Edgar Filing: CONSUMER PORTFOLIO SERVICES INC

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________

FORM 10-K

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
COMMISSION FILE NUMBER: 0-51027

CONSUMER PORTFOLIO SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

CALIFORNIA 33-0459135
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

16355 LAGUNA CANYON ROAD, IRVINE, CALIFORNIA 92618
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 753-6800

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

Title of Each Class Name of Each Exchange on Which Registered
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Common Stock, no par value The Nasdaq Stock Market LLC (Global Market)

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

The aggregate market value of the 15,353,414 shares of the registrant's common
stock held by non-affiliates as of the date of filing this report, based upon
the closing price of the registrant's common stock of $6.25 per share reported
by Nasdaq as of June 30, 2007, was $95,958,838. For purposes of this
computation, a registrant sponsored pension plan and all directors, executive
officers, and beneficial owners of 10 percent or more of the registrant's common
stock are deemed to be affiliates. Such determination is not an admission that
such plan, directors, executive officers, and beneficial owners are, in fact,
affiliates of the registrant. The number of shares of the registrant's Common
Stock outstanding on March 6, 2008, was 19,160,149.

DOCUMENTS INCORPORATED BY REFERENCE

The proxy statement for registrant's 2008 annual shareholders meeting is
incorporated by reference into Part III hereof.
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PART I

ITEM 1. BUSINESS

OVERVIEW

We are a specialty finance company engaged in purchasing and servicing
retail automobile contracts originated primarily by franchised automobile
dealers and, to a lesser extent, by select independent dealers in the United
States in the sale of new and used automobiles, light trucks and passenger vans.
Through our automobile contract purchases, we provide indirect financing to the
customers of dealers who have limited credit histories, low incomes or past
credit problems, who we refer to as sub-prime customers. We serve as an
alternative source of financing for dealers, facilitating sales to customers who
otherwise might not be able to obtain financing from traditional sources, such
as commercial banks, credit unions and the captive finance companies affiliated
with major automobile manufacturers. In addition to purchasing installment
purchase contracts directly from dealers, we have also (i) acquired installment
purchase contracts in three merger and acquisition transactions described below,
(ii) purchased immaterial amounts of vehicle purchase money loans from
non-affiliated lenders, and (iii) originated ourselves an immaterial amount of
vehicle purchase money loans by lending money directly to consumers. In this
report, we refer to all of such contracts and loans as "automobile contracts."

We are headquartered in Irvine, California, where most operational and
administrative functions are centralized. All credit and underwriting functions
are performed either in our California headquarters or our Florida branch, and
we service our automobile contracts from our California headquarters and from
three servicing branches in Virginia, Florida and Illinois.

We direct our marketing efforts primarily to dealers, rather than to
consumers. We establish relationships with dealers through our employee
marketing representatives who contact a prospective dealer to explain our
automobile contract purchase programs, and thereafter provide dealer training
and support services. The marketing representatives are obligated to represent
our financing program exclusively. Our marketing representatives present the
dealer with a marketing package, which includes our promotional material
containing the terms offered by us for the purchase of automobile contracts, a
copy of our standard-form dealer agreement, and required documentation relating
to automobile contracts. As of December 31, 2007, we had 134 marketing
representatives and we were a party to dealer agreements with over 10,255
dealers in 46 states. Approximately 85% of these dealers are franchised new car
dealers that sell both new and used cars and the remainder are independent used
car dealers. For the year ended December 31, 2007, approximately 84% of the
automobile contracts purchased under our programs consisted of financing for
used cars and 16% consisted of financing for new cars, as compared to 87%
financing for used cars and 13% for new cars in the year ended December 31,
2006.

We purchase automobile contracts with the intention of financing them on a
long-term basis through securitizations. Securitizations are transactions in
which we sell a specified pool of contracts to a special purpose entity of ours,
which in turn issues asset-backed securities to fund the purchase of the pool of
contracts from us. Depending on the structure of the securitization, the
transaction may, for financial accounting purposes, be treated as a sale of the
contracts or as a secured financing. From inception through the third quarter of
2003, we generated revenue primarily from the gains recognized on the sale or
securitization of automobile contracts, servicing fees earned on automobile
contracts sold, interest earned on residual interests and interest on finance
receivables. However, since the third quarter of 2003, we have structured our
securitizations to be treated as secured financings rather than as sales of
automobile contracts for financial accounting purposes. By accounting for these
securitizations as secured financings, the contracts and asset-backed notes
issued remain on our balance sheet with the interest income of the contracts in
the trust and the related financing costs reflected over the life of the
underlying pool of contracts.

We were incorporated and began our operations in March 1991. From
inception through December 31, 2007, we have purchased a total of approximately
$8.4 billion of automobile contracts from dealers. In addition, we obtained a
total of approximately $605.0 million of automobile contracts in our 2002, 2003
and 2004 acquisitions, as described below. Our total managed portfolio, net of
unearned interest on pre-computed automobile contracts, grew to approximately
$2,126.2 million at December 31, 2007 from $1,565.9 million at December 31,
2006, $1,122.0 million as of December 31, 2005 and $906.9 million as of December
31, 2004.

HISTORICAL ACQUISITIONS

In March 2002, we acquired MFN Financial Corporation and its subsidiaries,
or MFN, in a merger, which we refer to as the MFN merger. In May 2003, we
acquired TFC Enterprises, Inc. and its subsidiaries, or TFC, in a second merger,
which we refer to as the TFC merger. We acquired $381.8 million of automobile
contracts in the MFN merger, and $152.1 million in the TFC merger. MFN and TFC
were engaged in businesses similar to that of ours. MFN ceased acquiring

automobile contracts in March 2002, while TFC continues to acquire automobile
contracts under its TFC programs. Automobile contracts purchased by TFC during
the year ended December 31, 2007 accounted for less than 3% of our total
purchases during the year. In April 2004, we acquired $74.9 million in
automobile contracts from SeaWest Financial Corporation and its subsidiaries. In
addition, we were named servicer of approximately $111.8 million of automobile
contracts that SeaWest had previously securitized, and which we do not own. We
sometimes refer to those non-owned contracts as the SeaWest third-party
portfolio. As of December 31, 2007, the remaining outstanding principal balance
of automobile contracts acquired in the MFN and TFC mergers, and from SeaWest
Financial Corporation was $958,000, while the remaining outstanding principal
balance of the SeaWest third-party portfolio was $422,000.

SUB-PRIME AUTO FINANCE INDUSTRY

Automobile financing is the second largest consumer finance market in the
United States. The automobile finance industry can be divided into two principal
segments: a prime credit market and a sub-prime credit market. Traditional
automobile finance companies, such as commercial banks, savings institutions,
credit unions and captive finance companies of automobile manufacturers,
generally lend to the most creditworthy, or so-called prime, borrowers. The
sub-prime automobile credit market, in which we operate, provides financing to
less creditworthy borrowers, at higher interest rates.

Historically, traditional lenders have not serviced the sub-prime market
or have done so through programs that were not consistently available.
Independent companies specializing in sub-prime automobile financing and
subsidiaries of larger financial services companies currently compete in this
segment of the automobile finance market, which we believe remains highly
fragmented, with no single company having a dominant position in the market.

OUR OPERATIONS

Our automobile financing programs are designed to serve sub-prime
customers, who generally have limited credit histories, low incomes or past
credit problems. Because we serve customers who are unable to meet certain
credit standards, we incur greater risks, and generally receive interest rates
higher than those charged in the prime credit market. We also sustain a higher
level of credit losses because we provide financing in a relatively high risk
market.

ORIGINATIONS

When a retail automobile buyer elects to obtain financing from a dealer,
the dealer takes a credit application to submit to its financing sources.
Typically, a dealer will submit the buyer's application to more than one
financing source for review. We believe the dealer's decision to choose a
financing source is based primarily on: (i) the monthly payment made available
to the dealer's customer; (ii) the purchase price offered to the dealer for the
contract; (iii) timeliness, consistency and predictability of response; (iv)
funding turnaround time; and (v) any conditions to purchase. Dealers can send
credit applications to us by entering the necessary data on our website, by fax,
or through one of several third-party application aggregators. For the year
ended December 31, 2007, we received approximately 85% of all applications
through DealerTrack (the industry leading dealership application aggregator), 9%
via our website and 6% via fax or other aggregators. Our automated application
decisioning system produced our response within minutes to about 86% of those
applications.

Upon receipt of information from a dealer, we immediately order a credit
report to document the buyer's credit history. If, upon review by our
proprietary automated decisioning system, or in some cases, one of our credit
analysts, we determine that the automobile contract meets our underwriting
criteria, or would meet such criteria with modification, we request and review
further information and supporting documentation and, ultimately, decide whether
to approve the automobile contract for purchase. When presented with an
application, we attempt to notify the dealer within one hour as to whether we
would purchase the related automobile contract.

Dealers with which we do business are under no obligation to submit any
automobile contracts to us, nor are we obligated to purchase any automobile
contracts from them. During the year ended December 31, 2007, no dealer
accounted for more than 1% of the total number of automobile contracts we
purchased. Automobile contracts purchased by TFC after the TFC merger under the
TFC programs are purchased with a dealer marketing strategy that is similar to
that of ours as described above, except that the marketing efforts are directed
at independent used car dealers and the vehicle purchasers we are looking for
are enlisted personnel of the U.S. Armed Forces. The following table sets forth
the geographical sources of the automobile contracts purchased by us (based on
the addresses of the customers as stated on our records) during the years ended
December 31, 2007 and 2006.

CONTRACTS PURCHASED DURING THE YEAR ENDED (1)
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DECEMBER 31, 2007 DECEMBER 31, 2006
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NUMBER PERCENT (2) NUMBER PERCENT (2)
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California 8,358 10.4% 5,887 9.2%
Texas 7,408 9.2% 7,004 10.9%
Florida 6,774 8.4% 5,100 7.9%
Ohio 4,990 6.2% 4,758 7.4%
Pennsylvania 4,967 6.2% 3,642 5.7%
New York 4,087 5.1% 2,732 4.3%
North Carolina 3,748 4.7% 2,864 4.5%
Michigan 3,229 4.0% 2,791 4.3%
Illinois 3,164 3.9% 2,950 4.6%
Louisiana 3,006 3.7% 2,755 4.3%
Kentucky 2,797 3.5% 2,180 3.4%
Maryland 2,779 3.4% 2,107 3.3%
Georgia 2,263 2.8% 1,378 2.1%
Indiana 2,165 2.7% 1,401 2.2%
Virginia 2,091 2.6% 1,678 2.6%
New Jersey 2,030 2.5% 1,543 2.4%
Other States 16,725 20.8% 13,431 20.9%
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Total 80,581 100.0% 64,201 100.0%
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(1) AUTOMOBILE CONTRACTS PURCHASED BY TFC AFTER THE TFC MERGER ARE NOT
INCLUDED BECAUSE SUCH PURCHASES ACCOUNTED FOR LESS THAN 10% OF THE TOTAL
PURCHASES DURING THE YEAR.
(2) PERCENTAGES MAY NOT TOTAL TO 100.0% DUE TO ROUNDING.

We purchase automobile contracts under our programs from dealers at a
price generally computed as the total amount financed under the automobile
contracts, adjusted for an acquisition fee, which may either increase or
decrease the automobile contract purchase price paid by us. The amount of the
acquisition fee, and whether it results in an increase or decrease to the
automobile contract purchase price, is based on the perceived credit risk of
and, in some cases, the interest rate on the automobile contract. For the years
ended December 31, 2007, 2006 and 2005, the average acquisition fee charged per
automobile contract purchased under our programs was $209, $241 and $150,
respectively, or 1.4%, 1.6% and 1.0%, respectively, of the amount financed.

We offer seven different financing programs to our dealership customers,
and price each program according to the relative credit risk. We offer programs
covering a wide band of the credit spectrum. Our upper credit tier products,
which are our Preferred, Super Alpha, Alpha Plus and Alpha programs accounted
for approximately 76% and 78% of our new contract originations in 2007 and 2006,
respectively, in each case measured by aggregate amount financed.

The following table identifies the credit program, sorted from highest to
lowest credit quality, under which we purchased automobile contracts during the
years ended December 31, 2007, 2006 and 2005.

Contracts Purchased (1) During the Year Ended
December 31, 2007 December 31, 2006 December 31, 2005
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(dollars in thousands)
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
FINANCED (2) FINANCED (2) FINANCED (2)
----------------------- ----------------------- -----------------------

Preferred $ 55,717 4.5% $ 30,700 3.1% $ 13,735 2.1%
Super Alpha 153,410 12.3% 120,118 12.2% 78,030 11.8%
Alpha Plus 215,248 17.3% 178,371 18.1% 135,926 20.6%
Alpha 523,259 42.0% 444,775 45.0% 314,444 47.6%
Standard 116,424 9.3% 85,190 8.6% 67,293 10.2%
Mercury / Delta 104,990 8.4% 77,481 7.8% 20,346 3.1%
First Time Buyer 77,283 6.2% 50,893 5.2% 30,329 4.6%
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$1,246,331 100.0% $ 987,528 100.0% $ 660,103 100.0%

We attempt to control misrepresentation regarding the customer's credit
worthiness by carefully screening the automobile contracts we purchase, by
establishing and maintaining professional business relationships with dealers,
and by including certain representations and warranties by the dealer in the
dealer agreement. Pursuant to the dealer agreement, we may require the dealer to
repurchase any automobile contract in the event that the dealer breaches our
representations or warranties. There can be no assurance, however, that any
dealer will have the willingness or the financial resources to satisfy its
repurchase obligations to us.

In addition to our purchases of installment contracts from dealers, we
have purchased since 2006 an immaterial number of vehicle purchase money loans,
evidenced by promissory notes and security agreements. A non-affiliated lender
originated all such loans directly to vehicle purchasers, and sold the loans to
us. We began financing vehicle purchases by direct loans to consumers in January
2008, on terms similar to those that we offer through dealers, though without a
down payment requirement and with more restrictive loan-to-value and credit
score requirements. There can be no assurance as to the extent to which we will
continue to make such loans, or as to their future performance.

UNDERWRITING

To be eligible for purchase by us, an automobile contract must have been
originated by a dealer that has entered into a dealer agreement to sell
automobile contracts to us. The automobile contract must be secured by a first
priority lien on a new or used automobile, light truck or passenger van and must
meet our underwriting criteria. In addition, each automobile contract requires
the customer to maintain physical damage insurance covering the financed vehicle
and naming us as a loss payee. We may, nonetheless, suffer a loss upon theft or
physical damage of any financed vehicle if the customer fails to maintain
insurance as required by the automobile contract and is unable to pay for
repairs to or replacement of the vehicle or is otherwise unable to fulfill his
or her obligations under the automobile contract.

We believe that our underwriting criteria enable us to evaluate
effectively the creditworthiness of sub-prime customers and the adequacy of the
financed vehicle as security for an automobile contract. The underwriting
criteria include standards for price, term, amount of down payment, installment
payment and interest rate; mileage, age and type of vehicle; principal amount of
the automobile contract in relation to the value of the vehicle; customer income
level, employment and residence stability, credit history and debt service
ability, as well as other factors. Specifically, the underwriting guidelines for
our CPS programs generally limit the maximum principal amount of a purchased
automobile contract to 115% of wholesale book value in the case of used vehicles
or to 115% of the manufacturer's invoice in the case of new vehicles, plus, in
each case, sales tax, licensing and, when the customer purchases such additional
items, a service contract or a credit life or disability policy. We generally do
not finance vehicles that are more than eight model years old or have in excess
of 99,999 miles. Under most of our programs, the maximum term of a purchased
contract is 72 months; a shorter maximum term may be applicable based on the
mileage and age of the vehicle. Automobile contracts with the maximum term of 72
months may be purchased if the customer is among the more creditworthy of our
obligors and the vehicle is generally not more than four model years old and has
less than 45,000 miles. Automobile contract purchase criteria are subject to
change from time to time as circumstances may warrant. Upon receiving the
vehicle and customer information with the customer's application, our
underwriters verify the customer's employment, income, residency, and credit
information by contacting various parties noted on the customer's application,
credit information bureaus and other sources. In addition, prior to purchasing
an automobile contract, we contact each customer by telephone to confirm that
the customer understands and agrees to the terms of the related automobile
contract. During this "welcome call," we also ask the customer a series of open
ended questions about his application and the contract to uncover any potential
misrepresentations.

CREDIT SCORING. We use a proprietary scoring model to assign each
automobile contract a "credit score" at the time the application is received
from the dealer and the customer's credit information is retrieved from the
credit reporting agencies. The credit score is based on a variety of parameters
including the customer's credit history, employment and residence stability,
income, and monthly payment amount. Our score also considers the loan-to-value
ratio, payment-to-income ratio and the sales price and make of the vehicle. We
have developed the credit score utilizing statistical risk management techniques
and historical performance data from our managed portfolio. We believe this
improves our allocation of credit evaluation resources, enhances our
competitiveness in the marketplace and more effectively manages the risk
inherent in the sub-prime market.

CHARACTERISTICS OF CONTRACTS. All of the automobile contracts purchased by
us are fully amortizing and provide for level payments over the term of the
automobile contract. All automobile contracts may be prepaid at any time without
penalty. The average original principal amount financed, under the CPS programs
and in the year ended December 31, 2007, was $15,467, with an average original
term of 63 months and an average down payment amount of 12.6%. Based on
information contained in customer applications for this 12-month period, the
retail purchase price of the related automobiles averaged $15,621 (which
excludes tax, license fees and any additional costs such as a maintenance
contract), the average age of the vehicle at the time the automobile contract
was purchased was three years, and our customers averaged approximately 38 years
of age, with approximately $41,619 in average annual household income and an
average of five years history with his or her current employer. Because our TFC
programs are directed towards enlisted military personnel, contracts purchased
under the TFC programs tend to have smaller balances and the purchasers are
generally younger and have lower incomes.

DEALER COMPLIANCE. The dealer agreement and related assignment contain
representations and warranties by the dealer that an application for state
registration of each financed vehicle, naming us as secured party with respect
to the vehicle, was effected at the time of sale of the related automobile
contract to us, and that all necessary steps have been taken to obtain a
perfected first priority security interest in each financed vehicle in favor of
us under the laws of the state in which the financed vehicle is registered.

SERVICING AND COLLECTION

We currently service all automobile contracts that we own as well as those
automobile contracts that are included in portfolios that we have sold to off
balance sheet securitization trusts or in the SeaWest third party portfolio. We
organize our servicing activities based on the tasks performed by our personnel.
Our servicing activities consist of mailing monthly billing statements;
collecting, accounting for and posting of all payments received; responding to
customer inquiries; taking all necessary action to maintain the security
interest granted in the financed vehicle or other collateral; investigating
delinquencies; communicating with the customer to obtain timely payments;
repossessing and liquidating the collateral when necessary; collecting
deficiency balances; and generally monitoring each automobile contract and the
related collateral. We are typically entitled to receive a base monthly
servicing fee between 2.5% and 3.5% per annum computed as a percentage of the
declining outstanding principal balance of the non-charged-off automobile
contracts in the securitization pools. The servicing fee is included in interest
income for on balance sheet financings.

COLLECTION PROCEDURES. We believe that our ability to monitor performance
and collect payments owed from sub-prime customers is primarily a function of
our collection approach and support systems. We believe that if payment problems
are identified early and our collection staff works closely with customers to
address these problems, it is possible to correct many of problems before they
deteriorate further. To this end, we utilize pro-active collection procedures,
which include making early and frequent contact with delinquent customers;
educating customers as to the importance of maintaining good credit; and
employing a consultative and customer service approach to assist the customer in
meeting his or her obligations, which includes attempting to identify the
underlying causes of delinquency and cure them whenever possible. In support of
our collection activities, we maintain a computerized collection system
specifically designed to service automobile contracts with sub-prime customers
and similar consumer obligations.

With the aid of our automatic dialer, as well as manual efforts made by
collection staff, we attempt to make telephonic contact with delinquent
customers from one to 29 days after their monthly payment due date, depending on
our proprietary behavioral assessment of the customer's likelihood of payment
during early stages of delinquency. Using coded instructions from a collection
supervisor, the automatic dialer will attempt to contact customers based on
their physical location, stage of delinquency, size of balance or other
parameters. If the automatic dialer obtains a "no answer" or a busy signal, it
records the attempt on the customer's record and moves on to the next call. If a
live voice answers the automatic dialer's call, the call is transferred to a
waiting collector as the customer's pertinent information is simultaneously
displayed on the collector's workstation. The collector then inquires of the
customer the reason for the delinquency and when we can expect to receive the
payment. The collector will attempt to get the customer to make an electronic
payment over the phone or a promise for the payment for a time generally not to
exceed one week from the date of the call. If the customer makes such a promise,
the account is routed to a promise queue and is not contacted until the outcome
of the promise is known. If the payment is made by the promise date and the
account is no longer delinquent, the account is routed out of the collection
system. If the payment is not made, or if the payment is made, but the account
remains delinquent, the account is returned to the queue for subsequent
contacts.

If a customer fails to make or keep promises for payments, or if the
customer is uncooperative or attempts to evade contact or hide the vehicle, a
supervisor will review the collection activity relating to the account to
determine if repossession of the vehicle is warranted. Generally, such a
decision will occur between the 45th and 90th day past the customer's payment
due date, but could occur sooner or later, depending on the specific
circumstances. At the time the vehicle is repossessed we will stop accruing
interest in this automobile contract, and reclassify the remaining automobile
contract balance to other assets. In addition we will apply a specific reserve
to this automobile contract so that the net balance represents the estimated
fair value less costs to sell.

If we elect to repossess the vehicle, we assign the task to an independent
local repossession service. Such services are licensed and/or bonded as required
by law. When the vehicle is recovered, the repossessor delivers it to a
wholesale automobile auction, where it is kept until sold. Financed vehicles
that have been repossessed are generally resold by us through unaffiliated
automobile auctions, which are attended principally by car dealers. Net
liquidation proceeds are applied to the customer's outstanding obligation under
the automobile contract. Such proceeds usually are insufficient to pay the
customer's obligation in full, resulting in a deficiency. In most cases we will
continue to contact our customers to recover all or a portion of this deficiency
for up to several years after charge-off.

Once an automobile contract becomes greater than 90 days delinquent, we do
not recognize additional interest income until the borrower under the automobile
contract makes sufficient payments to be less than 90 days delinquent. Any
payments received by a borrower that are greater than 90 days delinquent are
first applied to accrued interest and then to principal reduction.

We generally charge off the balance of any contract by the earlier of the
end of the month in which the automobile contract becomes five scheduled
installments past due or, in the case of repossessions, the month that the
proceeds from the liquidation of the financed vehicle are received by us or if
the vehicle has been in repossession inventory for more than three months. In
the case of repossession, the amount of the charge-off is the difference between
the outstanding principal balance of the defaulted automobile contract and the
net repossession sale proceeds.

CREDIT EXPERIENCE

Our financial results are dependent on the performance of the automobile
contracts in which we retain an ownership interest. The tables below document
the delinquency, repossession and net credit loss experience of all automobile
contracts that we are servicing (excluding contracts from the SeaWest third
party portfolio) as of the respective dates shown. Credit experience for us, MFN
(since the date of the MFN merger), TFC (since the date of the TFC merger) and
SeaWest (since the date of the SeaWest asset acquisition) is shown on a combined
basis in the table below.

