification per Section 906 of the Sarbanes-Oxley Act of 2002 for David G. Hanna and J.Paul Whitehead, III |  | Filed herewith                                                                      



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|            |  |  |  |                         |  |                           |  |                                                          
|----------- |  |  |  | ----------------------- |  | ------------------------- |  | ---------------------------------------------------------
|            |  |  |  | COMPUCREDIT CORPORATION
|            |  |  | 
|May 8, 2007 |  |  |  | By                      |  | /s/ J.PAUL WHITEHEAD, III
|            |  |  |  |                         |  |                           |  | J.Paul Whitehead, III                                    
|            |  |  |  |                         |  |                           |  | Chief Financial Officer                                  
|            |  |  |  |                         |  |                           |  | (duly authorized officer and principal financial officer)



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