##### Table of Contents





SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q





For the quarterly period ended March 31, 2008

of





LOGO

COMPUCREDIT CORPORATION

a Georgia Corporation





IRS Employer Identification
No. 58-2336689

SEC File Number 0-25751

Five Concourse Parkway, Suite 400

Atlanta, Georgia 30328

(770) 828-2000





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

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

As of May 2, 2008, 47,929,998 shares of Common Stock, no par value, of CompuCredit were outstanding. (This excludes 3,651,069 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 Statements 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 |  | 23  
|                             |  | Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 43  
|                             |  | Item 4.  |  | Controls and Procedures                                                               |  | 45  
|                             | 
|PART II. OTHER INFORMATION   |  |         
|                             |  |          | 
|                             |  | Item 1.  |  | Legal Proceedings                                                                     |  | 46  
|                             |  | Item 1A. |  | Risk Factors                                                                          |  | 46  
|                             |  | Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 58  
|                             |  | Item 6.  |  | Exhibits                                                                              |  | 58  
|                             |  |          |  | Signatures                                                                            |  | 63  



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(Dollars in thousands)



|                                                                                                                                                                                                                                                                                                                                   |  |               |           |   |                  |   |           |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                                                                                                                                                                                                   |  | March 31,2008 |           |   | December 31,2007 |  
|                                                                                                                                                                                                                                                                                                                                   |  | (Unaudited)   |           |   |                  |  
|Assets                                                                                                                                                                                                                                                                                                                             |  |               |           |   |                  |   |           |  
|Cash and cash equivalents (including restricted cash of $28,314 at March 31, 2008 and $29,128 at December 31, 2007)                                                                                                                                                                                                                |  | $             | 211,901   |   |                  | $ | 137,526   |  
|Securitized earning assets                                                                                                                                                                                                                                                                                                         |  |               | 1,000,390 |   |                  |   | 1,015,579 |  
|Non-securitized earning assets, net:                                                                                                                                                                                                                                                                                               |  |               |           |   |                  |   |           |  
|Loans and fees receivable, net (of $28,680 and $27,199 in deferred revenue and $54,500 and $51,489 in allowances for uncollectible loans and
fees receivable at March 31, 2008 and December 31, 2007, respectively)                                                                                                                |  |               | 364,569   |   |                  |   | 357,027   |  
|Investments in previously charged-off receivables                                                                                                                                                                                                                                                                                  |  |               | 19,252    |   |                  |   | 14,523    |  
|Investments in securities                                                                                                                                                                                                                                                                                                          |  |               | 21,340    |   |                  |   | 27,714    |  
|Deferred costs, net                                                                                                                                                                                                                                                                                                                |  |               | 13,947    |   |                  |   | 14,923    |  
|Property at cost, net of depreciation                                                                                                                                                                                                                                                                                              |  |               | 79,602    |   |                  |   | 84,466    |  
|Investments in equity-method investees                                                                                                                                                                                                                                                                                             |  |               | 61,573    |   |                  |   | 63,023    |  
|Intangibles, net                                                                                                                                                                                                                                                                                                                   |  |               | 7,633     |   |                  |   | 8,248     |  
|Goodwill                                                                                                                                                                                                                                                                                                                           |  |               | 96,012    |   |                  |   | 97,169    |  
|Prepaid expenses and other assets                                                                                                                                                                                                                                                                                                  |  |               | 55,105    |   |                  |   | 45,247    |  
|Assets held for sale                                                                                                                                                                                                                                                                                                               |  |               | 9,772     |   |                  |   | 8,735     |  
|                                                                                                                                                                                                                                                                                                                                   |  |               |           |   |                  |   |           |  
|Total assets                                                                                                                                                                                                                                                                                                                       |  | $             | 1,941,096 |   |                  | $ | 1,874,180 |  
|                                                                                                                                                                                                                                                                                                                                   |  |               |           |   |                  |   |           |  
|                                                                                                                                                                                                                                                                                                                                   |  |              
|Liabilities                                                                                                                                                                                                                                                                                                                        |  |               |           |   |                  |   |           |  
|Accounts payable and accrued expenses                                                                                                                                                                                                                                                                                              |  | $             | 121,719   |   |                  | $ | 159,396   |  
|Notes payable and other borrowings                                                                                                                                                                                                                                                                                                 |  |               | 249,864   |   |                  |   | 235,591   |  
|Convertible senior notes                                                                                                                                                                                                                                                                                                           |  |               | 550,000   |   |                  |   | 550,000   |  
|Deferred revenue primarily from forward flow agreement                                                                                                                                                                                                                                                                             |  |               | 26,507    |   |                  |   | 33,277    |  
|Current and deferred income tax liabilities                                                                                                                                                                                                                                                                                        |  |               | 162,342   |   |                  |   | 70,232    |  
|                                                                                                                                                                                                                                                                                                                                   |  |              
|Liabilities related to assets held for sale                                                                                                                                                                                                                                                                                        |  |               | 2,179     |   |                  |   | 373       |  
|                                                                                                                                                                                                                                                                                                                                   |  |               |           |   |                  |   |           |  
|Total liabilities                                                                                                                                                                                                                                                                                                                  |  |               | 1,112,611 |   |                  |   | 1,048,869 |  
|                                                                                                                                                                                                                                                                                                                                   |  |              
|Minority interests                                                                                                                                                                                                                                                                                                                 |  |               | 32,833    |   |                  |   | 32,732    |  
|                                                                                                                                                                                                                                                                                                                                   |  |              
|Commitments and contingencies (Note 10)                                                                                                                                                                                                                                                                                            |  |               |           |   |                  |   |           |  
|                                                                                                                                                                                                                                                                                                                                   |  |              
|Shareholders equity                                                                                                                                                                                                                                                                                                               |  |               |           |   |                  |   |           |  
|Common stock, no par value, 150,000,000 shares authorized: 60,350,228 shares issued and 51,584,010 shares outstanding at March 31, 2008
(including 3,651,069 loaned shares to be returned); and 61,938,533 shares issued and 53,055,505 shares outstanding at December 31, 2007 (including 5,677,950 loaned shares to be returned) |  |               |          |   |                  |   |          |  
|Additional paid-in capital                                                                                                                                                                                                                                                                                                         |  |               | 407,466   |   |                  |   | 409,964   |  
|Treasury stock, at cost, 8,766,218 and 8,883,028 shares at March 31, 2008 and December 31, 2007, respectively                                                                                                                                                                                                                      |  |               | (223,014  | ) |                  |   | (225,457  | )
|Accumulated other comprehensive income                                                                                                                                                                                                                                                                                             |  |               | 1,421     |   |                  |   | 1,637     |  
|Retained earnings                                                                                                                                                                                                                                                                                                                  |  |               | 609,779   |   |                  |   | 606,435   |  
|                                                                                                                                                                                                                                                                                                                                   |  |               |           |   |                  |   |           |  
|Total shareholders equity                                                                                                                                                                                                                                                                                                         |  |               | 795,652   |   |                  |   | 792,579   |  
|                                                                                                                                                                                                                                                                                                                                   |  |               |           |   |                  |   |           |  
|Total liabilities and shareholders equity                                                                                                                                                                                                                                                                                         |  | $             | 1,941,096 |   |                  | $ | 1,874,180 |  
|                                                                                                                                                                                                                                                                                                                                   |  |               |           |   |                  |   |           |  

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, |        
|                                                                                                                   |  | 2008                                |         |   | 2007 |  
|Interest income:                                                                                                   |  |                                     |         |   |      |   |          |  
|Consumer loans, including past due fees                                                                            |  | $                                   | 22,916  |   |      | $ | 80,386   |  
|Other                                                                                                              |  |                                     | 2,083   |   |      |   | 5,497    |  
|                                                                                                                   |  |                                     |         |   |      |   |          |  
|Total interest income                                                                                              |  |                                     | 24,999  |   |      |   | 85,883   |  
|Interest expense                                                                                                   |  |                                     | (11,474 | ) |      |   | (15,784  | )
|                                                                                                                   |  |                                     |         |   |      |   |          |  
|Net interest income before fees and related income on non-securitized earning assets and provision for loan losses |  |                                     | 13,525  |   |      |   | 70,099   |  
|Fees and related income on non-securitized earning assets                                                          |  |                                     | 55,289  |   |      |   | 164,240  |  
|Provision for loan losses                                                                                          |  |                                     | (20,406 | ) |      |   | (131,624 | )
|                                                                                                                   |  |                                     |         |   |      |   |          |  
|Net interest income, fees and related income on non-securitized earning assets                                     |  |                                     | 48,408  |   |      |   | 102,715  |  
|Other operating income:                                                                                            |  |                                     |         |   |      |   |          |  
|Fees and related income on securitized earning assets                                                              |  |                                     | 42,491  |   |      |   | 19,702   |  
|Servicing income                                                                                                   |  |                                     | 48,286  |   |      |   | 18,895   |  
|Ancillary and interchange revenues                                                                                 |  |                                     | 15,421  |   |      |   | 11,761   |  
|Equity in income of equity-method investees                                                                        |  |                                     | 8,474   |   |      |   | 9,719    |  
|                                                                                                                   |  |                                     |         |   |      |   |          |  
|Total other operating income                                                                                       |  |                                     | 114,672 |   |      |   | 60,077   |  
|Other operating expense:                                                                                           |  |                                     |         |   |      |   |          |  
|Salaries and benefits                                                                                              |  |                                     | 18,779  |   |      |   | 18,313   |  
|Card and loan servicing                                                                                            |  |                                     | 76,438  |   |      |   | 66,070   |  
|Marketing and solicitation                                                                                         |  |                                     | 15,859  |   |      |   | 35,789   |  
|Depreciation                                                                                                       |  |                                     | 9,954   |   |      |   | 9,594    |  
|Other                                                                                                              |  |                                     | 29,131  |   |      |   | 29,096   |  
|                                                                                                                   |  |                                     |         |   |      |   |          |  
|Total other operating expense                                                                                      |  |                                     | 150,161 |   |      |   | 158,862  |  
|                                                                                                                   |  |                                     |         |   |      |   |          |  
|Income from continuing operations before minority interests and income taxes                                       |  |                                     | 12,919  |   |      |   | 3,930    |  
|Minority interests                                                                                                 |  |                                     | (2,019  | ) |      |   | (712     | )
|                                                                                                                   |  |                                     |         |   |      |   |          |  
|Income from continuing operations before income taxes                                                              |  |                                     | 10,900  |   |      |   | 3,218    |  
|Income tax expense                                                                                                 |  |                                     | (5,387  | ) |      |   | (1,087   | )
|                                                                                                                   |  |                                     |         |   |      |   |          |  
|Income from continuing operations                                                                                  |  |                                     | 5,513   |   |      |   | 2,131    |  
|Discontinued operations:                                                                                           |  |                                     |         |   |      |   |          |  
|Loss from discontinued operations before income tax benefit                                                        |  |                                     | (4,685  | ) |      |   | (7,149   | )
|Income tax benefit                                                                                                 |  |                                     | 1,640   |   |      |   | 2,502    |  
|                                                                                                                   |  |                                     |         |   |      |   |          |  
|Loss from discontinued operations                                                                                  |  |                                     | (3,045  | ) |      |   | (4,647   | )
|                                                                                                                   |  |                                     |         |   |      |   |          |  
|Net income (loss)                                                                                                  |  | $                                   | 2,468   |   |      | $ | (2,516   | )
|                                                                                                                   |  |                                     |         |   |      |   |          |  
|Income from continuing operations per common sharebasic                                                           |  | $                                   | 0.12    |   |      | $ | 0.04     |  
|                                                                                                                   |  |                                     |         |   |      |   |          |  
|Income from continuing operations per common sharediluted                                                         |  | $                                   | 0.12    |   |      | $ | 0.04     |  
|                                                                                                                   |  |                                     |         |   |      |   |          |  
|Loss from discontinued operations per common sharebasic                                                           |  | $                                   | (0.07   | ) |      | $ | (0.09    | )
|                                                                                                                   |  |                                     |         |   |      |   |          |  
|Loss from discontinued operations per common sharediluted                                                         |  | $                                   | (0.07   | ) |      | $ | (0.09    | )
|                                                                                                                   |  |                                     |         |   |      |   |          |  
|Net income (loss) per common sharebasic                                                                           |  | $                                   | 0.05    |   |      | $ | (0.05    | )
|                                                                                                                   |  |                                     |         |   |      |   |          |  
|Net income (loss) per common sharediluted                                                                         |  | $                                   | 0.05    |   |      | $ | (0.05    | )
|                                                                                                                   |  |                                     |         |   |      |   |          |  

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, 2008

(Dollars in thousands)



|                                                         |              |              |   |                          |   |   |               |   |         |                                     |  |   |                  |   |                          |   |       |   |  |   |         |  |   |         |  
|-------------------------------------------------------- | ------------ | ------------ | - | ------------------------ | - | - | ------------- | - | ------- | ----------------------------------- |  | - | ---------------- | - | ------------------------ | - | ----- | - |  | - | ------- |  | - | ------- | -
|                                                         |              | Common Stock |   | AdditionalPaid-InCapital |   |   | TreasuryStock |   |         | AccumulatedOtherComprehensiveIncome |  |   | RetainedEarnings |   | TotalShareholdersEquity |  
|                                                         | SharesIssued |              |   | Amount                   |   |   |               |   |        
|Balance at December 31, 2007                             |              | 61,938,533   |   |                          | $ |  |               | $ | 409,964 |                                     |  | $ | (225,457         | ) |                          | $ | 1,637 |   |  | $ | 606,435 |  | $ | 792,579 |  
|Stock options exercises and proceeds related thereto     |              | 28,667       |   |                          |   |  |               |   | 69      |                                     |  |   |                 |   |                          |   |      |   |  |   |        |  |   | 69      |  
|Use of treasury stock for stock-based compensation plans |              | (163,716     | ) |                          |   |  |               |   | (3,807  | )                                   |  |   | 2,931            |   |                          |   |      |   |  |   | 876     |  |   |        |  
|Issuance of restricted stock                             |              | 573,625      |   |                          |   |  |               |   |        |                                     |  |   |                 |   |                          |   |      |   |  |   |        |  |   |        |  
|Amortization of deferred stock-based compensation costs  |              |             |   |                          |   |  |               |   | 2,335   |                                     |  |   |                 |   |                          |   |      |   |  |   |        |  |   | 2,335   |  
|Purchase of treasury stock                               |              |             |   |                          |   |  |               |   |        |                                     |  |   | (488             | ) |                          |   |      |   |  |   |        |  |   | (488    | )
|Tax benefit related to stock-based compensation plans    |              |             |   |                          |   |  |               |   | (1,095  | )                                   |  |   |                 |   |                          |   |      |   |  |   |        |  |   | (1,095  | )
|Foreign currency translation adjustment, net of tax      |              |             |   |                          |   |  |               |   |        |                                     |  |   |                 |   |                          |   | (216  | ) |  |   |        |  |   | (216    | )
|Retired shares                                           |              | (2,026,881   | ) |                          |   |  |               |   |        |                                     |  |   |                 |   |                          |   |      |   |  |   |        |  |   |        |  
|Net income                                               |              |             |   |                          |   |  |               |   |        |                                     |  |   |                 |   |                          |   |      |   |  |   | 2,468   |  |   | 2,468   |  
|                                                         |              |              |   |                          |   |   |               |   |         |                                     |  |   |                  |   |                          |   |       |   |  |   |         |  |   |         |  
|Balance at March 31, 2008                                |              | 60,350,228   |   |                          | $ |  |               | $ | 407,466 |                                     |  | $ | (223,014         | ) |                          | $ | 1,421 |   |  | $ | 609,779 |  | $ | 795,652 |  
|                                                         |              |              |   |                          |   |   |               |   |         |                                     |  |   |                  |   |                          |   |       |   |  |   |         |  |   |         |  

See accompanying notes.



3



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

(Dollars in thousands)



|                                                         |  |                                     |       |   |      |   |        |  
|-------------------------------------------------------- |  | ----------------------------------- | ----- | - | ---- | - | ------ | -
|                                                         |  | For the Three Months EndedMarch 31, |      
|                                                         |  | 2008                                |       |   | 2007 |  
|Net income (loss)                                        |  | $                                   | 2,468 |   |      | $ | (2,516 | )
|Other comprehensive income (loss):                       |  |                                     |       |   |      |   |        |  
|Foreign currency translation adjustment                  |  |                                     | (312  | ) |      |   | 331    |  
|Income tax benefit related to other comprehensive income |  |                                     | 96    |   |      |   |       |  
|                                                         |  |                                     |       |   |      |   |        |  
|Comprehensive income (loss)                              |  | $                                   | 2,252 |   |      | $ | (2,185 | )
|                                                         |  |                                     |       |   |      |   |        |  

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 EndedMarch 31, |         
|                                                                                         |  | 2008                                |          |   | 2007 |  
|Operating activities                                                                     |  |                                     |          |   |      |   |          |  
|Net income (loss)                                                                        |  | $                                   | 2,468    |   |      | $ | (2,516   | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                                     |          |   |      |   |          |  
|Depreciation expense                                                                     |  |                                     | 10,117   |   |      |   | 10,119   |  
|Impairment of goodwill                                                                   |  |                                     | 1,132    |   |      |   |         |  
|Provision for loan losses                                                                |  |                                     | 22,421   |   |      |   | 134,440  |  
|Amortization of intangibles                                                              |  |                                     | 615      |   |      |   | 1,213    |  
|Accretion of deferred revenue                                                            |  |                                     | (6,770   | ) |      |   | (7,696   | )
|Stock-based compensation expense                                                         |  |                                     | 2,335    |   |      |   | 2,585    |  
|Minority interests                                                                       |  |                                     | 2,019    |   |      |   | 712      |  
|Retained interests adjustments, net                                                      |  |                                     | 102,773  |   |      |   | 62,180   |  
|Unrealized loss on investment securities classified as trading securities                |  |                                     | 4,123    |   |      |   | 2,516    |  
|Income in excess of distributions from equity-method investments                         |  |                                     | (97      | ) |      |   |         |  
|Changes in assets and liabilities, exclusive of business acquisitions:                   |  |                                     |          |   |      |   |          |  
|Net decrease (increase) in investment securities classified as trading securities        |  |                                     | 1,038    |   |      |   | (412     | )
|Decrease (increase) in uncollected fees on non-securitized earning assets                |  |                                     | 7,383    |   |      |   | (83,041  | )
|Decrease (increase) in deferred costs                                                    |  |                                     | 976      |   |      |   | (42      | )
|Increase in prepaid expenses                                                             |  |                                     | (14,125  | ) |      |   | (8,410   | )
|Increase (decrease) in current and deferred tax liability                                |  |                                     | 91,112   |   |      |   | (25,865  | )
|Increase in deferred revenue                                                             |  |                                     |         |   |      |   | 2,336    |  
|(Decrease) increase in accounts payable and accrued expenses                             |  |                                     | (35,446  | ) |      |   | 416      |  
|Other                                                                                    |  |                                     | 6,226    |   |      |   | (3,735   | )
|                                                                                         |  |                                     |          |   |      |   |          |  
|Net cash provided by operating activities                                                |  |                                     | 198,300  |   |      |   | 84,800   |  
|                                                                                         |  |                                     |          |   |      |   |          |  
|                                                                                         |  |                                    
|Investing activities                                                                     |  |                                     |          |   |      |   |          |  
|Proceeds from equity-method investees                                                    |  |                                     | 1,547    |   |      |   | 6,949    |  
|Investments in securitized earning assets                                                |  |                                     | (457,708 | ) |      |   | (254,977 | )
|Proceeds from securitized earning assets                                                 |  |                                     | 371,081  |   |      |   | 338,573  |  
|Investments in non-securitized earning assets                                            |  |                                     | (320,111 | ) |      |   | (527,327 | )
|Proceeds from non-securitized earning assets                                             |  |                                     | 277,887  |   |      |   | 473,545  |  
|Increase in notes receivable                                                             |  |                                     |         |   |      |   | (2,433   | )
|Acquisitions of assets                                                                   |  |                                     |         |   |      |   | (191,376 | )
|Purchases of and development of software, furniture, fixtures and equipment              |  |                                     | (7,968   | ) |      |   | (12,746  | )
|                                                                                         |  |                                     |          |   |      |   |          |  
|Net cash used in investing activities                                                    |  |                                     | (135,272 | ) |      |   | (169,792 | )
|                                                                                         |  |                                     |          |   |      |   |          |  
|                                                                                         |  |                                    
|Financing activities                                                                     |  |                                     |          |   |      |   |          |  
|Minority interests distribution, net                                                     |  |                                     | (1,918   | ) |      |   | (2,426   | )
|Proceeds from exercise of stock options                                                  |  |                                     | 69       |   |      |   | 714      |  
|Proceeds from the exercise of warrants                                                   |  |                                     |         |   |      |   | 53,880   |  
|Purchase of treasury stock                                                               |  |                                     | (488     | ) |      |   | (87,551  | )
|Proceeds from borrowings                                                                 |  |                                     | 40,476   |   |      |   | 166,050  |  
|Repayment of borrowings                                                                  |  |                                     | (26,653  | ) |      |   | (15,903  | )
|                                                                                         |  |                                     |          |   |      |   |          |  
|Net cash provided by financing activities                                                |  |                                     | 11,486   |   |      |   | 114,764  |  
|                                                                                         |  |                                     |          |   |      |   |          |  
|Effect of exchange rate changes on cash                                                  |  |                                     | (139     | ) |      |   |         |  
|                                                                                         |  |                                     |          |   |      |   |          |  
|Net increase in cash                                                                     |  |                                     | 74,375   |   |      |   | 29,772   |  
|Cash and cash equivalents at beginning of period                                         |  |                                     | 137,526  |   |      |   | 110,412  |  
|                                                                                         |  |                                     |          |   |      |   |          |  
|Cash and cash equivalents at end of period                                               |  | $                                   | 211,901  |   |      | $ | 140,184  |  
|                                                                                         |  |                                     |          |   |      |   |          |  
|Supplemental cash flow information                                                       |  |                                     |          |   |      |   |          |  
|Cash paid for interest                                                                   |  | $                                   | 13,635   |   |      | $ | 16,914   |  
|                                                                                         |  |                                     |          |   |      |   |          |  
|Net cash (refunded) paid for income taxes                                                |  | $                                   | (87,360  | ) |      | $ | 24,450   |  
|                                                                                         |  |                                     |          |   |      |   |          |  
|Supplemental non-cash information                                                        |  |                                     |          |   |      |   |          |  
|Notes payable associated with capital leases                                             |  | $                                   | 9,019    |   |      | $ | 16,399   |  
|                                                                                         |  |                                     |          |   |      |   |          |  
|Issuance of restricted stock and stock options                                           |  | $                                   | 5,762    |   |      | $ | 4,069    |  
|                                                                                         |  |                                     |          |   |      |   |          |  

See accompanying notes.