DELINQUENCY EXPERIENCE (1)
CPS, MFN, TFC AND SEAWEST COMBINED

DECEMBER 31, 2007 DECEMBER 31, 2006 DECEMBER 31, 2005
------------------------- ------------------------- -------------------------
NUMBER OF NUMBER OF NUMBER OF
CONTRACTS AMOUNT CONTRACTS AMOUNT CONTRACTS AMOUNT
--------- ------------ --------- ------------ --------- ------------
DELINQUENCY EXPERIENCE (Dollars in thousands)

Gross servicing portfolio (1)..... 168,260 $ 2,128,656 126,574 $ 1,568,329 95,689 $ 1,116,534
Period of delinquency (2)
31-60 days........................ 4,227 48,134 3,275 37,328 2,367 24,047
61-90 days........................ 2,370 27,877 1,367 14,903 1,057 10,156
91+ days.......................... 2,039 24,888 1,035 10,301 1,031 7,946
--------- ------------ --------- ------------ --------- ------------
Total delinquencies (2)........... 8,636 100,899 5,677 62,532 4,455 42,149
Amount in repossession (3)........ 3,049 33,400 2,148 24,135 1,335 13,531
--------- ------------ --------- ------------ --------- ------------
Total delinquencies and
amount in repossession (2)...... 11,685 $ 134,299 7,825 $ 86,667 5,790 $ 55,680
========= ============ ========= ============ ========= ============

Delinquencies as a percentage
of gross servicing portfolio.... 5.1% 4.7% 4.5% 4.0% 4.7% 3.8%

Total delinquencies and
amount in repossession as a
percentage of gross servicing
portfolio....................... 6.9% 6.3% 6.2% 5.5% 6.1% 5.0%

EXTENSION EXPERIENCE
Contracts with One Extension (4).. 21,555 $ 251,067 12,318 $ 128,386 10,602 $ 95,412
Contracts with Two or More
Extensions (4).................. 4,377 38,264 3,183 24,978 4,575 29,428
--------- ------------ --------- ------------ --------- ------------
Total Contracts with Extensions... 25,932 $ 289,331 15,501 $ 153,364 15,177 $ 124,840
========= ============ ========= ============ ========= ============

(1) ALL AMOUNTS AND PERCENTAGES ARE BASED ON THE AMOUNT REMAINING TO BE REPAID
ON EACH AUTOMOBILE CONTRACT, INCLUDING, FOR PRE-COMPUTED AUTOMOBILE
CONTRACTS, ANY UNEARNED INTEREST. THE INFORMATION IN THE TABLE REPRESENTS
THE GROSS PRINCIPAL AMOUNT OF ALL AUTOMOBILE CONTRACTS WE PURCHASED,
INCLUDING AUTOMOBILE CONTRACTS WE SUBSEQUENTLY SOLD IN SECURITIZATION
TRANSACTIONS THAT WE CONTINUE TO SERVICE. THE TABLE DOES NOT INCLUDE THE
SEAWEST THIRD PARTY PORTFOLIO (AUTOMOBILE CONTRACTS THAT WE SERVICE ON
BEHALF OF SEAWEST SECURITIZATIONS, BUT DO NOT OWN).
(2) WE CONSIDER AN AUTOMOBILE CONTRACT DELINQUENT WHEN AN OBLIGOR FAILS TO
MAKE AT LEAST 90% OF A CONTRACTUALLY DUE PAYMENT BY THE FOLLOWING DUE
DATE, WHICH DATE MAY HAVE BEEN EXTENDED WITHIN LIMITS SPECIFIED IN THE
SERVICING AGREEMENTS. THE PERIOD OF DELINQUENCY IS BASED ON THE NUMBER OF
DAYS PAYMENTS ARE CONTRACTUALLY PAST DUE. AUTOMOBILE CONTRACTS LESS THAN
31 DAYS DELINQUENT ARE NOT INCLUDED.
(3) AMOUNT IN REPOSSESSION REPRESENTS THE CONTRACT BALANCE ON FINANCED
VEHICLES THAT HAVE BEEN REPOSSESSED BUT NOT YET LIQUIDATED. THIS AMOUNT IS
NOT NETTED WITH THE SPECIFIC RESERVE TO ARRIVE AT THE ESTIMATED ASSET
VALUE LESS COSTS TO SELL.
(4) THE AGING CATEGORIES SHOWN IN THE TABLES REFLECT THE EFFECT OF EXTENSIONS.

EXTENSIONS

We may offer a customer an extension, under which the customer agrees with
us to move past due payments to the end of the automobile contract term. In such
cases the customer must sign an agreement for the extension, and may pay a fee
representing partial payment of accrued interest. Our policies, and contractual
arrangements for our warehouse and securitization transactions, limit the number
of extensions that may be granted. In general, a customer may arrange for an
extension no more than once every 12 months, not to exceed four extensions over
the life of the contract.

If a customer is granted such an extension, the date next due is advanced.
Subsequent delinquency aging classifications would be based on the future
payment performance of the automobile contract.

YEAR ENDED DECEMBER 31,
------------------------------------------
2007 2006 2005
------------ ------------ ------------
(DOLLARS IN THOUSANDS)

CPS, MFN, TFC AND SEAWEST COMBINED
Average servicing portfolio outstanding...... $ 1,905,162 $ 1,367,935 $ 966,295
Net charge-offs as a percentage of average
servicing portfolio (2).................... $ 5.3% 4.5% 5.3%

(1) ALL AMOUNTS AND PERCENTAGES ARE BASED ON THE PRINCIPAL AMOUNT SCHEDULED TO
BE PAID ON EACH AUTOMOBILE CONTRACT, NET OF UNEARNED INCOME ON
PRE-COMPUTED AUTOMOBILE CONTRACTS. THE INFORMATION IN THE TABLE REPRESENTS
ALL AUTOMOBILE CONTRACTS SERVICED BY US, EXCLUDING THE SEAWEST THIRD PARTY
PORTFOLIO (AUTOMOBILE CONTRACTS ORIGINATED BY SEAWEST FOR WHICH WE ARE THE
SERVICER BUT HAVE NO EQUITY INTEREST).
(2) NET CHARGE-OFFS INCLUDE THE REMAINING PRINCIPAL BALANCE, AFTER THE
APPLICATION OF THE NET PROCEEDS FROM THE LIQUIDATION OF THE VEHICLE
(EXCLUDING ACCRUED AND UNPAID INTEREST) AND AMOUNTS COLLECTED SUBSEQUENT
TO THE DATE OF CHARGE-OFF, INCLUDING SOME RECOVERIES WHICH HAVE BEEN
CLASSIFIED AS OTHER INCOME IN THE ACCOMPANYING FINANCIAL STATEMENTS.

SECURITIZATION OF AUTOMOBILE CONTRACTS

We purchase automobile contracts with the intention of financing them on a
long-term basis through securitizations. All such securitizations have involved
identification of specific automobile contracts, sale of those automobile
contracts (and associated rights) to a special purpose subsidiary, and issuance
of asset-backed securities to fund the transactions. Upon the securitization of
a portfolio of automobile contracts, we retain the obligation to service the
contracts, and receive a monthly fee for doing so. We have been a regular issuer
of asset-backed securities since 1994, completing 47 securitizations totaling
over $6.1 billion through December 31, 2007. Depending on the structure of the
securitization, the transaction may be treated as a sale of the automobile
contracts or as a secured financing for financial accounting purposes. Since the
third quarter of 2003, we have structured our securitizations as secured
financings rather than as sales of contracts.

When structured to be treated as a secured financing, the subsidiary is
consolidated and, accordingly, the automobile contracts and the related
securitization trust debt appear as assets and liabilities, respectively, on our
consolidated balance sheet. We then recognize interest income on the contracts
and interest expense on the securities issued in the securitization and record
as expense a provision for probable credit losses on the contracts.

When structured to be treated as a sale, the subsidiary is not
consolidated. Accordingly, the securitization removes the sold automobile
contracts from our consolidated balance sheet, the related debt does not appear
as our debt, and our consolidated balance sheet shows, as an asset, a retained
residual interest in the sold automobile contracts. The residual interest
represents the discounted value of what we expect will be the excess of future
collections on the automobile contracts over principal and interest due on the
asset-backed securities. That residual interest appears on our consolidated
balance sheet as "residual interest in securitizations," and the determination
of its value is dependent on our estimates of the future performance of the sold
automobile contracts.

Prior to a securitization transaction, we fund our automobile contract
purchases primarily with proceeds from warehouse credit facilities. As of
December 31, 2006, we had $400 million in warehouse credit capacity, in the form
of two $200 million facilities. Both warehouse credit facilities provide funding
for automobile contracts purchased under the CPS programs, while one facility
also provides funding for automobile contracts purchased under the TFC programs.
Up to 83% of the principal balance of the automobile contracts may be advanced
to us under these facilities, subject to collateral tests and certain other
conditions and covenants. In January and February 2007, we amended our warehouse
facilities to permit issuance of subordinated debt to two additional lenders.
The result was to increase the effective advance rate to as high as 93% and
aggregate warehouse capacity to $425 million. In January 2008, the commitments
to purchase the subordinated debt were to expire in accordance with their terms.
We have entered into a series of short-term extensions with the subordinated
lenders and are discussing longer-term extensions with these and other possible
lenders. Long-term financing for the automobile contract purchases is achieved
through securitization transactions. The proceeds from such securitization
transactions are used primarily to repay the warehouse credit facilities.

In a securitization and in our warehouse credit facilities, we are
required to make certain representations and warranties, which are generally
similar to the representations and warranties made by dealers in connection with
our purchase of the automobile contracts. If we breach any of our
representations or warranties, we will be obligated to repurchase the automobile
contract at a price equal to the principal balance plus accrued and unpaid
interest. We may then be entitled under the terms of our dealer agreement to
require the selling dealer to repurchase the contract at a price equal to our
purchase price, less any principal payments made by the customer. Subject to any
recourse against dealers, we will bear the risk of loss on repossession and
resale of vehicles under automobile contracts that we repurchase.

Whether a securitization is treated as a secured financing or as a sale
for financial accounting purposes, the related special purpose subsidiary may be
unable to release excess cash to us if the credit performance of the securitized
automobile contracts falls short of pre-determined standards. Such releases
represent a material portion of the cash that we use to fund our operations. An
unexpected deterioration in the performance of securitized automobile contracts
could therefore have a material adverse effect on both our liquidity and results
of operations, regardless of whether such automobile contracts are treated as
having been sold or as having been financed. For estimation of the magnitude of
such risk, it may be appropriate to look to the size of our "managed portfolio,"
which represents both financed and sold automobile contracts as to which such
credit risk is retained. Our managed portfolio as of December 31, 2007 was
approximately $2.1 billion (this amount includes $422,000 related to the SeaWest
third party portfolio, on which we earn only servicing fees and have no credit
risk).

COMPETITION

The automobile financing business is highly competitive. We compete with a
number of national, regional and local finance companies with operations similar
to ours. In addition, competitors or potential competitors include other types
of financial services companies, such as commercial banks, savings and loan
associations, leasing companies, credit unions providing retail loan financing
and lease financing for new and used vehicles, and captive finance companies
affiliated with major automobile manufacturers such as General Motors Acceptance
Corporation, Ford Motor Credit Corporation, Chrysler Finance and Nissan Motors
Acceptance Corporation. Many of our competitors and potential competitors
possess substantially greater financial, marketing, technical, personnel and
other resources than we do. Moreover, our future profitability will be directly
related to the availability and cost of our capital in relation to the
availability and cost of capital to our competitors. Our competitors and
potential competitors include far larger, more established companies that have
access to capital markets for unsecured commercial paper and investment
grade-rated debt instruments and to other funding sources that may be
unavailable to us. Many of these companies also have long-standing relationships
with dealers and may provide other financing to dealers, including floor plan
financing for the dealers' purchase of automobiles from manufacturers, which we
do not offer.

We believe that the principal competitive factors affecting a dealer's
decision to offer automobile contracts for sale to a particular financing source
are the purchase price offered for the automobile contracts, the timeliness of
the response to the dealer upon submission of the initial application, the
reasonableness of the financing source's underwriting guidelines and
documentation requests, the predictability and timeliness of purchases and the
financial stability of the funding source. While we believe that we can obtain
from dealers sufficient automobile contracts for purchase at attractive prices
by consistently applying reasonable underwriting criteria and making timely
purchases of qualifying automobile contracts, there can be no assurance that we
will do so.

REGULATION

Several federal and state consumer protection laws, including the federal
Truth-In-Lending Act, the federal Equal Credit Opportunity Act, the federal Fair
Debt Collection Practices Act and the Federal Trade Commission Act, regulate the
extension of credit in consumer credit transactions. These laws mandate certain
disclosures with respect to finance charges on automobile contracts and impose
certain other restrictions on dealers. In many states, a license is required to
engage in the business of purchasing automobile contracts from dealers. In
addition, laws in a number of states impose limitations on the amount of finance
charges that may be charged by dealers on credit sales. The so-called Lemon Laws
enacted by various states provide certain rights to purchasers with respect to
automobiles that fail to satisfy express warranties. The application of Lemon
Laws or violation of such other federal and state laws may give rise to a claim
or defense of a customer against a dealer and its assignees, including us and
purchasers of automobile contracts from us. The dealer agreement contains
representations by the dealer that, as of the date of assignment of automobile
contracts, no such claims or defenses have been asserted or threatened with
respect to the automobile contracts and that all requirements of such federal
and state laws have been complied with in all material respects. Although a
dealer would be obligated to repurchase automobile contracts that involve a
breach of such warranty, there can be no assurance that the dealer will have the
financial resources to satisfy its repurchase obligations. Certain of these laws
also regulate our servicing activities, including our methods of collection.

Although we believe that we are currently in material compliance with
applicable statutes and regulations, there can be no assurance that we will be
able to maintain such compliance. The past or future failure to comply with such
statutes and regulations could have a material adverse effect upon us.
Furthermore, the adoption of additional statutes and regulations, changes in the
interpretation and enforcement of current statutes and regulations or the
expansion of our business into jurisdictions that have adopted more stringent
regulatory requirements than those in which we currently conduct business could

have a material adverse effect upon us. In addition, due to the
consumer-oriented nature of the industry in which we operate and the application
of certain laws and regulations, industry participants are regularly named as
defendants in litigation involving alleged violations of federal and state laws
and regulations and consumer law torts, including fraud. Many of these actions
involve alleged violations of consumer protection laws. A significant judgment
against us or within the industry in connection with any such litigation could
have a material adverse effect on our financial condition, results of operations
or liquidity.

EMPLOYEES

As of December 31, 2007, we had 997 employees. The breakdown of the
employees is as follows: 8 are senior management personnel, 532 are collections
personnel, 209 are automobile contract origination personnel, 156 are marketing
personnel (134 of whom are marketing representatives), 66 are operations and
systems personnel, and 34 are administrative personnel. We believe that our
relations with our employees are good. We are not a party to any collective
bargaining agreement.

ITEM 1A. RISK FACTORS

Our business, operating results and financial condition could be adversely
affected by any of the following specific risks. The trading price of our common
stock could decline due to any of these risks and other industry risks. In
addition to the risks described below, we may encounter risks that are not
currently known to us or that we currently deem immaterial, which may also
impair our business operations and the value of our common stock.

RISKS RELATED TO OUR BUSINESS

WE REQUIRE A SUBSTANTIAL AMOUNT OF CASH TO SERVICE OUR SUBSTANTIAL DEBT.

To service our existing substantial indebtedness, we require a significant
amount of cash. Our ability to generate cash depends on many factors, including
our successful financial and operating performance. Our financial and
operational performance depends upon a number of factors, many of which are
beyond our control. These factors include, without limitation:

o the economic and competitive conditions in the asset-backed securities
market;
o the performance of our current and future automobile contracts;
o the performance of our residual interests from our securitizations and
warehouse credit facilities;
o any operating difficulties or pricing pressures we may experience;
o our ability to obtain credit enhancement for our securitizations;
o our ability to establish and maintain dealer relationships;
o the passage of laws or regulations that affect us adversely;
o our ability to compete with our competitors; and
o our ability to acquire and finance automobile contracts.

Depending upon the outcome of one or more of these factors, we may not be
able to generate sufficient cash flow from operations or obtain sufficient
funding to satisfy all of our obligations. If we were unable to pay our debts,
we would be required to pursue one or more alternative strategies, such as
selling assets, refinancing or restructuring our indebtedness or selling
additional equity capital. These alternative strategies might not be feasible at
the time, might prove inadequate or could require the prior consent of our
lenders.

WE NEED SUBSTANTIAL LIQUIDITY TO OPERATE OUR BUSINESS.

We have historically funded our operations principally through internally
generated cash flows, sales of debt and equity securities, including through
securitizations and warehouse credit facilities, borrowings under senior
subordinated debt agreements and sales of subordinated notes. However, we may
not be able to obtain sufficient funding for our future operations from such
sources. If we were unable to access the capital markets or obtain other
acceptable financing, our results of operations, financial condition and cash
flows would be materially and adversely affected. We require a substantial
amount of cash liquidity to operate our business. Among other things, we use
such cash liquidity to:

o acquire automobile contracts;
o fund overcollateralization in warehouse credit facilities and
securitizations;
o pay securitization fees and expenses;
o fund spread accounts in connection with securitizations;

o satisfy working capital requirements and pay operating expenses;
o pay taxes; and
o pay interest expense.

OUR RESULTS OF OPERATIONS WILL DEPEND ON OUR ABILITY TO SECURE AND MAINTAIN
ADEQUATE CREDIT AND WAREHOUSE FINANCING ON FAVORABLE TERMS.

We depend on warehouse credit facilities to finance our purchases of
automobile contracts. Our business strategy requires that these warehouse credit
facilities continue to be available to us from the time of purchase or
origination of an automobile contract until it is financed through a
securitization.

Our primary sources of day-to-day liquidity are our warehouse credit
facilities, in which we sell and contribute automobile contracts, as often as
twice a week, to special-purpose subsidiaries, where they are "warehoused" until
they are securitized, at which time funds advanced under one or more warehouse
credit facilities are repaid from the proceeds of the securitizations. The
special-purpose subsidiaries obtain the funds to purchase these contracts by
pledging the contracts to a trustee for the benefit of senior warehouse lenders,
who advance funds to our special-purpose subsidiaries based on the dollar amount
of the contracts pledged. We depend substantially on two warehouse credit
facilities: (i) a $200 million warehouse credit facility, which we established
in November 2005 and, unless earlier renewed or terminated upon the occurrence
of certain events, which will expire in November 2008; and (ii) a $200 million
warehouse credit facility, which we established in June 2004 and which, unless
renewed or earlier terminated upon the occurrence of certain events, will expire
in September 2008. Each of these facilities may be renewed by mutual agreement
between the senior lender and us. The reader should note that the lender under
one of the two warehouse credit facilities is an affiliate of Bear Stearns, and
that any liquidity issues or possible changes in business strategy on the part
of that lender may adversely affect that lender's ability to continue to do
business with CPS.

Each of these two warehouse facilities has included since January or
February 2007 a supplemental subordinated credit facility, pursuant to which our
special purpose subsidiary issues subordinated notes to lenders that are
unaffiliated with us, and unaffiliated with the senior lenders. The effect is to
increase the percentage of the value of the pledged automobile contracts that
our special purpose subsidiary may borrow. The supplemental subordinated credit
facility was to expire by its terms on January 14, 2008. We have entered into a
series of successive short-term extensions on the supplemental subordinated
credit facility, but there can be no assurance as to our ability to come to
terms regarding any further extensions that are acceptable to us and to the
subordinated lenders. We expect that such terms as we agree to with respect to
such subordinated credit facility will involve (i) a reduced advance rate, and
(ii) an increased interest rate, in each case as compared to the terms
applicable in 2007.

Both warehouse facilities provide for advances based on a percentage of
the eligible collateral and we typically utilize the facilities in such a way to
maximize the borrowings available thereunder. However, the maximum advance rate
percentage under each facility is subject to each lender's valuation of the
collateral which, in turn, is affected by factors such as the credit performance
of our managed portfolio and the terms and conditions of our term
securitizations, including the expected yields required for bonds issued in
conjunction with our term securitizations.

These warehouse credit facilities will remain available to us only if,
among other things, we comply with certain financial covenants contained in the
documents governing these facilities. These warehouse credit facilities may not
be available to us in the future and we may not be able to obtain other credit
facilities on favorable terms to fund our operations.

Within the period of approximately four months prior to the filing of this
report, we have observed adverse changes in the market for securitized pools of
automobile contracts. These changes have resulted in a substantial extension of
the period during which our automobile contracts are financed through our
warehouse credit facilities, which has burdened our financing capabilities.
Continued adverse conditions in the market for securitized pools of automobile
contracts could result in our reaching maximum limits for advances and age of
eligible collateral under our warehouse facilities which would preclude further
borrowings thereunder.

If we were unable to arrange new warehousing or other credit facilities or
renew our existing warehouse credit facilities when they come due, or if the
advance rate as determined by the lenders were significantly reduced, or if we
reached the maximum limits for advances under the facilities, our results of
operations, financial condition and cash flows could be materially and adversely
affected. The anticipated adverse changes in terms of the subordinated warehouse
credit facility would have an adverse effect on our results of operations,
financial condition and cash flows, in amounts that may be considered material,
depending on the terms that are ultimately agreed to.

OUR RESULTS OF OPERATIONS WILL DEPEND ON OUR ABILITY TO SECURITIZE OUR PORTFOLIO
OF AUTOMOBILE CONTRACTS.

We are dependent upon our ability to continue to finance pools of
automobile contracts in term securitization transactions in order to generate
cash proceeds for new purchases of automobile contracts. We have historically
depended on securitizations of automobile contracts to provide permanent
financing of those contracts. By "permanent financing" we mean financing that
extends to cover the full term during which the underlying contracts are
outstanding and requires repayment as the underlying contracts are repaid or
charged off. By contrast, our warehouse credit facilities permit us to borrow
against the value of such receivables only for limited periods of time. Our past
practice and future plan has been and is to repay loans made to us under our
warehouse credit facilities with the proceeds of securitizations. There can be
no assurance that any securitization transaction will be available on terms
acceptable to us, or at all. The timing of any securitization transaction is
affected by a number of factors beyond our control, any of which could cause
substantial delays, including, without limitation:

o market conditions;
o the approval by all parties of the terms of the securitization;
o the availability of credit enhancement on acceptable terms; and
o our ability to acquire a sufficient number of automobile contracts for
securitization.

Within the period of approximately four months prior to the filing of this
report, we have observed adverse changes in the market for securitized pools of
automobile contracts. These changes include reduced liquidity, increased
financial guaranty premiums and reduced demand for asset-backed securities,
including for securities carrying a financial guaranty or for securities backed
by sub-prime automobile receivables. We believe that these adverse changes in
the capital markets are primarily the result of widespread defaults of sub-prime
mortgages securing a variety of term securitizations and related financial
instruments, including instruments carrying financial guarantees similar to
those we typically secure for our own term securitizations. Further adverse
changes might result in our inability to securitize automobile contracts.

OUR RESULTS OF OPERATIONS WILL DEPEND ON CASH FLOWS FROM OUR RESIDUAL INTERESTS
IN OUR SECURITIZATION PROGRAM AND OUR WAREHOUSE CREDIT FACILITIES.

When we finance our automobile contracts through securitizations and
warehouse credit facilities, we receive cash and a residual interest in the
assets financed. Those financed assets are owned by the special-purpose
subsidiary that is formed for the related securitization. This residual interest
represents the right to receive the future cash flows to be generated by the
automobile contracts in excess of (i) the interest and principal paid to
investors on the indebtedness issued in connection with the financing (ii) the
costs of servicing the contracts and (iii) certain other costs incurred in
connection with completing and maintaining the securitization or warehouse
credit facility. We sometimes refer to these future cash flows as "excess spread
cash flows."

Under the financial structures we have used to date in our securitizations
and warehouse credit facilities, excess spread cash flows that would otherwise
be paid to the holder of the residual interest are first used to increase
overcollateralization or are retained in a spread account within the
securitization trusts or the warehouse facility to provide liquidity and credit
enhancement for the related securities.

While the specific terms and mechanics vary among transactions, our
securitization and warehousing agreements generally provide that we will receive
excess spread cash flows only if the amount of overcollateralization and spread
account balances have reached specified levels and/or the delinquency, defaults
or net losses related to the contracts in the automobile contract pools are
below certain predetermined levels. In the event delinquencies, defaults or net
losses on contracts exceed these levels, the terms of the securitization or
warehouse credit facility:

o may require increased credit enhancement, including an increase in the
amount required to be on deposit in the spread account to be accumulated
for the particular pool;
o may restrict the distribution to us of excess spread cash flows associated
with other securitized or warehoused pools; and
o in certain circumstances, may permit affected parties to require the
transfer of servicing on some or all of the securitized or warehoused
contracts from us to an unaffiliated servicer.

We typically retain residual interests or use them as collateral to borrow
cash. In any case, the future excess spread cash flow received in respect of the
residual interests is integral to the financing of our operations. The amount of
cash received from residual interests depends in large part on how well our
portfolio of securitized and warehoused automobile contracts performs. If our
portfolio of securitized and warehoused automobile contracts has higher
delinquency and loss ratios than expected, then the amount of money realized
from our retained residual interests, or the amount of money we could obtain
from the sale or other financing of our residual interests, would be reduced,
which could have an adverse effect on our operations, financial condition and
cash flows.

IF WE ARE UNABLE TO OBTAIN CREDIT ENHANCEMENT FOR OUR SECURITIZATIONS UPON
FAVORABLE TERMS, OUR RESULTS OF OPERATIONS WOULD BE IMPAIRED.

In our securitizations, we typically utilize credit enhancement in the
form of one or more financial guaranty insurance policies issued by financial
guaranty insurance companies. Each of these policies unconditionally and
irrevocably guarantees certain interest and principal payments on the senior
classes of the securities issued in our securitizations. These guarantees enable
these securities to achieve the highest credit rating available. This form of
credit enhancement reduces the costs of our securitizations relative to
alternative forms of credit enhancement currently available to us. None of such
financial guaranty insurance companies is required to insure future
securitizations. As we pursue future securitizations, we may not be able to
obtain:

o credit enhancement in any form from financial guaranty insurance companies
or any other provider of credit enhancement on terms acceptable to us, or
at all; or
o similar ratings for senior classes of securities to be issued in future
securitizations.

If we were unable to obtain such enhancements or such ratings, we would
expect to incur increased interest expense, which would adversely affect our
results of operations.

IF WE ARE UNABLE TO SUCCESSFULLY COMPETE WITH OUR COMPETITORS, OUR RESULTS OF
OPERATIONS MAY BE IMPAIRED.

The automobile financing business is highly competitive. We compete with a
number of national, regional and local finance companies. In addition,
competitors or potential competitors include other types of financial services
companies, such as commercial banks, savings and loan associations, leasing
companies, credit unions providing retail loan financing and lease financing for
new and used vehicles and captive finance companies affiliated with major
automobile manufacturers such as General Motors Acceptance Corporation and Ford
Motor Credit Corporation. Many of our competitors and potential competitors
possess substantially greater financial, marketing, technical, personnel and
other resources than we do, including greater access to capital markets for
unsecured commercial paper and investment grade rated debt instruments, and to
other funding sources which may be unavailable to us. Moreover, our future
profitability will be directly related to the availability and cost of our
capital relative to that of our competitors. Many of these companies also have
long-standing relationships with automobile dealers and may provide other
financing to dealers, including floor plan financing for the dealers' purchases
of automobiles from manufacturers, which we do not offer. There can be no
assurance that we will be able to continue to compete successfully and, as a
result, we may not be able to purchase contracts from dealers at a price
acceptable to us, which could result in reductions in our revenues or the cash
flows available to us.

IF OUR DEALERS DO NOT SUBMIT A SUFFICIENT NUMBER OF SUITABLE AUTOMOBILE
CONTRACTS TO US FOR PURCHASE, OUR RESULTS OF OPERATIONS MAY BE IMPAIRED.

We are dependent upon establishing and maintaining relationships with a
large number of unaffiliated automobile dealers to supply us with automobile
contracts. During the year ended December 31, 2007, no dealer accounted for more
than 1.0% of the contracts we purchased. The agreements we have with dealers to
purchase contracts do not require dealers to submit a minimum number of
contracts for purchase. The failure of dealers to submit contracts that meet our
underwriting criteria could result in reductions in our revenues or the cash
flows available to us, and, therefore, could have an adverse effect on our
results of operations.

IF A SIGNIFICANT NUMBER OF OUR AUTOMOBILE CONTRACTS EXPERIENCE DEFAULTS, OUR
RESULTS OF OPERATIONS MAY BE IMPAIRED.

We specialize in the purchase and servicing of contracts to finance
automobile purchases by sub-prime customers, those who have limited credit
history, low income, or past credit problems. Such contracts entail a higher
risk of non-performance, higher delinquencies and higher losses than contracts
with more creditworthy customers. While we believe that our pricing of the
automobile contracts and the underwriting criteria and collection methods we
employ enable us to control, to a degree, the higher risks inherent in contracts
with sub-prime customers, no assurance can be given that such pricing, criteria
and methods will afford adequate protection against such risks. We have in the
past experienced fluctuations in the delinquency and charge-off performance of
our contracts.

If automobile contracts that we purchase experience defaults to a greater
extent than we have anticipated, this could materially and adversely affect our
results of operations, financial condition, cash flows and liquidity. Our
results of operations, financial condition, cash flows and liquidity, depend, to
a material extent, on the performance of automobile contracts that we purchase,
warehouse and securitize. A portion of the automobile contracts acquired by us
will default or prepay. In the event of payment default, the collateral value of
the vehicle securing an automobile contract realized by us in a repossession
will most likely not cover the outstanding principal balance on that contract
and the related costs of recovery. We maintain an allowance for credit losses on
automobile contracts held on our balance sheet, which reflects our estimates of
probable credit losses that can be reasonably estimated for securitizations that
are accounted for as financings and warehoused contracts. If the allowance is
inadequate, then we would recognize the losses in excess of the allowance as an
expense and our results of operations could be adversely affected. In addition,
under the terms of our warehouse credit facilities, we are not able to borrow
against defaulted automobile contracts, including contracts that are, at the
time of default, funded under our warehouse credit facilities, which will reduce
the overcollateralization of those warehouse credit facilities and possibly
reduce the amount of cash flows available to us.

IF WE LOSE SERVICING RIGHTS ON OUR PORTFOLIO OF AUTOMOBILE CONTRACTS, OUR
RESULTS OF OPERATIONS WOULD BE IMPAIRED.

We are entitled to receive servicing fees only while we act as servicer
under the applicable sale and servicing agreements governing our warehouse
facilities and securitizations. Under such agreements, we may be terminated as
servicer upon the occurrence of certain events, including:

o our failure generally to observe and perform covenants and agreements
applicable to us;
o certain bankruptcy events involving us; or
o the occurrence of certain events of default under the documents governing
the facilities.

The loss of our servicing rights could materially and adversely affect our
results of operations, financial condition and cash flows. Our results of
operations, financial condition and cash flows, would be materially and
adversely affected if we were to be terminated as servicer with respect to a
material portion of the automobile contracts for which we are receiving
servicing fees.

IF WE LOSE KEY PERSONNEL, OUR RESULTS OF OPERATIONS MAY BE IMPAIRED.

Our senior management team averages thirteen years of service with us.
Charles E. Bradley, Jr., our President and CEO, has been our President since our
formation in 1991. Our future operating results depend in significant part upon
the continued service of our key senior management personnel, none of whom is
bound by an employment agreement. Our future operating results also depend in
part upon our ability to attract and retain qualified management, technical,
sales and support personnel for our operations. Competition for such personnel
is intense. We cannot assure you that we will be successful in attracting or
retaining such personnel. The loss of any key employee, the failure of any key
employee to perform in his or her current position or our inability to attract
and retain skilled employees, as needed, could materially and adversely affect
our results of operations, financial condition and cash flows.

IF WE FAIL TO COMPLY WITH REGULATIONS, OUR RESULTS OF OPERATIONS MAY BE
IMPAIRED.

Failure to materially comply with all laws and regulations applicable to
us could materially and adversely affect our ability to operate our business.
Our business is subject to numerous federal and state consumer protection laws
and regulations, which, among other things:

o require us to obtain and maintain certain licenses and qualifications;
o limit the interest rates, fees and other charges we are allowed to charge;
o limit or prescribe certain other terms of our automobile contracts;
o require specific disclosures to our customers;
o define our rights to repossess and sell collateral; and
o maintain safeguards designed to protect the security and confidentiality
of customer information.

We believe that we are in compliance in all material respects with all
such laws and regulations, and that such laws and regulations have had no
material adverse effect on our ability to operate our business. However, we may
be materially and adversely affected if we fail to comply with:

o applicable laws and regulations;
o changes in existing laws or regulations;
o changes in the interpretation of existing laws or regulations; or
o any additional laws or regulations that may be enacted in the future.

IF WE EXPERIENCE UNFAVORABLE LITIGATION RESULTS, OUR RESULTS OF OPERATIONS MAY
BE IMPAIRED.

Unfavorable outcomes in any of our current or future litigation
proceedings could materially and adversely affect our results of operations,
financial conditions and cash flows. As a consumer finance company, we are
subject to various consumer claims and litigation seeking damages and statutory
penalties based upon, among other things, disclosure inaccuracies and wrongful
repossession, which could take the form of a plaintiff's class action complaint.
We, as the assignee of finance contracts originated by dealers, may also be
named as a co-defendant in lawsuits filed by consumers principally against
dealers. We are also subject to other litigation common to the automobile
industry and businesses in general. The damages and penalties claimed by
consumers and others in these types of matters can be substantial. The relief
requested by the plaintiffs varies but includes requests for compensatory,
statutory and punitive damages.

While we intend to vigorously defend ourselves against such proceedings,
there is a chance that our results of operations, financial condition and cash
flows could be materially and adversely affected by unfavorable outcomes.

IF WE EXPERIENCE PROBLEMS WITH OUR ORIGINATIONS, ACCOUNTING OR COLLECTION
SYSTEMS, OUR RESULTS OF OPERATIONS MAY BE IMPAIRED.

We are dependent on our receivables originations, accounting and
collection systems to service our portfolio of automobile contracts. Such
systems are vulnerable to damage or interruption from natural disasters, power
loss, telecommunication failures, terrorist attacks, computer viruses and other
events. A significant number of our systems are not redundant, and our disaster
recovery planning is not sufficient for every eventuality. Our systems are also
subject to break-ins, sabotage and intentional acts of vandalism by internal
employees and contractors as well as third parties. Despite any precautions we
may take, such problems could result in interruptions in our services, which
could harm our reputation and financial condition. We do not carry business
interruption insurance sufficient to compensate us for losses that may result
from interruptions in our service as a result of system failures. Such systems
problems could materially and adversely affect our results of operations,
financial conditions and cash flows.

WE HAVE SUBSTANTIAL INDEBTEDNESS.

We have and will continue to have a substantial amount of indebtedness. At
December 31, 2007, we had approximately $2,132.3 million of debt outstanding.
Such debt consisted primarily of $1,798.3 million of securitization trust debt,
and also included $235.9 million of warehouse indebtedness, $70.0 million of
residual interest financing, and $28.1 million owed under a subordinated notes
program. We are also currently offering the subordinated notes to the public on
a continuous basis, and such notes have maturities that range from three months
to ten years.

Our substantial indebtedness could adversely affect our financial
condition by, among other things:

o increasing our vulnerability to general adverse economic and industry
conditions;
o requiring us to dedicate a substantial portion of our cash flow from
operations payments on our indebtedness, thereby reducing amounts
available for working capital, capital expenditures and other general
corporate purposes;
o limiting our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
o placing us at a competitive disadvantage compared to our competitors that
have less debt; and
o limiting our ability to borrow additional funds.

Although we believe we are able to service and repay such debt, there is
no assurance that we will be able to do so. If we do not generate sufficient
operating profits, our ability to make required payments on our debt would be
impaired. Failure to pay our indebtedness when due could have a material adverse
effect.

BECAUSE WE ARE SUBJECT TO MANY RESTRICTIONS IN OUR EXISTING CREDIT FACILITIES
AND SECURITIZATION TRANSACTIONS, OUR ABILITY TO PAY DIVIDENDS OR ENGAGE IN
SPECIFIED TRANSACTIONS MAY BE IMPAIRED.

The terms of our existing credit facilities and our outstanding debt
impose significant operating and financial restrictions on us and our
subsidiaries and require us to meet certain financial tests. These restrictions
may have an adverse effect on our business activities, results of operations and
financial condition. These restrictions may also significantly limit or prohibit
us from engaging in certain transactions, including the following:

o incurring or guaranteeing additional indebtedness;
o making capital expenditures in excess of agreed upon amounts;
o paying dividends or other distributions to our stockholders or redeeming,
repurchasing or retiring our capital stock or subordinated obligations;
o making investments;
o creating or permitting liens on our assets or the assets of our
subsidiaries;
o issuing or selling capital stock of our subsidiaries;
o transferring or selling our assets;
o engaging in mergers or consolidations;
o permitting a change of control of our company;
o liquidating, winding up or dissolving our company;
o changing our name or the nature of our business, or the names or nature of
the business of our subsidiaries; and
o engaging in transactions with our affiliates outside the normal course of
business.

These restrictions may limit our ability to obtain additional sources of
capital, which may limit our ability to generate earnings. In addition, the
failure to comply with any of the covenants of our existing credit facilities or
to maintain certain indebtedness ratios would cause a default under one or more
of our credit facilities or our other debt agreements that may be outstanding
from time to time. A default, if not waived, could result in acceleration of the
related indebtedness, in which case such debt would become immediately due and
payable. A continuing default or acceleration of one or more of our credit
facilities or any other debt agreement, would likely cause a default under other
debt agreements that otherwise would not be in default, in which case all such
related indebtedness could be accelerated. If this occurs, we may not be able to
repay our debt or borrow sufficient funds to refinance our indebtedness. Even if
any new financing is available, it may not be on terms that are acceptable to us
or it may not be sufficient to refinance all of our indebtedness as it becomes
due.

In addition, the transaction documents for our securitizations restrict
our securitization subsidiaries from declaring or making payment to us of (i)
any dividend or other distribution on or in respect of any shares of their
capital stock, or (ii) any payment on account of the purchase, redemption,
retirement or acquisition of any option, warrant or other right to acquire
shares of their capital stock unless (in each case) at the time of such
declaration or payment (and after giving effect thereto) no amount payable under
any transaction document with respect to the related securitization is then due
and owing, but unpaid. These restrictions may limit our ability to receive
distributions in respect of the residual interests from our securitization
facilities, which may limit our ability to generate earnings.

RISKS RELATED TO GENERAL FACTORS

IF THE ECONOMY OF ALL OR CERTAIN REGIONS OF THE UNITED STATES SLOWS OR ENTERS
INTO A RECESSION, OUR RESULTS OF OPERATIONS MAY BE IMPAIRED.

Our business is directly related to sales of new and used automobiles,
which are sensitive to employment rates, prevailing interest rates and other
domestic economic conditions. Delinquencies, repossessions and losses generally
increase during economic slowdowns or recessions. Because of our focus on
sub-prime customers, the actual rates of delinquencies, repossessions and losses
on our automobile contracts could be higher under adverse economic conditions
than those experienced in the automobile finance industry in general,
particularly in the states of Texas, California, Ohio, Florida, Pennsylvania and
Louisiana, states in which our automobile contracts are geographically
concentrated. Any sustained period of economic slowdown or recession could
adversely affect our ability to acquire suitable contracts, or to securitize
pools of such contracts. The timing of any economic changes is uncertain, and
weakness in the economy could have an adverse effect on our business and that of
the dealers from which we purchase contracts and result in reductions in our
revenues or the cash flows available to us.

OUR RESULTS OF OPERATIONS MAY BE IMPAIRED AS A RESULT OF NATURAL DISASTERS.

Our automobile contracts are geographically concentrated in the states of
Texas, California, Ohio, Florida, Pennsylvania, and Louisiana. Several of such
states are particularly susceptible to natural disasters: earthquake in the case
of California, and hurricanes and flooding in the states of Florida, Texas and
Louisiana. Natural disasters, in those states or others, could cause a material
number of our vehicle purchasers to lose their jobs, or could damage or destroy
vehicles that secure our automobile contracts. In either case, such events could
result in our receiving reduced collections on our automobile contracts, and
could thus result in reductions in our revenues or the cash flows available to
us.

IF AN INCREASE IN INTEREST RATES RESULTS IN A DECREASE IN OUR CASH FLOW FROM
EXCESS SPREAD, OUR RESULTS OF OPERATIONS MAY BE IMPAIRED.

Our profitability is largely determined by the difference, or "spread,"
between the effective interest rate received by us on the automobile contracts
that we acquire and the interest rates payable under our warehouse credit
facilities and on the asset-backed securities issued in our securitizations.
Recent disruptions in the market for asset-backed securities may result in an
increase in the interest rates we pay on asset-backed securities that we may
issue in future securitizations. Although we have the ability to partially
offset increases in our cost of funds by increasing fees we charge to dealers
when purchasing contracts, or in some cases, by demanding higher interest rates
on contracts we purchase, there is no assurance that such actions will
materially offset increases in interest we pay to finance our managed portfolio.

Several factors affect our ability to manage interest rate risk.
Specifically, we are subject to interest rate risk during the period between
when automobile contracts are purchased from dealers and when such contracts are
sold and financed in a securitization. Interest rates on our warehouse credit
facilities are adjustable while the interest rates on the automobile contracts
are fixed. Therefore, if interest rates increase, the interest we must pay to
the lenders under our warehouse credit facilities is likely to increase while
the interest realized by us from those warehoused automobile contracts remains
the same, and thus, during the warehousing period, the excess spread cash flow
received by us would likely decrease. Additionally, contracts warehoused and
then securitized during a rising interest rate environment may result in less
excess spread cash flow realized by us under those securitizations as,
historically, our securitization facilities pay interest to security holders on
a fixed rate basis set at prevailing interest rates at the time of the closing
of the securitization, which may be several months after the securitized
contracts were originated and entered the warehouse, while our customers pay
fixed rates of interest on the contracts, set at the time they purchase the
underlying vehicles. A decrease in excess spread cash flow could adversely
affect our earnings and cash flow.

To mitigate, but not eliminate, the short-term risk relating to interest
rates payable by us under the warehouse facilities, we generally hold automobile
contracts in the warehouse credit facilities for less than four months. To
mitigate, but not eliminate, the long-term risk relating to interest rates
payable by us in securitizations, we have in the past, and intend to continue
to, structure some of our securitization transactions to include pre-funding
structures, whereby the amount of securities issued exceeds the amount of
contracts initially sold into the securitization. In pre-funding, the proceeds
from the pre-funded portion are held in an escrow account until we sell the
additional contracts into the securitization in amounts up to the balance of the
pre-funded escrow account. In pre-funded securitizations, we effectively lock in
our borrowing costs with respect to the contracts we subsequently sell into the
securitization. However, we incur an expense in pre-funded securitizations equal
to the difference between the money market yields earned on the proceeds held in
escrow prior to subsequent delivery of contracts and the interest rate paid on
the securities issued in the securitization. The amount of such expense may
vary. Despite these mitigation strategies, an increase in prevailing interest
rates would cause us to receive less excess spread cash flows on automobile
contracts, and thus could adversely affect our earnings and cash flows.

THE EFFECTS OF TERRORISM AND MILITARY ACTION MAY IMPAIR OUR RESULTS OF
OPERATIONS.

The long-term economic impact of the events of September 11, 2001,
possible future terrorist attacks or other incidents and related military
action, or current or future military action by United States forces in Iraq and
other regions, could have a material adverse effect on general economic
conditions, consumer confidence, and market liquidity in the United States. No
assurance can be given as to the effect of these events on the performance of
our automobile contracts. Any adverse effect resulting from these events could
materially affect our results of operations, financial condition and cash flows.
In addition, activation of a substantial number of U.S. military reservists or
members of the National Guard may significantly increase the proportion of
contracts whose interest rates are reduced by the application of the
Servicemembers' Civil Relief Act, which provides, generally, that an obligor who
is covered by that act may not be charged interest on the related contract in
excess of 6% annually during the period of the obligor's active duty.

RISKS RELATED TO OUR COMMON STOCK

OUR COMMON STOCK IS THINLY-TRADED.

Our stock is thinly-traded, which means investors will have limited
opportunities to sell their shares of common stock in the open market. Limited
trading of our common stock also contributes to more volatile price
fluctuations. Because there historically has been low trading volume in our
common stock, there can be no assurance that our stock price will not decline as
additional shares are sold in the public market. As of December 31, 2007, all of
our directors and executive officers beneficially owned 3,297,165 shares of our
common stock, or approximately 17%.

WE DO NOT INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK.

We have never declared or paid any cash dividends on our common stock. We
currently intend to retain any future earnings and do not expect to pay any
dividends in the foreseeable future. See "Dividend Policy".

FORWARD-LOOKING STATEMENTS

Discussions of certain matters contained in this report may constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act") and Section 21E of the Exchange
Act, and as such, may involve risks and uncertainties. These forward-looking
statements relate to, among other things, expectations of the business
environment in which we operate, projections of future performance, perceived
opportunities in the market and statements regarding our mission and vision. You
can generally identify forward-looking statements as statements containing the
words "will," "would," "believe," "may," "could," "expect," "anticipate,"
"intend," "estimate," "assume" or other similar expressions. Our actual results,
performance and achievements may differ materially from the results, performance
and achievements expressed or implied in such forward-looking statements. The
discussion under "Risk Factors" identifies some of the factors that might cause
such a difference, including the following:

o changes in general economic conditions;
o changes in interest rates;
o our ability to generate sufficient operating and financing cash flows;
o competition;
o level of future provisioning for receivables losses; and
o regulatory requirements.

Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. Actual results may differ from
expectations due to many factors beyond our ability to control or predict,
including those described herein, and in documents incorporated by reference in
this report. For these statements, we claim the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995.

We undertake no obligation to publicly update any forward-looking
information. You are advised to consult any additional disclosure we make in our
periodic reports filed with the SEC. See "Where You Can Find More Information"
and "Documents Incorporated by Reference."