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##### Table of Contents

CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2008

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 condensed 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, 2008 are not necessarily indicative of what our results will be
for the year ending December 31, 2008. Our 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, 2007 contained in our Annual Report on Form 10-K filed with the SEC.

We have reclassified certain amounts in our
prior period condensed 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 we followed in preparing our condensed consolidated financial statements, as well as a
description of the significant components of our condensed consolidated financial statements.

Restricted Cash

Restricted cash includes $10.0 million of escrowed gross proceeds (and interest earned thereon) associated with our forward flow contract with Encore
Capital Group, Inc (Encore), as well as certain collections on receivables within our Auto Finance segment, the cash balances of which are required to be distributed to note holders under our debt facilities, and cash collateral balances
underlying standby letters of credit that have been issued in favor of certain regulators in connection with our retail micro-loan activities. Of the $10.0 million in restricted cash associated with our forward flow contract, as of March 31,
2008, $1.3 million represented cash that had been earned but not yet received from the escrow account.

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 consolidated balance sheets.

Loans and Fees Receivable,
Net. Loans and fees receivable, net, consist principally of receivables associated with credit cards issued under our Investment in Previously Charged-Off Receivables segments balance transfer program, our retail and Internet micro-loan
activities and our auto finance business. While we have never securitized (i.e. in off-balance-sheet securitizations) any of the receivables associated with our retail and Internet micro-loan activities or our auto finance business, we securitized
substantially all of our credit card receivables in off-balance-sheet securitizations.

As applicable, we show our unsecuritized loans and
fees 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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CompuCredit Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31,
2008

The loans and fees receivable 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 loans and fees receivable. 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 tables show (in thousands) a roll-forward of accretable yield
for our loans for which we apply SOP 03-3, as well as the carrying amounts of and gross loans and fees receivable balances for our loans for which we apply SOP 03-3:



|                                     |  |                                      |        |   |      |   |        |  
|------------------------------------ |  | ------------------------------------ | ------ | - | ---- | - | ------ | -
|                                     |  | For the Three Months Ended March 31, |       
|                                     |  | 2008                                 |        |   | 2007 |  
|Roll-forward of Accretable Yield:    |  |                                      |        |   |      |   |        |  
|Balance at beginning of period       |  | $                                    | 28,737 |   |      | $ |       |  
|Accretable yield at acquisition date |  |                                      |       |   |      |   | 66,081 |  
|Accretion of yield                   |  |                                      | (4,423 | ) |      |   | (4,966 | )
|                                     |  |                                      |        |   |      |   |        |  
|Balance at March 31                  |  | $                                    | 24,314 |   |      | $ | 61,115 |  
|                                     |  |                                      |        |   |      |   |        |  



|                                                                 |  |   |        
|---------------------------------------------------------------- |  | - | -------
|SOP 03-3 loans and fees receivable:                              |  |   |        
|Carrying amount of loans and fees receivable at acquisition date |  | $ | 160,592
|                                                                 |  |   |        
|Carrying amount of loans and fees receivable at March 31, 2008   |  | $ | 84,871 
|                                                                 |  |   |        
|Gross loans and fees receivable balance at acquisition date      |  | $ | 191,976
|                                                                 |  |   |        
|Gross loans and fees receivable balance at March 31, 2008        |  | $ | 108,851
|                                                                 |  |   |        

In December 2007, we securitized a significant portfolio of lower-tier credit card receivables in
an off-balance-sheet securitization. In reporting periods prior to this securitization transaction, the receivables associated with these lower-tier credit card offerings as shown on our condensed consolidated balance sheets included finance charges
and fees (both billed and accrued) and principal balances. The fees associated with these product offerings include activation and annual fees (which we recognize as income over the twelve-month period to which they apply), as well as monthly
maintenance, late payment, over-limit, cash-advance and returned-check fees (which we recognize as income when they are assessed to cardholders). Similar charges and fees apply for our balance transfer program credit card receivables, which we
continue to hold on our balance sheet within loans and fees receivable. Loans and fees receivable associated with our micro-loan activities primarily include principal balances and associated fees due from customers (such fees being recognized as
earnedgenerally over a two-week period in the case of our retail operations and over a one-month period in the case of our Internet operations). Loans and fees receivable associated with our auto finance business include principal balances and
associated fees and interest due from customers, net of the unearned portion of loan discounts which we recognize over the life of each loan.

We provide an allowance for uncollectible loans and fees receivable for those loans and fees receivable we believe we ultimately will not collect. 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, 2007 |       |   | Additions |   |       | Subtractions |  |   | Balance atMarch 31, 2008 |  
|Loans and fees receivable, gross                      |  | $                           | 435.7 |   |           | $ | 340.7 |              |  | $ | (328.6                   | ) |  | $ | 447.8 |  
|Deferred revenue                                      |  |                             | (27.2 | ) |           |   | (30.4 | )            |  |   | 28.9                     |   |  |   | (28.7 | )
|Allowance for uncollectible loans and fees receivable |  |                             | (51.5 | ) |           |   | (20.4 | )            |  |   | 17.4                     |   |  |   | (54.5 | )
|                                                      |  |                             |       |   |           |   |       |              |  |   |                          |   |  |   |       |  
|Loans and fees receivable, net                        |  | $                           | 357.0 |   |           | $ | 289.9 |              |  | $ | (282.3                   | ) |  | $ | 364.6 |  
|                                                      |  |                             |       |   |           |   |       |              |  |   |                          |   |  |   |       |  



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As of March 31, 2008, the weighted average remaining accretion period for the $28.7 million of
deferred revenue reflected in the above table was 30.7 months.

Our roll-forward of the allowance for uncollectible loans and fees
receivable (in millions) is as follows:



|                               |  |                                      |       |   |      |   |        |  
|------------------------------ |  | ------------------------------------ | ----- | - | ---- | - | ------ | -
|                               |  | For the Three Months Ended March 31, |      
|                               |  | 2008                                 |       |   | 2007 |  
|Balance at beginning of period |  | $                                    | 51.5  |   |      | $ | 225.3  |  
|Provision for loan losses      |  |                                      | 20.4  |   |      |   | 131.6  |  
|Charge offs                    |  |                                      | (19.9 | ) |      |   | (137.2 | )
|Recoveries                     |  |                                      | 2.5   |   |      |   | 4.3    |  
|                               |  |                                      |       |   |      |   |        |  
|Balance at end of period       |  | $                                    | 54.5  |   |      | $ | 224.0  |  
|                               |  |                                      |       |   |      |   |        |  

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



|                                                                                                                                                                                            |  |                                         |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ------- | -
|                                                                                                                                                                                            |  | For the Three MonthsEndedMarch 31, 2008 |        
|Unrecovered balance at beginning of period                                                                                                                                                  |  | $                                       | 14,523  |  
|Acquisitions of defaulted accounts                                                                                                                                                          |  |                                         | 17,915  |  
|Cash collections                                                                                                                                                                            |  |                                         | (27,610 | )
|Accretion of deferred revenue associated with Encore forward flow contract                                                                                                                  |  |                                         | (6,718  | )
|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) |  |                                         | 21,142  |  
|                                                                                                                                                                                            |  |                                         |         |  
|Balance at March 31, 2008                                                                                                                                                                   |  | $                                       | 19,252  |  
|                                                                                                                                                                                            |  |                                         |         |  
|Estimated remaining collections (ERC)                                                                                                                                                     |  | $                                       | 69,484  |  
|                                                                                                                                                                                            |  |                                         |         |  

While our debt collections subsidiary holds some pools of normal delinquency charged-off accounts,
its previously charged-off receivables principally consist of previously charged-off receivables 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 twenty-four and thirty-six months for normal delinquency charged-off accounts (including balance transfer program accounts) and
approximately sixty months for Chapter 13 Bankruptcies. We anticipate collecting approximately 46.1% of the ERC of the existing accounts over the next twelve months, with the balance to be collected thereafter.

Investments in Securities. We periodically have invested in debt and equity securities. We have purchased these debt and equity securities
either outright for cash or through a combination of cash and borrowings; see Note 8, Notes Payable and Other Borrowings. We generally have classified our purchased debt and equity securities as trading securities and included
realized and unrealized gains and losses in earnings in accordance with Statement No. 115. 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 31,2008 |        | As ofDecember 31,2007
|Held to maturity:                                         |  |                    |        |                       |   |       
|Investments in debt securities of equity-method investees |  | $                  | 5,878  |                       | $ | 6,819 
|Trading:                                                  |  |                    |        |                       |   |       
|Investments in equity securities                          |  |                    | 1,148  |                       |   | 2,956 
|Investments in asset-backed securities                    |  |                    | 14,314 |                       |   | 17,939
|                                                          |  |                    |        |                       |   |       
|Total investments in debt and equity securities           |  | $                  | 21,340 |                       | $ | 27,714
|                                                          |  |                    |        |                       |   |       



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##### Table of Contents

Our investments in asset-backed securities category in the above table historically has included a mix of
investment grade, non-investment grade, subordinated and distressed asset-backed securities, including CDOs (Collateralized Debt Obligations), CMBS (Collateralized Mortgage Backed Securities), CMOs (Collateralized Mortgage Obligations) and
repurchase agreements with respect to the foregoing. The market for these securities became extremely volatile in 2007 and the values ascribed to these securities declined significantly during 2007, giving rise to significant 2007 realized and
unrealized losses on this category of securities. For the three months ended March 31, 2008, we incurred realized and unrealized losses totaling $5.2 million associated with this category of securities.

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 have been undertaken. Also included are various deposits required to
be maintained with our third-party issuing bank partners and retail electronic payment network providers (including $15.5 million as of March 31, 2008 associated with our ongoing origination and servicing efforts in the U.K.) and vehicle
inventory held by our buy-here, pay-here auto dealerships which are expensed as the associated sales revenues are earned.

Income Taxes

We conduct business globally, and as a result, one or more of our subsidiaries files U.S. federal, state and/or foreign income tax
returns. In the normal course of business we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as the United States, the United Kingdom, and the Netherlands. With a few exceptions, we are no
longer subject to U.S. federal, state, local, or foreign income tax examinations for years prior to 2004. Currently, we are under audit by various jurisdictions for various years, including the Internal Revenue Service for the 2004 tax year.
Although the audits have not been concluded, we do not expect any changes to the tax liabilities reported in those years; if any such changes arise, however, we do not expect them to be material.

We recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. We recognized $0.7 million and $
0.8 million in potential interest and penalties associated with uncertain tax positions during the three months ended March 31, 2008 and 2007, respectively. 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 the three months ended
March 31, 2008, we received net refunds of taxes previously paid totaling $87.4 million.

Fees and Related Income on Non-Securitized Earning
Assets

Fees and related income on non-securitized earning assets primarily include: (1) lending fees associated with our
retail and Internet micro-loan activities; (2) fees associated with our lower-tier credit card receivables and Fingerhut credit card receivables during periods in which we have held them on balance sheet; (3) income associated with
our investments in previously charged-off receivables; (4) gains and losses associated with our investments in securities; and (5) gross profit from auto sales within our Auto Finance segment. The components (in thousands) of our fees and
related income on non-securitized earning assets are as follows:



|                                                                       |  |                                     |        |   |      |   |        
|---------------------------------------------------------------------- |  | ----------------------------------- | ------ | - | ---- | - | -------
|                                                                       |  | For the Three MonthsEnded March 31,
|                                                                       |  | 2008                                |        |   | 2007
|Retail micro-loan fees                                                 |  | $                                   | 19,574 |   |      | $ | 21,398 
|Fees on lower-tier credit card receivables while held on balance sheet |  |                                     | 297    |   |      |   | 120,959
|Income on investments in previously charged-off receivables            |  |                                     | 21,142 |   |      |   | 17,184 
|(Losses) gains on investments in securities                            |  |                                     | (5,161 | ) |      |   | 2,762  
|Internet micro-loan fees                                               |  |                                     | 7,718  |   |      |   |       
|Gross profit on auto sales                                             |  |                                     | 9,098  |   |      |   | 1,014  
|Other                                                                  |  |                                     | 2,621  |   |      |   | 923    
|                                                                       |  |                                     |        |   |      |   |        
|Total fees and related income on non-securitized earning assets        |  | $                                   | 55,289 |   |      | $ | 164,240
|                                                                       |  |                                     |        |   |      |   |        



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##### Table of Contents

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,
|                                                                      |  | 2008                                |        | 2007
|Securitization gains                                                  |  | $                                   |       |      | $ |      
|Income from retained interests in credit card receivables securitized |  |                                     | 34,220 |      |   | 14,875
|Fees on securitized receivables                                       |  |                                     | 8,271  |      |   | 4,827 
|                                                                      |  |                                     |        |      |   |       
|Total fees and related income on securitized earning assets           |  | $                                   | 42,491 |      | $ | 19,702
|                                                                      |  |                                     |        |      |   |       

We assess fees on credit card accounts underlying our securitized receivables according to the
terms of the related cardholder agreements and, except for activation and 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 activation and 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).

Fair Value

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, and we are adopting Statement No. 159 with respect to our securitized earning assets.

In January 2008, we adopted 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 the Statement. In general, fair values determined by Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to
access. Fair values determined by Level 2 inputs use inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and
liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for
the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Where inputs used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value
hierarchy within which the fair value measurement in its entirety has been determined is based on the lowest level input that is significant to the fair value measurement in its entirety.



10



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##### Table of Contents

Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to
the asset or liability. For our assets measured on a recurring basis at fair value, the table below summarizes (in thousands) fair values as of March 31, 2008 by fair value hierarchy:



|                              |  |                                                              |       |                                             |   |                                         |  |                                   |           |  |   |          
|----------------------------- |  | ------------------------------------------------------------ | ----- | ------------------------------------------- | - | --------------------------------------- |  | --------------------------------- | --------- |  | - | ---------
|Assets                        |  | Quoted Prices in ActiveMarkets for IdenticalAssets (Level 1) |       | Significant OtherObservable Inputs(Level 2) |   | SignificantUnobservableInputs (Level 3) |  | Total AssetsMeasured at FairValue
|Investment securitiestrading |  | $                                                            | 1,080 |                                             | $ |                                        |  | $                                 | 14,314    |  | $ | 15,394   
|Securitized earning assets    |  | $                                                            |      |                                             | $ |                                        |  | $                                 | 1,000,390 |  | $ | 1,000,390

For Level 3 assets measured at fair value on a recurring basis using significant unobservable
inputs, the following table presents (in thousands) a reconciliation of the beginning and ending balances for the three months ended March 31, 2008:



|                                                                                                                                                                  |  |                              |        |   |                           |   |           |       |  |   |           |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------ | - | ------------------------- | - | --------- | ----- |  | - | --------- | -
|                                                                                                                                                                  |  | InvestmentSecuritiesTrading |        |   | SecuritizedEarning Assets |   |           | Total | 
|Beginning balance                                                                                                                                                 |  | $                            | 17,939 |   |                           | $ | 1,015,579 |       |  | $ | 1,033,518 |  
|Total gains or losses (realized/unrealized):                                                                                                                      |  |                              |        |   |                           |   |           |       |  |   |           |  
|Net revaluation of retained interests                                                                                                                             |  |                              |       |   |                           |   | 205,854   |       |  |   | 205,854   |  
|Total realized and unrealized losses                                                                                                                              |  |                              | (3,625 | ) |                           |   |          |       |  |   | (3,625    | )
|Purchases, issuances, and settlements, net                                                                                                                        |  |                              |       |   |                           |   | (221,043  | )     |  |   | (221,043  | )
|Net transfers in and/or out of Level 3                                                                                                                            |  |                              |       |   |                           |   |          |       |  |   |          |  
|                                                                                                                                                                  |  |                              |        |   |                           |   |           |       |  |   |           |  
|Ending balance                                                                                                                                                    |  | $                            | 14,314 |   |                           | $ | 1,000,390 |       |  | $ | 1,014,704 |  
|                                                                                                                                                                  |  |                              |        |   |                           |   |           |       |  |   |           |  
|Total gains (losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still
held at March 31, 2008 |  | $                            | (3,400 | ) |                           | $ | 205,854   |       |  | $ | 202,454   |  
|                                                                                                                                                                  |  |                              |        |   |                           |   |           |       |  |   |           |  

Both observable and unobservable inputs may be used to determine the fair value of positions that
we have classified within the Level 3 category. As a result, the unrealized gains and losses for assets and liabilities within the Level 3 category presented in the tables above may include changes in fair value that were attributable to both
observable and unobservable inputs.

We record the net revaluation of retained interests in the fees and related income from securitized
earning assets category in our condensed consolidated statements of operations, specifically as income from retained interests in credit card receivables securitized. We record total realized and unrealized losses within the fees and related income
from non-securitized earning assets category in our condensed consolidated statements of operations.

We also have assets that under
certain conditions are subject to measurement at fair value on a non-recurring basis. These assets include those associated with acquired businesses, including goodwill and other intangible assets. For these assets, measurement at fair value in
periods subsequent to their initial recognition is applicable if one or more of these assets is determined to be impaired. During the three months ended March 31, 2008, we were required to make a determination of the fair value of goodwill and
intangible assets associated with our Retail Micro-Loans segment by reason of our decision to discontinue that segments Texas operations and to pursue sale of those operations. We estimated the fair value of these assets using Level 3 inputs,
specifically, discounted cash flow projections. At March 31, 2008, we recorded a non-cash goodwill impairment charge of $1.1 million to record the goodwill of our continuing Retail Micro-Loans segment operations at its estimated fair value.

For our assets measured on a non-recurring basis at fair value, the table below summarizes (in thousands) fair values as of March 31,
2008 by fair value hierarchy:



|                     |  |                                                             |   |                                            |   |                                         |  |                                   |        |  |   |       
|-------------------- |  | ----------------------------------------------------------- | - | ------------------------------------------ | - | --------------------------------------- |  | --------------------------------- | ------ |  | - | ------
|                     |  | Quoted Prices inActive Marketsfor IdenticalAssets (Level 1) |   | SignificantOtherObservableInputs (Level 2) |   | SignificantUnobservable Inputs(Level 3) |  | Total AssetsMeasured atFair Value
|Assets:              |  |                                                             |   |                                            |   |                                         |  |                                   |        |  |   |       
|Goodwill             |  | $                                                           |  |                                            | $ |                                        |  | $                                 | 96,012 |  | $ | 96,012
|Intangibles, net     |  | $                                                           |  |                                            | $ |                                        |  | $                                 | 7,633  |  | $ | 7,633 
|Assets held for sale |  | $                                                           |  |                                            | $ |                                        |  | $                                 | 9,772  |  | $ | 9,772 



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Recent Accounting Pronouncements

In July 2007, the FASB approved issuance for comment of a proposed FASB Staff Position (Proposed FSP) addressing convertible instruments that
may be settled in cash upon conversion (including partial cash settlement). This would address instruments commonly referred as Instrument C from EITF Issue No. 90-19, Convertible Bonds with Issuer Option to Settle for Cash upon
Conversion. Those instruments essentially require the issuer to settle the principal amount in cash and the conversion spread in cash or net shares at the issuers option. Based on decisions made by the FASB in the first quarter of
2008 after considering comment letters that it had received on the Proposed FSP, the FASB is expected to issue final guidance under the Proposed FSP in 2008; this guidance is expected to be effective for fiscal periods beginning after
December 15, 2008, not to permit early application and to be applied retrospectively to all periods presented (retroactive restatement) pursuant to the guidance in FASB Statement No. 154, Accounting Changes and Error
Corrections. We have not yet fully evaluated and computed the effects of the Proposed FSP on our net income and net income per common share. Based on our initial review, however, this Proposed FSP would change the accounting treatment of
our outstanding Convertible Senior Notes and would (1) shift a material portion of our Convertible Senior Notes balances to additional paid-in capital on our consolidated balance sheets, (2) create a discount on the Convertible Senior
Notes that would be amortized as materially higher interest expense over the life of the Convertible Senior Notes, (3) cause us to show materially lower net income on our consolidated statements of operations, and (4) reduce our basic and
diluted net income per common share as disclosed on our consolidated statements of operations.

In December 2007, the FASB issued Statement
of Financial Accounting Standards No. 141 (Revised 2007), Business Combinations, (Statement No. 141R). Statement No. 141R will significantly change the accounting for business combinations. Under
Statement No. 141R, an acquiring entity will be required, with limited exceptions, to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value. Statement 141R will change the accounting
treatment for certain specific items, including:



| |  |  | Acquisition costs will be generally expensed as incurred;
| | - |  | ---------------------------------------------------------



| |  |  | Noncontrolling interests (formerly known as minority interests) will be valued at fair value at the acquisition date;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | Acquired contingent liabilities will be recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount
determined under existing guidance for non-acquired contingencies;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Restructuring costs associated with a business combination will be generally expensed subsequent to the acquisition date; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | Changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

Statement No. 141R also includes a substantial number of new disclosure requirements. Statement 141R applies
prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited. While Statement No. 141R will
significantly affect the way that we account for future acquisitions, it will not have any effect on assets that we own today and reflect on our consolidated balance sheets.

3. Discontinued Operations

In the fourth quarter of 2007, we adopted a formal plan to discontinue
(through sale or otherwise) 105 Retail Micro-Loan branches located within Florida, Oklahoma, Colorado, Arizona, Louisiana and Michigan. As a result, we have accounted for these business operations as discontinued operations, and we have classified
the net assets of these operations as held for sale and have written them down to their estimated fair value. The write down to fair value for the tangible assets associated with these operations was $2.6 million.