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTY

The Company's headquarters are located in Irvine, California, where it
leases approximately 115,000 square feet of general office space from an
unaffiliated lessor. The annual base rent was approximately $1.9 million through
October 2003, and increased to $2.1 million for the following five years. In
addition to base rent, the Company pays the property taxes, maintenance and
other expenses of the premises.

In March 1997, the Company established a branch collection facility in
Chesapeake, Virginia. The Company leases approximately 28,000 square feet of
general office space in Chesapeake, Virginia, at a base rent that is currently
$508,472 per year, increasing to $589,458 over a five year term.

The remaining two regional servicing centers occupy a total of
approximately 59,000 square feet of leased space in Maitland, Florida; and
Hinsdale, Illinois. The termination dates of such leases range from 2008 to
2011.

ITEM 3. LEGAL PROCEEDINGS

STANWICH LITIGATION. CPS was for some time a defendant in a class action
(the "Stanwich Case") brought in the California Superior Court, Los Angeles
County. The original plaintiffs in that case were persons entitled to receive
regular payments (the "Settlement Payments") pursuant to earlier settlements of
claims, generally personal injury claims, against unrelated defendants. Stanwich
Financial Services Corp. ("Stanwich"), which was an affiliate of the former
chairman of the board of directors of CPS, is the entity that was obligated to
pay the Settlement Payments. Stanwich defaulted on its payment obligations to
the plaintiffs and in June 2001 filed for reorganization under the Bankruptcy
Code, in the federal bankruptcy court in Connecticut. At December 31, 2004, CPS
was a defendant only in a cross-claim brought by one of the other defendants in
the case, Bankers Trust Company, which asserted a claim of contractual indemnity
against CPS.

By February 2005, CPS had settled all claims brought against it in the
Stanwich Case.

In November 2001, one of the defendants in the Stanwich Case, Jonathan
Pardee, asserted claims for indemnity against the Company in a separate action,
which is now pending in federal district court in Rhode Island. The Company has
filed counterclaims in the Rhode Island federal court against Mr. Pardee, and
has filed a separate action against Mr. Pardee's Rhode Island attorneys, in the
same court. The litigation between Mr. Pardee and CPS is stayed, awaiting
resolution of an adversary action brought against Mr. Pardee in the bankruptcy
court, which is hearing the bankruptcy of Stanwich.

CPS has reached an agreement in principle with the representative of
creditors in the Stanwich bankruptcy to resolve the adversary action. Under the
agreement in principle, CPS was to pay the bankruptcy estate $625,000 and
abandon its claims against the estate, while the estate would abandon its
adversary action against Mr. Pardee. The bankruptcy court has rejected that
proposed settlement, and the representative of creditors has appealed that
rejection. If the agreement in principle were to be approved upon appeal, CPS
would expect that the agreement would result in (i) limitation of its exposure
to Mr. Pardee to no more than some portion of his attorneys fees incurred and
(ii) stays in Rhode Island being lifted, causing those cases to become active
again. CPS is unable to predict whether the ruling of the bankruptcy court will
be sustained or overturned on appeal.

The reader should consider that an adverse judgment against CPS in the
Rhode Island case for indemnification, if in an amount materially in excess of
any liability already recorded in respect thereof, could have a material adverse
effect on our financial condition.

OTHER LITIGATION. In December 2006 an individual resident of Ohio,
Agborebot Bate-Eya, filed a purported class counterclaim to a collection lawsuit
brought by SeaWest Financial Corp. ("SeaWest") in Ohio state court. The
counterclaim alleged that a form notice sent by SeaWest to counterplaintiff in
December 2000, and used then and at other times, was not compliant with Ohio
law. In August 2007, the counterplaintiff added us as an additional defendant,
noting that we in April 2004 had purchased from SeaWest a number of consumer
receivables, including that of the counterplaintiff. We have filed a motion to
dismiss the counterclaim, and believe that our no more than tenuous connection
to the counterplaintiff will protect us from any material liability or expense.
There can be no assurance, however, as to the outcome of contested litigation,
including this case.

We are routinely involved in various legal proceedings resulting from our
consumer finance activities and practices, both continuing and discontinued. We
believe that there are substantive legal defenses to such claims, and intend to
defend them vigorously. There can be no assurance, however, as to their
outcomes. We have recorded a liability as of December 31, 2007 that we believe
represents a sufficient allowance for legal contingencies. Any adverse judgment
against us, if in an amount materially in excess of the recorded liability,
could have a material adverse effect on our financial position or results of
operations.

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

No matters were submitted to our shareholders during the fourth quarter of
2007.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

CHARLES E. BRADLEY, JR., 48, has been our President and a director since
our formation in March 1991, and was elected Chairman of the Board of Directors
in July 2001. In January 1992, Mr. Bradley was appointed Chief Executive
Officer. From April 1989 to November 1990, he served as Chief Operating Officer
of Barnard and Company, a private investment firm. From September 1987 to March
1989, Mr. Bradley, Jr. was an associate of The Harding Group, a private
investment banking firm. Mr. Bradley does not currently serve on the board of
directors of any other publicly-traded companies.

MARK A. CREATURA, 48, has been Senior Vice President - General Counsel
since October 1996. From October 1993 through October 1996, he was Vice
President and General Counsel at Urethane Technologies, Inc., a polyurethane
chemicals formulator. Mr. Creatura was previously engaged in the private
practice of law with the Los Angeles law firm of Troy & Gould Professional
Corporation, from October 1985 through October 1993.

JEFFREY P. FRITZ, 48, has been Senior Vice President - Chief Financial
Officer since April 2006. He was Senior Vice President - Accounting from August
2004 through March 2006. He served as a consultant to us from May 2004 to August
2004. Previously, he was the Chief Financial Officer of SeaWest Financial Corp.
from February 2003 to May 2004, and the Chief Financial Officer of AFCO Auto
Finance from April 2002 to February 2003. He practiced public accounting with
Glenn M. Gelman & Associates from March 2001 to April 2002 and was Chief
Financial Officer of Credit Services Group, Inc. from May 1999 to November 2000.
He previously served as our Chief Financial Officer from our inception through
May 1999.

CURTIS K. POWELL, 51, has been Senior Vice President - Contract
Origination since June 2001. Previously, he was our Senior Vice President -
Marketing, from April 1995. He joined us in January 1993 as an independent
marketing representative until being appointed Regional Vice President of
Marketing for Southern California in November 1994. From June 1985 through
January 1993, Mr. Powell was in the retail automobile sales and leasing
business.

ROBERT E. RIEDL, 44, has been Senior Vice President - Chief Investment
Officer since April 2006. Mr. Riedl was Senior Vice President - Chief Financial
Officer from August 2003 until assuming his current position. Mr. Riedl joined
the Company as Senior Vice President - Risk Management in January 2003.
Previously, Mr. Riedl was a Principal at Northwest Capital Appreciation ("NCA"),
a middle market private equity firm, from 2000 to 2002. For a year prior to
joining Northwest Capital, Mr. Riedl served as Senior Vice President for one of
NCA's portfolio companies, SLP Capital. Mr. Riedl was an investment banker for
ContiFinancial Services Corporation from 1995 until joining SLP Capital in 1999.

CHRISTOPHER TERRY, 40, has been Senior Vice President - Servicing since
May 2005, and prior to that was Senior Vice President - Asset Recovery since
January 2003. He joined us in January 1995 as a loan officer, held a series of
successively more responsible positions, and was promoted to Vice President -
Asset Recovery in June 1999. Mr. Terry was previously a branch manager with
Norwest Financial from 1990 to October 1994.

TERI L. CLEMENTS, 45, has been the Senior Vice President of Originations
since April 2007. Prior to that, she held the position of Vice President of
Originations since August 1998. She joined the Company in June 1991 as an
Operations Specialist. Previously, Ms. Clements held an administrative position
at Greco & Associates.

JAYNE E. HOLLAND, 46, has been the Senior Vice President of Operations
since April 2007. Prior to that, she held the position of Vice President of
Operations since June 1999 and has been with the company since 1993. Ms. Holland
was previously the Assistant Vice President of Operations for Far Western Bank
from 1986 through 1990, and has been in the auto finance industry since 1981.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY SECURITIES

The Company's Common Stock is traded on the Nasdaq Global Market, under
the symbol "CPSS." The following table sets forth the high and low sale prices
as reported by Nasdaq for our Common Stock for the periods shown.

HIGH LOW
------ -------
January 1 - March 31, 2006..................... 8.50 5.30
April 1 - June 30, 2006........................ 8.84 6.04
July 1 - September 30, 2006.................... 7.53 5.08
October 1 - December 31, 2006.................. 7.46 5.30
January 1 - March 31, 2007..................... 7.77 5.25
April 1 - June 30, 2007........................ 7.21 5.49
July 1 - September 30, 2007.................... 6.75 4.28
October 1 - December 31, 2007.................. 6.20 3.00

As of March 7, 2008, there were 63 holders of record of the Company's
Common Stock. To date, we have not declared or paid any dividends on our Common
Stock. The payment of future dividends, if any, on our Common Stock is within
the discretion of the Board of Directors and will depend upon our income,
capital requirements and financial condition, and other relevant factors. The
instruments governing our outstanding debt place certain restrictions on the
payment of dividends. We do not intend to declare any dividends on our Common
Stock in the foreseeable future, but instead intend to retain any cash flow for
use in our operations.

The table below presents information regarding outstanding options to
purchase our Common Stock as of December 31, 2007:

NUMBER OF SECURITIES WEIGHTED AVERAGE NUMBER OF
TO BE ISSUED UPON EXERCISE PRICE OF SECURITIES REMAINING
EXERCISE OF OUTSTANDING OUTSTANDING AVAILABLE FOR FUTURE
OPTIONS, WARRANTS OPTIONS, WARRANTS ISSUANCE UNDER EQUITY
PLAN CATEGORY AND RIGHTS AND RIGHTS COMPENSATION PLANS
--------------------------------- ----------------------- ------------------- ---------------------

Equity compensation plans
approved by security holders... 6,196,299 $ 4.47 760,000
Equity compensation plans not
approved by security holders... - - -
----------------------- ------------------- ---------------------

Total 6,196,299 $ 4.47 760,000
======================= =================== =====================

ISSUER PURCHASES OF EQUITY SECURITIES IN THE FOURTH QUARTER

TOTAL NUMBER OF APPROXIMATE DOLLAR
TOTAL SHARES PURCHASED AS VALUE OF SHARES THAT
NUMBER OF AVERAGE PART OF PUBLICLY MAY YET BE PURCHASED
SHARES PRICE PAID ANNOUNCED PLANS OR UNDER THE PLANS OR
PERIOD(1) PURCHASED PER SHARE PROGRAMS(2) PROGRAMS
-------------------- ---------------- ---------------- --------------------- ----------------------

October 2007........ $ 25,500 $ 4.89 25,500 $ 2,180,365
November 2007....... $ 220,380 4.27 220,380 1,238,575
December 2007....... $ 67,810 3.50 67,810 1,001,237
---------------- ---------------- ---------------------
Total 313,690 $ 4.16 313,690
================ ================ =====================

(1) EACH MONTHLY PERIOD IS THE CALENDAR MONTH.
(2) THROUGH DECEMBER 31, 2007, OUR BOARD OF DIRECTORS HAD AUTHORIZED THE
PURCHASE OF UP TO $27.5 MILLION OF OUR OUTSTANDING SECURITIES, WHICH
PROGRAM WAS FIRST ANNOUNCED IN OUR ANNUAL REPORT FOR THE YEAR 2002, FILED
ON MARCH 26, 2003. ALL PURCHASES DESCRIBED IN THE TABLE ABOVE WERE UNDER
THE PLAN ANNOUNCED IN MARCH 2003, WHICH HAS NO FIXED EXPIRATION DATE. ON
JANUARY 30, 2008, THE BOARD OF DIRECTOR'S AUTHORIZED THE PURCHASE OF AN
ADDITIONAL $5 MILLION OF OUR SECURITIES.

ITEM 6. SELECTED FINANCIAL DATA

The following table presents our selected consolidated financial data and
operating data as of and for the dates indicated. The data under the captions
"Statement of Operations Data" and "Balance Sheet Data" have been derived from
our audited and unaudited consolidated financial statements. The remainder is
derived from other records of ours.

You should read the selected consolidated financial data together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our audited and unaudited financial statements and notes thereto
that are included in this report.

AS OF AND
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 2007 2006 2005 2004 2003
------------ ------------ ------------ ------------ ------------

Statement of Operations Data
Revenues:
Interest income ................................... $ 370,265 $ 263,566 $ 171,834 $ 105,818 $ 58,164
Servicing fees .................................... 1,218 2,894 6,647 12,480 17,058
Net gain on sale of contracts ..................... - - - - 10,421
Other income ...................................... 23,067 12,403 15,216 14,394 19,343
------------ ------------ ------------ ------------ ------------
Total revenues .................................. 394,550 278,863 193,697 132,692 104,986
------------ ------------ ------------ ------------ ------------
Expenses:
Employee costs .................................... 46,716 38,483 40,384 38,173 37,141
General and administrative ........................ 47,416 42,011 39,285 33,936 31,581
Interest expense .................................. 139,189 93,112 51,669 32,147 23,861
Provision for credit losses ....................... 137,272 92,057 58,987 32,574 11,390
Impairment loss on residual assets (1) ............ - - - 11,750 4,052
------------ ------------ ------------ ------------ ------------
Total expenses .................................. 370,593 265,663 190,325 148,580 108,025
------------ ------------ ------------ ------------ ------------
Income (loss) before income tax expense (benefit) ... 23,957 13,200 3,372 (15,888) (3,039)
Income tax expense (benefit) ........................ 10,099 (26,355) - - (3,434)
------------ ------------ ------------ ------------ ------------
Net income (loss) ................................... $ 13,858 $ 39,555 $ 3,372 $ (15,888) $ 395
============ ============ ============ ============ ============

Earnings (loss) per share-basic ..................... $ 0.66 $ 1.82 $ 0.16 $ (0.75) $ 0.02
Earnings (loss) per share-diluted ................... $ 0.61 $ 1.64 $ 0.14 $ (0.75) $ 0.02
Pre-tax income (loss) per share-basic (2) ........... $ 1.15 $ 0.61 $ 0.16 $ (0.75) $ (0.15)
Pre-tax income (loss) per share-diluted (3) ......... $ 1.06 $ 0.55 $ 0.14 $ (0.75) $ (0.14)
Weighted average shares outstanding-basic ........... 20,880 21,759 21,627 21,111 20,263
Weighted average shares outstanding-diluted ......... 22,595 24,052 23,513 21,111 21,578

BALANCE SHEET DATA
Total assets ........................................ $ 2,282,813 $ 1,728,594 $ 1,155,144 $ 766,599 $ 492,470
Cash and cash equivalents ........................... 20,880 14,215 17,789 14,366 33,209
Restricted cash and equivalents ..................... 170,341 193,001 157,662 125,113 67,277
Finance receivables, net ............................ 1,967,866 1,401,414 913,576 550,191 266,189
Residual interest in securitizations ................ 2,274 13,795 25,220 50,430 111,702
Warehouse lines of credit ........................... 235,925 72,950 35,350 34,279 33,709
Residual interest financing ......................... 70,000 31,378 43,745 22,204 -
Securitization trust debt ........................... 1,798,302 1,442,995 924,026 542,815 245,118
Long-term debt ...................................... 28,134 38,574 58,655 74,829 102,465
Shareholders' equity ................................ 114,355 111,512 73,589 69,920 82,160

(1) THE IMPAIRMENT LOSS WAS RELATED TO OUR ANALYSIS AND ESTIMATE OF THE
EXPECTED ULTIMATE PERFORMANCE OF OUR PREVIOUSLY SECURITIZED POOLS THAT
WERE HELD BY OUR NON-CONSOLIDATED SUBSIDIARIES AND THE RESIDUAL INTEREST
IN SECURITIZATIONS. THE IMPAIRMENT LOSS WAS A RESULT OF THE ACTUAL NET
LOSS AND PREPAYMENT RATES EXCEEDING OUR PREVIOUS ESTIMATES FOR THE
AUTOMOBILE CONTRACTS HELD BY OUR NON-CONSOLIDATED SUBSIDIARIES.
(2) INCOME (LOSS) BEFORE INCOME TAX BENEFIT DIVIDED BY WEIGHTED AVERAGE SHARES
OUTSTANDING-BASIC. INCLUDED FOR ILLUSTRATIVE PURPOSES BECAUSE SOME OF THE
PERIODS PRESENTED INCLUDE SIGNIFICANT INCOME TAX BENEFITS WHILE OTHER
PERIODS HAVE NEITHER INCOME TAX BENEFIT NOR EXPENSE.
(3) INCOME (LOSS) BEFORE INCOME TAX BENEFIT DIVIDED BY WEIGHTED AVERAGE SHARES
OUTSTANDING-DILUTED. INCLUDED FOR ILLUSTRATIVE PURPOSES BECAUSE SOME OF
THE PERIODS PRESENTED INCLUDE SIGNIFICANT INCOME TAX BENEFITS WHILE OTHER
PERIODS HAVE NEITHER INCOME TAX BENEFIT NOR EXPENSE.

CONTRACT PURCHASES/SECURITIZATIONS
Automobile contract purchases........................ $ 1,282,311 $ 1,019,018 $ 691,252 $ 447,232 $ 357,320
Automobile contract acquisitions (1)................. - - - 74,901 152,143
Automobile contracts securitized - structured
as sales........................................... - - - - 254,436
Automobile contracts securitized - structured
as secured financings.............................. 1,118,097 957,681 674,421 479,369 140,288

MANAGED PORTFOLIO DATA
Contracts held by consolidated subsidiaries.......... $ 2,125,755 $ 1,527,285 $ 1,000,597 $ 619,794 $ 315,598
Contracts held by non-consolidated subsidiaries...... - 34,850 103,130 233,621 425,534
SeaWest third party portfolio (2).................... 422 3,770 18,018 53,463 -
------------ ------------ ------------ ------------ ------------
Total managed portfolio.............................. $ 2,126,177 $ 1,565,905 $ 1,121,745 $ 906,878 $ 741,132
Average managed portfolio............................ 1,906,605 1,376,781 997,697 861,262 662,382

Weighted average fixed effective interest rate
(total managed portfolio) (3)...................... 18.2% 18.5% 18.6% 19.2% 19.7%
Core operating expense
(% of average managed portfolio) (4)............... 4.9% 5.8% 8.0% 8.4% 10.4%
Allowance for loan losses............................ $ 100,138 $ 79,380 $ 57,728 $ 42,615 $ 35,889
Allowance for loan losses (% of total contracts
held by consolidated subsidiaries)................. 4.7% 5.2% 5.8% 6.9% 11.4%
Total delinquencies (3) (5).......................... 4.7% 4.0% 3.8% 4.0% 4.7%
Total delinquencies and repossessions (3) (5)........ 6.3% 5.5% 5.0% 5.6% 6.2%
Net charge-offs (3) (6).............................. 5.3% 4.5% 5.3% 7.8% 6.8%

(1) REPRESENTS AUTOMOBILE CONTRACTS NOT PURCHASED DIRECTLY FROM DEALERS, BUT
ACQUIRED AS A RESULT OF OUR ACQUISITIONS OF TFC IN 2003 AND OF CERTAIN
ASSETS OF SEAWEST IN 2004.
(2) RECEIVABLES RELATED TO THE SEAWEST THIRD PARTY PORTFOLIO, ON WHICH WE EARN
ONLY A SERVICING FEE.
(3) EXCLUDES RECEIVABLES RELATED TO THE SEAWEST THIRD PARTY PORTFOLIO.
(4) TOTAL EXPENSES EXCLUDING PROVISION FOR CREDIT LOSSES, INTEREST EXPENSE AND
IMPAIRMENT LOSS ON RESIDUAL ASSETS.
(5) FOR FURTHER INFORMATION REGARDING DELINQUENCIES AND THE MANAGED PORTFOLIO,
SEE THE TABLE CAPTIONED "DELINQUENCY EXPERIENCE," IN ITEM 1, PART I OF
THIS REPORT AND THE NOTES TO THAT TABLE.
(6) NET CHARGE-OFFS INCLUDE THE REMAINING PRINCIPAL BALANCE, AFTER THE
APPLICATION OF THE NET PROCEEDS FROM THE LIQUIDATION OF THE VEHICLE
(EXCLUDING ACCRUED AND UNPAID INTEREST) AND AMOUNTS COLLECTED SUBSEQUENT
TO THE DATE OF THE CHARGE-OFF, INCLUDING SOME RECOVERIES WHICH HAVE BEEN
CLASSIFIED AS OTHER INCOME IN THE ACCOMPANYING FINANCIAL STATEMENTS. FOR
FURTHER INFORMATION REGARDING CHARGE-OFFS, SEE THE TABLE CAPTIONED "NET
CHARGE-OFF EXPERIENCE," IN ITEM I, PART I OF THIS REPORT AND THE NOTES TO
THAT TABLE.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis should be read in conjunction with
our consolidated financial statements and notes thereto and other information
included or incorporated by reference herein.

OVERVIEW

We are a specialty finance company engaged in purchasing and servicing new
and used retail automobile contracts originated primarily by franchised
automobile dealerships and, to a lesser extent, by select independent dealers of
used automobiles in the United States. We serve as an alternative source of
financing for dealers, facilitating sales to sub-prime customers who have
limited credit history, low income or past credit problems and who otherwise
might not be able to obtain financing from traditional sources. We are
headquartered in Irvine, California and have three additional servicing branches
in Virginia, Florida and Illinois.

On March 8, 2002, we acquired MFN Financial Corporation and its
subsidiaries in a merger. On May 20, 2003, we acquired TFC Enterprises, Inc. and
its subsidiaries in a second merger. Each merger was accounted for as a
purchase. MFN Financial Corporation and its subsidiaries and TFC Enterprises,
Inc. and its subsidiaries were engaged in businesses similar to ours: buying
automobile contracts from dealers and servicing those automobile contracts. MFN
Financial Corporation and its subsidiaries ceased acquiring automobile contracts
in May 2002; TFC continues to acquire automobile contracts under its "TFC
programs," which provide financing exclusively for vehicle purchases by members
of the United States Armed Forces.

On April 2, 2004, we purchased a portfolio of automobile contracts and
certain other assets from SeaWest Financial Corporation and its subsidiaries. In
addition, we were named the successor servicer of three term securitization
transactions originally sponsored by SeaWest. We do not offer financing programs
similar to those previously offered by SeaWest.

From inception through June 2003, we generated revenue primarily from the
gains recognized on the sale or securitization of automobile contracts,
servicing fees earned on automobile contracts sold, interest earned on residuals
interests retained in securitizations, and interest earned on finance
receivables. Since July 2003, we have not recognized any gains from the sale of
automobile contracts. Instead, since July 2003 our revenues have been derived
from interest on finance receivables and, to a lesser extent, servicing fees and
interest earned on residual interests in securitizations.

SECURITIZATION AND WAREHOUSE CREDIT FACILITIES

GENERALLY

Throughout the periods for which information is presented in this report,
we have purchased automobile contracts with the intention of financing them on a
long-term basis through securitizations, and on an interim basis through our
warehouse credit facilities. All such financings have involved identification of
specific automobile contracts, sale of those automobile contracts (and
associated rights) to one of our special-purpose subsidiaries, and issuance of
asset-backed securities to fund the transactions. Depending on the structure,
these transactions may be accounted for under generally accepted accounting
principles as sales of the automobile contracts or as secured financings.

When structured to be treated as a secured financing for accounting
purposes, the subsidiary is consolidated with us. Accordingly, the sold
automobile contracts and the related debt appear as assets and liabilities,
respectively, on our consolidated balance sheet. We then periodically: (i)
recognize interest and fee income on the contracts, (ii) recognize interest
expense on the securities issued in the transaction, and (iii) record as expense
a provision for credit losses on the contracts. Since July 2003, all of our
securitizations have been structured in this fashion.

When structured to be treated as a sale for accounting purposes, the
assets and liabilities of the special-purpose subsidiary are not consolidated
with us. Accordingly, the transaction removes the sold automobile contracts from
our consolidated balance sheet, the related debt does not appear as our debt,
and our consolidated balance sheet shows, as an asset, a retained residual
interest in the sold automobile contracts. The residual interest represents the
discounted value of what we expect will be the excess of future collections on
the automobile contracts over principal and interest due on the asset-backed
securities. That residual interest appears on our consolidated balance sheet as
"residual interest in securitizations," and the determination of its value is
dependent on our estimates of the future performance of the sold automobile
contracts. Since July 2003, none of our securitizations have been structured to
be treated as a sale for accounting purposes.

CREDIT RISK RETAINED

Whether a sale of automobile contracts in connection with a securitization
or warehouse credit facility is treated as a secured financing or as a sale for
financial accounting purposes, the related special-purpose subsidiary may be
unable to release excess cash to us if the credit performance of the related
automobile contracts falls short of pre-determined standards. Such releases
represent a material portion of the cash that we use to fund our operations. An
unexpected deterioration in the performance of such automobile contracts could
therefore have a material adverse effect on both our liquidity and our results
of operations, regardless of whether such automobile contracts are treated for
financial accounting purposes as having been sold or as having been financed.
For estimation of the magnitude of such risk, it may be appropriate to look to
the size of our "managed portfolio," which represents both financed and sold
automobile contracts as to which such credit risk is retained. Our managed
portfolio as of December 31, 2007 was approximately $2,126.2 million (this
amount includes $422,000 of automobile contracts securitized by SeaWest, on
which we earn only servicing fees and have no credit risk).

CRITICAL ACCOUNTING POLICIES

We believe that our accounting policies related to (a) Allowance for
Finance Credit Losses, (b) Amortization of Deferred Originations Costs and
Acquisition Fees (c) Residual Interest in Securitizations and Gain on Sale of
Automobile Contracts and (d) Income Taxes are the most critical to understanding
and evaluating our reported financial results. Such policies are described
below.

ALLOWANCE FOR FINANCE CREDIT LOSSES

In order to estimate an appropriate allowance for losses to be incurred on
finance receivables, we use a loss allowance methodology commonly referred to as
"static pooling," which stratifies our finance receivable portfolio into
separately identified pools based on the period of origination. Using analytical
and formula driven techniques, we estimate an allowance for finance credit
losses, which we believe is adequate for probable credit losses that can be
reasonably estimated in our portfolio of automobile contracts. Provision for
losses is charged to our consolidated statement of operations. Net losses
incurred on finance receivables are charged to the allowance. We evaluate the
adequacy of the allowance by examining current delinquencies, the
characteristics of the portfolio, prospective liquidation values of the
underlying collateral and general economic and market conditions. As
circumstances change, our level of provisioning and/or allowance may change as
well.

AMORTIZATION OF DEFERRED ORIGINATIONS COSTS AND ACQUISITION FEES

Upon purchase of a contract from a dealer, we generally either charge or
advance the dealer an acquisition fee. In addition, we incur certain direct
costs associated with originations of our contracts. All such acquisition fees
and direct costs are applied to the carrying value of finance receivables and
are accreted into earnings as an adjustment to the yield over the estimated life
of the contract using the interest method, in accordance with Statement of
Financial Accounting Standard No. 91, Accounting for Nonrefundable Fees and
Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases.

TERM SECURITIZATIONS

Our term securitization structure has generally been as follows:

We sell automobile contracts we acquire to a wholly-owned special purpose
subsidiary, which has been established for the limited purpose of buying and
reselling our automobile contracts. The special-purpose subsidiary then
transfers the same automobile contracts to another entity, typically a statutory
trust. The trust issues interest-bearing asset-backed securities, in a principal
amount equal to or less than the aggregate principal balance of the automobile
contracts. We typically sell these automobile contracts to the trust at face

value and without recourse, except that representations and warranties similar
to those provided by the dealer to us are provided by us to the trust. One or
more investors purchase the asset-backed securities issued by the trust; the
proceeds from the sale of the asset-backed securities are then used to purchase
the automobile contracts from us. We may retain or sell subordinated
asset-backed securities issued by the trust or by a related entity. We purchase
external credit enhancement in the form of a financial guaranty insurance
policy, guaranteeing timely payment of interest and ultimate payment of
principal on the senior asset-backed securities, from an insurance company. In
addition, we structure our securitizations to include internal credit
enhancement for the benefit of the insurance company and the investors (i) in
the form of an initial cash deposit to an account ("spread account") held by the
trust, (ii) in the form of overcollateralization of the senior asset-backed
securities, where the principal balance of the senior asset-backed securities
issued is less than the principal balance of the automobile contracts, (iii) in
the form of subordinated asset-backed securities, or (iv) some combination of
such internal credit enhancements. The agreements governing the securitization
transactions require that the initial level of internal credit enhancement be
supplemented by a portion of collections from the automobile contracts until the
level of internal credit enhancement reaches specified levels, which are then
maintained. The specified levels are generally computed as a percentage of the
principal amount remaining unpaid under the related automobile contracts. The
specified levels at which the internal credit enhancement is to be maintained
will vary depending on the performance of the portfolios of automobile contracts
held by the trusts and on other conditions, and may also be varied by agreement
among us, our special purpose subsidiary, the insurance company and the trustee.
Such levels have increased and decreased from time to time based on performance
of the various portfolios, and have also varied from one transaction to another.
The agreements governing the securitizations generally grant us the option to
repurchase the sold automobile contracts from the trust when the aggregate
outstanding balance of the automobile contracts has amortized to a specified
percentage of the initial aggregate balance.

The prior securitizations that were treated as sales for financial
accounting purposes differ from those treated as secured financings in that the
trust to which our special-purpose subsidiaries sold the automobile contracts
met the definition of a "qualified special-purpose entity" under Statement of
Financial Accounting Standards No. 140 ("SFAS 140"). As a result, assets and
liabilities of those trusts are not consolidated into our consolidated balance
sheet.

Our warehouse credit facility structures are similar to the above, except
that (i) our special-purpose subsidiaries that purchase the automobile contracts
pledge the automobile contracts to secure promissory notes that they issue, (ii)
no increase in the required amount of internal credit enhancement is
contemplated, and (iii) we do not purchase financial guaranty insurance. The
primary agreements for our two warehouse facilities provide for an advance rate
of up to 83% of eligible automobile contracts and aggregate borrowings of up to
$400 million. In January and February 2007, both warehouse lines were amended to
provide for an advance of up to 93% of the aggregate principal balance of
eligible automobile contracts and aggregate borrowings of up to $425 million.
The 2007 amendments relating to the 93% advance rate and the additional $25
million in borrowings have since expired and we have entered into a series of
short-term extensions with the related lenders as we discuss longer term
extensions. There can be no assurance as to the terms, if any, on which we may
be able to agree to longer term extensions; however, we expect that those terms
will include (i) a decreased advance rate, and (ii) and increased interest rate.

Upon each sale of automobile contracts in a transaction structured as a
secured financing for financial accounting purposes, whether a term
securitization or a warehouse financing, we retain on our consolidated balance
sheet the related automobile contracts as assets and record the asset-backed
notes issued in the transaction as indebtedness.

Under the prior securitizations and warehouse credit facilities structured
as sales for financial accounting purposes, we removed from our consolidated
balance sheet the automobile contracts sold and added to our consolidated
balance sheet (i) the cash received, if any, and (ii) the estimated fair value
of the ownership interest that we retained in the automobile contracts sold in
the transaction. That retained or residual interest consisted of (a) the cash
held in the spread account, if any, (b) overcollateralization, if any, (c)
subordinated asset-backed securities retained, if any, and (d) receivables from
the trust, which include the net interest receivables. Net interest receivables
represent the estimated discounted cash flows to be received from the trust in
the future, net of principal and interest payable with respect to the
asset-backed notes, the premium paid to the insurance company, and certain other
expenses. The excess of the cash received and the assets we retained over the
carrying value of the automobile contracts sold, less transaction costs, equaled
the net gain on sale of automobile contracts we recorded.

We receive periodic base servicing fees for the servicing and collection
of the automobile contracts. (Under our current securitization structure, such
servicing fees are included in interest income from the automobile contracts).
In addition, we are entitled to the cash flows from the trusts that represent
collections on the automobile contracts in excess of the amounts required to pay
principal and interest on the asset-backed securities, base servicing fees, and
certain other fees and expenses (such as trustee and custodial fees). Required
principal payments on the notes are generally defined as the payments sufficient
to keep the principal balance of such notes equal to the aggregate principal
balance of the related automobile contracts (excluding those automobile
contracts that have been charged off), or a pre-determined percentage of such
balance. Where that percentage is less than 100%, the related securitization
agreements require accelerated payment of principal until the principal balance
of the asset-backed securities is reduced to the specified percentage. Such
accelerated principal payment is said to create overcollateralization of the
asset-backed notes.

If the amount of cash required for payment of fees, expenses, interest and
principal exceeds the amount collected during the collection period, the
shortfall is withdrawn from the spread account, if any. If the cash collected
during the period exceeds the amount necessary for the above allocations, and
there is no shortfall in the related spread account or the required
overcollateralization level, the excess is released to us. If the spread account
and overcollateralization is not at the required level, then the excess cash
collected is retained in the trust until the specified level is achieved.
Although spread account balances are held by the trusts on behalf of our
special-purpose subsidiaries as the owner of the residual interests (in the case
of securitization transactions structured as sales for financial accounting
purposes) or the trusts (in the case of securitization transactions structured
as secured financings for financial accounting purposes), we are restricted in
use of the cash in the spread accounts. Cash held in the various spread accounts
is invested in high quality, liquid investment securities, as specified in the
securitization agreements. The interest rate payable on the automobile contracts
is significantly greater than the interest rate on the asset-backed notes. As a
result, the residual interests described above historically have been a
significant asset of ours.

In all of our term securitizations and warehouse credit facilities,
whether treated as secured financings or as sales, we have sold the automobile
contracts (through a subsidiary) to the securitization entity. The difference
between the two structures is that in securitizations that are treated as
secured financings we report the assets and liabilities of the securitization
trust on our consolidated balance sheet. Under both structures, recourse to us
by holders of the asset-backed securities and by the trust, for failure of the
automobile contract obligors to make payments on a timely basis, is limited to
the automobile contracts included in the securitizations or warehouse credit
facilities, the spread accounts and our retained interests in the respective
trusts.

Since the third quarter of 2003, we have conducted 22 term
securitizations. Of these 22, 17 were quarterly securitizations of automobile
contracts that we purchased from automobile dealers under our regular programs.
In addition, in March 2004 and November 2005, we completed securitizations of
our retained interests in other securitizations that we and our affiliates
previously sponsored. The debt from the March 2004 transaction was repaid in
August 2005, and the debt from the November 2005 transaction was repaid in May
2007. Also, in June 2004, we completed a securitization of automobile contracts
purchased in the SeaWest asset acquisition and under our TFC programs. Further,
in December 2005 and June 2007, we completed securitizations that included
automobile contracts purchased under the TFC programs, automobile contracts
purchased under the CPS programs and automobile contracts we repurchased upon
termination of prior securitizations of our MFN and TFC subsidiaries. All such
securitizations since the third quarter of 2003 have been structured as secured
financings.

INCOME TAXES

We account for income taxes under the asset and liability method, which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements. Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial statements and tax
basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. The effect of a change in tax
rates on deferred tax assets and liabilities is recognized in income in the
period that includes the enactment date.

We record net deferred tax assets to the extent we believe these assets
will more likely than not be realized. In making such determination, we consider
all available positive and negative evidence, including scheduled reversals of
deferred tax liabilities, projected future taxable income, tax planning
strategies and recent financial operations. In the event we were to determine
that we would be able to realize our deferred income tax assets in the future in
excess of their net recorded amount, we would make an adjustment to the
valuation allowance which would reduce the provision for income taxes.

In determining the possible realization of deferred tax assets, we
consider future taxable income from future operations exclusive of reversing
temporary differences and tax planning strategies that, if necessary, would be
implemented to accelerate taxable income into periods in which net operating
losses might otherwise expire.

In June 2006, the FASB issued Financial Interpretation ("FIN") No. 48,
"Accounting for Uncertainty in Income Taxes," which clarifies the accounting for
uncertainty in income taxes recognized in the financial statements in accordance
with SFAS No. 109, "Accounting for Income Taxes." FIN No. 48 provides that a tax
benefit from an uncertain tax position may be recognized when it is more likely
than not that the position will be sustained upon examination, including
resolutions of any related appeals or litigation processes, based on the
technical merits. Income tax positions must meet a more-likely-than-not
recognition threshold at the effective date to be recognized upon the adoption
of FIN 48 and in subsequent periods. This interpretation also provides guidance
on measurement, derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition.

We adopted the provisions of FASB Interpretation No. 48, ACCOUNTING FOR
UNCERTAINTY IN INCOME TAXES, on January 1, 2007. As a result of the
implementation of Interpretation 48, we recognized approximately a $1.1 million
increase in the liability for unrecognized tax benefits, which was accounted for
as a reduction to the January 1, 2007, balance of retained earnings.

We recognize interest and penalties related to unrecognized tax benefits
within the income tax expense line in the accompanying consolidated statement of
operations. Accrued interest and penalties are included within the related tax
liability line in the consolidated balance sheet.

UNCERTAINTY OF CAPITAL MARKETS

We are dependent upon the continued availability of warehouse credit
facilities and access to long-term financing through the issuance of
asset-backed securities collateralized by our automobile contracts. Since 1994,
we have completed 47 term securitizations comprising approximately $6.1 billion
in contracts. We conducted four term securitizations in 2006 and four in 2007,
including our most recent in September 2007. However, within the period of
approximately four months prior to the filing of this report, we have observed
unprecedented adverse changes in the market for securitized pools of automobile
contracts. These changes include reduced liquidity, increased financial guaranty
premiums and reduced demand for asset-backed securities, including for
securities carrying a financial guaranty and for securities backed by sub-prime
automobile receivables. We believe that these adverse changes in the capital
markets are primarily the result of widespread defaults of sub-prime mortgages
securing a variety of term securitizations and related financial instruments,
including instruments carrying financial guarantees similar to those we
typically obtain for our own term securitizations.

We have not securitized a pool of receivables since September 2007. As a
result, we are approaching the limits of our warehouse credit facilities, as
discussed below. We have engaged an investment banker to securitize our
receivables prior to reaching those limits; however, there is no assurance that
we will be able to do so. We expect the structure of our next securitization to
include substantially greater credit enhancement than recent past
securitizations, including larger spread accounts, greater
over-collateralization, a greater portion of subordinated bonds, or a
combination of any or all of such forms of enhancement. All such forms of
greater credit enhancement are likely to reduce the amount of cash available to
us, both at inception of the securitization, and over the life of the
transaction. Moreover, due to current conditions in the capital markets, we
believe that any securitization transactions that we may execute during 2008 are
likely to include substantially higher costs to us in the form of higher
premiums for financial guaranty insurance, higher interest rates paid on the
bonds sold by the securitization trust and greater discounts given to the
purchasers of subordinated bonds.

The adverse changes that have taken place in the market to date have
resulted in a substantial extension of the period during which our automobile
contracts are financed through our warehouse credit facilities, which has
burdened our financing capabilities, and has caused us to curtail our purchase
of such automobile contracts. If the current adverse circumstances that have
affected the capital markets preclude us from completing a securitization of our
receivables, we may exhaust the capacity of our warehouse credit facilities
which would cause us to further curtail or cease our purchases of new automobile
contracts. Further adverse changes in the capital markets might result in our
inability to securitize automobile contracts which could lead to a material
adverse effect on our operations.

If we were unable to securitize a pool of receivables by May 2008, we
would likely be in default under the terms of our two revolving warehouse
facilities. The defaults would arise because a significant portion of the
collateral securing those facilities (pledged automobile contracts) would have
been held for more than 180 days and would no longer be eligible for inclusion
in each facilities computed "borrowing base." The result would be a reduction in
the amount that we would be allowed to borrow under those facilities, without a
corresponding reduction in the amount of indebtedness outstanding. We would
expect the warehouse facilities to be in default, as the outstanding
indebtedness exceeded the permitted amount. In the event of such a default, and
assuming no waiver or modification of the underlying agreements, the warehouse
lenders would be entitled (1) to receive a default rate of interest, (2) to
accelerate the maturity of the outstanding indebtedness, and then to apply all
cashflows attributable to the pledged collateral toward accelerated payment of
the debt, (3) to terminate us as servicer of the pledged contracts, and (4) to
sell the pledged contracts and to apply the proceeds to the debt. We may choose
to sell in whole-loan sale transactions some portion of the most seasoned
contracts pledged to the warehouse facilities which would postpone a likely
default from May 2008 until some future period. There is no assurance that we
will be able to complete such whole-loan sales.

If such circumstances caused both warehouse facilities to be unavailable
to us, our failure to maintain an available warehouse facility would be a
default under two of our 19 outstanding securitization transactions, which are
the two that have issued asset-backed securities guaranteed by MBIA Insurance
Corporation, and which are named CPS Auto Receivables Trust 2006-B and CPS Auto
Receivables Trust 2007-A. Such a default, unless waived, would give MBIA certain
rights, including (1) assessing a default insurance premium, (2) trapping excess
cash to be retained in the restricted cash spread accounts related to those
trusts, and (3) terminating our appointment as servicer of the related
contracts.

If we were to be terminated as servicer of two or more securitized pools,
that termination would in turn be a default under our combined term and
revolving residual interest financing facility. Any such default, unless waived,
would permit the residual interest lender to declare all amounts then
outstanding immediately due and payable, which would result in cash releases
from securitizations pledged to the combined term and residual interest facility
being diverted to pay principal and interest due thereunder. Such a diversion of
cash to pay down the residual interest facility would significantly decrease the
cash available to us to conduct operations and would likely cause us to
significantly curtail, if not cease altogether, further purchases of contracts.
In any case, the revolving portion of the combined facility matures in July
2008, at which time we intend either to negotiate a renewal with the residual
interest lender or to obtain other long-term financing to repay that debt. There
can be no assurance that we will be able to do either.

If a default under one or both of the revolving warehouse facilities
occurs, and one or both lenders exercised their option to sell the related
contracts to satisfy the warehouse debt, we may incur a loss on such sale of the
contracts. If the loss were significant, and together with our other results
from operations were to result in a significant operating loss for a quarter,
such loss could result in an event of default under agreements related to five
others of our 19 outstanding securitization transactions, which are those that
have issued asset-backed securities guaranteed by XL Capital Assurance Inc. Such
a default, unless waived, would give XL Capital certain rights, including (1)
assessing a default insurance premium, (2) trapping excess cash to be retained
in the restricted cash spread accounts related to those trusts, and (3)
terminating our appointment as servicer of the related contracts. However, we
believe that transfers of servicing of securitized sub-prime automobile
portfolios are rare and would likely have a negative effect on the performance
of the portfolios.

Our financing structures are complex. Our warehouse, securitization and
residual interest financings all employ bankruptcy-remote, wholly-owned, special
purpose entities which serve to isolate pledged assets and the related debt from
the parent entity, Consumer Portfolio Services, Inc. One effect of these
structures is to limit lenders' and insurers' recourse to rights related to
their respective collateral. Such rights include termination of CPS as servicer
of the related collateral, and foreclosure sale of the related collateral.

If we were unable to securitize a pool of receivables within some 30 to 60
days following this filing and one or more of the events of default and related
actions described above should occur, our sources of liquidity would be
materially impaired. In that event, we would attempt to reduce our uses of cash
by a corresponding amount, principally by significantly curtailing, or by
ceasing altogether, to purchase automobile contracts. When we choose to reduce
purchases of automobile contracts, as we have recently done as a result of the
uncertainty in the capital markets, we do so by (1) tightening our contract
purchase criteria, resulting in more selective purchases, (2) withdrawing from
selected geographic markets, and (3) terminating selected marketing
representatives and dealer relationships.

Although we believe that such reductions in contract purchases would allow
us to continue operations even in the face of such events of default and related
actions as are described above, a sufficiently steep decrease in our purchases
of automobile contracts would result in a decrease in the size of our portfolio
of automobile contracts. Such a decrease in portfolio size, together with the
effect of some or all of the possible actions associated with the events of
default described above, could have a material adverse effect on our cash flows
and results of operations. However, continuing cashflows otherwise available to
us would be sufficient to meet our remaining operating needs in the near term.

RESULTS OF OPERATIONS

COMPARISON OF OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 2007 WITH THE
YEAR ENDED DECEMBER 31, 2006

REVENUES. During the year ended December 31, 2007, revenues were $394.6
million, an increase of $115.7 million, or 41.5%, from the prior year revenue of
$278.9 million. The primary reason for the increase in revenues is an increase
in interest income. Interest income for the year ended December 31, 2007
increased $106.7 million, or 40.5%, to $370.3 million from $263.6 million in the
prior year. The primary reason for the increase in interest income is the
increase in finance receivables held by consolidated subsidiaries (resulting in
an increase of $109.4 million in interest income) and the increase in interest
earned on cash deposits (including restricted cash deposits) of $2.8 million.
These increases were partially offset by the decline in the balance of the
portfolios of automobile contracts we acquired in the MFN, TFC and SeaWest
transactions (in the aggregate, resulting in a decrease of $2.2 million in
interest income), and a decrease in interest income on our residual asset of
$2.1 million.