12



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Also during the fourth quarter of 2007, we shut down several business operations within our Other
segment, including our stored value card operations, our U.S.-based Internet installment loan operations and operations under which we purchased and serviced motorcycle, all-terrain vehicle and personal watercraft loans through and for pre-qualified
networks of dealers.

In the first quarter of 2008, we adopted a formal plan to sell 81 Retail Micro-Loans branches located within the
State of Texasa sale that was completed in April 2008. As a result, we also have accounted for these business operations as discontinued operations, and we have classified the net assets of these operations as held for sale and have written
them down to their estimated fair value.

The components (in thousands) of our discontinued operations are as follows:



|                                                                               |  |                                      |        |   |      |   |        |  
|------------------------------------------------------------------------------ |  | ------------------------------------ | ------ | - | ---- | - | ------ | -
|                                                                               |  | For the Three Months Ended March 31, |       
|                                                                               |  | 2008                                 |        |   | 2007 |  
|Net interest income, fees and related income on non-securitized earning assets |  | $                                    | 3,606  |   |      | $ | 2,644  |  
|Other operating income                                                         |  |                                      |       |   |      |   |       |  
|Other operating expense                                                        |  |                                      | 8,291  |   |      |   | 9,793  |  
|                                                                               |  |                                      |        |   |      |   |        |  
|Loss before income taxes                                                       |  |                                      | (4,685 | ) |      |   | (7,149 | )
|Income tax benefit                                                             |  |                                      | 1,640  |   |      |   | 2,502  |  
|                                                                               |  |                                      |        |   |      |   |        |  
|Net loss                                                                       |  | $                                    | (3,045 | ) |      | $ | (4,647 | )
|                                                                               |  |                                      |        |   |      |   |        |  

The table below presents the components (in thousands) of our consolidated balance sheet accounts
classified as assets and liabilities related to assets held for sale:



|                                                  |  |                |       |                   |   |      
|------------------------------------------------- |  | -------------- | ----- | ----------------- | - | -----
|                                                  |  | March 31, 2008 |       | December 31, 2007
|Assets held for sale:                             |  |                |       |                   |   |      
|Loans and fees receivable, net                    |  | $              | 7,730 |                   | $ | 7,304
|Property at cost, net of depreciation             |  |                | 1,242 |                   |   | 1,010
|Prepaid expenses and other assets                 |  |                | 800   |                   |   | 421  
|                                                  |  |                |       |                   |   |      
|Total assets held for sale                        |  | $              | 9,772 |                   | $ | 8,735
|                                                  |  |                |       |                   |   |      
|Liabilities related to assets held for sale:      |  |                |       |                   |   |      
|Accounts payable and accrued expenses             |  | $              | 2,179 |                   | $ | 373  
|                                                  |  |                |       |                   |   |      
|Total liabilities related to assets held for sale |  | $              | 2,179 |                   | $ | 373  
|                                                  |  |                |       |                   |   |      

4. 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.

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, 2008                                                     |  | Credit Cards |         |   | Investments inPreviouslyCharged-OffReceivables |   | RetailMicro-Loans |  | Auto Finance |        |  | Other |        |   | Total
|Net interest income, fees and related (loss) income on non-securitized earning assets |  | $            | (8,460  | ) |                                                | $ | 22,010            |  | $            | 16,885 |  | $     | 15,812 |   |       | $ | 2,161  |   |  | $ | 48,408 
|                                                                                      |  |              |         |   |                                                |   |                   |  |              |        |  |       |        |   |       |   |        |   |  |   |        
|Total other operating income                                                          |  | $            | 114,131 |   |                                                | $ | 345               |  | $            |       |  | $     | 196    |   |       | $ |       |   |  | $ | 114,672
|                                                                                      |  |              |         |   |                                                |   |                   |  |              |        |  |       |        |   |       |   |        |   |  |   |        
|Income (loss) from continuing operations before income taxes                          |  | $            | (2,182  | ) |                                                | $ | 16,059            |  |              | 4,432  |  | $     | (3,760 | ) |       | $ | (3,649 | ) |  | $ | 10,900 
|                                                                                      |  |              |         |   |                                                |   |                   |  |              |        |  |       |        |   |       |   |        |   |  |   |        



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|                                                                               |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |   |        |   |  |   |           |  
|------------------------------------------------------------------------------ |  | ------------ | --------- | - | ---------------------------------------------- | - | ----------------- |  | - | ------------ | - |  | ----- | ------- | - | ----- | - | ------ | - |  | - | --------- | -
|Three Months Ended March 31, 2008                                              |  | Credit Cards |           |   | Investments inPreviouslyCharged-OffReceivables |   | RetailMicro-Loans |  |   | Auto Finance |   |  | Other |         |   | Total |  
|Loss from discontinued operations before income taxes                          |  | $            |          |   |                                                | $ |                  |  | $ | (4,185       | ) |  | $     |        |   |       | $ | (500   | ) |  | $ | (4,685    | )
|                                                                               |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |   |        |   |  |   |           |  
|Loans and fees receivable, gross                                               |  | $            | 6,302     |   |                                                | $ | 22,093            |  | $ | 33,472       |   |  | $     | 370,939 |   |       | $ | 14,943 |   |  | $ | 447,749   |  
|                                                                               |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |   |        |   |  |   |           |  
|Loans and fees receivable, net                                                 |  | $            | 5,837     |   |                                                | $ | 17,445            |  | $ | 28,088       |   |  | $     | 303,744 |   |       | $ | 9,455  |   |  | $ | 364,569   |  
|                                                                               |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |   |        |   |  |   |           |  
|Total assets                                                                   |  | $            | 1,338,953 |   |                                                | $ | 53,503            |  | $ | 98,222       |   |  | $     | 390,547 |   |       | $ | 59,871 |   |  | $ | 1,941,096 |  
|                                                                               |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |   |        |   |  |   |           |  
|                                                                               |  |              |           |   |                                                |  
|Three Months Ended March 31, 2007                                              |  | Credit Cards |           |   | Investments inPreviouslyCharged-OffReceivables |   | RetailMicro-Loans |  |   | Auto Finance |   |  | Other |         |   | Total |  
|Net interest income, fees and related income on non-securitized earning assets |  | $            | 55,218    |   |                                                | $ | 17,730            |  | $ | 18,175       |   |  | $     | 11,592  |   |       | $ |       |   |  | $ | 102,715   |  
|                                                                               |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |   |        |   |  |   |           |  
|Total other operating income                                                   |  | $            | 59,216    |   |                                                | $ | 316               |  | $ |             |   |  | $     | 545     |   |       | $ |       |   |  | $ | 60,077    |  
|                                                                               |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |   |        |   |  |   |           |  
|Income (loss) from continuing operations before income taxes                   |  | $            | (11,706   | ) |                                                | $ | 11,439            |  | $ | 4,078        |   |  | $     | (593    | ) |       | $ |       |   |  | $ | 3,218     |  
|                                                                               |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |   |        |   |  |   |           |  
|Loss from discontinued operations before income taxes                          |  | $            |          |   |                                                | $ |                  |  | $ | (3,067       | ) |  | $     |        |   |       | $ | (4,082 | ) |  | $ | (7,149    | )
|                                                                               |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |   |        |   |  |   |           |  
|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 |  
|                                                                               |  |              |           |   |                                                |   |                   |  |   |              |   |  |       |         |   |       |   |        |   |  |   |           |  

5. Treasury Stock

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, 2008, we reissued 163,716 treasury shares at an approximate gross cost of $2.9 million, in satisfaction of option exercises and share vestings under our restricted stock plan. Also during the three months ended
March 31, 2008, we effectively purchased 46,906 shares at a cost of $0.5 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. We repurchased no other shares of our common stock during the three months ended March 31, 2008. Also during the three months ended March 31, 2008, shares previously lent to us were returned. These shares, totaling
2,026,881, were retired upon receipt. As of March 31, 2008, we still had outstanding 3,651,069 loaned shares to be returned to us.

6. Investments
in Equity-Method Investees

As of March 31, 2008, 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, 2008, 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 31,2008 |         | As of December 31,2007
|Securitized earning assets |  | $                   | 129,309 |                        | $ | 127,514
|                           |  |                     |         |                        |   |        



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|                  |  |                     |         |                        |   |        
|----------------- |  | ------------------- | ------- | ---------------------- | - | -------
|                  |  | As of March 31,2008 |         | As of December 31,2007
|Total assets      |  | $                   | 132,667 |                        | $ | 134,621
|                  |  |                     |         |                        |   |        
|Total liabilities |  | $                   | 2,654   |                        | $ | 2,929  
|                  |  |                     |         |                        |   |        
|Members capital  |  | $                   | 130,013 |                        | $ | 131,692
|                  |  |                     |         |                        |   |        



|                                                                               |  |                                     |        |      |   |       
|------------------------------------------------------------------------------ |  | ----------------------------------- | ------ | ---- | - | ------
|                                                                               |  | For the Three MonthsEnded March 31,
|                                                                               |  | 2008                                |        | 2007
|Net interest income, fees and related income on non-securitized earning assets |  | $                                   | 1      |      | $ | 2     
|                                                                               |  |                                     |        |      |   |       
|Fees and related income on securitized earning assets                          |  | $                                   | 17,302 |      | $ | 18,883
|                                                                               |  |                                     |        |      |   |       
|Total other operating income                                                   |  | $                                   | 19,656 |      | $ | 22,147
|                                                                               |  |                                     |        |      |   |       
|Net income                                                                     |  | $                                   | 18,594 |      | $ | 20,778
|                                                                               |  |                                     |        |      |   |       

7. Off-Balance-Sheet Arrangements

We securitize certain credit card receivables that we purchase on a daily basis through our third-party financial institution relationships. Prior to
December 2007, we had not previously securitized our lower-tier credit card receivables. We now securitize substantially all of our credit card receivables. In connection with our securitization transactions, we transfer receivables associated with
credit card accounts originated by our third-party financial institution relationships to two separate trusts (an upper-tier originated portfolio master trust and a lower-tier originated portfolio master trust), which issue
notes representing undivided ownership interests in the assets of the respective master trusts. Additionally, in various transactions, we have acquired portfolios of receivables from third parties and subsequently securitized them; the latest of
these transactions was our acquisition of the U.K. Portfolio and the securitization of its approximately £490 million ($970 million) of gross face amount of underlying credit card receivables in the second quarter of 2007.

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 of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities A Replacement of FASB Statement 125, (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 activities 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 MonthsEnded
March 31,
|                                                                         |  | 2008                                |           | 2007
|Gross amount of receivables securitized at period end                    |  | $                                   | 3,226,753 |      | $ | 1,522,031
|                                                                         |  |                                     |           |      |   |          
|Proceeds from collections reinvested in revolving-period securitizations |  | $                                   | 418,417   |      | $ | 253,929  
|                                                                         |  |                                     |           |      |   |          
|Excess cash flows received on retained interests                         |  | $                                   | 52,662    |      | $ | 48,753   
|                                                                         |  |                                     |           |      |   |          



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|                                                                      |  |                                     |        |      |   |       
|--------------------------------------------------------------------- |  | ----------------------------------- | ------ | ---- | - | ------
|                                                                      |  | For the Three MonthsEnded March 31,
|                                                                      |  | 2008                                |        | 2007
|Securitization gains                                                  |  | $                                   |       |      | $ |      
|Income from retained interests in credit card receivables securitized |  |                                     | 34,220 |      |   | 14,875
|Fees on securitized receivables                                       |  |                                     | 8,271  |      |   | 4,827 
|                                                                      |  |                                     |        |      |   |       
|Total fees and related income on securitized earning assets           |  | $                                   | 42,491 |      | $ | 19,702
|                                                                      |  |                                     |        |      |   |       

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 our 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 becomes 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.

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 consolidated balance sheets, and
because we classify them as trading securities and have elected fair value accounting for them under Statement No. 159, 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 using Level 3 significant unobservable inputs as defined by Statement No. 157. (See Note 2, Summary of
Significant Accounting Policies and Condensed Consolidated Financial Statement Components.)

The Level 3 fair value measurements of
retained interests associated with our securitizations are dependent upon our estimate of future cash flows using the cash-out method. Under 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 thirty days of verification.

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



|                                          |  |               |           |   |                  |   |           |  
|----------------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                          |  | March 31,2008 |           |   | December 31,2007 |  
|Interest only (I/O) strip               |  | $             | 194,459   |   |                  | $ | 96,313    |  
|Accrued interest and fees                 |  |               | 27,345    |   |                  |   | 32,768    |  
|Servicing liability                       |  |               | (21,276   | ) |                  |   | (23,821   | )
|Amounts due from securitization           |  |               | 20,523    |   |                  |   | 24,104    |  
|Fair value of residual interests          |  |               | 782,318   |   |                  |   | 887,215   |  
|Issuing bank partner continuing interests |  |               | (2,979    | ) |                  |   | (1,000    | )
|                                          |  |               |           |   |                  |   |           |  
|Securitized earning assets                |  | $             | 1,000,390 |   |                  | $ | 1,015,579 |  
|                                          |  |               |           |   |                  |   |           |  

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 thirty days



16



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from the close of each respective month. The fair value of residual interests category represents the net present value of the cash flows that will be
returned to us associated with our funded interests (generally for cardholder purchases) in our securitization trusts. Lastly, certain of our issuing bank partners and their affiliates have contractual rights entitling them to maintain continuing
economic interests in our securitized earning assets; these issuing bank partners continuing interests are netted against the value of our securitized earning assets 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 31,2008 |   |  | December 31,2007 |   |  | March 31,2007 |  
|Net collected yield (annualized)                 |  | 39.0          | % |  | 33.5             | % |  | 26.9          | %
|Payment rate (monthly)                           |  | 5.5           |   |  | 5.4              |   |  | 6.6           |  
|Expected principal credit loss rate (annualized) |  | 17.5          |   |  | 18.8             |   |  | 9.4           |  
|Residual cash flows discount rate                |  | 25.1          |   |  | 24.6             |   |  | 17.7          |  
|Servicing liability discount rate                |  | 14.0          |   |  | 14.0             |   |  | 14.0          |  

The 2007 net collected yield, payment rate and expected principal credit loss rate in the above
table were all significantly affected by the weightings associated with our December 2007 securitization of our lower-tier credit card receivables, which have higher yields and charge offs and lower payment rates than our more traditionally
securitized upper-tier credit card receivables. The trending increase in residual cash flows discount rates in the above table reflects (1) reduced levels of excess collateral within our securitization trusts over the past several quarters, as
well as (2) increased market spreads above our LIBOR interest rate index that we believe to exist as of December 31, 2007 and March 31, 2008 given the recent turbulence in global liquidity markets (with some offsetting effects,
however, of reductions in the base LIBOR interest rate index within the past year). 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 table illustrates the hypothetical effect on the March 31, 2008 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 CardReceivables |         
|Net collected yield (annualized)                 |  |                        | 39.0     | %
|Impact on fair value of 10% adverse change       |  | $                      | (64,675  | )
|Impact on fair value of 20% adverse change       |  | $                      | (129,349 | )
|Payment rate (monthly)                           |  |                        | 5.5      | %
|Impact on fair value of 10% adverse change       |  | $                      | (8,075   | )
|Impact on fair value of 20% adverse change       |  | $                      | (17,646  | )
|Expected principal credit loss rate (annualized) |  |                        | 17.5     | %
|Impact on fair value of 10% adverse change       |  | $                      | (29,644  | )
|Impact on fair value of 20% adverse change       |  | $                      | (59,289  | )
|Residual cash flows discount rate                |  |                        | 25.1     | %
|Impact on fair value of 10% adverse change       |  | $                      | (12,205  | )
|Impact on fair value of 20% adverse change       |  | $                      | (24,056  | )
|Servicing liability discount rate                |  |                        | 14.0     | %
|Impact on fair value of 10% adverse change       |  | $                      | (200     | )
|Impact on fair value of 20% adverse change       |  | $                      | (399     | )

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.



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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 our assets. 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 our credit card receivables securitizations. Although we did not securitize our lower-tier credit card receivables until December 2007, for comparative purposes, our 2007 net charge offs disclosure in the table below includes
all fourth quarter 2007 net charge offs on these receivables.



|                                            |  |               |           |                  |   |          
|------------------------------------------- |  | ------------- | --------- | ---------------- | - | ---------
|                                            |  | March 31,2008 |           | December 31,2007
|Total managed principal balance             |  | $             | 2,663,366 |                  | $ | 2,855,762
|Total managed finance charge balance        |  |               | 563,387   |                  |   | 681,916  
|                                            |  |               |           |                  |   |          
|Total managed receivables                   |  | $             | 3,226,753 |                  | $ | 3,537,678
|                                            |  |               |           |                  |   |          
|Receivables delinquent  sixty or more days |  | $             | 589,038   |                  | $ | 711,146  
|                                            |  |               |           |                  |   |          
|Net charge offs for the three months ended  |  | $             | 176,922   |                  | $ | 77,855   
|                                            |  |               |           |                  |   |          

8. Notes Payable and Other Borrowings

Notes payable and other borrowings consist of the following (in millions) as of March 31, 2008:



|                                                                                                       |  |               |      
|------------------------------------------------------------------------------------------------------ |  | ------------- | -----
|                                                                                                       |  | March 31,2008
|Structured financings within our Auto Finance segment, average rate 5.8%, payable to 2008 through 2013 |  | $             | 207.3
|Third-party financing of Auto Finance segment receivables, rate of 7.3%, due January 2009              |  |               | 10.0 
|Third-party financing of Auto Finance segment inventory, rate of 10.0%, month-to-month                 |  |               | 2.6  
|Vendor-financed software and equipment acquisitions, rates from 2% to 7%, payable to 2008 through 2009 |  |               | 9.0  
|MEM secured debt, rate of 6.6%, payable through 2009                                                   |  |               | 7.0  
|MEM subordinated debt, rate of 9.0%, payable through 2009                                              |  |               | 0.5  
|Repurchase agreements, average rate of 6.2%, due on demand                                             |  |               | 13.5 
|                                                                                                       |  |               |      
|Total notes payable and other borrowings                                                               |  | $             | 249.9
|                                                                                                       |  |               |      

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

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.

Changes in the carrying amount (in thousands)
of goodwill by reportable segment for the three months ended March 31, 2007 and 2008 are as follows:



|                                    |  |                    |        |   |             |   |        |  |   |              |   |  |   |         |  
|----------------------------------- |  | ------------------ | ------ | - | ----------- | - | ------ |  | - | ------------ | - |  | - | ------- | -
|                                    |  | Retail Micro-Loans |        |   | AutoFinance |   | Other  |  |   | Consolidated |  
|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 |  
|                                    |  |                    |        |   |             |   |        |  |   |              |   |  |   |         |  
|Balance as of December 31, 2007     |  | $                  | 44,346 |   |             | $ | 30,868 |  | $ | 21,955       |   |  | $ | 97,169  |  
|Foreign currency translation        |  |                    |       |   |             |   |       |  |   | (25          | ) |  |   | (25     | )
|Impairment loss                     |  |                    | (1,132 | ) |             |   |       |  |   |             |   |  |   | (1,132  | )
|                                    |  |                    |        |   |             |   |        |  |   |              |   |  |   |         |  
|Balance as of March 31, 2008        |  | $                  | 43,214 |   |             | $ | 30,868 |  | $ | 21,930       |   |  | $ | 96,012  |  
|                                    |  |                    |        |   |             |   |        |  |   |              |   |  |   |         |  



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In connection with our first quarter 2008 decision to sell our Texas retail micro-loans operations and
hold those operations for sale, we allocated goodwill between our retained retail micro-loans segment operations and our discontinued Texas retail micro-loans operations, thereby resulting in a $1.1 million impairment loss in the three months ended
March 31, 2008.

Intangible Assets

We had $2.3 million of intangible assets that we determined had an indefinite benefit period, as of both March 31, 2008 and December 31, 2007. The net unamortized carrying amount of intangible assets subject to amortization was
$5.3 million as of March 31, 2008 and $5.9 million as of December 31, 2007. Intangible asset-related amortization expense was $0.6 million and $1.2 million for the three months ended March 31, 2008 and 2007, respectively.

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 $2.2 billion at March 31, 2008 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 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 our subsidiaries and
equity-method investees, we have entered into guarantee agreements and/or note purchase agreements whereby we have agreed to guarantee the purchase of or purchase directly additional interests in portfolios of credit card receivables owned by
trusts, the retained interests in which are owned by our 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, 2008,
neither we nor any of our subsidiaries or equity-method investees had purchased or been required to purchase any additional notes under the note purchase agreements. Our guarantee is limited to our respective ownership percentages in the various
subsidiaries and equity-method investees multiplied by the total amount of the notes that each of the subsidiaries and equity-method investees could be required to purchase. As of March 31, 2008, the maximum aggregate amount of our collective
guarantees and direct purchase obligations related to all of our subsidiaries and equity-method investees was $358.5 milliona slight decrease from the $369.3 million level at December 31, 2007 as a result of the continued liquidation of
our purchased portfolios. In general, this aggregate contingency amount will decline in the absence of portfolio acquisitions as the aggregate amounts of credit available to cardholders for future purchases declines along with our liquidation of the
purchased portfolios and a corresponding reduction in the number of open cardholder accounts. The acquired credit card receivables portfolios of all of our affected subsidiaries and equity-method investees have declined with each passing quarter
since acquisition and we expect them to continue to decline because we expect payments and charge-offs combined to exceed new purchases each month. We currently do not have any liability recorded with respect to these guarantees or direct purchase
obligations, but we will record one if events occur that make payment probable under the guarantees or direct purchase obligations. The fair value of these guarantees and direct purchase obligations is not material.

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 $85.2 million at March 31, 2008. 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 $5.7 million as of March 31, 2008. Our other third-party originating financial institution relationships require similar arrangements for which we have pledged $19.9 million in
collateral as of March 31, 2008. In addition, in connection with the April 2007 acquisition of our U.K. Portfolio, we guarantee certain obligations of our subsidiaries and our third-party originating financial institution to Visa Europe.
Those obligations include, among other things, compliance with Visa Europes operating regulations and by-laws. We also guarantee the certain performance obligations of our servicer subsidiary to the indenture trustee and the trust created
under the securitization relating to our U.K. Portfolio.