Servicing fees totaling $1.2 million in the year ended December 31, 2007
decreased $1.7 million, or 57.9%, from $2.9 million in the prior year. The
decrease in servicing fees is the result of the change in securitization
structure and the consequent decline in our managed portfolio held by
non-consolidated subsidiaries. As a result of the decision to structure future
securitizations as secured financings, our managed portfolio held by
non-consolidated subsidiaries is zero, and future servicing fee revenue is
anticipated to be nominal. As of December 31, 2007 and 2006, our managed
portfolio owned by consolidated vs. non-consolidated subsidiaries and other
third parties was as follows:

DECEMBER 31, 2007 DECEMBER 31, 2006
-------------------------- --------------------------
AMOUNT % AMOUNT %
------------ ------------ ------------ ------------
TOTAL MANAGED PORTFOLIO ($ IN MILLIONS)
Owned by Consolidated Subsidiaries....... $ 2,125.8 100.0% $ 1,527.3 97.5%
Owned by Non-Consolidated Subsidiaries... - 0.0% 34.8 2.2%
SeaWest Third Party Portfolio............ 0.4 0.0% 3.8 0.2%
------------ ------------ ------------ ------------

Total.................................... $ 2,126.2 100.0% $ 1,565.9 100.0%
============ ============ ============ ============

At December 31, 2007, we were generating income and fees on a managed
portfolio with an outstanding principal balance of $2,126.2 million (this amount
includes $422,000 of automobile contracts securitized by SeaWest, on which we
earn only servicing fees), compared to a managed portfolio with an outstanding
principal balance of $1,565.9 million as of December 31, 2006. At December 31,
2007 and 2006, the managed portfolio composition was as follows:

DECEMBER 31, 2007 DECEMBER 31, 2006
-------------------------- --------------------------
AMOUNT % AMOUNT %
------------ ------------ ------------ ------------
ORIGINATING ENTITY ($ IN MILLIONS)
CPS...................................... $ 2,062.8 97.0% $ 1,496.5 95.6%
TFC...................................... 62.0 3.0% 60.9 3.9%
MFN...................................... 0.0 0.0% 0.2 0.0%
SeaWest.................................. 1.0 0.0% 4.5 0.3%
SeaWest Third Party Portfolio............ 0.4 0.0% 3.8 0.2%
------------ ------------ ------------ ------------
Total.................................... $ 2,126.2 100.0% $ 1,565.9 100.0%
============ ============ ============ ============

Other income increased $10.7 million, or 86.0%, to $23.1 million in the
year ended December 31, 2007 from $12.4 million during the prior year. The year
over year increase is the result of a variety of factors. Current year other
income includes $6.2 million resulting from an increase in the carrying value of
our residual interest in securitizations (a $5.0 million increase over the
increase in carrying value for the prior year). The carrying value was increased
primarily as a result of the underlying receivables having incurred fewer losses
than we had previously estimated, which in turn resulted in actual cash flows
exceeding cash flows that were estimated in our valuation of the residual asset
at December 31, 2006. We do not expect that future cash flows will significantly
exceed the estimates we are currently using for the valuation of our residual
interest. The current year period also includes proceeds of $1.8 million from
the sale of certain charged off receivables acquired in the MFN, TFC and SeaWest
acquisitions. There was no sale of charged off receivables in 2006. In addition,
we experienced increases in convenience fees charged to obligors for certain
transaction types (an increase of $1.3 million) and $1.0 million in recoveries
on a note to a third party that we had previously written off. We also
experienced increased revenue on our direct mail services (an increase of $1.6
million). These direct mail services are provided to our dealers and consist of
customized solicitations targeted to prospective vehicle purchasers, in
proximity to the dealer, who appear to meet our credit criteria. These increases
to other income were somewhat offset by decreases in recoveries on MFN and
certain other automobile contracts (a decrease of $1.2 million) compared to the
prior year.

EXPENSES. Our operating expenses consist primarily of provisions for
credit losses, interest expense, employee costs and general and administrative
expenses. Provisions for credit losses and interest expense are significantly
affected by the volume of automobile contracts we purchased during a period and
by the outstanding balance of finance receivables held by consolidated
subsidiaries. Employee costs and general and administrative expenses are
incurred as applications and automobile contracts are received, processed and
serviced. Factors that affect margins and net income include changes in the
automobile and automobile finance market environments, and macroeconomic factors
such as interest rates and the unemployment level.

Employee costs include base salaries, commissions and bonuses paid to
employees, and certain expenses related to the accounting treatment of
outstanding warrants and stock options, and are one of our most significant
operating expenses. These costs (other than those relating to stock options)
generally fluctuate with the level of applications and automobile contracts
processed and serviced.

Other operating expenses consist primarily of facilities expenses,
telephone and other communication services, credit services, computer services,
marketing and advertising expenses, and depreciation and amortization.

Total operating expenses were $370.6 million for the year ended December
31, 2007, compared to $265.7 million for the prior year, an increase of $104.9
million, or 39.5%. The increase is primarily due to increases in provision for
credit losses and interest expense, which increased by $45.2 million and $46.1
million, or 49.1% and 49.5%, respectively. Both interest expense and provision
for credit losses are directly affected by the growth in our portfolio of
automobile contracts held by consolidated affiliates.

Employee costs increased by 21.4% to $46.7 million during the year ended
December 31, 2007, representing 12.6% of total operating expenses, from $38.5
million for the prior year, or 14.5% of total operating expenses. The decrease
as a percentage of total operating expenses reflects the higher total of
operating expenses, primarily a result of the increased provision for credit
losses and interest expense. The increase in employee costs is the result of
additions to our staff, generally throughout all areas of the Company, to
accommodate greater volumes of contract purchases and the resulting higher
balance of our managed portfolio. As of December 31, 2007 we had 997 employees
compared to 789 employees at December 31, 2006.

General and administrative expenses increased by 7.6% to $25.0 million and
represented 6.7% of total operating expenses in the year ending December 31,
2007, as compared to the prior year when general and administrative expenses
represented 8.7% of total operating expenses. The decrease as a percentage of
total operating expenses reflects the higher operating expenses primarily a
result of the provision for credit losses and interest expense.

Interest expense for the year ended December 31, 2007 increased $46.1
million, or 49.5%, to $139.2 million, compared to $93.1 million in the previous
year. The increase is primarily the result of changes in the amount and
composition of securitization trust debt carried on our consolidated balance
sheet. Interest on securitization trust debt increased by $40.9 million in 2007
compared to the prior year. We also experienced increases in warehouse interest
expense and residual interest financing interest expenses of $5.1 million and
$1.1 million, respectively. A portion of the increase in interest expense can
also be attributed to a gradual increase in market interest rates during 2007.
Increases in interest expense for securitization trust debt, warehouse and
residual interest financing were somewhat offset by a decrease of $1.0 million
in interest expense for subordinated debt.

Marketing expenses consist primarily of commission-based compensation paid
to our employee marketing representatives and increased by $4.1 million, or
29.3%, to $18.1 million, compared to $14.0 million in the previous year and
represented 4.9% of total operating expenses. The increase is primarily due to
the increase in automobile contracts we purchased during the year ended December
31, 2007 as compared to the prior year. During the year ended December 31, 2007,
we purchased 83,246 automobile contracts aggregating $1,282.3 million, compared
to 66,504 automobile contracts aggregating $1,019.0 million in the prior year.

Occupancy expenses decreased slightly by $219,000 or 5.5%, to $3.8 million
compared to $4.0 million in the previous year and represented 1.0% of total
operating expenses.

Depreciation and amortization expenses decreased by $253,000, or 31.6%, to
$547,000 from $800,000 in the previous year.

For the year ended December 31, 2007, we recorded tax expense of $10.1
million or 42.2% of income before income taxes. For the year ended December 31,
2006, we recorded an income tax benefit of $41.8 million related to the reversal
of a portion of the valuation allowance against deferred tax assets, offset by
current income tax paid or then payable of $20.2 million, less $4.8 million in
deferred tax benefit. As of December 31, 2007, we had remaining deferred tax
assets of $68.6 million, partially offset by a valuation allowance of $9.8
million related to federal and state net operating losses and other timing
differences, leaving a net deferred tax asset of $58.8 million.

COMPARISON OF OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 2006 WITH THE
YEAR ENDED DECEMBER 31, 2005

REVENUES. During the year ended December 31, 2006, revenues were $278.9
million, an increase of $85.2 million, or 44.0%, from the prior year revenue of
$193.7 million. The primary reason for the increase in revenues is an increase
in interest income. Interest income for the year ended December 31, 2006
increased $91.7 million, or 53.4%, to $263.6 million from $171.8 million in the
prior year. The primary reason for the increase in interest income is the
increase in finance receivables held by consolidated subsidiaries (resulting in
an increase of $102.4 million in interest income). This increase was partially
offset by the decline in the balance of the portfolios of automobile contracts
we acquired in the MFN, TFC and SeaWest transactions (in the aggregate,
resulting in a decrease of $10.9 million in interest income). In addition,
interest income on our residual asset increased by $318,000.

Servicing fees totaling $2.9 million in the year ended December 31, 2006
decreased $3.8 million, or 56.5%, from $6.6 million in the prior year. The
decrease in servicing fees is the result of the change in securitization
structure and the consequent decline in our managed portfolio held by
non-consolidated subsidiaries. As a result of the decision to structure future
securitizations as secured financings, our managed portfolio held by
non-consolidated subsidiaries will continue to decline in future periods, and
servicing fee revenue is anticipated to decline proportionately. As of December
31, 2006 and 2005, our managed portfolio owned by consolidated vs.
non-consolidated subsidiaries and other third parties was as follows:

DECEMBER 31, 2006 DECEMBER 31, 2005
-------------------------- --------------------------
AMOUNT % AMOUNT %
------------ ------------ ------------ ------------
Total Managed Portfolio ($ IN MILLIONS)
Owned by Consolidated Subsidiaries....... $ 1,527.3 97.5% $ 1,000.6 89.2%
Owned by Non-Consolidated Subsidiaries... 34.8 2.2% 103.1 9.2%
SeaWest Third Party Portfolio............ 3.8 0.2% 18.0 1.6%
------------ ------------ ------------ ------------
Total.................................... $ 1,565.9 100.0% $ 1,121.7 100.0%
============ ============ ============ ============

At December 31, 2006, we were generating income and fees on a managed
portfolio with an outstanding principal balance of $1,565.9 million (this amount
includes $3.8 million of automobile contracts securitized by SeaWest, on which
we earn only servicing fees), compared to a managed portfolio with an
outstanding principal balance of $1,121.7 million as of December 31, 2005. As
the portfolios of automobile contracts acquired in the MFN merger, TFC merger,
and SeaWest transaction decrease, the portfolio of automobile contracts that we
purchased directly from automobile dealers continues to expand. At December 31,
2006 and 2005, the managed portfolio composition was as follows:

DECEMBER 31, 2006 DECEMBER 31, 2005
-------------------------- --------------------------
AMOUNT % AMOUNT %
------------ ------------ ------------ ------------
Originating Entity ($ in millions)
CPS...................................... $ 1,496.5 95.6% $ 1,017.3 90.7%
TFC...................................... 60.9 3.9% 68.6 6.1%
MFN...................................... 0.2 0.0% 2.5 0.2%
SeaWest.................................. 4.5 0.3% 15.3 1.4%
SeaWest Third Party Portfolio............ 3.8 0.2% 18.0 1.6%
------------ ------------ ------------ ------------
Total.................................... $ 1,565.9 100.0% $ 1,121.7 100.0%
============ ============ ============ ============

Other income decreased $2.8 million, or 18.5%, to $12.4 million in the
year ended December 31, 2006 from $15.2 million during the prior year. The year
over year decrease is the result of a variety of factors. Current year other
income includes $1.2 million resulting from an increase in the carrying value of
our residual interest in securitizations. The carrying value was increased
primarily as a result of the underlying receivables having incurred fewer losses
than we had previously estimated. The prior year period included proceeds of
$2.4 million from the sale of certain charged off receivables acquired in the
MFN, TFC and SeaWest acquisitions. In addition, we experienced decreases in
recoveries on MFN and certain other automobile contracts (a decrease of
$638,000) compared to the same prior year and decreased revenue on our direct
mail services (a decrease of $752,000). These direct mail services are provided
to our dealers and consist of customized solicitations targeted to prospective
vehicle purchasers, in proximity to the dealer, who appear to meet our credit
criteria. We also experienced increases in convenience fees charged to obligors
for certain transaction types (an increase of $690,000).

Total operating expenses were $265.7 million for the year ended December
31, 2006, compared to $190.3 million for the prior year, an increase of $75.3
million, or 39.6%. The increase is primarily due to increases in provision for
credit losses and interest expense, which increased by $33.1 million and $41.4
million, or 56.1% and 80.2%, respectively. Both interest expense and provision
for credit losses are directly affected by the growth in our portfolio of
automobile contracts held by consolidated affiliates.

Employee costs decreased slightly to $38.5 million during the year ended
December 31, 2006, representing 14.5% of total operating expenses, from $40.4
million for the prior year, or 21.2% of total operating expenses. During the
year ended December 31, 2006, we deferred $2.9 million of direct employee costs
associated with the purchase of automobile contracts in the period, in
accordance with Statement of Financial Accounting Standard No. 91, Accounting
for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans
and Initial Direct Costs of Leases (SFAS 91). Prior to 2006, we have not
deferred and amortized such costs as our analyses indicated that the effect of
such deferral and amortization would not have been material. However, due to
continued increases in volumes of automobile contract purchases and refinements
in our methodology to measure direct costs associated with automobile contract
purchases, our estimate of direct costs has increased, resulting in the need to
defer such costs and amortize them over the lives of the related automobile
contracts as an adjustment to the yield in accordance with SFAS 91. The decrease
as a percentage of total operating expenses reflects the higher total of
operating expenses, primarily a result of the increased provision for credit
losses and interest expense.

General and administrative expenses increased slightly to $23.2 million
and represented 8.7% of total operating expenses in the year ending December 31,
2006, as compared to the prior year when general and administrative expenses
represented 12.1% of total operating expenses. The decrease as a percentage of
total operating expenses reflects the higher operating expenses primarily a
result of the provision for credit losses and interest expense.

Interest expense for the year ended December 31, 2006 increased $41.4
million, or 80.2%, to $93.1 million, compared to $51.7 million in the previous
year. The increase is primarily the result of changes in the amount and
composition of securitization trust debt carried on our consolidated balance
sheet. Interest on securitization trust debt increased by $40.5 million in 2006
compared to the prior year. We also experienced increases in warehouse interest
expense and residual interest financing interest expenses of $2.7 million and
$2.7 million, respectively. A portion of the increase in interest expense can
also be attributed to a gradual increase in market interest rates during 2006.
Increases in interest expense for securitization trust debt, warehouse and
residual interest financing were somewhat offset by a decrease of $4.5 million
in interest expense for subordinated debt.

Marketing expenses consist primarily of commission-based compensation paid
to our employee marketing representatives and increased by $2.0 million, or
16.9%, to $14.0 million, compared to $12.0 million in the previous year and
represented 5.3% of total operating expenses. The increase is primarily due to
the increase in automobile contracts we purchased during the year ended December
31, 2006 as compared to the prior year. During the year ended December 31, 2006,
we purchased 66,504 automobile contracts aggregating $1,019.0 million, compared
to 46,666 automobile contracts aggregating $691.3 million in the prior year.

Occupancy expenses increased by $583,000 or 17.1%, to $4.0 million
compared to $3.4 million in the previous year and represented 1.5% of total
operating expenses.

Depreciation and amortization expenses increased by $10,000, or 1.3%, to
$800,000 from $790,000 in the previous year.

During the year ended December 31, 2006, we recorded an income tax benefit
of $41.8 million related to the reversal of a portion of the valuation allowance
against deferred tax assets, offset by current income tax paid or currently
payable of $20.2 million, less $4.8 million in deferred tax benefit. As of
December 31, 2006, we had remaining deferred tax assets of $64.1 million,
partially offset by a valuation allowance of $9.4 million related to federal and
state net operating losses and other timing differences, leaving a net deferred
tax asset of $54.7 million.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

Our business requires substantial cash to support purchases of automobile
contracts and other operating activities. Our primary sources of cash have been
cash flows from operating activities, including proceeds from sales of
automobile contracts, amounts borrowed under our warehouse credit facilities,
servicing fees on portfolios of automobile contracts previously sold in
securitization transactions or serviced for third parties, customer payments of
principal and interest on finance receivables, fees for origination of
automobile contracts, and releases of cash from securitized portfolios of
automobile contracts in which we have retained a residual ownership interest and
from the spread accounts associated with such pools. Our primary uses of cash
have been the purchases of automobile contracts, repayment of amounts borrowed
under warehouse credit facilities and otherwise, operating expenses such as
employee, interest, occupancy expenses and other general and administrative
expenses, the establishment of spread accounts and initial
overcollateralization, if any, and the increase of credit enhancement to
required levels in securitization transactions, and income taxes. There can be
no assurance that internally generated cash will be sufficient to meet our cash
demands. The sufficiency of internally generated cash will depend on the
performance of securitized pools (which determines the level of releases from
those portfolios and their related spread accounts), the rate of expansion or
contraction in our managed portfolio, and the terms upon which we are able to
purchase, sell, and borrow against automobile contracts.

Net cash provided by operating activities for the years ended December 31,
2007, 2006 and 2005 was $153.4 million, $92.4 million and $69.2 million,
respectively. Cash from operating activities is generally provided by net income
from our operations. The increase in 2007 vs. 2006, and 2006 vs. 2005, is due in
part to our increased net earnings before the significant increase in the
provision for credit losses.

Net cash used in investing activities for the years ended December 31,
2007, 2006 and 2005, was $665.4 million, $603.7 million, and $444.2 million,
respectively. Cash used in investing activities generally relates to purchases
of automobile contracts. Purchases of finance receivables held for investment
were $1,282.3 million, $1,019.0 million and $691.3 million in 2007, 2006 and
2005, respectively. Net cash used in investing activities is also affected by
changes in the amounts of restricted cash and equivalents, which in turn, is
affected by the timing and structure of our asset-backed securitization
transactions. In December of 2006 and 2005, we completed securitization
transactions which included a pre-funding component that resulted in specific
restricted cash deposits of $70.3 million and $58.1 million at December 31, 2006
and 2005, respectively. In December 2007, we did not complete a securitization
transaction with a pre-funding component and, as such, there was no
corresponding restricted cash deposit at December 31, 2007.

Net cash provided by financing activities for the year ended December 31,
2007, was $518.6 million compared with $507.7 million for the year ended
December 31, 2006 and $378.4 million for the year ended December 31, 2005. Cash
used or provided by financing activities is primarily attributable to the
issuance or repayment of debt. We issued $1,035.9 million of securitization
trust debt in 2007 as compared to $1,003.6 million in 2006 and $662.4 million in
2005. Issuances of securitization debt were offset by repayments of $685.9
million, $487.7 million and $282.6 million in 2007, 2006 and 2005, respectively.

We purchase automobile contracts from dealers for a cash price
approximating their principal amount, adjusted for an acquisition fee which may
either increase or decrease the automobile contract purchase price. Those
automobile contracts generate cash flow, however, over a period of years. As a
result, we have been dependent on warehouse credit facilities to purchase
automobile contracts, and on the availability of cash from outside sources in
order to finance our continuing operations, as well as to fund the portion of
automobile contract purchase prices not financed under revolving warehouse
credit facilities. As of December 31, 2007, we had $425 million in warehouse
credit capacity, in the form of two $200 million facilities, and one $25 million
subordinated facility. One $200 million facility provides funding for automobile
contracts purchased under the TFC programs while both warehouse facilities
provide funding for automobile contracts purchased under the CPS programs. The
subordinated facility was established on January 12, 2007 and was scheduled to
expire on January 12, 2008. We have entered into successive short-term
extensions as we discuss longer term arrangements with the subordinated lenders
and other prospective lenders.

The first of two warehouse facilities mentioned above is structured to
allow us to fund a portion of the purchase price of automobile contracts by
drawing against a floating rate variable funding note issued by our consolidated
subsidiary Page Three Funding, LLC. This facility was established on November
15, 2005, and expires on November 14, 2008, although it is renewable with the
mutual agreement of the parties. On November 8, 2006 the facility was increased
from $150 million to $200 million and the maximum advance rate was increased to
83% from 80% of eligible contracts, subject to collateral tests and certain
other conditions and covenants. On January 12, 2007 the facility was amended to
allow for the issuance of subordinated notes resulting in an increase of the
maximum advance rate to 93%. The advance rate is subject to the lender's
valuation of the collateral which, in turn, is affected by factors such as the
credit performance of our managed portfolio and the terms and conditions of our
term securitizations, including the expected yields required for bonds issued in
our term securitizations. Senior notes under this facility accrue interest at a
rate of one-month LIBOR plus 2.50% per annum while the subordinated notes accrue
interest at a rate of one-month LIBOR plus 5.50% per annum. At December 31,
2007, $103.2 million was outstanding under this facility.

The advance rate is subject to the lender's valuation of the collateral which,
in turn, is affected by factors such as the credit performance of our managed
portfolio and the terms and conditions of our term securitizations. Senior notes
under this facility accrue interest at a rate of one-month LIBOR plus 2.00% per
annum while the subordinated notes accrue interest at a rate of one-month LIBOR
plus 5.50% per annum. The facility expires on September 30, 2008, unless renewed
by us and the lender before that time. At December 31, 2007, $132.7 million was
outstanding under this facility. In January 2008 the interest rate on the
subordinated notes increased to one-month LIBOR plus 12%.

The balance outstanding under these warehouse facilities generally will
increase as we purchase additional automobile contracts, until we effect a
securitization utilizing automobile contracts warehoused in the facilities, at
which time the balance outstanding will decrease.

We securitized $1,118.1 million of automobile contracts in four private
placement transactions during the year ended December 31, 2007, as compared to
$957.7 million of automobile contracts in four private placement transactions
during the year ended December 31, 2006. All of these transactions were
structured as secured financings and, therefore, resulted in no gain on sale.

In November 2005, we completed a securitization whereby a wholly-owned
bankruptcy remote consolidated subsidiary of ours issued $45.8 million of
asset-backed notes secured by its retained interest in 10 term securitization
transactions. At December 31, 2006 there was $19.6 million outstanding on this
facility and in May 2007 the notes were fully repaid. In December 2006 we
entered into a $35 million residual credit facility that was secured by our
retained interests in additional term securitizations. At December 31, 2006,
there was $12.2 million outstanding under this facility. In July 2007, we
established a combination term and revolving residual credit facility and used a
portion of our initial draw under that facility to repay our remaining
outstanding debt under the December 2006 $35 million residual facility.

Under the combination term and revolving residual credit facility, we have
used and intend to use eligible residual interests in securitizations as
collateral for floating rate borrowings. The amount that we may borrow is
computed using an agreed valuation methodology of the residuals, subject to an
overall maximum principal amount of $120 million, represented by (i) a $60
million Class A-1 variable funding note (the "revolving note"), and (ii) a $60
million Class A-2 term note (the "term note"). The term note has been fully
drawn and is due in July 2009. As of December 31, 2007, we have drawn $10
million on the revolving note. The facility's revolving feature expires in July
2008.

In our annual report on Form 10-K for December 31, 2006, we identified as
one of our capital requirements our obligation to repay $25.0 million of
outstanding senior secured debt by its maturity date of May 31, 2007. In July
2007, we used a portion of the term note under the combination term and
revolving residual credit facility to repay our remaining outstanding senior
secured debt, after having been partially repaid and amended with respect to the
maturity date during the preceding quarter.

Cash released to us from trusts and their related spread accounts related
to the portfolio owned by consolidated subsidiaries for the years ended December
31, 2007, 2006 and 2005 was $2.7 million, $16.5 million and $23.1 million,
respectively. Changes in the amount of credit enhancement required for term
securitization transactions and releases from trusts and their related spread
accounts are affected by the structure of the credit enhancement and the
relative size, seasoning and performance of the various pools of automobile
contracts securitized that make up our managed portfolio to which the respective
spread accounts are related. The trend in our recent securitizations has been
towards credit enhancements that require a lower proportion of spread account
cash and a greater proportion of over collateralization. This trend has led to
somewhat lower levels of restricted cash and releases from trusts relative to
the size of our managed portfolio.

The acquisition of automobile contracts for subsequent sale in
securitization transactions, and the need to fund spread accounts and initial
overcollateralization, if any, and increase credit enhancement levels when those
transactions take place, results in a continuing need for capital. The amount of
capital required is most heavily dependent on the rate of our automobile
contract purchases, the required level of initial credit enhancement in
securitizations, and the extent to which the previously established trusts and
their related spread accounts either release cash to us or capture cash from
collections on securitized automobile contracts. We may be limited in our
ability to purchase automobile contracts due to limits on our capital. As of
December 31, 2007, we had unrestricted cash on hand of $20.9 million and
available capacity from our warehouse credit facilities of $189.1 million.
Warehouse capacity is subject to the availability of suitable automobile
contracts to serve as collateral and of sufficient cash to fund the portion of
such automobile contracts purchase price not advanced under the warehouse
facilities. Our plans to manage the need for liquidity include the completion of
additional securitizations that would provide additional credit availability
from the warehouse credit facilities, and matching our levels of automobile
contract purchases to our availability of cash. There can be no assurance that
we will be able to complete securitizations on favorable economic terms or that
we will be able to complete securitizations at all. If we are unable to complete
such securitizations, we may be unable to purchase automobile contracts and
interest income and other portfolio related income would decrease.

Our primary means of ensuring that our cash demands do not exceed our cash
resources is to match our levels of automobile contract purchases to our
availability of cash. Our ability to adjust the quantity of automobile contracts
that we purchase and securitize will be subject to general competitive
conditions and the continued availability of warehouse credit facilities. There
can be no assurance that the desired level of automobile contract purchases can
be maintained or increased. While the specific terms and mechanics of each
spread account vary among transactions, our securitization agreements generally
provide that we will receive excess cash flows only if the amount of credit
enhancement has reached specified levels and/or the delinquency, defaults or net
losses related to the automobile contracts in the pool are below certain
predetermined levels. In the event delinquencies, defaults or net losses on the
automobile contracts exceed such levels, the terms of the securitization: (i)
may require increased credit enhancement to be accumulated for the particular
pool; (ii) may restrict the distribution to us of excess cash flows associated
with other pools; or (iii) in certain circumstances, may permit the insurers to
require the transfer of servicing on some or all of the automobile contracts to
another servicer. There can be no assurance that collections from the related
trusts will continue to generate sufficient cash.

Certain of our securitization transactions and the warehouse credit
facilities contain various financial covenants requiring certain minimum
financial ratios and results. Such covenants include maintaining minimum levels
of liquidity and net worth and not exceeding maximum leverage levels and maximum
financial losses. In addition, certain securitization and non-securitization
related debt contain cross-default provisions that would allow certain creditors
to declare a default if a default occurred under a different facility.

The agreements under which we receive periodic fees for servicing
automobile contracts in securitizations are terminable by the respective
insurance companies upon defined events of default, and, in some cases, at the
will of the insurance company. Were an insurance company in the future to
exercise its option to terminate such agreements, such a termination could have
a material adverse effect on our liquidity and results of operations, depending
on the number and value of the terminated agreements. Our note insurers continue
to extend our term as servicer on a monthly and/or quarterly basis, pursuant to
the servicing agreements.

CONTRACTUAL OBLIGATIONS

The following table summarizes our material contractual obligations as of
December 31, 2007 (dollars in thousands):

PAYMENT DUE BY PERIOD (1)
---------------------------------------------------------
LESS THAN 1 TO 3 4 TO 5 MORE THAN
TOTAL 1 YEAR YEARS YEARS 5 YEARS
--------- --------- --------- --------- ---------
Long Term Debt (2)......... $ 98,133 $ 18,351 $ 78,389 $ 1,363 $ 30
Operating Leases........... $ 6,956 $ 3,172 $ 2,290 $ 1,248 $ 246

(1) SECURITIZATION TRUST DEBT, IN THE AGGREGATE AMOUNT OF $1,798.3 MILLION AS
OF DECEMBER 31, 2007, IS OMITTED FROM THIS TABLE BECAUSE IT BECOMES DUE AS
AND WHEN THE RELATED RECEIVABLES BALANCE IS REDUCED. EXPECTED PAYMENTS,
WHICH WILL DEPEND ON THE PERFORMANCE OF SUCH RECEIVABLES, AS TO WHICH
THERE CAN BE NO ASSURANCE, ARE $714.4 MILLION IN 2008, $530.9 MILLION IN
2009, $324.5 MILLION IN 2010, $168.7 MILLION IN 2011, $57.3 MILLION IN
2012, AND $2.5 MILLION IN 2013.
(2) LONG-TERM DEBT INCLUDES RESIDUAL INTEREST DEBT AND SUBORDINATED RENEWABLE
NOTES.

WAREHOUSE CREDIT FACILITIES

The terms on which credit has been available to us for purchase of
automobile contracts have varied over the three years 2005-2007 and through
December 31, 2007, as shown in the following summary of our warehouse credit
facilities:

FACILITY IN USE FROM JUNE 2004 TO PRESENT. In June 2004, we (through our
subsidiary Page Funding LLC) entered into a floating rate variable note purchase
facility. Up to $200.0 million of senior notes may be outstanding under this
facility at any time subject to certain collateral tests and other conditions.
We use funds derived from this facility to purchase automobile contracts under
the CPS programs and TFC programs, which are pledged to secure the notes. The
collateral tests and other conditions generally allow us to borrow up to
approximately 93% of the principal balance of automobile contracts that we
purchase under our CPS programs (up to 83.0% in the form of senior notes and the
remainder in the form of subordinated notes), and of up to 70% of the principal
balance of automobile contracts that we purchase under our TFC programs. The
advance rate is subject to the lender's valuation of the collateral which, in
turn, is affected by factors such as the credit performance of our managed
portfolio and the terms and conditions of our term securitizations, including
the expected yields required for bonds issued in our term securitizations.
Senior notes issued under this facility accrue interest at one-month LIBOR plus
2.00% per annum while the subordinated notes accrue interest at one-month LIBOR
plus 5.50% per annum. The balance of notes outstanding related to this facility
at December 31, 2006 was $132.7 million. Subsequent to December 31, 2007, the
interest rate on the subordinated notes increased to one-month LIBOR plus 12%.

FACILITY IN USE FROM NOVEMBER 2005 TO PRESENT. In November 2005, we
(through our subsidiary Page Three Funding LLC) entered into a floating rate
variable note purchase facility. Up to $200 million of notes may be outstanding
under this facility at any time subject to certain collateral tests and other
conditions. We use funds derived from this facility to purchase automobile
contracts under the CPS programs, which are pledged to secure the notes. The
collateral tests and other conditions generally allow us to borrow up to
approximately 93.0% of the principal balance of the automobile contracts (up to
83.0% in the form of senior notes and the remainder in the form of subordinated
notes). The advance rate is subject to the lender's valuation of the collateral
which, in turn, is affected by factors such as the credit performance of our
managed portfolio and the terms and conditions of our term securitizations,
including the expected yields required for bonds issued in our term
securitizations. Senior notes issued under this facility accrue interest at
one-month LIBOR plus 2.50% per annum while the subordinated notes accrue
interest at one-month LIBOR plus 5.50% per annum. The balance of notes
outstanding related to this facility at December 31, 2006 was $103.2 million.
Subsequent to December 31, 2007, the interest rate on the subordinated notes
increased to one-month LIBOR plus 12%.

CAPITAL RESOURCES

Securitization trust debt is repaid from collections on the related
receivables, and becomes due in accordance with its terms as the principal
amount of the related receivables is reduced. Although the securitization trust
debt also has alternative final maturity dates, those dates are significantly
later than the dates at which repayment of the related receivables is
anticipated, and at no time in our history have any of our sponsored
asset-backed securities reached those alternative final maturities.

The acquisition of automobile contracts for subsequent transfer in
securitization transactions, and the need to fund spread accounts and initial
overcollateralization, if any, when those transactions take place, results in a
continuing need for capital. The amount of capital required is most heavily
dependent on the rate of our automobile contract purchases, the required level
of initial credit enhancement in securitizations, and the extent to which the
trusts and related spread accounts either release cash to us or capture cash
from collections on securitized automobile contracts. We plan to adjust our
levels of automobile contract purchases so as to match anticipated releases of
cash from the trusts and related spread accounts with our capital requirements.

CAPITALIZATION

Over the period from January 1, 2005 through December 31, 2007 we have
managed our capitalization by issuing and refinancing debt as summarized in the
following table:

YEAR ENDED DECEMBER 31,
------------------------------------------
2007 2006 2005
------------ ------------ ------------
(Dollars in thousands)

RESIDUAL INTEREST FINANCING:
Beginning balance........................ $ 31,378 $ 43,745 $ 22,204
Issuances........................... 85,860 13,667 45,800
Payments............................ (47,238) (26,034) (24,259)
------------ ------------ ------------
Ending balance........................... $ 70,000 $ 31,378 $ 43,745
============ ============ ============

SECURITIZATION TRUST DEBT:
Beginning balance........................ $ 1,442,995 $ 924,026 $ 542,815
Issuances........................... 1,035,864 1,003,645 662,350
Payments............................ (680,557) (484,676) (281,139)
------------ ------------ ------------
Ending balance........................... $ 1,798,302 $ 1,442,995 $ 924,026
============ ============ ============

SENIOR SECURED DEBT, RELATED PARTY:
Beginning balance........................ $ 25,000 $ 40,000 $ 59,829
Issuances........................... -- -- --
Payments............................ (25,000) (15,000) (19,829)
------------ ------------ ------------
Ending balance........................... $ -- $ 25,000 $ 40,000
============ ============ ============

SUBORDINATED DEBT:
Beginning balance........................ $ -- $ 14,000 $ 15,000
Payments............................ -- (14,000) (1,000)
------------ ------------ ------------
Ending balance........................... $ -- $ -- $ 14,000
============ ============ ============

SUBORDINATED RENEWABLE NOTES:
Beginning balance........................ $ 13,574 $ 4,655 $ --
Issuances........................... 17,664 9,985 4,685
Payments............................ (3,104) (1,066) (30)
------------ ------------ ------------
Ending balance........................... $ 28,134 $ 13,574 $ 4,655
============ ============ ============

RESIDUAL INTEREST FINANCING. In March 2004, one of our wholly-owned
bankruptcy remote consolidated subsidiaries issued $44.0 million of asset-backed
notes secured by our retained interests in eight term securitization
transactions. The notes were repaid in full in August 2005. In November 2005, we
completed a similar securitization in which a wholly-owned bankruptcy remote
consolidated subsidiary of ours issued $45.8 million of asset-backed notes
secured by our retained interests in 10 term securitization transactions. Those
notes were repaid in full in May 2007. In December 2006, we entered into a $35
million residual credit facility that is secured by our retained interests in
more recent term securitizations. We repaid this facility in full in July 2007
in conjunction with the establishment of a combination term and revolving
residual credit facility. Under the combination term and revolving residual
credit facility, we have used and intend to use eligible residual interests in
securitizations as collateral for floating rate borrowings. The amount that we
may borrow is computed using an agreed valuation methodology of the residuals,
subject to an overall maximum principal amount of $120 million, represented by
(i) a $60 million Class A-1 variable funding note (the "revolving note"), and
(ii) a $60 million term note (the "term note"). The term note has been fully
drawn and is due in July 2009. As of December 31, 2007, we have drawn $10
million on the revolving note. The advance rate under the revolving note is
subject to the lender's valuation of each residual interest pledged as
collateral which, in turn, is primarily affected by the credit performance of
the underlying residual interests and their related contracts. The facility's
revolving feature expires in July 2008.

SECURITIZATION TRUST DEBT. Since the third quarter of 2003, we have for
financial accounting purposes, treated securitizations of automobile contracts
as secured financings, and the asset-backed securities issued in such
securitizations remain on our balance sheet as securitization trust debt.

SENIOR SECURED DEBT. From 1998 to 2005, we entered into a series of
financing transactions with Levine Leichtman Capital Partners, II. In July 2007
we repaid the final amounts due under these financing transactions.

SUBORDINATED DEBT. In April 1997, we issued $20.0 million in subordinated
participating equity notes due April 2004, which we retired in the second
quarter of 2004. In 1995, we issued $20.0 million of Rising Interest
Subordinated Redeemable Securities, or RISRS, due 2006. The RISRS included a
sinking fund in their terms, and we repaid in the first quarter of 2006 the
$14.0 million that remained outstanding. In May 2003, in connection with the
acquisition of TFC, we assumed $6.3 million in principal amount of subordinated
debt that TFC had outstanding. We amortized this debt monthly and repaid it in
full in June 2005.

SUBORDINATED RENEWABLE NOTES DEBT. In June 2005, we began issuing
registered subordinated renewable notes in an ongoing offering to the public.
Upon maturity, the notes are automatically renewed for the same term as the
maturing notes, unless we elect not to have the notes renewed or unless the
investor notifies us within 15 days after the maturity date for his notes that
he wants his notes repaid. Renewed notes bear interest at the rate we are
offering at that time to other investors with similar aggregate note portfolios.
Based on the terms of the individual notes, interest payments may be required
monthly, quarterly, annually or upon maturity.

We must comply with certain affirmative and negative covenants related to
debt facilities, which require, among other things, that we maintain certain
financial ratios related to liquidity, net worth, capitalization, investments,
acquisitions, restricted payments and certain dividend restrictions. We were in
compliance with all such covenants as of December 31, 2007. In addition, certain
securitization and non-securitization related debt contain cross-default
provisions that would allow certain creditors to declare default if a default
occurred under a different facility.

FORWARD-LOOKING STATEMENTS

This report on Form 10-K includes certain "forward-looking statements".
Forward-looking statements may be identified by the use of words such as
"anticipates," "expects," "plans," "estimates," or words of like meaning. As to
the specifically identified forward-looking statements, factors that could
affect charge-offs and recovery rates include changes in the general economic
climate, which could affect the willingness or ability of obligors to pay
pursuant to the terms of contracts, changes in laws respecting consumer finance,
which could affect our ability to enforce rights under contracts, and changes in
the market for used vehicles, which could affect the levels of recoveries upon
sale of repossessed vehicles. Factors that could affect our revenues in the
current year include the levels of cash releases from existing pools of
contracts, which would affect our ability to purchase contracts, the terms on
which we are able to finance such purchases, the willingness of dealers to sell
contracts to us on the terms that it offers, and the terms on which we are able
to complete term securitizations once contracts are acquired. Factors that could
affect our expenses in the current year include competitive conditions in the
market for qualified personnel, and interest rates (which affect the rates that
we pay on Notes issued in its securitizations). The statements concerning
structuring securitization transactions as secured financings and the effects of
such structures on financial items and on future profitability also are
forward-looking statements. Any change to the structure of our securitization
transaction could cause such forward-looking statements not to be accurate. Both
the amount of the effect of the change in structure on our profitability and the
duration of the period in which our profitability would be affected by the
change in securitization structure are estimates. The accuracy of such estimates
will be affected by the rate at which we purchase and sell contracts, any
changes in that rate, the credit performance of such contracts, the financial
terms of future securitizations, any changes in such terms over time, and other
factors that generally affect our profitability.

NEW ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS No. 157"). SFAS No. 157 clarifies the principle that fair value should be
based on the assumptions market participants would use when pricing an asset or
liability and establishes a fair value hierarchy that prioritizes the
information used to develop those assumptions. Under the standard, fair value
measurements would be separately disclosed by level within the fair value
hierarchy. In February 2008, the FASB issued FASB Staff Position (FSP) No.
157-2, "Effective Date of FASB Statement No. 157", to partially defer FASB
Statement No. 157 for nonfinancial assets and nonfinancial liabilities, except
those that are recognized or disclosed at fair value in the financial statements
on a recurring basis. SFAS 157 is effective for us on January 1, 2008, except
for nonfinancial assets and nonfinancial liabilities that are not recognized or
disclosed at fair value on a recurring basis for which our effective date is
January 1, 2009. We are in the process of evaluating SFAS No. 157 and do not
believe it will have a significant effect on our financial position or results
of operations.

In February 2007, the FASB issued SFAS 159, THE FAIR VALUE OPTION FOR
FINANCIAL ASSETS AND FINANCIAL LIABILITIES-INCLUDING AN AMENDMENT OF FASB
STATEMENT NO. 115. SFAS 159 permits an entity to choose to measure many
financial instruments and certain other items at fair value. Most of the
provisions of SFAS 159 are elective, however, the amendment to SFAS 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, applies to all
entities with available for sale or trading securities. SFAS 159 is elective as
of the beginning of an entity's first fiscal year that begins after November 15,
2007. We are currently assessing this Statement to determine whether or not we
would elect to measure any financial instruments at their fair value.

OFF-BALANCE SHEET ARRANGEMENTS

Prior to July 2003, the Company structured its securitization transactions
to meet the accounting criteria for sales of finance receivables. In this
structure the notes issued by our special purpose subsidiary do not appear as
debt on our consolidated balance sheet. See Critical Accounting Policies for a
detailed discussion of our securitization structure.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

We are subject to interest rate risk during the period between when
contracts are purchased from dealers and when such contracts become part of a
term securitization. Specifically, the interest rates on the warehouse
facilities are adjustable while the interest rates on the contracts are fixed.
Historically, our term securitization facilities have had fixed rates of
interest. To mitigate some of this risk, we have in the past, and intend to
continue to structure our securitization transactions to include pre-funding
structures, whereby the amount of Notes issued exceeds the amount of contracts
initially sold to the Trusts. In pre-funding, the proceeds from the pre-funded
portion are held in an escrow account until we sell the additional contracts to
the Trust in amounts up to the balance of the pre-funded escrow account. In
pre-funded securitizations, we lock in the borrowing costs with respect to the
contracts we subsequently deliver to the Trust. However, we incur an expense in
pre-funded securitizations equal to the difference between the money market
yields earned on the proceeds held in escrow prior to subsequent delivery of
contracts and the interest rate paid on the Notes outstanding, the amount as to
which there can be no assurance.

The following table provides information on our interest rate-sensitive
financial instruments by expected maturity date as of December 31, 2007:

2008 2009 2010 2011 2012 THEREAFTER FAIR VALUE
------------ ------------ ------------ ------------ ------------ ------------ ------------
(In thousands)
Assets:
Finance receivables(1)...... $ 819,401 $ 629,958 $ 392,109 $ 205,507 $ 71,890 $ 6,889 $ 2,125,754
Weighted average fixed
effective interest rate... 18.24% 18.24% 18.23% 18.22% 18.20% 18.57%

LIABILITIES:
Warehouse lines of credit... 235,925 - - - - - 235,925
Weighted average variable
effective interest rate... 7.35%
Residual interest
financing................. 10,000 60,000 - - - - 70,000
Weighted average variable
effective interest rate... 10.96%
Securitization trust debt... 714,382 530,879 324,500 168,722 57,326 2,493 1,786,263
Weighted average fixed
effective interest rate... 5.62% 5.70% 5.81% 5.94% 6.01% 6.44%
Subordinated renewable
notes..................... 8,351 8,098 9,341 950 1,274 119 28,133
Weighted average fixed
effective interest rate... 10.18% 12.13% 14.10% 11.69% 13.91% 10.03%

(1) BASED ON SCHEDULED PAYMENTS OF FINANCE RECEIVABLES AND EXCLUDING SUCH
COMPONENTS AS DEFERRED ORIGINATIONS COSTS AND DEFERRED ACQUISITION FEES.

Much of the information used to determine fair value is highly subjective.
When applicable, readily available market information has been utilized.
However, for a significant portion of our financial instruments, active markets
do not exist. Therefore, considerable judgments were required in estimating fair
value for certain items. The subjective factors include, among other things, the
estimated timing and amount of cash flows, risk characteristics, credit quality
and interest rates, all of which are subject to change. Since the fair value is
estimated as of the dates shown in the table, the amounts that will actually be
realized or paid at settlement or maturity of the instruments could be
significantly different.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

This report includes Consolidated Financial Statements, notes thereto and
an Independent Auditors' Report, at the pages indicated below, in the "Index to
Financial Statements." Certain unaudited quarterly financial information is
included in the Notes to Consolidated Financial Statements, as Note 17.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES. Under the supervision and with the
participation of the Company's Chief Executive Officer and Chief Financial
Officer, management of the Company has evaluated the effectiveness of the design
and operation of the Company's disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
"Exchange Act") as of December 31, 2007 (the "Evaluation Date"). Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that, as of the Evaluation Date, the Company's disclosure controls and
procedures are effective (i) to ensure that information required to be disclosed
by us in reports that the Company files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the Securities and Exchange Commission; and (ii) to
ensure that information required to be disclosed in the reports that the Company
files or submits under the Exchange Act is accumulated and communicated to our
management, including the Company's Chief Executive Officer and Chief Financial
Officer, to allow timely decisions regarding required disclosures.

The certifications of our chief executive officer and chief financial
officer required under Section 302 of the Sarbanes-Oxley Act have been filed as
Exhibits 31.1 and 31.2 to this report.

INTERNAL CONTROL. Management's Report on Internal Control over Financial
Reporting is included in this Annual Report, immediately below. During the
fiscal quarter ended December 31, 2007, there were no changes in our internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING. We are
responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rule 13a-15(f) under the Securities Exchange
Act of 1934. Our internal control over financial reporting is designed to
provide reasonable assurance to our management and Board of Directors regarding
the preparation and fair presentation of published financial statements.

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Therefore, even those systems
determined to be effective can only provide reasonable assurance with respect to
financial statement preparation and presentation.

Management, with the participation of the chief executive and chief
financial officers, assessed the effectiveness of our internal control over
financial reporting as of December 31, 2007. In making this assessment, we used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control -- Integrated Framework. Based on
this assessment, management, with the participation of the chief executive and
chief financial officers, believes that, as of December 31, 2007, our internal
control over financial reporting is effective based on those criteria.

The effectiveness of internal control over financial reporting as of
December 31, 2007, has been audited by McGladrey & Pullen, LLP, the independent
registered public accounting firm that also audited our consolidated financial
statements. McGladrey & Pullen's attestation report on our internal control over
financial reporting is included with the audited financial statements included
herein.

ITEM 9B. OTHER INFORMATION

Not Applicable

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding directors of the registrant is incorporated by
reference to the registrant's definitive proxy statement for its annual meeting
of shareholders to be held in 2008 (the "2008 Proxy Statement"). The 2008 Proxy
Statement will be filed not later than April 30, 2008. Information regarding
executive officers of the registrant appears in Part I of this report, and is
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference to the 2008 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

Incorporated by reference to the 2008 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE

Incorporated by reference to the 2008 Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Incorporated by reference to the 2008 Proxy Statement.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The financial statements listed below under the caption "Index to
Financial Statements" are filed as a part of this report. No financial statement
schedules are filed as the required information is inapplicable or the
information is presented in the Consolidated Financial Statements or the related
notes. Separate financial statements of the Company have been omitted as the
Company is primarily an operating company and its subsidiaries are wholly owned
and do not have minority equity interests held by any person other than the
Company in amounts that together exceed 5% of the total consolidated assets as
shown by the most recent year-end Consolidated Balance Sheet.