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.



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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
settlement discussions with the FDIC and FTC are ongoing. In the near future, we expect to enter into settlement agreements with the FDIC and FTC limiting certain marketing, servicing and collection practices (all or substantially all of which
previously were discontinued) and requiring us to credit various fees to affected customers. We believe, however, that our marketing and other materials and servicing and collection practices previously complied with, and continue to comply with,
applicable law. Although it is premature to determine the ultimate outcomes of these investigations, we do not believe that any payments that we agree to make will be material to our financial condition. In addition, we expect the financial
institutions that issue credit cards on our behalf to enter into complementary agreements with the FDIC. It is premature to determine the future impact on us of any of these agreements.

One of our most significant sources of liquidity is the securitization of credit card receivables. The maturity terms of our securitizations vary. As of
December 31, 2007, securitization facilities underlying our securitization trusts included: a six-year term securitization facility (expiring October 2010), a two-year variable funding securitization facility with renewal options (expiring
January 2010), a five-year term securitization facility (expiring October 2009), and a one-year conduit securitization facility with renewal options (term expiring September 2008) issued out of our upper-tier originated portfolio master trust; a
two-year amortizing securitization facility (expiring December 2009) and a two-year variable funding securitization facility (expiring March 2009) issued out of our lower-tier originated portfolio master trust; a multi-year variable funding
securitization facility (expiring September 2014) 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; an amortizing term securitization facility (denominated and referenced in U.K. sterling and expiring April 2014) issued out of the trust underlying our U.K. Portfolio securitization; and a ten-year amortizing term securitization
facility issued out of our Embarcadero Trust (expiring January 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.

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 effect on our financial position.

11. Net Income Per Common Share

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



|                                                                 |  |                                     |        |   |      |   |        |  
|---------------------------------------------------------------- |  | ----------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                 |  | For the Three MonthsEnded March 31, |       
|                                                                 |  | 2008                                |        |   | 2007 |  
|Numerator:                                                       |  |                                     |        |   |      |   |        |  
|Income from continuing operations                                |  | $                                   | 5,513  |   |      | $ | 2,131  |  
|                                                                 |  |                                     |        |   |      |   |        |  
|Loss from discontinued operations                                |  | $                                   | (3,045 | ) |      | $ | (4,647 | )
|                                                                 |  |                                     |        |   |      |   |        |  
|Net income (loss)                                                |  | $                                   | 2,468  |   |      | $ | (2,516 | )
|                                                                 |  |                                     |        |   |      |   |        |  
|Denominator:                                                     |  |                                     |        |   |      |   |        |  
|Basic weighted-average shares outstanding                        |  |                                     | 46,742 |   |      |   | 50,262 |  
|Effect of dilutive stock options, warrants and restricted shares |  |                                     | 97     |   |      |   |       |  



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|                                                           |  |                                     |        |   |      |   |        |  
|---------------------------------------------------------- |  | ----------------------------------- | ------ | - | ---- | - | ------ | -
|                                                           |  | For the Three MonthsEnded March 31, |       
|                                                           |  | 2008                                |        |   | 2007 |  
|Diluted adjusted weighted-average shares outstanding       |  |                                     | 46,839 |   |      |   | 50,262 |  
|                                                           |  |                                     |        |   |      |   |        |  
|Income from continuing operations per common sharebasic   |  | $                                   | 0.12   |   |      | $ | 0.04   |  
|                                                           |  |                                     |        |   |      |   |        |  
|Income from continuing operations per common sharediluted |  | $                                   | 0.12   |   |      | $ | 0.04   |  
|                                                           |  |                                     |        |   |      |   |        |  
|Loss from discontinued operations per common sharebasic   |  | $                                   | (0.07  | ) |      | $ | (0.09  | )
|                                                           |  |                                     |        |   |      |   |        |  
|Loss from discontinued operations per common sharediluted |  | $                                   | (0.07  | ) |      | $ | (0.09  | )
|                                                           |  |                                     |        |   |      |   |        |  
|Net income (loss) per common share  basic                 |  | $                                   | 0.05   |   |      | $ | (0.05  | )
|                                                           |  |                                     |        |   |      |   |        |  
|Net income (loss) per common share  diluted               |  | $                                   | 0.05   |   |      | $ | (0.05  | )
|                                                           |  |                                     |        |   |      |   |        |  

As their effects were anti-dilutive, we excluded 671,148 and 565,333 of stock options and unvested
restricted shares, respectively, from the three months ended March 31, 2008 net income per common share calculations. As their effects were anti-dilutive due to our net losses for the three months ended March 31, 2007, we excluded all of
our stock options and unvested restricted shares from the three months ended March 31, 2007 net loss per common share calculations.

12.
Stock-Based Compensation

As of March 31, 2008, we had five stock-based employee compensation plans (an employee stock purchase
plan, three stock option plans and a restricted stock plan).

Stock Options

For the three months ended March 31, 2008 and 2007, we expensed compensation costs of $0.5 million in each period, related to our stock option plans
and recognized income tax benefits within additional paid-in capital of $1.1 million and $0.7 million, 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, 2008:



|                       |  |                 |  |                       |  |            
|---------------------- |  | --------------- |  | --------------------- |  | -----------
|                       |  | Shares Reserved |  | Available forIssuance |  | Outstanding
|1998 Stock Option Plan |  | 1,200,000       |  | 307,281               |  | 20,000     
|2000 Stock Option Plan |  | 1,200,000       |  | 94,011                |  | 36,834     
|2003 Stock Option Plan |  | 1,200,000       |  | 566,915               |  | 598,997    

A summary of the status of our stock options as of March 31, 2008 and changes for the three
months then ended is presented below:



|                               |  |                 |   |  |                                |       |                                            |      |                          |   |       
|------------------------------ |  | --------------- | - |  | ------------------------------ | ----- | ------------------------------------------ | ---- | ------------------------ | - | ------
|                               |  | Number ofShares |   |  | Weighted-AverageExercise Price |       | WeightedAverage ofRemainingContractualLife |      | AggregateIntrinsic value
|Outstanding at January 1, 2008 |  | 666,264         |   |  | $                              | 36.99 |                                            |      |                          |   |       
|Granted                        |  |                |   |  |                                |      |                                            |      |                          |   |       
|Exercised                      |  | (10,333         | ) |  |                                | 6.71  |                                            |      |                          |   |       
|Cancelled/Forfeited            |  | (100            | ) |  |                                | 7.65  |                                            |      |                          |   |       
|                               |  |                 |   |  |                                |       |                                            |      |                          |   |       
|Outstanding at March 31, 2008  |  | 655,831         |   |  | $                              | 37.47 |                                            | 4.49 |                          | $ | 42,947
|                               |  |                 |   |  |                                |       |                                            |      |                          |   |       
|Exercisable at March 31, 2008  |  | 105,831         |   |  | $                              | 22.16 |                                            | 1.72 |                          | $ | 42,947
|                               |  |                 |   |  |                                |       |                                            |      |                          |   |       



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As of March 31, 2008, our unamortized deferred compensation costs associated with non-vested stock
options were $5.4 million. We received approximately $69,000 in cash proceeds from stock option exercises during the three months ended March 31, 2008.

Restricted Share and Restricted Stock Unit Awards

During the three months ended March 31, 2008, we granted an
aggregate of 578,650 shares of restricted stock and restricted stock units with an aggregate grant date fair value of $5.5 million. Our restricted share and restricted stock unit 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, 2008, our unamortized deferred compensation costs associated with non-vested restricted share and restricted stock unit
awards were $17.4 million with a weighted-average remaining amortization period of 2.7 years. Our restricted stock units were issued pursuant to a new stock compensation plan that has been approved by our Board of Directors and is subject to a vote
by our shareholders to occur on May 8, 2008.

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 share and restricted stock unit grants. 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 for stock still subject to restrictions was 3.0 years as of March 31, 2008.



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|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, 2007, 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 financially underserved consumer credit marketa market represented by credit risks that regulators
classify as sub-prime. We principally serve these markets through our marketing and solicitation of credit card accounts and our servicing of various credit card receivables underlying both originated and acquired accounts. 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 ancillary products, including credit and identity theft monitoring, health discount programs, shopping discount programs, debt
waiver and life insurance. Our product and service offerings also include small-balance, short-term cash advance loans (generally less than $500 for less than thirty days and to which we refer as micro-loans) marketed through
various channels, including retail branch locations and the Internet. We also originate auto loans through franchised auto dealers, purchase and/or service auto loans from or for a pre-qualified network of dealers in the buy here, pay here used car
business and sell used automobiles through our own buy here, pay here lots. Lastly, our licensed debt collections subsidiary purchases and collects previously charged-off receivables from us, the trusts that we service and third parties.

Our only significant business change during the three months ended March 31, 2008 was our decision to discontinue and hold for sale our Texas
retail micro-loans operations a sale that was completed in April 2008.

Our credit card and other operations are heavily regulated,
and over time we change how we conduct our operations either in response to regulation or in keeping with our goals of continuing to lead the industry in the application of consumer-friendly credit card practices. For example, during the third and
fourth quarters of 2006 we discontinued billing finance charges and fees on credit card accounts that become over ninety 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. We also made certain changes to our collections programs and practices throughout 2007, and these changes have had the effect of increasing our delinquencies and expected future charge off
levels and ratios. Moreover, we made further changes in the fourth quarter of 2007 that adversely affected fee income and will continue to negatively affect our future other income ratios and/or delinquency and charge off levels and ratios. We
foresee making further changes to our account management practices in the future and are unable to predict the effects of these changes at this time.

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 settlement discussions with the FDIC and FTC are ongoing. In the near future, we expect to enter into settlement agreements with the
FDIC and FTC limiting certain marketing, servicing and collection practices (all or substantially all of which previously were discontinued) and requiring us to credit various fees to affected customers. We believe, however, that our marketing and
other materials and servicing and collection practices previously complied with, and continue to comply with, applicable law. Although it is premature to determine the ultimate outcomes of these investigations, we do not believe that any payments
that we agree to make will be material to our financial condition. In addition, we expect the financial institutions that issue credit cards on our behalf to enter into complementary agreements with the FDIC. It is premature to determine the future
impact on us of any of these agreements.

Subject to the availability of liquidity to us at attractive terms and pricing, our shareholders
should expect us to continue to evaluate and pursue for acquisition additional credit card receivables portfolios, and potentially other financial assets that are complementary to our financially underserved credit card business. Our focus is on
making good economic decisions that will result in high returns on equity to our shareholders over a long-term horizon, even if these decisions may result in volatile earnings under GAAPsuch as in the case of incurring significant marketing
expenses in one particular quarter to facilitate expected future long-term growth and profitability or in the case of the accounting requirements for securitizations under Statement of Financial Accounting Standards No. 140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, (Statement No. 140). To the extent we grow our overall



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portfolio of credit card receivables (through origination, acquisition or other new channels) and then securitize these assets, for example, we will have
securitization gains or losses, which may be material; this happened during the fourth quarter of 2007 with our securitization of our lower-tier credit card receivablesa transaction that generated $211.1 million of pre-tax income in that
quarter. 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.

CONSOLIDATED RESULTS OF OPERATIONS



|                                                                       |  |                                      |         |   |      |   |         |               |  |   |          |  
|---------------------------------------------------------------------- |  | ------------------------------------ | ------- | - | ---- | - | ------- | ------------- |  | - | -------- | -
|                                                                       |  | For the Three Months Ended March 31, |        
|(In thousands)                                                         |  | 2008                                 |         |   | 2007 |   |         | 2008 vs. 2007 | 
|Earnings:                                                              |  |                                      |         |   |      |   |         |               |  |   |          |  
|Total interest income                                                  |  | $                                    | 24,999  |   |      | $ | 85,883  |               |  | $ | (60,884  | )
|Interest expense                                                       |  |                                      | (11,474 | ) |      |   | (15,784 | )             |  |   | 4,310    |  
|Fees and related income on non-securitized earning assets:             |  |                                      |         |   |      |   |         |               |  |   |          |  
|Retail micro-loan fees                                                 |  |                                      | 19,574  |   |      |   | 21,398  |               |  |   | (1,824   | )
|Fees on lower-tier credit card receivables while held on balance sheet |  |                                      | 297     |   |      |   | 120,959 |               |  |   | (120,662 | )
|Income on investments in previously charged-off receivables            |  |                                      | 21,142  |   |      |   | 17,184  |               |  |   | 3,958    |  
|(Losses) gains on investments in securities                            |  |                                      | (5,161  | ) |      |   | 2,762   |               |  |   | (7,923   | )
|Internet micro-loan fees                                               |  |                                      | 7,718   |   |      |   |        |               |  |   | 7,718    |  
|Gross profit on auto sales                                             |  |                                      | 9,098   |   |      |   | 1,014   |               |  |   | 8,084    |  
|Other                                                                  |  |                                      | 2,621   |   |      |   | 923     |               |  |   | 1,698    |  
|Other operating income:                                                |  |                                      |         |   |      |   |         |               |  |   |          |  
|Income from retained interests in credit card receivables securitized  |  |                                      | 34,220  |   |      |   | 14,875  |               |  |   | 19,345   |  
|Fees on securitized receivables                                        |  |                                      | 8,271   |   |      |   | 4,827   |               |  |   | 3,444    |  
|Servicing income                                                       |  |                                      | 48,286  |   |      |   | 18,895  |               |  |   | 29,391   |  
|Ancillary and interchange revenue                                      |  |                                      | 15,421  |   |      |   | 11,761  |               |  |   | 3,660    |  
|Equity in income of equity-method investees                            |  |                                      | 8,474   |   |      |   | 9,719   |               |  |   | (1,245   | )
|                                                                       |  |                                      |         |   |      |   |         |               |  |   |          |  
|Total Revenue                                                          |  | $                                    | 183,486 |   |      | $ | 294,416 |               |  | $ | (110,930 | )
|Provision for loan losses                                              |  |                                      | 20,406  |   |      |   | 131,624 |               |  |   | (111,218 | )
|Other operating expense:                                               |  |                                      |         |   |      |   |         |               |  |   |          |  
|Salaries and benefits                                                  |  |                                      | 18,779  |   |      |   | 18,313  |               |  |   | 466      |  
|Card and loan servicing                                                |  |                                      | 76,438  |   |      |   | 66,070  |               |  |   | 10,368   |  
|Marketing and solicitation                                             |  |                                      | 15,859  |   |      |   | 35,789  |               |  |   | (19,930  | )
|Depreciation                                                           |  |                                      | 9,954   |   |      |   | 9,594   |               |  |   | 360      |  
|Other                                                                  |  |                                      | 29,131  |   |      |   | 29,096  |               |  |   | 35       |  
|Minority interests                                                     |  |                                      | 2,019   |   |      |   | 712     |               |  |   | 1,307    |  

Three Months Ended March 31, 2008, Compared to Three Months Ended March 31, 2007

Total interest income. Total interest income consists primarily of finance charges and late fees earned on loans and fees receivable we have
not securitized in off-balance-sheet securitization transactionsprincipally from our lower-tier credit card receivables until our securitization of them in December 2007 and from our Auto Finance segment. The decrease is primarily due to our
December 2007 securitization of our lower-tier credit card receivables. We reported $62.8 million of total interest income on these receivables during the three months ended March 31, 2007, while income associated with our retained interest in
the securitization trust underlying these receivables now is reported exclusively within fees and related income on securitized earning assets on our consolidated statements of operations. Our total interest income in successive quarters of this
year will be below levels experienced during comparable quarters of 2007 for the above-noted reason. However, under current relatively modest growth plans, we expect some growth in total interest income levels in successive quarters of this year
relative to the current quarter.

Also included within total interest income (under the other category on our condensed consolidated
statements of operations) is interest income 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 caused



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reductions in interest income levels associated with some of our bonds and the Embarcadero Trust interest. Moreover, our reduced holdings of bonds issued by
other third-party asset-backed securitizations contributed further to our reduced other interest income levels.

Interest
expense. The decrease is primarily due to our December 2007 securitization of our lower-tier credit card receivables; interest expense associated with these receivables was $4.0 million in the first quarter of 2007; whereas, all interest
costs associated with these receivables now are borne by our lower-tier originated portfolio master trust. Income associated with our retained interest in this securitization trust (net of interest costs) is reported exclusively within fees and
related income on securitized earning assets on our consolidated statements of operations. We also experienced reduced interest costs within our Auto Finance segment, and unless we secure the capital necessary to significantly grow our asset base
underlying our Auto Finance segment debt facilities in 2008, we expect a further drop in 2008 interest expense levels. We did, however, experience higher interests costs within our MEM U.K. Internet-based micro-loan operations, reflecting our
acquisition of these operations in the second quarter of 2007 and its subsequent funding of receivables growth by drawing on its available credit lines. Based on the current debt financing capacity within MEMs operations, however, we expect
only modest increases in its growth and interest costs in successive quarters of this year.

Fees and related income on
non-securitized earning assets. The decrease in fees and related income on non-securitized earning assets was largely attributable to:



| |  |  | the securitization of our lower-tier credit card offerings in December 2007, which caused a decrease of $120.8 million; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | a decrease of $8.0 million representing the difference between our experiencing an aggregate $2.8 million in realized and unrealized gains on our portfolio of
investments in debt and equity securities in the first quarter of 2007, versus our experiencing an aggregate $5.2 million in realized and unrealized losses on this portfolio of investments in the first quarter of 2008;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

partially offset, however, by:



| |  |  | an increase in income within our Investments in Previously Charged-Off Receivables segment of $4.0 million, which relates to growth in the segments balance
transfer program and Chapter 13 bankruptcy activities and to heightened levels of previously charged-off receivables sales under our forward flow contract with Encore and correspondingly greater accretion of deferred revenue (in part due to the
release of a portion of $10.0 million in escrowed Encore monies to us) in the first quarter of 2008 relative to the first quarter of 2007;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $7.7 million of MEM fee income in the first quarter of 2008, reflecting our acquisition of MEM in the second quarter of 2007; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | $8.1 million of higher first quarter of 2008 gross profits on automotive vehicle sales within our JRAS operations, which we acquired during the first quarter of
2007 and subsequently have expanded.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our first quarter 2008 losses on our portfolio of third-party debt and equity
securities parallels losses experienced by many other investors in mortgage-backed bonds issued by asset-backed securitization structures. We originally allocated $52.1 million of capital to these investments between the fourth quarter of 2004 and
late 2006, and the recent losses we have experienced within these investments reflect a significant dislocation in the market for mortgage-related and other asset-backed securities caused, in part, by leverage and liquidity constraints facing many
market participants. Because our investment portfolio is held in a separate subsidiary (and not in a third-party fund), and because the debt we incurred to leverage our original investment is recourse only to the underlying securities, our remaining
exposure (i.e., exposure to pre-tax loss) associated with our investments in third-party asset-backed securities is limited to $2.4 million as of March 31, 2008. While we believe the dislocation we are seeing is producing trading values for
many securities that are irrationally low relative to the estimated discounted cash flow value of the securities, our subsidiary may continue to experience trading weakness in its investments in the future that may result in further losses in
successive quarters of this year, limited, however, to our remaining $2.4 million net investment.

First quarter 2008 income growth within
our Investments in Previously Charged-off Receivables segment principally reflects a significant increase in the volume of charge offs that the segment purchased from our lower-tier originated portfolio master trust and then sold under its forward
flow agreement with Encore; this volume increase relates to the large vintages of second and third quarter 2007 lower-tier credit card receivables originations that are realizing peak charge-off levels in the first and second quarters of 2008. It
also reflects our recognition of income associated with the release of a portion of $10.0 million in escrowed Encore monies to us. We anticipate a modest decline in our income within this segment in the third and fourth quarters of this year as its
expanded balance transfer and Chapter 13 bankruptcy operations and potential acquisitions of charged-off receivables portfolios from outside third parties will not completely offset the expected effects of a dramatic drop in the charge offs that
will be made available for it to purchase out of our lower-tier originated portfolio master trust.



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Separately, in reference to the above Fees and related income on non-securitized earning
assets table, we expect to see continued growth in gross profits from our JRAS operations and fees from our U.K.-based Internet micro-loan operations within MEM as both of these entities should continue to grow at modest levels throughout
2008.

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. The increase principally
reflects the effects of our December 2007 securitization of our lower-tier credit card receivables, as partially offset by the effects of expected liquidations of our managed receivables within our purchased portfolio securitization trusts.
Additionally, 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 increased due to the December 2007 securitization of our
lower-tier credit card portfolio and our April 2007 acquisition and securitization of our U.K. Portfolio for which we have been engaged as servicer, partially offset, however, by the effects on our servicing compensation of liquidations in our
purchased credit card receivables portfolios and those of our equity-method investees for which we have been engaged as servicer. Relative to first quarter 2008 servicing income levels, in the absence of portfolio acquisitions and given currently
planned origination levels, we anticipate decreases in our servicing income levels in successive quarters of 2008 principally due to our liquidating purchased portfolios.

Ancillary and interchange revenues. Ancillary and interchange revenues increased modestly relative to first quarter 2007 levels correlating with growth in our managed receivables levels based on our 2007
originations of new credit card accounts and our April 2007 U.K. Portfolio acquisition. With slower growth in new credit card account additions expected in 2008 and absent portfolio acquisitions, we expect some reductions in our ancillary and
interchange revenues in successive quarters of 2008 because of our liquidating purchased portfolios.

Equity in income of
equity-method investees. Equity in income of equity-method investees decreased primarily due to diminished earnings over time as we continue to liquidate the receivables balances associated with these equity-method investees.

Provision for loan losses. 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. Our December 2007 securitization of our lower-tier credit card receivables is the
principal reason for the $111.2 million reduction in our provision for loan losses; credit losses on our lower-tier credit card receivables now are reflected exclusively within fees and related income on securitized earning assets on our
consolidated statements of operations. Also contributing to the reduction in our provision for loan losses is slower growth within our Retail Micro-Loans and Auto Finance segments.

Total other operating expense. Total other operating expense decreased $8.7 million reflecting the following:



| |  |  | a $19.9 million decrease in marketing and solicitation costs due to our desire to preserve capital given the current dislocation of the global liquidity markets and
our corresponding scale back in our marketing efforts (whereby, for example, we grossed 132,000 new credit card accounts during the first quarter of 2008 compared to approximately 351,000 in new credit card accounts during the first quarter of
2007);
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

partially offset by:



| |  |  | increases in salaries and benefits primarily due to personnel additions in connection with our first quarter 2007 Auto Finance segment acquisitions of JRAS and
ACC and our second quarter 2007 acquisition of the U.K. Portfolio, all such increases being offset substantially by diminished salaries and benefits costs resulting from our fourth quarter 2007 decision to discontinue several businesses and
initiatives;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increases in card and loan servicing expenses due to (a) a $6.5 million increase from servicing costs associated with the acquisition of our U.K. Portfolio,
(b) a $0.7 million increase from servicing costs associated with our first quarter 2007 JRAS and ACC acquisitions within our Auto Finance segment, (c) a $1.0 million net increase in servicing costs related to growth in receivables
during 2007 associated with our lower-tier credit card offerings, net of diminished servicing costs associated with our credit card portfolios acquired in prior years given their continuing liquidations, and (d) additional costs incurred
related to the conversion of servicing relationships from BarclayCard to us in the first quarter of 2008costs that are not expected to be continued in future periods.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

While we incur certain base levels of fixed costs, the majority of our operating costs are highly variable based on the levels of accounts that we market
and 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. Based on the recent disruption we have seen in global
liquidity markets, we have reduced our marketing efforts and expect significantly reduced marketing costs and significantly



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slower growth in other expense categories (and potentially even some reductions in expenses within these other categories). We also have substantially
reduced our exploration of new products and services and research and development efforts pending improvements in the liquidity markets in addition to shutting down various operations that were start-up in nature and were not individually meeting
our current capital allocation requirementsthose being that we are seeking to allocate capital only to those product offerings with a history of proven returns meeting or exceeding our desired returns.

Minority interests. We reflect the ownership interests of minority holders of equity in our majority-owned subsidiaries (including
management team holders of shares in our subsidiary entities; see Note 12, Stock-Based Compensation) as minority interests in our consolidated statements of operations. The minority interests expense associated with these subsidiaries
totaled $2.0 million and $0.7 million for the three months ended March 31, 2008 and 2007, 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. However, in the first quarter of 2008 this general trend reversed primarily due to increased profitability of our
Embarcadero Trust.

Income taxes. Our effective tax rate was 60.3% and 36.0% for the three months ended March 31, 2008
and 2007, respectively. The increase in our first quarter 2008 effective tax rate reflects our expectation that the ratio of our permanent differences to pre-tax GAAP income will be greater in 2008 than we had estimated it to be for 2007 when we
performed our first quarter of 2007 effective tax rate calculation.

Credit Cards Segment

Our Credit Cards segment includes our activities relating to investments in and servicing of our
various credit card portfolios as well as the performance associated with various investments in asset-backed debt and equity securities. The revenues we earn from credit card activities primarily include finance charges, late fees, over-limit fees,
annual fees, activation fees, monthly maintenance fees, returned-check fees and cash advance and other fees. We also sell ancillary products such as memberships, insurance products, subscription services and debt waiver. Additionally, we earn
interchange fees, which represent a portion of the merchant fee assessed by Visa® and MasterCard® based on cardholder purchase
volumes underlying credit card receivables.

The way we record these receivables in our consolidated balance sheets and consolidated
statements of operations depends on the form of our ownership. While the underlying activities are similar between each of our portfolios, there are differences, and how we reflect these activities in our financial statements differs dramatically
depending on our ownership form. These forms include:



| |  |  | originated or purchased;
| | - |  | ------------------------



| |  |  | securitized or non-securitized; and
| | - |  | -----------------------------------



| |  |  | consolidated or non-consolidated.
| | - |  | ---------------------------------

Our originated portfolios include the credit card receivables of customers obtained through our own marketing efforts; whereas, our purchased portfolios include the credit card receivables of customer accounts that were originated by others
prior to our acquisitions of the portfolios at varying but generally significant purchase discounts. We spend a substantial amount of marketing resources to originate new cardholder accounts, and we expense the majority of these costs when we incur
them. New cardholders also require greater servicing efforts than established accounts. Accounts we originate generally do not charge off until after the account is open for at least six months. During periods of rapid growth in originated
cardholder accounts, we likely will reflect high relative servicing and marketing expenses but low relative charge offs of delinquent accounts. On the other hand, when we purchase credit card portfolios from others, we historically have purchased
them at substantial discounts. We generally earn fees from the cardholders immediately after the purchase and do not have to bear the high marketing costs associated with originated accounts. The receivables we purchase are in various stages of
delinquency, and some will charge off, for example, in the first month after we purchase them. In computing our managed receivables statistics (see discussion below), we apply a portion of our purchase discount to offset the face amount of charge
offs of all receivables in existence on the date of our acquisitions, and, therefore, we generally do not incur any negative and non-economic effects associated with these charge offs.

With our December 2007 securitization of our lower-tier credit card receivables, we now have securitized substantially all of our credit card receivables
through off-balance-sheet securitizations. In these securitizations, we sell the receivables to a trust, and generally recognize a gain on this sale that we refer to as a securitization gain. Because we have sold these receivables in accordance with
Statement No. 140, we remove them from our consolidated balance sheets. We record the operating activities associated with our securitized credit card receivables in the fees and related income on securitized earning assets category in our
consolidated statements of operations. The sub-categories of income on these securitized receivables include: (1) the securitization gains noted above; (2) income from retained interests in credit card receivables securitized, which
generally includes finance charges, late fees, over-limit fees, annual fees, and monthly maintenance fees; and (3) fees on securitized receivables, which includes activation fees, returned-



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check fees and cash advance and other fees. We record fee charge offs for securitized receivables as an offset to their related revenues, and we account for
net principal charge offs as an offset in determining income from retained interests in credit card receivables securitized.

During any
periods in which we hold credit card receivables on our balance sheet (e.g., prior to our securitization or after our de-securitization of them), we record finance charges and late fees in the consumer loans, including past due fees category on our
consolidated statements of operations, and we include the over-limit fees, annual fees, activation fees, monthly maintenance fees, returned-check fees and cash advance and other fees in the fees and other income on non-securitized earning assets
category on our consolidated statements of operations. We reflect the charge offs of non-securitized receivables within our provision for loan losses.

We routinely originate or purchase our credit card portfolios through subsidiary entities. Generally, if we control through direct ownership or exert a controlling interest in the entity, we consolidate it and reflect
its operations as noted above. If we exert significant influence but do not control the entity, we record our share of its net operating results in the equity in income of equity-method investees category on our consolidated statements of
operations.

We also earn servicing income from the trusts underlying our securitizations and the securitizations of our equity-method
investees. For both the securitized and non-securitized credit card receivables of our consolidated entities, we record the ancillary and interchange revenues in a separate line in our consolidated statements of operations.

Background

We make various references within
our discussion of the Credit Card segment to our managed receivables. In calculating managed receivables data, we assume that none of the credit card receivables underlying our off-balance-sheet securitization facilities was ever transferred to a
securitization trust and we present our credit card receivables as if we still owned them. We reflect the portion of the receivables that we own within our managed receivables data, whether or not we consolidate the entity in which the receivables
are held. Therefore, managed receivables data include both our securitized and non-securitized credit card receivables. They include the receivables we manage for our consolidated subsidiaries, except for the minority interest holders shares
of the receivables, and they also include only our share of the receivables that we manage for our non-consolidated subsidiaries.

Financial, operating and statistical data based on these aggregate managed receivables are vital to any evaluation of our performance in managing our credit card portfolios, including our underwriting, servicing and collecting activities
and our valuing of purchased receivables. In allocating our resources and managing our business, management relies heavily upon financial data and results prepared on this managed basis. Analysts, investors and others also consider it
important 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 their underlying securitization trusts.

Reconciliation of the managed receivables data to our
GAAP financial statements requires: (1) recognition that, with our securitization of our lower-tier credit card receivables in December 2007, we now sell substantially all of our credit card receivables in securitization transactions;
(2) an understanding that our managed receivables data are based on billings and actual charge offs as they occur, without regard to an allowance for uncollectible loans and fees receivable; (3) inclusion of our economic share of (or
equity interest in) the receivables that we manage for our equity-method investees; and (4) removal of our minority interest holders shares of the managed receivables underlying our GAAP consolidated results.

We typically have purchased credit card receivables portfolios at substantial discounts. A portion of these discounts is applied against receivables
acquired for which charge off is considered likely, including accounts in late stages of delinquency at the date of acquisition; this portion is measured based on our acquisition date estimate of the shortfall of anticipated cash flows expected to
be collected on the acquired portfolios relative to the face amount of receivables represented within the acquired portfolios. 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.

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 this delinquency and charge off data in determining our allowance



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for uncollectible loans and fees receivable with respect to our non-securitized earning assets, net on our 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 consolidated balance sheets.

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 ninety days delinquent (our
2006 late-stage billing change). 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 managed receivables data, the finance charge and fee income on all significantly delinquent then-non-securitized credit card receivables (i.e., lower-tier
credit card receivables) for which we believed that collectibility was significantly in doubt on the date of billing. As such, our 2006 change in billing practices did not affect managed receivables charge off data associated with our
then-non-securitized lower-tier credit card receivables, but it did negatively impact managed receivables data associated with our then-securitized off-balance-sheet managed receivables (which included receivables underlying our upper-tier
originated portfolio master trust and our acquired portfolios).

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. See also our discussion of collection strategies 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, 2007.

The following table presents the delinquency trends of the credit card receivables that we manage, as well as charge off data and other managed receivables statistics (in thousands; percentages of total):



|                                 |  |                                  |           |    |         |   |           |         |  |   |           |   |  |         |           |   |         |   |           |         |  |   |           |   |  |   |           |   |  |   |           |  
|-------------------------------- |  | -------------------------------- | --------- | -- | ------- | - | --------- | ------- |  | - | --------- | - |  | ------- | --------- | - | ------- | - | --------- | ------- |  | - | --------- | - |  | - | --------- | - |  | - | --------- | -
|                                 |  | At or for the Three Months Ended |          
|                                 |  | 2008                             |           |    | 2007    |   |           | 2006    | 
|                                 |  | Mar. 31                          |           |    | Dec. 31 |   |           | Sep. 30 |  |   | Jun. 30   |   |  | Mar. 31 |           |   | Dec. 31 |   |           | Sep. 30 |  |   | Jun. 30   |  
|Period-end managed receivables   |  | $                                | 3,378,827 |    |         | $ | 3,717,050 |         |  | $ | 3,722,373 |   |  | $       | 3,501,468 |   |         | $ | 2,512,566 |         |  | $ | 2,599,667 |   |  | $ | 2,544,965 |   |  | $ | 2,472,352 |  
|Period-end managed accounts      |  |                                  | 4,775     |    |         |   | 5,105     |         |  |   | 5,268     |   |  |         | 4,756     |   |         |   | 3,755     |         |  |   | 3,700     |   |  |   | 3,611     |   |  |   | 3,502     |  
|Percent 30 or more days past due |  |                                  | 21.4      | %  |         |   | 24.9      | %       |  |   | 21.0      | % |  |         | 18.6      | % |         |   | 18.0      | %       |  |   | 19.3      | % |  |   | 19.3      | % |  |   | 16.6      | %
|Percent 60 or more days past due |  |                                  | 17.8      | %  |         |   | 19.6      | %       |  |   | 15.5      | % |  |         | 14.0      | % |         |   | 13.9      | %       |  |   | 14.6      | % |  |   | 14.6      | % |  |   | 11.9      | %
|Percent 90 or more days past due |  |                                  | 14.3      | %  |         |   | 14.2      | %       |  |   | 11.0      | % |  |         | 9.6       | % |         |   | 10.3      | %       |  |   | 10.7      | % |  |   | 10.6      | % |  |   | 8.3       | %
|Average managed receivables      |  | $                                | 3,558,518 |    |         | $ | 3,731,286 |         |  | $ | 3,613,924 |   |  | $       | 3,419,306 |   |         | $ | 2,563,581 |         |  | $ | 2,558,100 |   |  | $ | 2,512,285 |   |  | $ | 2,420,507 |  
|Combined gross charge off ratio  |  |                                  | 50.2      | %  |         |   | 37.4      | %       |  |   | 29.8      | % |  |         | 34.6      | % |         |   | 34.6      | %       |  |   | 35.6      | % |  |   | 31.3      | % |  |   | 28.7      | %
|Net charge off ratio             |  |                                  | 20.6      | %  |         |   | 15.8      | %       |  |   | 13.9      | % |  |         | 16.9      | % |         |   | 13.4      | %       |  |   | 11.9      | % |  |   | 10.3      | % |  |   | 9.5       | %
|Adjusted charge off ratio        |  |                                  | 19.1      | %  |         |   | 13.9      | %       |  |   | 10.5      | % |  |         | 9.6       | % |         |   | 13.1      | %       |  |   | 10.7      | % |  |   | 9.5       | % |  |   | 8.5       | %
|Total yield ratio                |  |                                  | 47.4      | %  |         |   | 56.1      | %       |  |   | 53.0      | % |  |         | 49.3      | % |         |   | 53.0      | %       |  |   | 61.4      | % |  |   | 60.9      | % |  |   | 58.2      | %
|Gross yield ratio                |  |                                  | 24.3      | %  |         |   | 29.2      | %       |  |   | 29.2      | % |  |         | 28.6      | % |         |   | 28.8      | %       |  |   | 32.9      | % |  |   | 35.3      | % |  |   | 32.6      | %
|Net interest margin              |  |                                  | 13.2      | %  |         |   | 18.0      | %       |  |   | 19.1      | % |  |         | 19.0      | % |         |   | 17.9      | %       |  |   | 22.6      | % |  |   | 26.4      | % |  |   | 23.7      | %
|Other income ratio               |  |                                  | (0.8      | )% |         |   | 11.9      | %       |  |   | 13.1      | % |  |         | 8.4       | % |         |   | 10.8      | %       |  |   | 11.2      | % |  |   | 10.5      | % |  |   | 12.0      | %
|Operating ratio                  |  |                                  | 9.4       | %  |         |   | 11.9      | %       |  |   | 10.5      | % |  |         | 10.6      | % |         |   | 12.1      | %       |  |   | 13.9      | % |  |   | 11.3      | % |  |   | 10.1      | %



Managed receivables.The general trend-line increase in our managed receivables through the end of 2007 is principally due to growth in our lower-tier credit card receivables. We
experienced growth in these receivables of 110.9% in 2006 and 78.8% in 2007. The reduction in the fourth quarter of 2007 was primarily due to reductions in originations midway through the third quarter in response to tightened liquidity markets. The
greater reduction in the first quarter of 2008 reflects a continuation of our reduced levels of originations, combined with significant charge-offs, primarily of accounts we originated in the second and third quarters of 2007. Absent our obtaining
additional growth capital in the near future at attractive pricing and terms, we expect to continue to originate fewer receivables in the remainder of 2008 compared to the levels we achieved in the second and third quarters of 2007. Additionally,
like other credit card issuers, we experienced lower than expected cardholder purchases in the fourth quarter of 2007 and the first quarter of 2008, which also contributed to the decline in fourth quarter 2007 and first quarter 2008 managed
receivables.

Our U.K. Portfolio acquisition in the second quarter of 2007 added a significant number of accounts, thereby contributing to
our significant overall growth in receivables in that quarter. Our individual purchased portfolios are always in a state of liquidation due to the absence of new cardholders to replace those who either pay off their balances or become delinquent and
charge off. The growth in receivables within our originated portfolios (particularly growth in our lower-tier credit card receivables) in 2006 and throughout much of 2007 had exceeded the decline in receivables within our purchased portfolios,
resulting in the overall increases in our managed receivables throughout 2006 and for the first three quarters of 2007. This trend was reversed in the fourth quarter of 2007 and the first quarter of 2008 as we significantly reduced marketing
expenses, slowed originations and now are experiencing the peak vintage charge-off effects associated with approximately 1.5 million of predominantly lower-tier credit card accounts that we added in the second and third quarters of 2007.



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Delinquencies. Delinquencies have the potential to impact net income in the form of net credit
losses. Delinquencies also are costly in terms of the personnel and resources dedicated to resolving them. We intend for the account management strategies 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 intended to optimize the effective
account-to-collector ratio across delinquency categories. We further describe these collection strategies under the heading How Do We Collect from Our Customers? in Item 1, Business, in our Annual Report on Form 10-K for
the year ended December 31, 2007. We measure the success of these efforts by measuring delinquency rates. These rates exclude accounts that have been charged off.

We experienced an increasing trend in our 30-plus, 60-plus and 90-plus day delinquencies through December 31, 2007, excluding slight seasonal declines in the first and second quarters of 2007. These increases
predominantly are attributable to a mix change reflecting disproportionate receivables growth rates in our lower-tier credit card portfolios relative to those of our other credit card receivables. Our lower-tier credit card receivables typically
experience substantially higher delinquency rates than those of our other originated and purchased portfolios.

The accounts underlying our
lower-tier credit card receivables generally have a shorter life cycle than our other accounts, with peak charge offs occurring approximately eight to nine months after activation. The growth in lower-tier credit card receivables that we generated
in the past three years has fluctuated significantly, with higher than average growth in the third and fourth quarters of 2005 and the first quarter of 2006, followed by lower growth from the second quarter of 2006 to the first quarter of 2007,
record growth in the second and third quarters of 2007, moderate growth in the fourth quarter of 2007 and a decline in the first quarter of 2008. This marketing volume-based volatility results in increasing delinquencies in the months
immediately subsequent to months of high growth, followed by high charge offs generally in the third quarter following activation. Despite these fluctuations, we believe that the heightened delinquency and charge off levels and greater volatility in
our delinquency statistics associated with our lower-tier credit card offerings are reasonable based on the relative returns offered.

The
mix change toward a greater percentage of our receivables being comprised of lower-tier credit card receivables would have resulted in even greater 2007 delinquencies but for our U.K. Portfolio acquisition in the second quarter of 2007; our U.K.
Portfolios delinquencies are significantly below those of our lower-tier credit card receivables.

In the first quarter of 2008, we
experienced the initial charge-offs from the record 1.5 million aggregate originations of the second and third quarters of 2007. The portion of these accounts underlying our lower-tier credit card offerings were significantly delinquent at the
end of the fourth quarter of 2007, and many charged off in the first quarter of 2008. The lower origination level of the fourth quarter of 2007 generated fewer delinquent accounts than the prior two quarters, so there were fewer delinquencies to
replace the accounts that charged off. As a result, combined with the lower seasonal delinquencies we experience in the first quarter of every year, delinquencies improved in the first quarter of 2008, and we anticipate that they will continue to
improve in the second quarter of 2008 before stabilizing at significantly lower levels throughout the remainder of the year. We also note that we have experienced lower early stage delinquencies in the first quarter of 2008 when compared to the
first quarter of 2007; while these lower early stage delinquencies have resulted in lower late fee and over-limit fee revenues in the first quarter of 2008, they support our expectation of lower charge offs in the latter half of 2008.

Charge offs. We generally charge off credit card receivables when they become contractually 180 days past due or within thirty 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.

We experienced two very significant trends over the past two years, both of which caused our combined gross charge off ratio and our net
charge off ratio to increase during these years. First, the rush of customers to file for bankruptcy prior to the October 2005 effective date of the new bankruptcy laws accelerated certain charge offs into 2005 that we otherwise would have
experienced in 2006. This shift lowered charge offs in 2006, dramatically impacting the first quarter and having a diminishing impact in subsequent quarters. The second trend relates to the growth in our lower-tier credit card offerings, which have
higher charge offs, relative to their average managed receivables balances, than do our other portfolios. The growth in these receivables changed the mix of our receivables by weighting the lower-tier credit card portfolio more heavily than in prior
years. Based on this mix change, we generally would expect our charge off ratios to increase with the growth of our lower-tier credit card receivables. These two factors are the primary drivers of the general trend-line increases in our charge off
ratios.

In addition to the generally increasing trend in charge offs, we also anticipate seasonal trends in which the first and fourth
quarters incur higher levels of charge offs than do the second and third quarters. This tendency results from the cash flow patterns impacting our cardholders. Typically, we experience greater remittances by cardholders late in the first quarter of
each year, improving their delinquency status and reducing charge offs in the second and third quarters.



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Combined gross charge off ratio. The significant increase from the first to the second quarter of
2006 is greater than the quarterly increases through the remainder of 2006 and was largely attributable to the acceleration of charge offs into the fourth quarter of 2005 mentioned above. Each subsequent quarter realized a lower impact from this
shift, and there was no measurable impact on our 2007 charge offs.

Seasonal fluctuations contributed to the increase in the combined
charge off ratio in the fourth quarter of 2006, the first quarter of 2007, and the fourth quarter of 2007. In the second quarter of 2007, the combined charge off ratio was consistent with the first quarter, which is contrary to the seasonality trend
we would anticipate. This variation resulted from the growth in the lower-tier credit card receivables having a greater impact than the seasonality trends. In addition, we acquired our U.K. Portfolio in the second quarter. A significant number of
receivables within the U.K. Portfolio were in a late stage of delinquency at the time of our acquisition and charged off in the months following the close of our acquisition. These higher charge offs increased our combined charge off ratio in the
second quarter. Since that time, the U.K. Portfolio addition has put downward pressure on our overall combined gross charge off ratio as this portfolio has a lower average charge off rate than our other portfolios.

Our combined gross charge off ratio spiked in the fourth quarter of 2007 due primarily to marketing volume-based fluctuations caused by greater numbers
of additions of our lower-tier credit card accounts in prior quarters that reached their peak charge off levels in the fourth quarter. In addition, we experienced seasonal increases that were amplified by the economic pressures felt by our
cardholders stemming from the general economy. These two factors carried over into the first quarter of 2008, with the marketing volume-based fluctuations having a far greater impact than in the fourth quarter of 2007. We expect this ratio to
decline slightly in the second quarter of 2008 as we incur the remaining peak vintage charge-offs associated with the 1.5 million of predominantly lower-tier credit card accounts added in the second and third quarters of 2007. Thereafter, in
the subsequent quarters of this year, we expect the combined gross charge off ratio to drop dramatically to levels significantly below the levels we experienced in 2007.

Net charge off ratio.The net charge off ratio measures principal charge offs, net of recoveries. The seasonal trends discussed above apply to this ratio in a manner similar to their effects on the combined
gross charge off ratio. The increasing trend due to the shift in our mix toward a greater percentage of our receivables being comprised of lower-tier credit card receivables also impacts our net charge off ratio, but to a lesser degree than it
affects our combined gross charge off ratio. Our lower-tier credit card portfolio has a significantly lower principal to total receivables ratio than do our other portfolios, so growth in this portfolio has less of an effect on our net charge off
ratio than it does on our combined gross charge off ratio.

The net charge off ratio increased more than anticipated in the first quarter
of 2007. This increase related primarily to the impact of accelerated charge-offs in the fourth quarter of 2005 depressing 2006 charge-offs and returning to more normal levels in the first quarter of 2007.

The net charge off ratio also increased in the second quarter of 2007 in excess of the typical trend line. This change is due to our U.K. Portfolio
acquisition in that quarter. As noted above, this portfolio had a significant number of receivables that were in a late stage of delinquency and that charged off in the months following our acquisition. Without this U.K. Portfolio acquisition, our
net charge off ratio would have fallen to 13.1% in the second quarter of 2007, in line with our seasonal trend. The ratio also would have fallen in the third quarter of 2007, but to a lesser degree than it did, as the incremental charge offs from
the U.K. Portfolio were much greater in the second quarter than in the third. In the fourth quarter of 2007, our net charge off ratio was lower than it otherwise would have been without the U.K. Portfolio acquisition, as the U.K. Portfolios
receivables have a lower ongoing net charge off ratio than the receivables of our other portfolios. In the first quarter of 2008, the net charge off ratio increased at a slightly lesser rate than our combined gross charge off ratio, which is
consistent with our expectations that our lower-tier credit card portfolio will influence net charge offs less than it will combined gross charge offs due to the relative mix of a cardholders balance between principal and fee receivables.

Adjusted charge off ratio.This ratio reflects our net charge offs, less credit quality discount accretion with respect to our
acquired portfolios. Therefore, its trend line should follow that of our net charge off ratio, adjusted for the diminishing impact of past portfolio acquisitions and for the additional impact of new portfolio acquisitions. Prior to our second
quarter 2007 U.K. Portfolio acquisition, our most recent credit card receivables portfolio acquisition was in the first quarter of 2005. Generally, we saw an expected decline in the gap between the net charge off ratio and the adjusted charge off
ratio with each passing quarter subsequent to that first quarter 2005 acquisition and into the first quarter of 2007. Our U.K. Portfolio acquisition in the second quarter of 2007 caused this gap to widen in the second quarter of 2007, with
consistent declines in the gap in the third and fourth quarters of 2007 and the first quarter of 2008. We expect the gap between the net charge off ratio and the adjusted charge off ratio to continue to decline absent the purchase of another
portfolio at a discount to the face amount of its receivables.

Total yield ratio and gross yield ratio. As noted previously, the
mix of our managed receivables has shifted toward those receivables of our lower-tier credit card offerings. These receivables have higher delinquency rates and late and over-limit assessments than do our other portfolios, and thus have higher total
yield and gross yield ratios as well. Based on this mix change, we generally would expect these ratios to increase with the growth of the lower-tier credit card receivables. We have seen a general trend-line increase in our total yield and gross
yield ratios in 2006 and 2007, with several exceptions as described in the following paragraphs.



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The most significant of these exceptions relates to our 2006 late-stage billing change described above.
We implemented this change during the fourth quarter of 2006 and into the first quarter of 2007, and it reduced our ongoing total yield and gross yield ratios as we discontinued billing finance charges and fees on any accounts over ninety days
delinquent. This change was the primary reason for the decrease in our total yield and gross yield ratios from 60.9% and 35.3%, respectively, in the third quarter of 2006 to 53.0% and 28.8%, respectively, in the first quarter of 2007.

Another factor impacting the first quarter of 2007 and subsequent quarters is the ongoing investigations by the FDIC and FTC. Throughout the course of
the investigations, we have made changes in our account management practices 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. These credits negatively impacted our total yield and gross yield ratios in the first quarter of
2007.

These ratios declined again in the second quarter due to the addition of our acquired U.K. Portfolio. This portfolio comprised about
20% of our managed receivables at December 31, 2007, and its total yield and gross yield are below average as compared to our other portfolios. The addition of the U.K. Portfolio negatively impacted our total yield and gross yield ratios by
4.8% and 1.7%, respectively, in the second quarter and by approximately 8.0% and 3.0%, respectively, in the second half of 2007.

Our gross
yield ratio was flat in the final two quarters of 2007 due to further changes we made to our billing practices in keeping with our goals of ensuring that our practices continue to be among the most consumer-friendly practices in the credit card
industry and to address evolving negative amortization industry guidance. Specifically, in November 2007, we began to reverse fees and finance charges on the accounts of cardholders who made their 3% or 4% (depending upon the product offering)
contractual payments to us so that those accounts would not be in negative amortization. These changes reduced our gross yield ratio in the fourth quarter, and because only two months of the effects of these changes are reflected in the fourth
quarter, they had a greater impact on the first quarter of 2008an impact that we expect to continue in subsequent quarters.

Further
significant declines in our total yield and gross yield ratios in the first quarter of 2008 primarily relate to the relative delinquency status of our lower-tier credit card receivables portfolio. As noted above, we no longer bill finance charges
and fees on accounts that are more than ninety days delinquent. Late in the fourth quarter of 2007, the initial wave of accounts from our record 1.5 million of predominantly lower-tier credit card originations in the second and third quarters
of 2007 became more than ninety days delinquent, and we stopped charging finance charges and fees to these accounts. In the first quarter of 2008, we did not bill finance charges and fees to a significant portion of the accounts within our
lower-tier credit card receivables portfolio as the accounts remained more than ninety days delinquent. We included these accounts in our average managed receivables, but generated no yield from them, and our yield ratios declined as a result. Many
of these accounts charged off during the first quarter of 2008, and more will charge off in the second quarter. As we remove the balances of these accounts from average managed receivables upon charge off, we expect that the mix of average managed
receivables in our lower-tier credit card receivables portfolio for which we do not charge fees will decline, resulting in significant improvements in the total and gross yield ratios in the second and subsequent quarters of 2008.

Net interest margin. We generally expect our net interest margin to increase as our lower-tier credit card receivables become a greater percentage
of our overall managed receivables. This trend is not evident over the past two years due to several factors, which vary among quarters.

The significant declines in the fourth quarter of 2006 and the first quarter of 2007 relate primarily to our 2006 late-stage billing change. A large percentage of finance charge and late fee billings on late-stage delinquent accounts
ultimately charge off. Because we net such finance charge and late fee charge offs against our net interest margin, we generally would expect that most finance charges and fees billed to late-stage delinquency accounts will charge off, and the net
of the billing and the charge off of these finance charges and fees would cause a slight increase in the net interest margin in periods of growth. We believe this assumption is correct for the second quarter of 2007 and subsequent periods. In the
fourth quarter of 2006 and the first quarter of 2007, however, the 2006 late-stage billing change significantly diminished our net interest margin because of the lag effect of the change. In those quarters, we stopped billing fees to the late-stage
accounts, thereby reducing our revenues. The related reduction in charge offs did not occur until the following quarters, when the affected accounts, which were lower than they otherwise would have been, ultimately charged off. So, we had lower
revenues without a corresponding decrease in charge offs in these two quarters, and the result was a decline in our net interest margin.

Also impacting the first quarter of 2007 were better than expected early delinquency bucket roll rates and lower than expected delinquencies. These factors significantly reduced our expected late fee assessments, thereby resulting in a
lower net interest margin. Further, the changes we made to our account management practices relating to the FDIC and FTC investigations also depressed our net interest margin, most heavily in the first quarter of 2007 and to a lesser degree in the
second and third quarters of 2007.



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Our net interest margin increased in the second and third quarters of 2007. These increases primarily
resulted from the diminishing lag effect of our 2006 late-stage billing change and the continued growth of our lower-tier credit card receivables. The addition of our acquired U.K. Portfolio in the second quarter of 2007 partially offset these
improvements because the net interest margin for this portfolio is below the weighted average rate of our other portfolios. This U.K. Portfolio offset had only a slight impact on the second quarter of 2007, but had a much greater impact on the third
and fourth quarters of 2007.

Our net interest margin declined in the fourth quarter of 2007 due in part to higher charge offs, which
resulted from seasonal increases that were amplified somewhat by economic pressures felt by our cardholders stemming from the tightened liquidity markets. The aforementioned November 2007 negative-amortization-related changes to our billing
practices also negatively impacted our net interest margin in the fourth quarter of 2007.

The November 2007 negative-amortization-related
changes to our billing practices also negatively affected our first quarter of 2008 net interest margin and are expected to have ongoing adverse affects on our net interest margins. Additionally, we also experienced lower early stage delinquency
levels in the first quarter of 2008 as compared to early stage delinquency levels in the first quarter of 2007. While this development is favorable from a credit quality perspective and will translate directly into lower charge off levels in the
last two quarters of 2008, lower early stage delinquency levels mean lower late payment fee assessments and a correspondingly lower net interest margin in the first quarter of 2008.

Our first quarter 2008 net interest margin also was depressed due to changes within our lower-tier credit card receivables portfolio. This portfolio
generated lower finance charge and late fee billings in the first quarter of 2008 due to the significant portion of the accounts within that portfolio that were in late stages of delinquencystages for which we do not bill finance charges or
late fees. Further, many accounts within that portfolio reached peak charge off vintage levels and charged off during the quarter, resulting in higher finance charge and late fee charge offs netting against yields in the determination of our net
interest margin for the quarter. Once the large volumes of second and third quarter of 2007 lower-tier credit card receivables roll through their peak charge off vintage levels as expected in the second quarter of this year, we expect a significant
increase in our net interest margins and a return to more traditional levels in the second half of this year.

Other income ratio.We generally expect our other income ratio to increase as our lower-tier receivables become a greater percentage of our overall managed receivables, as these receivables generate higher membership, over-limit, monthly maintenance and other fees
than do our other portfolios. Several factors prevented this trend from occurring in 2006 and 2007.

In the second and third quarters of
2006, marketing volume-based volatility in our lower-tier credit card portfolios caused our other income ratio to decline. We originated 70% more accounts in the second half of 2005 than we did in the first half of that year. Since these receivables
reach their peak charge off levels in eight to nine months from activation, the new accounts from the second half of 2005 inflated our charge offs in the second and third quarters of 2006 and depressed our other income ratio.

Also in the third quarter of 2006, we experimented with potential revisions to our over-limit fee billing practices, which had the effect of depressing
our other income ratio relative to its level in prior quarters. While we did not implement these specific revisions on a permanent basis, we did adopt our 2006 late-stage billing change at the end of the third quarter of 2006. Similar to the changes
to our net interest margin as discussed above, the 2006 late-stage billing change negatively impacted the fourth quarter of 2006 and the first quarter of 2007, and then the lag effect of the change passed and its impact on the remainder of 2007 was
minimal.

Despite the downward pressure on our other income ratio in the fourth quarter of 2006, the ratio increased from the prior
quarter. This increase relates to the then-improved performance of our portfolio of investments in debt and equity securities, principally consisting of investments in CDOs and CMOs backed by mortgages as well as trading positions in an ABX index.
We historically have reflected gains and losses on these investment activities in our Credit Cards segments other income ratio. We generated income from these investments of $3.7 million in the third quarter of 2006 and $6.5 million in the
fourth quarter of 2006. This income softened the decline in the other income ratio in the third quarter, and caused the ratio to increase in the fourth quarter despite a decline in the performance of our credit card portfolios resulting from the
2006 late-stage billing change. In the first quarter of 2007, this income declined to $2.8 million, and then we incurred losses of $28.5 million, $37.4 million, $6.9 million, and $5.2 million in the second, third and fourth quarters of 2007 and the
first quarter of 2008, respectively. Excluding these investment activities, our other income ratio would have increased from 10.2% in the fourth quarter of 2006 to 10.3%, 11.8% and 17.2% in the first, second and third quarters of 2007, respectively,
before declining again to 12.7% in the fourth quarter of 2007 and -0.2% in the first quarter of 2008.

The addition of our acquired U.K.
Portfolio in the second quarter of 2007 negatively impacted our other income ratios for the last three quarters of 2007. The other income ratio for this portfolio is well below the typical performance of our lower-tier credit card



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offerings, and is slightly below that of our traditional upper-tier originated portfolio. Adding the performance of these receivables to the overall mix of
our managed receivables resulted in a decrease of approximately 200 basis points in the other income ratio in 2007. In the first quarter of 2008, however, our lower-tier credit card offerings generated a negative other income ratio, so the U.K.
Portfolio was slightly accretive to this ratio in that quarter.

Excluding investment activities, our other income ratio increased quarter
over quarter in 2007 before declining in the fourth quarter of 2007 and the first quarter of 2008. These decreases are due primarily to higher charge offs in the quarter resulting from the marketing volume-based volatility in our lower-tier credit
card receivables portfolios and from seasonal increases in charge offs that were amplified somewhat by economic pressures felt by our cardholders stemming from the tightened liquidity markets. Our aforementioned November 2007
negative-amortization-related finance charge and fee reversal changes to our billing practices also negatively impacted our other income ratio in these quarters.

In the first quarter of 2008, our lower-tier credit card receivables fee charge offs within the other income ratio exceeded the fee income from these receivables, resulting in a negative other income ratio for
this portfolio and for the Credit Cards segment as a whole. The same lower-tier credit card receivables-related factors mentioned in our discussion of our first quarter 2008 net interest margin are at play in the determination of our first quarter
2008 other income ratiosuch factors including (1) the effects of lower early stage delinquency levels on our over-limit fee billings, (2) the effects of significantly higher late stage delinquency levels for which we do not bill
over-limit and other fees, and (3) the large proportion of lower-tier credit card accounts that reached peak charge off vintage levels and charged off during the quarter, resulting in higher fee charge offs netting against billed fees in the
determination of our other income ratio.

Once the large volumes of second and third quarter of 2007 lower-tier credit card receivables
originations roll through their peak charge off vintage levels as expected in the second quarter of this year, we expect a significant increase in our other income ratio in the second half of this year.

Operating ratio.Our 2006 and 2007 operating ratios are higher than they have been in prior years, principally associated with the mix change in
our receivables toward our lower-tier credit card receivables, which are comprised of accounts with smaller receivables balances than those accounts underlying our upper-tier 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 historically have experienced with our upper-tier originated
portfolio master trust and acquired portfolios receivables. Also throughout 2006 and into 2007, we 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. 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.

The increase in our fourth quarter 2006 operating ratio is due largely to our $15.0 million charitable contribution in that quarter. Our operating ratio remained high in the first quarter of 2007 due to a variety of
smaller increases in salaries, rent and legal fees. The levels in the second and third quarters of 2007 declined due to our U.K. Portfolio acquisition. This portfolio is comprised of accounts with relatively large receivables balances, and
therefore, it bears a lower operating ratio than that of our lower-tier credit card portfolio. As the U.K. Portfolio liquidates and as we continue to disproportionately grow our lower-tier credit card receivables, we expect our operating ratio to
continue its general upward trend. The fourth quarter of 2007 increased due to our $6.0 million charitable contribution in that quarter in addition to our incurrence of higher legal and related costs associated with ongoing FDIC and FTC
investigations. In the first quarter of 2008, we had lower operating expenses primarily due to our slow-down in originations (customer interactions and hence costs are higher in the first few months after card activation than they are for more
mature credit card accounts) and to the specific expense reduction initiatives we undertook in the latter half of 2007 in response to the tightened liquidity markets.

Future Expectations

We anticipate that charge off levels will remain high in the second
quarter of 2008 as the record number of new accounts we originated in the second and third quarters of 2007 continues to reach its peak charge off levels. As the accounts from these originations season through delinquency categories and charge off,
they will no longer impact our delinquency statistics. With the reduced gross account additions we had in both the fourth quarter of 2007 and the first quarter of 2008, we expect to have fewer newly originated accounts that will become delinquent.
As a result, we expect that the first and second quarter 2008 higher charge offs will result in lower delinquencies throughout the remainder of 2008. As we expected, we saw a decline in the 60-plus day delinquency percentage from December 31,
2007 to March 31, 2008, and we anticipate that this ratio will decline further in the second quarter of 2008.



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Considering the factors described above, we continue to be pleased with the overall credit quality of our
managed receivables, including those underlying our lower-tier credit card offerings. While our analysis of vintage data suggests that there is some modest softening of credit quality in certain of our portfolios, this does not appear to be a
significant trend overall. Certain account management actions we began to implement in the fourth quarter in keeping with our goals of ensuring that our practices are among the most consumer-friendly in the industry and to address evolving negative
amortization guidance could have the effect of increasing our delinquencies at the vintage level. With the exception of the anticipated changes we noted above for the lower-tier credit card receivables, we expect relatively minor changes in our
delinquencies for the remainder of our credit card portfolios during the remainder of 2008.

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:



|                                                                                                                                                                                                           |  |                                         |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ------- | -
|                                                                                                                                                                                                           |  | For the ThreeMonths EndedMarch 31, 2008 |        
|Unrecovered balance at beginning of period                                                                                                                                                                 |  | $                                       | 14,523  |  
|Acquisitions of defaulted accounts                                                                                                                                                                         |  |                                         | 17,915  |  
|Cash collections                                                                                                                                                                                           |  |                                         | (27,610 | )
|Accretion of deferred revenue associated with Encore forward flow contract                                                                                                                                 |  |                                         | (6,718  | )
|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) |  |                                         | 21,142  |  
|                                                                                                                                                                                                           |  |                                         |         |  
|Balance at March 31, 2008                                                                                                                                                                                  |  | $                                       | 19,252  |  
|                                                                                                                                                                                                           |  |                                         |         |  
|Estimated remaining collections (ERC)                                                                                                                                                                    |  | $                                       | 69,484  |  
|                                                                                                                                                                                                           |  |                                         |         |  

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, 2008 are principally comprised of those associated with Chapter 13 Bankruptcies and those acquired through 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 acquisitions and servicing of Chapter 13 Bankruptcies, its acquisitions through its balance transfer program and other previously charged-off
receivables activities throughout 2008 and beyond. Such activities will include its acquisition of previously charged-off receivables from the securitization trusts that we service and from us and its sales of these charge offs for a fixed sales
price under its five-year forward flow contract with Encore. Although our Investments in Previously Charged-Off Receivables segments purchases of normal third-party delinquency charge offs has increased only modestly, the environment for
purchasing third-party delinquency charge offs continues to improve principally because increased supply has driven pricing down to more attractive levels. We anticipate that this environment will continue to exist throughout the remainder of 2008.
Increased purchases of normal delinquency charge offs could have a short-term negative impact on Jefferson Capitals income as collection expenses are incurred while revenue recognition is delayed until complete recovery of the acquired
portfolios investment as noted above.

We generally estimate the life of each pool of charged-off receivables that we typically
acquire to be between twenty-four and thirty-six months for normal delinquency charged-off accounts (including balance transfer program accounts) and approximately sixty months for Chapter 13 Bankruptcies. We anticipate collecting approximately
46.1% 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. Because 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, 2008, our Investments in Previously Charged-off Receivables segments pre-tax income
increased 40.4% compared with the same period in 2007. First quarter 2008 income growth within this segment principally reflects a significant increase in the volume of charge offs that the segment purchased from our lower-tier
originated portfolio master



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trust and then sold under its forward flow agreement with Encore; this volume increase relates to the large vintages of second and third quarter 2007
lower-tier credit card receivables originations that are realizing peak charge off levels in the first and second quarters of 2008. Additionally, this income growth reflects our recognition of a ratable portion of $10.0 million of escrowed gross
proceeds associated with our forward flow contract with Encore. We anticipate a modest decline in our income within this segment in the third and fourth quarters of this year as its expanded balance transfer and Chapter 13 bankruptcy operations and
potential acquisitions of charged-off receivables portfolios from outside third parties will not completely offset the expected effects of a dramatic drop in the charge offs that will be made available for it to purchase out of our lower-tier
originated portfolio master trust.

Retail Micro-Loans Segment

The Retail Micro-Loans segment consists of a network of storefront locations that, depending on the location, provide some or all of the following products or services: (1) small-denomination, short-term,
unsecured cash advances that are typically due on the customers next payday; (2) installment loan and other credit products; and (3) money transfer and other financial services. The assets associated with our retail micro-loan
operations were principally acquired during 2004 and early 2005. As of March 31, 2008, our Retail Micro-Loans segment subsidiaries operated a total of 510 storefront locations (including 185 storefront locations included within our discontinued
operations) in fifteen states as well as the U.K.

The micro-loan market emerged in the early 1990s in response to a shortage of available
short-term consumer credit alternatives from traditional banking institutions. We believe customers seek cash advance micro-loans as a simple, quick and confidential way to meet short-term cash needs between paydays while avoiding the potentially
higher costs and negative credit consequences of other financing alternatives, which include overdraft privileges or bounced-check protection, late bill payments, checks returned for insufficient funds and short-term collateralized loans.

From the inception of our retail micro-loan operations through mid-2007, we embarked on a strategy of converting our mono-line micro-loan
storefronts into neighborhood financial centers offering a wide array of financial products and services, including auto insurance, stored-value cards, check cashing, money transfer, money order, bill payment, auto title loans and tax preparation
service assistance. These new products had some success in improving foot traffic within our storefronts and increasing our revenues on a per store basis. In certain states, however, we saw increasingly stringent lending regulations (which in many
cases precluded the execution of our multi-product line strategy) and possible evidence of market saturation, both of which resulted in revenue growth that has not met our expectations. At the same time, we saw rising delinquencies and charge offs
in almost all of the states where we had retail micro-loans operations. After evaluating the operations of our Retail Micro-Loans segment on a state-by-state basis, it became evident during 2007 that the potential risk-adjusted returns expected in
certain states did not justify the ongoing required investment in the operations of those states. As a result, during the fourth quarter of 2007, we decided to pursue a sale of our Retail Micro-Loans segments operations in six states: Florida;
Oklahoma; Colorado; Arizona; Louisiana; and Michigan. We expect to consummate the sale of these operations in the second and third quarters of 2008. Representing 104 of our total 510 Retail Micro-Loans segment storefront locations at March 31,
2008, the operations of these six states were classified as assets held for sale on our December 31, 2007 and March 31, 2008 consolidated balance sheets and are included in the discontinued operations category in our consolidated
statements of operations.

Additionally, during the first quarter of 2008, after reevaluating the capital required for sustaining start-up
losses associated with our 81 store locations in Texas, we decided to pursue a sale of our Texas store locationsa sale that was completed in April 2008. Reflecting this first quarter 2008 decision, we added our Texas operations to the existing
assets held for sale on our March 31, 2008 consolidated balance sheet, and we included our Texas results in the discontinued operations category in our consolidated statements of operations. The operations and associated overhead related to our
remaining 325 storefront locations in eight states (plus the U.K.) are included as continuing operations within our consolidated financial statements.

During the three months ended March 31, 2008, we did not open any branch locations and we closed five underperforming branch locations, including four stores related to our continuing operations. For the
remainder of 2008, we are not planning to expand the current number of branch locations in any new or existing markets; instead, we will likely continue to look at closing individual locations that do not meet certain profitability thresholds. In
addition, we will continue to evaluate our risk-adjusted returns in the states comprising the continuing operations of our Retail Micro-Loans segment.

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



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|                                                                                         |  |                                     |        |   |      |   |        |  
|---------------------------------------------------------------------------------------- |  | ----------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                         |  | For the Three MonthsEnded March 31, |       
|                                                                                         |  | 2008                                |        |   | 2007 |  
|Beginning total number of locations (excluding locations discontinued and held for sale) |  |                                     | 410    |   |      |   | 475    |  
|Opened locations                                                                         |  |                                     | 0      |   |      |   | 10     |  
|Closed locations (excluding those related to our discontinued operations)                |  |                                     | (4     | ) |      |   | (16    | )
|Locations discontinued and held for sale                                                 |  |                                     | (81    | ) |      |   |       |  
|                                                                                         |  |                                     |        |   |      |   |        |  
|Ending locations (excluding locations discontinued and held for sale)                    |  |                                     | 325    |   |      |   | 469    |  
|                                                                                         |  |                                     |        |   |      |   |        |  
|                                                                                         | 
|                                                                                         |  | For the Three MonthsEnded March 31, |       
|                                                                                         |  | 2008                                |        |   | 2007 |  
|Gross retail micro-loan fees (for continuing operations)                                 |  | $                                   | 19,574 |   |      | $ | 21,398 |  
|                                                                                         |  |                                     |        |   |      |   |        |  
|Income from continuing operations before income taxes                                    |  | $                                   | 4,432  |   |      | $ | 4,078  |  
|                                                                                         |  |                                     |        |   |      |   |        |  
|Loss from discontinued operations before income taxes                                    |  | $                                   | (4,185 | ) |      | $ | (3,067 | )
|                                                                                         |  |                                     |        |   |      |   |        |  
|Period end loans and fees receivable, gross (for continuing operations)                  |  | $                                   | 33,472 |   |      | $ | 73,077 |  
|                                                                                         |  |                                     |        |   |      |   |        |  

Our pre-tax loss from discontinued operations for the three months ended March 31, 2008
includes a goodwill impairment charge of $1.1 million related to our decision to sell the Texas retail micro-loan operations.

The
significant year over year reduction in period end loans and fees receivable, gross within our Retail Micro-Loans segment reflects repayments that we received on a unique category of loans and fees receivable throughout 2007loans under which
we were the lender for underlying micro-loans arranged by three different U.S. credit services organizations. As of March 31, 2008, we had substantially terminated these particular lending activities.

Pending legislation in Ohio would place severe limits on retail micro-loan operations within that state. Should this legislation ultimately be enacted in
its current form, our initial assessment is that the price controls embedded within this legislation could prevent us from continuing to conduct business in Ohio. We have 91 locations in Ohio and, if enacted in its current form, potential
implications of this Ohio legislation to our financial results in future quarters may include reduced revenues and earnings and goodwill, intangible and other impairment charges.

Auto Finance Segment

Background

Our Auto Finance segment now includes a variety of auto sales and lending activities.

Our original platform, CAR, 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 our Auto Finance segment purchases auto loans at a discount or for which we service auto loans for a fee. We generate revenues on purchased loans through interest earned on the face value of the installment agreements combined
with discounts on loans purchased. We earn discount income over the life of the applicable loan. Additionally, we generate 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. We offer a number of other products to our network of buy here, pay here dealers (including a product under which we lend directly to the dealers), but the vast majority of our activities are represented by our
purchases of auto loans at discounts and our servicing of auto loans for a fee.

In January 2007, we acquired a 75% ownership interest in
JRAS, a buy here, pay here dealer, for $3.3 million, and our ownership interest in JRAS has increased to 90% since acquisition through our capital contributions to its operations. Through the JRAS platform, we sell vehicles to consumers and provide
the underlying financing associated with the vehicle sales. Customer purchases are financed for periods of time between twenty-four and forty-two months and credit is approved and payments are received in each storefront. We currently retain all
loans and the servicing rights and obligations for all contracts. At acquisition date, our JRAS platform operated four retail locations in Georgia. As of March 31, 2008, JRAS had twelve retail locations in four states. Assuming the availability
of liquidity at attractive pricing and terms, we intend to expand these operations at a modest pace during 2008.



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In February 2007, we acquired the assets of San Diego, California-based ACC. In conjunction with this
purchase, we also acquired a $189.0 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
purchases retail installment contracts from franchised new car dealers. From a credit quality perspective, the ACC borrower base is slightly above the niche historically served by our Auto Finance segment.

Collectively, we serve 1,428 dealers through our Auto Finance segment in forty-five states. Selected financial, operating and statistical data (in
thousands except for percentages) for our Auto Finance segment are provided in the following two tables; where terms used within these tables are identical to the terms used within our Credit Card segment discussion, the definitions of those terms
are analogous to those definitions as set forth in our Annual Report on Form 10-K for the year ended December 31, 2007 (albeit with appropriate substitution of Auto Finance receivables and activities for the Credit Card receivables and
activities described within those definitions).

Analysis of statistical data



|                                                 |  |                                                                   |         |   |         |   |         |         |  |   |         |   |  |         |         |   |  |   |         |  
|------------------------------------------------ |  | ----------------------------------------------------------------- | ------- | - | ------- | - | ------- | ------- |  | - | ------- | - |  | ------- | ------- | - |  | - | ------- | -
|                                                 |  | Managed Receivables-Related Data at or for the Three Months Ended |        
|                                                 |  | 2008                                                              |         |   | 2007    |  
|                                                 |  | Mar. 31                                                           |         |   | Dec. 31 |   |         | Sep. 30 |  |   | Jun. 30 |   |  | Mar. 31 |        
|Period-end managed receivables                   |  | $                                                                 | 367,228 |   |         | $ | 347,585 |         |  | $ | 324,986 |   |  | $       | 277,286 |   |  | $ | 289,907 |  
|Period-end managed accounts                      |  |                                                                   | 48      |   |         |   | 47      |         |  |   | 47      |   |  |         | 46      |   |  |   | 46      |  
|Receivables delinquent as % of period-end loans: |  |                                                                   |         |   |         |   |         |         |  |   |         |   |  |         |         |   |  |   |         |  
|30 to 59 days past due                           |  |                                                                   | 8.1     | % |         |   | 10.4    | %       |  |   | 10.2    | % |  |         | 9.7     | % |  |   | 9.6     | %
|60 to 89 days past due                           |  |                                                                   | 3.1     | % |         |   | 4.5     | %       |  |   | 4.3     | % |  |         | 5.2     | % |  |   | 3.8     | %
|90 or more days past due                         |  |                                                                   | 3.5     | % |         |   | 4.9     | %       |  |   | 4.1     | % |  |         | 3.5     | % |  |   | 3.2     | %
|Total 30 or more days past due                   |  |                                                                   | 14.6    | % |         |   | 19.8    | %       |  |   | 18.6    | % |  |         | 18.4    | % |  |   | 16.6    | %
|Total 60 or more days past due                   |  |                                                                   | 6.6     | % |         |   | 9.4     | %       |  |   | 8.4     | % |  |         | 8.7     | % |  |   | 7.0     | %
|                                                 |  |                                                                   |         |   |        
|Average managed receivables                      |  | $                                                                 | 358,823 |   |         | $ | 336,289 |         |  | $ | 309,313 |   |  | $       | 280,069 |   |  | $ | 233,866 |  
|Gross yield ratio                                |  |                                                                   | 25.0    | % |         |   | 25.6    | %       |  |   | 28.1    | % |  |         | 27.0    | % |  |   | 31.3    | %
|Combined gross charge off ratio                  |  |                                                                   | 13.9    | % |         |   | 12.2    | %       |  |   | 14.0    | % |  |         | 10.9    | % |  |   | 12.9    | %
|Net charge off ratio                             |  |                                                                   | 12.3    | % |         |   | 10.7    | %       |  |   | 11.1    | % |  |         | 10.2    | % |  |   | 11.4    | %
|Adjusted charge off ratio                        |  |                                                                   | 8.7     | % |         |   | 4.5     | %       |  |   | 3.4     | % |  |         | 2.1     | % |  |   | 2.6     | %
|Recoveries as % of average managed receivables   |  |                                                                   | 1.2     | % |         |   | 1.3     | %       |  |   | 1.4     | % |  |         | 1.7     | % |  |   | 1.5     | %
|Net interest margin                              |  |                                                                   | 18.9    | % |         |   | 18.4    | %       |  |   | 20.2    | % |  |         | 19.6    | % |  |   | 24.7    | %
|Other income ratio                               |  |                                                                   | 10.0    | % |         |   | 5.0     | %       |  |   | 5.9     | % |  |         | 2.0     | % |  |   | 4.6     | %
|Operating ratio                                  |  |                                                                   | 20.6    | % |         |   | 23.2    | %       |  |   | 22.7    | % |  |         | 20.3    | % |  |   | 21.4    | %



|                               |  |                                              |        |         |   |         |  |         |       |         |   |       |  |   |      
|------------------------------ |  | -------------------------------------------- | ------ | ------- | - | ------- |  | ------- | ----- | ------- | - | ----- |  | - | -----
|                               |  | Retail Sales Data for the Three Months Ended
|                               |  | 2008                                         |        | 2007   
|                               |  | Mar. 31                                      |        | Dec. 31 |   | Sep. 30 |  | Jun. 30 |       | Mar. 31
|Retail sales                   |  | $                                            | 19,577 |         | $ | 11,872  |  | $       | 9,039 |         | $ | 4,858 |  | $ | 2,187
|Gross profit                   |  | $                                            | 9,098  |         | $ | 5,465   |  | $       | 4,380 |         | $ | 2,430 |  | $ | 1,014
|Retail units sold              |  |                                              | 1,844  |         |   | 1,253   |  |         | 963   |         |   | 515   |  |   | 257  
|Average stores in operation    |  |                                              | 12     |         |   | 10      |  |         | 8     |         |   | 5     |  |   | 4    
|Period-end stores in operation |  |                                              | 12     |         |   | 10      |  |         | 10    |         |   | 5     |  |   | 4    

Managed receivables.Period end managed receivables have steadily increased over the
past year, with balances up 26.7% at March 31, 2008 when compared to the same date in 2007 and up 5.7% from December 31, 2007, driven by newly purchased and originated loans within our Auto Finance segment.



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Delinquencies.The Auto Finance segment has made significant improvements in
delinquency rates throughout 2007 and continuing in 2008. Total 30-plus day delinquency rates were 14.6% at March 31, 2008, compared to 16.6% at March 31, 2007, and 19.8% at December 31, 2007. Delinquencies typically follow a seasonal
pattern and decrease in the first quarter from a peak at year end as borrowers receive tax refunds and pay down debt. However, management believes that the significant year-over-year improvement in delinquencies reflects improved underwriting,
better use of technology and improved collections. This improvement is also meaningful when considered in the context of a generally weaker economy and rising auto loan delinquencies seen throughout the industry.

Gross yield ratio, net interest margin and other income ratio.Variations in our gross yield ratio and net interest margins reflect
the effects of the timing and magnitude of our various Auto Finance segment acquisitions and subsequent growth patterns for our acquired operations. The acquisition and growth of ACC, for example, has caused the gross yield ratio and net interest
margins to fall since our acquisition of ACC because the gross yields on its loans are not as high as those of our two buy-here, pay-here-oriented operations within CAR and JRAS.

The principal component of our other income ratio is the gross income that our JRAS buy-here, pay-here operations have generated from their auto sales.
The general trend-line of improvements in our other income ratio corresponds with growth in the number of autos sold as set forth in the above table.

Net charge off ratio, adjusted charge off ratio and recoveries.We generally charge off auto receivables when they are between 120 and 180 days past due, unless the collateral is repossessed and
sold before that point, in which case we will record a charge off when the proceeds are received. The adjusted charge off ratio in the first quarter of 2008 was 8.7%, compared to 4.5% in the fourth quarter of 2007 and 2.6% in the first quarter of
2007. The adjusted charge off ratio reflects our net charge offs, less credit quality discount accretion with respect to our acquired portfolios. Therefore, its trend line should follow that of our net charge off ratio, adjusted for the diminishing
impact of past portfolio acquisitions and for the additional impact of new portfolio acquisitions. The adjusted charge off ratio was only 2.6% in the first quarter of 2007 because of our acquisition of the Patelco portfolio in connection with our
acquisition of ACC. This portfolio was acquired at a significant purchase price discount to the face amount of the acquired receivables and a significant portion of this purchase price discount (which related entirely to credit quality) was absorbed
in the first quarter of 2007 as accounts that were severely delinquent at acquisition date charged off immediately after our purchase. As expected, we saw the gap between the net charge off ratio and the adjusted charge off ratio narrow with each
passing quarter subsequent to the first quarter of 2007. With each such passing quarter, the percentage of our portfolio (and hence charge offs within the portfolio) that is comprised of new loans that we fund dollar for dollar increases relative to
the size of our total auto finance receivables portfolio and the percentage of our charge offs that are comprised of accounts purchased at a discount in the Patelco acquisition decreases. We expect the gap between the net charge off ratio and the
adjusted charge off ratio to continue to decline absent the purchase of another portfolio at a discount to the face amount of its receivables.

Given the significant decrease in delinquencies in the first quarter of 2008, improvement in the net charge off ratio is expected in the second quarter. Weaker used car auction prices, however, are expected to negatively impact net charge
off rates for the duration of 2008.

Operating ratio.The operating ratio was 20.6% in the first quarter of
2008, down 0.8% from the first quarter of 2007 and down 2.6% from the fourth quarter of 2007. The operating ratio in the Auto Finance segment improved primarily due to higher average receivables supporting a fixed cost base and cost cutting
initiatives to better reflect existing portfolio balances.

Future Expectations

The more significant of the contributions to our Auto Finance segments $3.8 million GAAP loss in the first quarter of 2008 are (1) fixed costs
that we now are incurring within our franchised dealer lending operations and buy-here, pay-here auto dealerships as we ramp up these early-stage business activities and (2) high provisions for loan losses given the buildup of allowances for
uncollectible loans and fees receivables associated with our growth in auto loan originations. Because we provide an allowance for uncollectible loans and fees receivable under GAAP on all new extensions of credit as we grow our auto loan
originations, we expect that our current and planned pace of modest loan originations and growth will result in continuing GAAP losses for the next several quarters.

We believe we have taken significant steps to improve portfolio performance in light of a more challenging economy. These steps include improved underwriting, a change in business mix to maximize risk-adjusted
returns, better use of technology and improved collections training. The impact of these steps was evidenced by the year-over-year delinquency improvement experienced in the first quarter of 2008 in the face of negative industry trends and
improvements in our static pool loss indicators on more recently originated receivables.

Both delinquency and charge off rates typically
follow a seasonal pattern, rising somewhat in the summer months and then more sharply in the fourth quarter. These seasonal trends in addition to a weakening economy will likely result in higher loss frequency



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relating to unemployment, and higher loss severity relating to weak used car auction prices. Despite these negative indicators, due to the relatively low
delinquencies seen at March 31, 2008, we expect the charge off ratio to improve in the second quarter relative to the same period in the prior year as well as when compared to the first quarter of 2008.

Offsetting this positive trend in delinquencies, developments in the credit markets may have a negative future impact on our cost of capital, which could
result in slower originations in this segment. A slowing of originations would result in fewer scale benefits and higher delinquency, charge off and operating ratios, even if static pool performance is better than historical results.

Other Segment

Our Other segment has recently
encompassed various operations that were start-up in nature and did not individually meet the disclosure criteria of Statement No. 131. In the fourth quarter of 2007, we discontinued most of these operations. Our discontinued operations include
our stored-value card operations, our U.S.-based installment loan and cash advance micro-loan offerings marketed through the Internet and our investment and servicing activities with respect to consumer finance receivables secured by motorcycles,
all-terrain vehicles, personal watercraft and the like. The operations of MEM, our U.K.-based on-line micro-loans provider, represent the only significant continuing operations within the Other segment, and its operations are not yet material to our
consolidated results of operations.

Liquidity, Funding and Capital Resources

During 2007, primarily toward the end of the second quarter and the beginning of the third quarter, broad investor interest in providing liquidity to
originators of sub-prime loans, including credit card receivables, declined substantially. This decline in interest was precipitated by the well-publicized problems in the sub-prime mortgage lending business and the related secondary markets
and the global liquidity dislocation that resulted from these problems. While these problems appear to be distinctly related to the sub-prime mortgage industry, investors in that industry also are investors in other sub-prime asset classes. One
repercussion from the problems in the sub-prime mortgage industry was a reluctanceat least temporarilyby many investors to invest in any sub-prime asset classes, at least at the levels at which or with the terms under which they
previously invested. This, in turn, has resulted in a decline in liquidity available to sub-prime market participants, a widening of the spreads above the underlying interest indices (typically LIBOR for our borrowings) for the loans that
lenders were willing to make and a decrease in advance rates for those loans as well.

Although we believe the liquidity markets ultimately
will return to more traditional levels, we are not able to predict when that will occur, and we are managing our business with the assumption that the liquidity markets will not return to more traditional levels at any time in the foreseeable
future. Specifically, we have curtailed or limited growth in many parts of our business and are managing our receivables portfolios with a view toward ensuring that, as a whole, they are generating positive cash flows for us. As such, based on
this shift in our strategy and assuming the renewal of our existing securitization and financing facilities at their renewal dates with advance rates and terms that generally are comparable to their existing advance rates and terms, we are
forecasting increasing consolidated corporate cash and available liquidity balances over the next year. More aggressive growth, however, would, over time, require additional liquidity beyond what is available under our current
facilities. Because the terms and timing of that availability cannot be assured, we reduced our marketing efforts to a level consistent with our existing facilities and available liquidity. Once enhanced liquidity is again available to us
on attractive terms, we expect to increase our marketing efforts and thereby growth.

At March 31, 2008, we had $183.6 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 first quarter of 2008, we generated $198.3 million in cash flows from operations, compared to our $84.8 million of cash flows from operations
generated during the first quarter of 2007. The $113.5 million increase principally reflects our receipt of $87.4 million in tax refunds during the first quarter of 2008, versus our payment of $24.5 million in taxes during the first quarter of 2007.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During the first quarter of 2008, we used $135.3 million of cash in investing activities, compared to using $169.8 million of cash in investing activities
for the first quarter of 2007. This $34.5 million decrease in cash used in investing activities reflects (1) the fact that we had no acquisitions of assets in the first quarter of 2008, versus our acquisitions of ACC and JRAS for $191.4 million
during the first quarter of 2007, as offset by (2) lower proceeds from securitized and non-securitized earning assets in the first quarter of 2008 relative to the first quarter of 2007, which is consistent with liquidations of our purchased
portfolios over the past year, the peak vintage charge off effects of our lower-tier credit card receivables portfolio in the first quarter of 2008 and lower draws against our securitization facilities upon transfers of receivables to our
securitization trusts in the first quarter of 2008.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During the first quarter of 2008, our financing activities provided $11.5 million of cash, compared to $114.8 million in the first quarter of 2007. We
experienced a number of financing-related transactions in the first quarter of 2007 that were not repeated in the first quarter of 2008, including our receipt of proceeds from the exercise of warrants, our purchase of
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | treasury stock and borrowings on financing facilities underlying our lower-tier credit card receivables while we were growing at a significant pace in the
first quarter of 2007 and prior to our securitization of these receivables in December 2007.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We had over $270 million in
immediately available liquidity at the end of the first quarter of 2008. This available liquidity is represented by unrestricted cash balances and draw potential against our collateral base both within our securitization trusts and supporting our
structured financing facilities. We are aggressively pursuing a number of new financing facilities and liquidity sources that, if ultimately available to us at attractive pricing and terms, will support heightened levels of marketing and growth
opportunities, as well as portfolio acquisitionsall of which we believe are attractive in the current environment.

As of
March 31, 2008, we are authorized to repurchase 5,115,837 additional shares under a share repurchase program that our board of directors authorized in May 2006.

Beyond our immediate financing efforts mentioned above, shareholders should expect us to evaluate debt and equity issuances on a consistent and constant basis over time as a means to fund our originated growth plans,
as well as portfolio acquisitions; we expect to avail ourselves of any opportunities to raise additional capital if terms and pricing are attractive to us.

Securitization Facilities

One of our most significant sources of liquidity is the securitization of our credit card
receivables. At March 31, 2008, we had committed total securitization facilities of $3.0 billion, of which we had drawn $2.0 billion. The weighted-average borrowing rate on our securitization facilities was approximately 5.8% at March 31,
2008, and the maturity terms of our securitizations vary.

In the table below, we have noted the securitization facilities (in millions)
with respect to which substantially all of our managed credit card receivables serve as collateral as of March 31, 2008. Following the table are further details concerning each of the facilities.



|                  |  |                   |        
|----------------- |  | ----------------- | -------
|Maturity date     |  | Facility Limit(1)
|September 2008(2) |  | $                 | 306.0  
|March 2009(3)     |  |                   | 450.0  
|October 2009(4)   |  |                   | 299.5  
|December 2009(5)  |  |                   | 300.0  
|January 2010(6)   |  |                   | 750.0  
|October 2010(4)   |  |                   | 299.5  
|January 2014(7)   |  |                   | 106.9  
|September 2014(8) |  |                   | 20.1   
|April 2014(9)     |  |                   | 502.8  
|                  |  |                   |        
|Total             |  | $                 | 3,034.8
|                  |  |                   |        



|(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 consolidated statements of operations or consolidated balance sheet items included herein.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represents the end of the revolving period for a $306.0 million conduit facility issued out of our upper-tier originated portfolio master trust.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Represents the end of the revolving period for a $450.0 million conduit facility issued out of our lower-tier originated portfolio master trust.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | In October 2004, we completed two term securitization facilities that we issued out of our upper-tier 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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Represents the anticipated final scheduled monthly payment date for a $300.0 million facility issued out of our lower-tier originated portfolio master trust; through March 31,
2008, amortization payments aggregating $50.0 million had been made against the outstanding balance of this facility.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | This two-year variable funding note facility issued out of our upper-tier originated portfolio master trust provides for an orderly amortization of the facility at expiration.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Represents a ten-year amortizing term series issued out of the Embarcadero Trust.
|--- | ---------------------------------------------------------------------------------



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|(8) | 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.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | In April 2007, we closed an amortizing securitization facility in connection with our U.K. Portfolio acquisition; this facility is denominated in U.K. sterling.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

Dates within the above table for our securitization facilities and our overall commentary within this section are predicated
on our ability to operate successfully without triggering early amortization of our securitization facilities or our debt facilities. We never have triggered an early amortization within any of the facilities underlying our originated portfolio
master trusts securitizations or our on-balance-sheet structured financing facilities, and we do not believe that we will. Still, it is conceivable that, even with careful management, we may trigger an early amortization of one or more of
these outstanding facilities. While each of our securitization facilities and structured financing facilities is recourse only to the specific financial assets underlying each respective securitization or structured financing trust, early
amortization for any of our outstanding securitization or structured financing facilities would have adverse effects on our liquidity during the early amortization period, as well as adverse effects on the book value of our equity to the extent of
our net equity investment in each particular securitization or structured financing trust. Moreover, an early amortization event could have potential long-term adverse effects on our liquidity beyond the repayment period of any particular facility
that is subject to early amortization because potential investors could elect to abstain from future CompuCredit-backed facility 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, 2007.

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 included herein for further discussion of these matters.

Recent Accounting Pronouncements

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

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. Nevertheless, in our Annual Report on Form 10-K for the year ended December 31, 2007, 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 intangible 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

In June 2007, we signed a sublease for 1,000 square feet of excess office space at our new
Atlanta headquarters office location, to HBR Capital, Ltd., a corporation co-owned by David G. Hanna (Chairman of our Board of Directors and our Chief Executive Officer) and Frank J. Hanna, III (David G. Hannas brother and a member of our
Board of Directors). The sublease rate of $22.00 per square foot is the same as the rate that we pay on the prime lease. This sublease expires in May of 2022.

In June, 2007, a partnership formed by Richard W. Gilbert (our Chief Operating Officer and Vice Chairman of our Board of Directors), Richard R. House, Jr. (our President and a member of our Board of Directors), J.Paul
Whitehead III (our Chief Financial Officer), Krishnakumar Srinivasan (President of our Credit Cards segment), and other individual investors (including an unrelated third-party individual investor), acquired £4.7 million ($9.2 million) of
class B notes originally issued to another investor out of our



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U.K. Portfolio securitization trust. The acquisition price of the notes was the same price at which the original investor had sold $60.0 million of notes to
another unrelated third party. As of March 31, 2008, the outstanding balance of the notes held by the partnership was £2.9 million ($6.0 million). The notes held by the partnership comprise approximately 1.2% of the $502.8 million in
total notes within the trust on that date and are subordinate to the senior tranches within the trust. The B tranche bears interest at LIBOR plus 9%.

In December 2006, we established a contractual relationship with Urban Trust Bank, a federally chartered savings bank (Urban Trust), pursuant to which we purchase credit card receivables underlying
specified Urban Trust credit card accounts. Under this arrangement, in general, an Urban Trust affiliate has the contractual right to receive 5% of all payments received from its cardholder accounts and is obligated to pay 5% of all net costs
incurred by us in connection with managing the program, including the costs of purchasing, marketing, servicing and collecting the receivables. The fair value of Urban Trusts contractual rights are netted against the value of our securitized
earning assets in the issuing bank partner continuing interests category within our detail of securitized earning assets components in Note 7, Off-Balance-Sheet Arrangements; the fair value of these contractual rights was $2.0 million at
March 31, 2008. Also, at March 31, 2008, we had deposits with Urban Trust of $5.9 million to cover the growth in purchases by Urban Trust cardholders. Urban Trusts share of receivables under its cardholder accounts was approximately
$14.5 million as of March 31, 2008. Frank J. Hanna, Jr. (who is the father of David G. Hanna and Frank J. Hanna, III) owns a substantial minority interest in Urban Trust and serves on its Board of Directors.

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, 2007 for a discussion of the investments in previously charged-off receivables by one of our subsidiaries from trusts serviced by us.

Forward-Looking Information

We make forward-looking
statements throughout this report including statements with respect to our expected revenue, income, receivables, income ratios, net interest margins, marketing-based volatility and peak charge-off vintages, acquisitions and other growth
opportunities, location openings and closings, loss exposure and loss provisions, delinquency and charge off rates, changes in collection programs and practices, securitizations and gains 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 and expenses, the profitability of and expansion and growth within our Auto Finance segment, the
integration of our Auto Finance platforms, the growth and performance of receivables originated over the Internet, our plans in the U.K., the impact of the acquisition of our U.K. Portfolio of credit card receivables on our financial performance,
performance of the U.K. portfolio, sufficiency of available liquidity, improvements in the liquidity markets, future interest costs, sources of funding operations and acquisitions, our ability to raise funds and renew securitization and financing
facilities, our income in equity-method investees, the levels of our ancillary and interchange revenues, our servicing income levels, gains and losses from investments in securities (including asset-backed securities) 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.

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

In the ordinary course of business, we are exposed to various interest rate risks
particularly in our Credit Cards and Auto Finance segments. Our 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 or rates 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 because interest rates may impact the payment performance of our customers. To date, we have chosen not to hedge these various interest rate risks because
we believe our exposure to these risks is not likely to have a materially adverse effect on our business and because we believe that our business model creates a natural hedge to certain of these risks.

Credit Cards segment. In our Credit Cards segment, we incur basis risk because we fund managed assets at a spread over commercial paper
rates or LIBOR, while the rates underlying our U.S. managed assets generally are indexed to the prime rate. This



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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 these indices tend to move together and that the costs of hedging this risk are greater than the benefits we would get from the elimination of this risk.

We incur gap risk within our Credit Cards segment because the debt underlying our securitization trust facilities reprices monthly; whereas, some of our
receivables do not adjust automatically (as in the case of our U.K. Portfolio) unless we specifically adjust them with appropriate notification. This gap risk, however, is relatively minor because we generally can reprice the substantial majority of
our credit card receivables in response to a rate change. As to the issue of market risk within our Credit Cards segment, 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, 2008, a substantial majority of our managed credit card receivables, including those related to our equity-method investees, and other interest-earning assets had variable rate pricing, with substantially all U.S. credit card
receivables carrying annual percentage rates at a spread over the prime rate, subject to interest rate floors. At March 31, 2008, $414.2 million of our total managed credit card receivables were priced at their floor rate, of which,
$30.1 million of these receivables were closed and therefore ineligible to be repriced and the remaining $384.1 million were open and eligible to be repriced. Although not keenly relevant to the current accommodative interest rate environment,
if we experience an increase in LIBOR, our earnings and cash flows will be adversely affected until the variable rate pricing on the $30.1 million in closed account receivables (as hypothetically determined under the assumption that there was
no floor rate) rises to the level of their floor rate. To the extent we choose to reprice any of the $384.1 million of receivables underlying the open accounts for which variable rate pricing (assuming that there was no floor rate) is below
their floor rate, however, we can mitigate against any possible adverse effects of these open accounts on our earnings and cash flows.

Auto Finance segment.At March 31, 2008, all of our Auto Finance segments loans receivable were fixed rate amortizing loans and typically are not eligible to be repriced. As such, we incur interest rate risks within
our Auto Finance segment because funding under our structured financing facilities is priced at a spread over floating commercial paper rates; whereas, our Auto Finance receivables are fixed-rate amortizing loans. In a rising rate environment, our
net interest margin between a floating cost of funds and a fixed rate interest income stream may become compressed. Our various debt facilities in the auto segment contain requirements to fix our floating rate exposure should floating rate indexes
reach certain prescribed levels (generally 6%). Given the current accommodative rate environment, we may choose to effectively fix our floating rate exposure at current lower levels. This may be accomplished via derivative instruments such as
interest swaps or interest rate caps, and we may elect to enter into these arrangements even if, by their nature or structure they are not perfect hedges from an accounting perspective.

Foreign Currency Risk

Our Sterling-denominated investments in the United Kingdom (£94.1
million as of March 31, 2008) have created balance sheet exposure to currency exchange rates. Specifically, the translation of the balance sheets of our U.K. operations from their local currencies into U.S. dollars is sensitive to changes in US
dollar/ U.K. sterling currency exchange rates. These translation gains and losses are recorded as foreign currency translation adjustments on our consolidated statements of comprehensive (loss) income and as a component of accumulated other
comprehensive income within shareholders equity on our consolidated balance sheets. We will also have transactional gains and losses that are caused by changes in foreign currency exchange rates. These transaction gains and losses flow through
our consolidated statement of operations. We have not hedged our foreign currency risk because we believe that the cost of hedging this risk is greater than the benefits we would get from the elimination of this risk; we are continuing, however, to
weigh the benefits versus costs of hedging this risk.

Mark-to-Market Risk

In the past, we have purchased debt and equity securities of others, principally those issued by asset-backed securitization trusts (e.g., notes secured
or backed by pools of assets). These securities in many cases were junior, including below investment grade, tranches of securities issued by the trusts. The assets underlying these securities were 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



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securities in which we have invested 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; such was the case during 2007 during which we experienced material realized and unrealized losses on our portfolio of these previously
acquired securities. At March 31, 2008, our net equity at risk on our investments in third-party asset-backed securities was limited to $2.4 million. For further discussion of the market conditions surrounding our portfolio of third-party
asset-backed securities, see our Results of Operations discussion under the sub-heading Fees and related income on non-securitized earning assets.



|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.

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 settlement discussions with the FDIC and FTC are ongoing. In the near future, we expect to enter into settlement agreements with the FDIC and FTC limiting certain marketing, servicing and collection practices (all or
substantially all of which previously were discontinued) and requiring us to credit various fees to affected customers. We believe, however, that our marketing and other materials and servicing and collection practices previously complied with, and
continue to comply with, applicable law. Although it is premature to determine the ultimate outcomes of these investigations, we do not believe that any payments that we agree to make will be material to our financial condition. In addition, we
expect the financial institutions that issue credit cards on our behalf to enter into complementary agreements with the FDIC. It is premature to determine the future impact on us of any of these agreements.

As of March 31, 2008, we have not recorded any material accruals related to these matters. Settlement discussions with the FDIC and FTC are ongoing.



|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 and Net Income Are Dependent Upon Payments 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
customers use their cards or otherwise borrow funds from us. 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 risks
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, and receivables may decline if consumers restrain spending. 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 comparatively higher during periods of economic slowdown or recession than those experienced by more traditional
providers of consumer credit because of our focus on the financially underserved



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consumer market, which may be disproportionately impacted. Other economic and social factors, including, 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, also can impact credit use and account performance. Moreover, adverse changes in economic conditions in
states where customers are located, including as a result of severe weather, can have a direct impact on the timing and amount of payments of receivables. Recent trends in the U.S. economy suggest that we are entering a period of economic downturn
or recession.

We recently purchased a substantial portfolio of receivables in the U.K. 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 U.K. previously, this is our first significant investment there, and we now will have substantially greater exposure to fluctuations in the U.K. economy. As a result of this investment, we also will have greater exposure to fluctuations in the
relative values of the U.S. dollar and the British pound.

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. For instance, higher than expected rates of delinquency and loss could cause our net income to be lower than
expected. 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 are from financially underserved borrowersborrowers represented by credit risks that regulators classify as sub-prime. 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 used 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. 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 fluctuate substantially 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 lower-tier credit card offerings 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. For example, given the significant and variable growth rates that we have experienced for our lower-tier credit card offerings 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. Our lower-tier credit card receivables tend to follow similar patterns of delinquency and write off, with the peak period of
write offs occurring approximately eight to nine months following account origination. During periods of sustained growth, the negative impact of these peak periods generally is offset by the impact of new receivables. During periods of no or more
limited growth, it is not. We substantially reduced our credit card marketing efforts beginning in August 2007, thereby reducing our growth. This followed a period of substantial marketing efforts and growth. One impact of this has been an increase
in write offs during the first quarter of 2008 that were not offset by growth and an expected increase in write offs in the second quarter of 2008 that will not be offset by growth.

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. We recently have experienced higher interest rates. Our credit card accounts have variable interest rates. Significant
increases in these variable interest rates may reduce the payment performance of our customers.



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Due to the lack of historical experience with Internet customers, we may not be able to target
successfully 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 target and evaluate successfully 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 financial covenants and other 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 upper-tier 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.

Beginning in 2007, largely as a result of difficulties in the sub-prime mortgage market, less financing has been available to sub-prime
lenders generally, and the financing that has been available has been on less favorable terms. As a result, beginning in the third quarter of 2007 we significantly curtailed our marketing for new credit cards in order to preserve our cash and access
to financing for our most critical needs.

As our securitization and financing facilities mature, the proceeds from the underlying
receivables 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 the underlying 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 the maturing
facility retains its priority in payments 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 we are obligated to repay a securitization facility 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 facility being repaid, 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 our affinity agreements with third-party
financial institutions to originate credit cards, 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. Similarly, beginning in 2007
financing has become increasingly difficult to obtain on terms as favorable as those that we recently were able to obtain, and we significantly curtailed our marketing efforts and the issuance of new cards. 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, particularly sub-prime mortgages, and the general economy.

Increases in expected losses and delinquencies may prevent us from securitizing future receivables on terms similar to those that currently are
available or 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.

The performance of our competitors impact the costs of our securitizations and
financing facilities. Generally speaking, investors in our securitizations also invest in our competitors securitizations, and lenders against our receivables also lend against our competitors receivables. When these investors
and lenders evaluate their investments and lending arrangements, they typically do so on the basis of overall industry performance. Thus, independent of our own performance, 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. More recently, largely because of difficulties in the sub-prime mortgage market, investors have been substantially more reluctant to invest and have sought greater 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 for purposes of 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 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 potentially would 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 regarding those receivables are inaccurate. The representations and warranties made to us by sellers of receivables we purchase may be inaccurate. In securitization transactions, in reliance on the
representations and warranties that we have received, we make similar representations and warranties to investors and, generally speaking, if there is a breach of our representations and warranties, 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, the timing and extent of our marketing efforts 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



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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 ability to maintain and grow our business depends largely upon the success of our marketing efforts. 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.

We may be unable to
sustain and manage our growth. Growth is a product of a combination of factors, many of which are not in our control. Factors include:



| |  |  | the level of our marketing efforts;
| | - |  | -----------------------------------



| |  |  | the success of our marketing efforts;
| | - |  | -------------------------------------



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



| |  |  | the level of usage of our credit products by our customers;
| | - |  | -----------------------------------------------------------



| |  |  | the availability of portfolios for purchase on attractive terms;
| | - |  | ----------------------------------------------------------------



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



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



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



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



| |  |  | 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.
| | - |  | ------------------------------------------------------

We may experience fluctuations in net income or sustain net losses if we are not able to sustain or effectively manage our growth.

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. Similarly, we significantly curtailed our marketing in August 2007 because of uncertainty regarding future access to capital
as a result of difficulties in the sub-prime mortgage market.

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. Some of our servicing and vendor agreements require us to make additional payments if we overestimate the size or growth of our
business. These additional payments compensate the servicers and vendors for increased staffing expenses and other costs they incur 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, and our 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 changes in, and,
interpretation of, 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



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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 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, under certain circumstances we are responsible for the remedies as a result of our indemnification obligations with those banks. We also may elect to change
practices or products that we believe are compliant with law in order to respond to regulatory concerns. 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 settlement discussions with the FDIC and FTC are ongoing. In the near future, we expect to enter into settlement agreements with the FDIC and FTC
limiting certain marketing, servicing and collection practices (all or substantially all of which previously were discontinued) and requiring us to credit various fees to affected customers. We believe, however, that our marketing and other
materials and servicing and collection practices previously complied with, and continue to comply with, applicable law. Although it is premature to determine the ultimate outcomes of these investigations, we do not believe that any payments that we
agree to make will be material to our financial condition. In addition, we expect the financial institutions that issue credit cards on our behalf to enter into complementary agreements with the FDIC. It is premature to determine the future impact
on us of any of these agreements.

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 historically 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%



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(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, 3.8% of our U.S. accounts and 5.9% of our U.S. credit card receivables were experiencing negative amortization at December 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 and in keeping with our goals of maintaining our
consumer-friendly practices in this area, commencing during the third and fourth quarters of 2006, we discontinued billing finance charges and fees on credit card accounts once they become over ninety days delinquent. We made several additional
consumer-friendly changes in 2007 that have the effect of preventing negative amortization, including a change in the fourth quarter of 2007 whereby we began to reverse fees and finance charges on the accounts of cardholders who made payments so
that those accounts would not be in negative amortization. Based on our various 2007 changes to our practices in this area, only approximately 0.02% of our U.S. accounts (representing approximately 0.04% of our U.S. credit card receivables) were
experiencing negative amortization at March 31, 2008. The changes that we have made are likely to adversely impact the amounts ultimately collected from cardholders and therefore our delinquency and charge off statistics. Additionally, based on
on-going discussions with the FDIC, evolving minimum payment practices in the credit card industry, and our desire to continue to lead the industry in the application of consumer-friendly credit card practices, we may make further payment and
fee-related changes in the next six to twelve months, and while it is possible that some of these changes may even be beneficial to our financial position and future results of operations, we do not yet know how these changes would affect our
customers payment patterns and therefore us.

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 and FTC investigations discussed above, although we expect one or more of these banks 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 higher priced lower-tier products), the manner in which we market them or our servicing
and collection practices. We are entirely dependent on 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. Many of these laws (and the related regulations) are focused on sub-prime lenders
and are intended to prohibit or curtail 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. Similarly, legislation currently is pending in Congress that would require changes to a variety of marketing, billing and collection practices, and the
Federal Reserve recently has proposed significant changes to a number of practices. While our practices are in compliance with many of these proposed changes, some (e.g., limitations on the ability to assess up-front fees) could significantly impact
our lower-tier products. 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 credit or refund previously collected amounts;
| | - |  | --------------------------------------------------------------------



| |  |  | certain fees could be prohibited or restricted, which would reduce the profitability of certain accounts;
| | - |  | ---------------------------------------------------------------------------------------------------------



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



| |  |  | limitations on the content of marketing materials could be imposed that would result in reduced success for our marketing efforts;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 finance charges could require us to reduce our fees and charges;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | some of our products and services could be banned in certain states or at the federal level;
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| |  |  | 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.
| | - |  | -----------------------------------------------------------------------------------------------------

Material regulatory developments are likely to impact our business and results from operations and we are unable to predict the nature or magnitude of
that impact.

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.

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. Ohio currently has legislation pending that would, in effect, severely curtail if not eliminate micro-loans. 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 twelve-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-five states through eleven 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



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manage the business effectively. In addition, automobile lending exposes us not only to most of the risks described above but also 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 (including JRAS, our own captive buy-here,
pay-here dealer acquired in January 2007). 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.

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 U.S. 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 integrate successfully 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, 2008, credit card portfolio acquisitions accounted for 31.0% of our total credit card managed receivables portfolio based on our ownership percentages, and in April 2007 we purchased a
portfolio in the U.K. having a face amount of approximately £490 million ($970 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 integrate and operate successfully 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



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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 various issuing bank agreements have scheduled expirations dates,
the earliest of which is March 31, 2009. If we are unable to extend or execute new agreements with our 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
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 financially 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, and in 2007, we paid Total System
Services, Inc. $50.9 million for these services. If these agreements were not renewed or were terminated or the services provided to us were 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 and subject to periodic review. 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.



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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.

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). These securities in many cases are junior, including below investment
grade, tranches 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. Most recently, we have made these investments through a subsidiary that was advised by United Capital Asset Management LLC. These investments experienced realized losses (net of interest income) of $41.4 million and
unrealized losses of $20.1 million during 2007 and experienced realized losses (net of interest income) of $0.5 million and unrealized losses of $2.6 million during the first quarter of 2008. These losses were the result of what we believe to be a
significant dislocation in the market for mortgage-related and other asset-backed securities caused, in part, by leverage and liquidity constraints facing many market participants, and we may experience additional losses in the future. Because our
investments in these securities are leveragedthe equity investment supporting our $14.3 million securities portfolio at March 31, 2008 was down to only $2.4 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 and other sub-prime lenders;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | the overall financing environment, which investors may find critical to our value;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | 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.
| | - |  | -----------------------------------------------------------------



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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 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 our convertible notes, will have on the trading price of our common stock.

We have the ability to issue preferred shares, warrants, convertible debt and other securities 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. We have similar abilities to issue convertible debt, warrants and other equity securities.

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
|------- | -----------------------------------------------------------

None.



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



|              |  |                                                                                                              |  |                                                                                   
|------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                                                       |  | Incorporated byReference from CompuCredits SECFilings 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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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 7, 2008 |  | By                      |  | /s/ J. PAUL WHITEHEAD, III                               
|            |  |                         |  | J. Paul Whitehead, III                                   
|            |  |                         |  | Chief Financial Officer                                  
|            |  |                         |  | (duly authorized officer and principal financial officer)