The exhibits listed below are filed as part of this report, whether filed
herewith or incorporated by reference to an exhibit filed with the report
identified in the parentheses following the description of such exhibit. Unless
otherwise indicated, each such identified report was filed by or with respect to
the registrant.

Exhibit
Number Description ("**" indicates compensatory plan or agreement.)
------- ----------------------------------------------------------------------

2.1 Agreement and Plan of Merger, dated as of November 18, 2001, by and
among the Registrant, CPS Mergersub, Inc. and MFN Financial
Corporation. (Exhibit 2.1 to Form 8-K filed on November 19, 2001 by
MFN Financial Corporation)

3.1 Restated Articles of Incorporation (Exhibit 3.1 to Form S-2, No.
333-121913)

3.2 Amended and Restated Bylaws (Exhibit 3.2.1 to Form 8-K filed August
17, 2007)

4.1 Instruments defining the rights of holders of long-term debt of
certain consolidated subsidiaries of the registrant are omitted
pursuant to the exclusion set forth in subdivisions (b)(iv)(iii)(A)
and (b)(v) of Item 601 of Regulation S-K (17 CFR 229.601). The
registrant agrees to provide copies of such instruments to the United
States Securities and Exchange Commission upon request.

4.2 Form of Indenture re Renewable Unsecured Subordinated Notes ("RUS
Notes"), (Exhibit 4.1 to Form S-2, no. 333-121913)

4.2.1 Form of RUS Notes (Exhibit 4.2 to Form S-2, no. 333-121913)

4.23 Indenture dated as of June 1, 2007, respecting notes issued by CPS
Auto Receivables Trust 2007-B (exhibit 4.23 to Form 8-K filed by the
registrant on June 29, 2007)

4.24 Sale and Servicing Agreement dated as of June 1, 2007, related to
notes issued by CPS Auto Receivables Trust 2007-B (exhibit 4.24 to
Form 8-K filed by the registrant on June 29, 2007.)

4.25 Indenture dated as of September 1, 2007, respecting notes issued by
CPS Auto Receivables Trust 2007-C (exhibit 4.25 to Form 8-K filed by
the registrant on November 2, 2007)

4.26 Sale and Servicing Agreement dated as of September 1, 2007, related to
notes issued by CPS Auto Receivables Trust 2007-C (exhibit 4.26 to
Form 8-K filed by the registrant on November 2, 2007.)

10.1 1991 Stock Option Plan & forms of Option Agreements thereunder
(Exhibit 10.19 to Form S-2, no. 333-121913) **

10.2 1997 Long-Term Incentive Stock Plan ("1997 Plan") (Exhibit 10.20 to
Form S-2, no. 333-121913) **

10.2.1 Form of Option Agreement under 1997 Plan (Exhibit 10.2.1 to Form 10-K
filed March 13, 2006) **

10.4 Lease of Headquarters Building (Exhibit 10.22 to registrant's Form
10-Q filed Nov. 14, 1997)

10.5 Third Amended & Restated Sale and Servicing Agreement dated February
14, 2007 by and among Page Funding LLC ("PFLLC"), the registrant and
Wells Fargo Bank, N.A. ("WFBNA") (Exhibit 10.5 to registrant's Form
10-K filed March 9, 2007)

10.5.3 Amendment dated March 30, 2007 to the Third Amended & Restated Sale
and Servicing Agreement dated February 14, 2007 by and among Page
Funding LLC ("PFLLC"), the registrant and Wells Fargo Bank, N.A.
("WFBNA") (Exhibit 10.5.3 to registrant's Form 10-Q filed July 23,
2007)

10.5.3 Amendment dated June 29, 2007 to the Third Amended & Restated Sale
and Servicing Agreement dated February 14, 2007 by and among Page
Funding LLC ("PFLLC"), the registrant and Wells Fargo Bank, N.A.
("WFBNA") (Exhibit 10.5.3 to registrant's Form 10-Q filed July 23,
2007)

10.5.3 Amendment dated September 30, 2007 to the Third Amended & Restated
Sale and Servicing Agreement dated February 14, 2007 by and among Page
Funding LLC ("PFLLC"), the registrant and Wells Fargo Bank, N.A.
("WFBNA") (Exhibit 10.5.3 to registrant's Form 10-Q filed November 6,
2007)

10.6 Second Amended & Restated Indenture dated as of February 14, 2007 by
and between PFLLC and WFBNA (Exhibit 10.6 to registrant's Form 10-K
filed March 9, 2007)

10.8 Second Amended & Restated Note Purchase Agreement dated as of February
14, 2007 by and among PFLLC, UBS Real Estate Securities Inc. and WFBNA
(Exhibit 10.8 to registrant's Form 10-K filed March 9, 2007)

10.10 Amended & Restated Sale and Servicing Agreement dated as of January
12, 2007, among Page Three Funding LLC ("P3FLLC"), the registrant and
WFBNA (Exhibit 10.10 to registrant's Form 10-K filed March 9, 2007)

10.11 Amended & Restated Indenture dated as of January 12, 2007 between
P3FLLC and WFBNA (Exhibit 10.11 to registrant's Form 10-K filed March
9, 2007)

10.12 Amended & Restated Note Purchase Agreement dated as of January 12,
2007 among P3FLLC, the registrant and Bear, Stearns International
Limited (Exhibit 10.12 to registrant's Form 10-K filed March 9, 2007)

10.14 2006 Long-Term Equity Incentive Plan (Appendix A to the registrant's
proxy statement for its 2006 annual meeting of shareholders, filed on
Schedule 14A on May 19, 2006)**

10.14.1 Form of Option Agreement under the 2006 Long-Term Equity Incentive
Plan (Exhibit 10.14.1 to registrant's Form 10-K filed March 9, 2007)**

14 Registrant's Code of Ethics for Senior Financial Officers (Exhibit 14
to Form 10-K filed March 13, 2006)

21 List of subsidiaries of the registrant (filed herewith)

23.1 Consent of McGladrey & Pullen, LLP (filed herewith)

31.1 Rule 13a-14(a) certification by chief executive officer (filed
herewith)

31.2 Rule 13a-14(a) certification by chief financial officer (filed
herewith)

32 Section 1350 certification (filed herewith)

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

CONSUMER PORTFOLIO SERVICES, INC. (REGISTRANT)

March 17, 2008 By: /s/ CHARLES E. BRADLEY, JR.
------------------------------------------
Charles E. Bradley, Jr., PRESIDENT

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

March 17, 2008 /s/ CHARLES E. BRADLEY, JR.
------------------------------------------
Charles E. Bradley, Jr., DIRECTOR,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)

March 17, 2008 /s/ CHRIS A. ADAMS
------------------------------------------
Chris A. Adams, DIRECTOR

March 17, 2008 /s/ E. BRUCE FREDRIKSON
------------------------------------------
E. Bruce Fredrikson, DIRECTOR

March 17, 2008 /s/ BRIAN J. RAYHILL
------------------------------------------
Brian J. Rayhill, DIRECTOR

March 17, 2008 /s/ WILLIAM B. ROBERTS
------------------------------------------
William B. Roberts, DIRECTOR

March 17, 2008 /s/ JOHN C. WARNER
------------------------------------------
John C. Warner, DIRECTOR

March 17, 2008 /s/ GREGORY S. WASHER
------------------------------------------
Gregory S. Washer, DIRECTOR

March 17, 2008 /s/ DANIEL S. WOOD
------------------------------------------
Daniel S. Wood, DIRECTOR

March 17, 2008 /s/ JEFFREY P. FRITZ
------------------------------------------
Jeffrey P. Fritz, SR. VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL ACCOUNTING OFFICER)

INDEX TO FINANCIAL STATEMENTS

PAGE
REFERENCE
---------

Reports of Independent Registered Public Accounting Firm ............. F-2

Consolidated Balance Sheets as of December 31, 2007 and 2006.......... F-4

Consolidated Statements of Operations for the years ended
December 31, 2007, 2006, and 2005.................................. F-5

Consolidated Statements of Comprehensive Income for the
years ended December 31, 2007, 2006, and 2005...................... F-6

Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2007, 2006, and 2005...................... F-7

Consolidated Statements of Cash Flows for the years
ended December 31, 2007, 2006, and 2005............................ F-8

Notes to Consolidated Financial Statements ........................... F-10

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Consumer Portfolio Services, Inc.

We have audited the consolidated balance sheets of Consumer Portfolio
Services, Inc. and subsidiaries (the Company) as of December 31, 2007 and 2006,
and the related consolidated statements of operations, comprehensive income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2007. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Consumer
Portfolio Services, Inc. and subsidiaries as of December 31, 2007 and 2006, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2007, in conformity with U.S. generally
accepted accounting principles.

As described in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for uncertain tax positions.

We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), Consumer Portfolio Services,
Inc. and subsidiaries' internal control over financial reporting as of December
31, 2007, based on criteria established in INTERNAL CONTROL--INTEGRATED
FRAMEWORK issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and our report dated March 14, 2008 expressed an unqualified
opinion on the effectiveness of the Company's internal control over financial
reporting.

The Company is currently marketing a pool of receivables for sale in a
securitization. If the Company were unsuccessful in completing this sale,
advances on its two revolving credit facilities would likely exceed, in May
2008, the maximums allowed under those facilities. See Note 1 for a discussion
of the potential consequences of such an event.

/s/ McGladrey & Pullen, LLP

Irvine, California
March 17, 2008

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Consumer Portfolio Services, Inc.

We have audited Consumer Portfolio Services, Inc. and subsidiaries'
internal control over financial reporting as of December 31, 2007, based on
criteria established in INTERNAL CONTROL-- INTEGRATED FRAMEWORK issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Consumer Portfolio Services, Inc. and subsidiaries' management is responsible
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting
included in the accompanying Management's Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing
such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company's
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

In our opinion, Consumer Portfolio Services, Inc. and subsidiaries
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2007, based on criteria established in INTERNAL
CONTROL--INTEGRATED FRAMEWORK issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheets as of December 31, 2007 and 2006 and the related consolidated statements
of operations, comprehensive income, shareholders' equity and cashflows for each
of the three years in the period ended December 31, 2007 of Consumer Portfolio
Services, Inc. and subsidiaries and our report dated March 14, 2008 expressed an
unqualified opinion and includes an explanatory paragraph regarding the
potential effect on the Company if it is unseccessful in completing a sale of a
pool of receivables.

/s/ McGladrey & Pullen, LLP

Irvine, California
March 17, 2008

F-3

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

DECEMBER 31, DECEMBER 31,
2007 2006
--------------- ---------------

ASSETS
Cash and cash equivalents $ 20,880 $ 14,215
Restricted cash and equivalents 170,341 193,001

Finance receivables 2,068,004 1,480,794
Less: Allowance for finance credit losses (100,138) (79,380)
--------------- ---------------
Finance receivables, net 1,967,866 1,401,414

Residual interest in securitizations 2,274 13,795
Furniture and equipment, net 1,500 824
Deferred financing costs 15,482 12,702
Deferred tax assets, net 58,835 54,669
Accrued interest receivable 24,099 17,043
Other assets 21,536 20,931
--------------- ---------------
$ 2,282,813 $ 1,728,594
=============== ===============

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 18,391 $ 20,888
Warehouse lines of credit 235,925 72,950
Income taxes payable 17,706 10,297
Residual interest financing 70,000 31,378
Securitization trust debt 1,798,302 1,442,995
Senior secured debt, related party -- 25,000
Subordinated renewable notes 28,134 13,574
--------------- ---------------
2,168,458 1,617,082
--------------- ---------------

Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, $1 par value;
authorized 5,000,000 shares; none issued -- --
Series A preferred stock, $1 par value;
authorized 5,000,000 shares; none issued -- --
Common stock, no par value; authorized
30,000,000 shares; 19,525,042 and 21,504,688
shares issued and outstanding at December 31, 2007 and
2006, respectively 55,216 64,438
Additional paid in capital, warrants 794 794
Retained earnings 60,794 48,031
Accumulated other comprehensive loss (2,449) (1,751)
--------------- ---------------
114,355 111,512
--------------- ---------------
$ 2,282,813 $ 1,728,594
=============== ===============

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-4

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEAR ENDED DECEMBER 31,
--------------------------------------------
2007 2006 2005
------------ ------------ ------------

REVENUES:
Interest income $ 370,265 $ 263,566 $ 171,834
Servicing fees 1,218 2,894 6,647
Other income 23,067 12,403 15,216
------------ ------------ ------------
394,550 278,863 193,697
------------ ------------ ------------
EXPENSES:
Employee costs 46,716 38,483 40,384
General and administrative 24,959 23,197 23,095
Interest 137,543 87,510 44,148
Interest, related party 1,646 5,602 7,521
Provision for credit losses 137,272 92,057 58,987
Marketing 18,147 14,031 12,000
Occupancy 3,763 3,983 3,400
Depreciation and amortization 547 800 790
------------ ------------ ------------
370,593 265,663 190,325
------------ ------------ ------------
Income before income tax expense (benefit) 23,957 13,200 3,372
Income tax expense (benefit) 10,099 (26,355) --
------------ ------------ ------------
Net income $ 13,858 $ 39,555 $ 3,372
============ ============ ============

Earnings per share:
Basic $ 0.66 $ 1.82 $ 0.16
Diluted 0.61 1.64 0.14

Number of shares used in computing
earnings per share:
Basic 20,880 21,759 21,627
Diluted 22,595 24,052 23,513

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-5

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(IN THOUSANDS)

YEAR ENDED DECEMBER 31,
--------------------------------------------
2007 2006 2005
------------ ------------ ------------

Net income $ 13,858 $ 39,555 $ 3,372
Other comprehensive income (loss); minimum
pension liability, net of tax (698) 678 (1,412)
------------ ------------ ------------
Comprehensive income $ 13,160 $ 40,233 $ 1,960
============ ============ ============

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-6

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(DOLLARS IN THOUSANDS)

Additional Accumulated
Paid-in Other
Common Stock Capital, Retained Comprehensive Deferred
Shares Amount Warrants Earnings Loss Compensation Total
----------- ------------ ------------ ------------- -------------- ------------- ------------
Balance at
December 31, 2004 21,471 $ 66,283 $ - $ 5,104 $ (1,017) $ (450) $ 69,920
Common stock issued
upon exercise of
options, including
tax benefit 415 1,311 - - - - 1,311
Purchase of common stock (199) (1,040) - - - - (1,040)
Pension benefit obligation - - - - (1,412) - (1,412)
Valuation of warrants issued - - 794 - - - 794
Deferred compensation on
stock options - 194 - - - (194) -
Amortization of stock
compensation - - - - - 644 644
Net income - - - 3,372 - - 3,372
----------- ------------ ------------ ------------- -------------- ------------- ------------
Balance at
December 31, 2005 21,687 66,748 794 8,476 (2,429) - 73,589
Common stock issued
upon exercise of
options, including
tax benefit 553 2,254 - - - - 2,254
Purchase of common stock (735) (4,808) - - - - (4,808)
Pension benefit obligation - - - - 678 - 678
Stock-based compensation - 244 - - - - 244
Net income - - - 39,555 - - 39,555
----------- ------------ ------------ ------------- -------------- ------------- ------------
Balance at
December 31, 2006 21,505 64,438 794 48,031 (1,751) - 111,512
Common stock issued
upon exercise of
options, including
tax benefit 337 1,356 - - - - 1,356
Purchase of common stock (2,317) (11,711) - - - - (11,711)
Pension benefit obligation - - - - (698) - (698)
Stock-based compensation - 1,133 - - - - 1,133
Adjustment to adopt FIN 48 - - - (1,095) - - (1,095)
Net income - - - 13,858 - - 13,858
----------- ------------ ------------ ------------- -------------- ------------- ------------
Balance at
December 31, 2007 19,525 $ 55,216 $ 794 $ 60,794 $ (2,449) $ - $ 114,355
=========== ============ ============ ============= ============== ============= ============

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-7

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

YEAR ENDED DECEMBER 31,
--------------------------------------------------
2007 2006 2005
-------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,858 $ 39,555 $ 3,372
Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on write-up of residual asset (6,155) (1,200) --
Accretion of deferred acquisition fees (16,761) (11,912) (10,851)
Amortization of discount on Class B Notes 5,316 3,005 1,486
Depreciation and amortization 547 800 790
Amortization of deferred financing costs 9,372 6,580 3,296
Provision for credit losses 137,272 92,057 58,987
Share based compensation 1,133 244 644
Interest income on residual assets (2,324) (5,656) (5,338)
Cash received from residual interest in securitizations 19,999 18,282 30,548
Impairment charge against non-auto finanace receivable assets -- -- 1,882
Changes in assets and liabilities:
Payments on restructuring accrual (366) (633) (1,425)
Accrued interest receivable (7,055) (6,113) (4,519)
Other assets (994) (8,051) (1,059)
Deferred tax assets, net (3,738) (47,138) (7,532)
Accounts payable and accrued expenses 3,311 12,629 (1,050)
-------------- -------------- --------------
Net cash provided by operating activities (see Notes 1 and 18) 153,415 92,449 69,231
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of finance receivables held for investment (1,282,312) (1,019,018) (691,252)
Proceeds received on finance receivables held for investment 595,347 451,037 279,730
Decreases (increases) in restricted cash and cash equivalents, net 22,661 (35,338) (32,549)
Purchase of furniture and equipment (1,087) (412) (166)
-------------- -------------- --------------
Net cash used in investing activities (see Notes 1 and 18) (665,391) (603,731) (444,237)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of securitization trust debt 1,035,864 1,003,645 662,350
Proceeds from issuance of other debt 103,523 23,652 50,485
Net proceeds from warehouse lines of credit 162,975 37,599 1,071
Repayment of securitization trust debt (685,873) (487,681) (282,625)
Repayment of senior secured debt, related party (25,000) (15,000) (19,829)
Repayment of other debt (50,342) (41,266) (26,498)
Payment of financing costs (12,151) (10,687) (6,796)
Repurchase of common stock (11,711) (4,808) (1,040)
Exercise of options and warrants 1,118 1,555 1,311
Excess tax benefit related to option exercises 238 699 --
-------------- -------------- --------------
Net cash provided by financing activities 518,641 507,708 378,429
-------------- -------------- --------------
Increase (decrease) in cash and cash equivalents 6,665 (3,574) 3,423
Cash and cash equivalents at beginning of period 14,215 17,789 14,366
-------------- -------------- --------------
Cash and cash equivalents at end of period $ 20,880 $ 14,215 $ 17,789
============== ============== ==============

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-8

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

YEAR ENDED DECEMBER 31,
--------------------------------------------------
2007 2006 2005
-------------- -------------- --------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 121,631 $ 81,628 $ 45,929
Income taxes 7,273 10,219 9,377

Supplemental disclosure of non-cash investing and financing activities:
Pension benefit obligation, net 698 (678) 1,412
Value of warrants issued - - 794

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-9

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Consumer Portfolio Services, Inc. ("CPS") was incorporated in California
on March 8, 1991. CPS and its subsidiaries (collectively, the "Company")
specialize in purchasing, selling and servicing retail automobile installment
sale contracts ("Contracts") originated by licensed motor vehicle dealers
("Dealers") located throughout the United States. Dealers located in California,
Texas, Florida and Ohio represented 10.4%, 9.2%, 8.4% and 6.2%, respectively of
contracts purchased during 2007 compared with 9.2%, 10.9%, 7.9% and 7.4%,
respectively in 2006. No other state had a concentration in excess of 6.2%. We
specialize in contracts with obligors who generally would not be expected to
qualify for traditional financing, such as that provided by commercial banks or
automobile manufacturers' captive finance companies.

We are subject to various regulations and laws as they relate to the
extension of credit in consumer credit transactions. Although we believe we are
currently in material compliance with these regulation and laws, there can be no
assurance that we will be able to maintain such compliance. Failure to comply
with such laws and regulations could have a material adverse effect on the
Company.

ACQUISITIONS

On March 8, 2002, we acquired MFN Financial Corporation and its
subsidiaries in a merger (the "MFN Merger"). On May 20, 2003, we acquired TFC
Enterprises, Inc. and its subsidiaries in a second merger (the "TFC Merger").
Each merger was accounted for as a purchase. MFN Financial Corporation and its
subsidiaries ("MFN") and TFC Enterprises, Inc. and its subsidiaries ("TFC") were
engaged in similar businesses: buying contracts from Dealers, financing those
contracts through securitization transactions, and servicing those contracts.
MFN ceased acquiring contracts in March 2002; TFC continues to acquire contracts
under its "TFC Programs."

On April 2, 2004, we purchased a portfolio of contracts and certain other
assets (the "SeaWest Asset Acquisition") from SeaWest Financial Corporation
("SeaWest"). In addition, we were named the successor servicer for three term
securitization transactions originally sponsored by SeaWest (the "SeaWest Third
Party Portfolio"). We do not offer financing programs similar to those
previously offered by SeaWest.

PRINCIPLES OF CONSOLIDATION

The Consolidated Financial Statements include the accounts of Consumer
Portfolio Services, Inc. and its wholly-owned subsidiaries, certain of which are
Special Purpose Subsidiaries ("SPS"), formed to accommodate the structures under
which we purchase and securitize our contracts. The Consolidated Financial
Statements also include the accounts of CPS Leasing, Inc., an 80% owned
subsidiary. All significant intercompany balances and transactions have been
eliminated in consolidation.

CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, we consider all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents. Cash equivalents consist of cash on hand and due from banks
and money market accounts. Substantially all of our cash is deposited at two
financial institutions. We maintain cash due from banks in excess of the bank's
insured deposit limits. We do not believe we are exposed to any significant
credit risk on these deposits. As part of certain financial covenants related to
debt facilities, we are required to maintain a minimum unrestricted cash
balance.

RECLASSIFICATION WITHIN THE CONSOLIDATED STATEMENT OF CASH FLOWS

We have made a reclassification of an item within our consolidated
statement of cash flows for the years ended December 31, 2006 and 2005. The
reclassification affects only the totals for net cash provided by operating
activities and net cash used in investing activities. There is no effect on the
totals for net cash provided by financing activities or on the net increase (or
decrease) in cash and cash equivalents for the periods shown. The
reclassification does not affect our consolidated balance sheets, consolidated
statements of operations or consolidated statements shareholders' equity.

The following table illustrates the effect of the reclassification:

F-10

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, December 31,
2006 2006
----------------------------------- -----------------------------------
As Previously As Previously
LINE ITEM FROM CONSOLIDATED STATEMENTS OF CASH Reported As Reclassified Reported As Reclassified
(In thousands)

Cash flows from operating activities:
Changes in assets and liabilities:
Restricted cash and cash equivalents, net........ $ (35,338) $ - $ (32,549) $ -
Net cash provided by operating activities........ $ 57,111 $ 92,449 $ 36,682 $ 69,231

Cash flows from investing activities:
Decreases (increases) in restricted
cash and cash equivalents, net.............. $ - $ (35,338) $ - $ (32,549)
Net cash used in investing activities............ $ (568,393) $ (603,731) $ (411,688) $ (444,237)

See also Note 18 "Reclassification within the Quarterly Consolidated Statements
of Cash Flows".

FINANCE RECEIVABLES, NET OF UNEARNED INCOME

Finance receivables are presented at cost. All finance receivable
contracts are held for investment and include automobile installment sales
contracts on which interest is pre-computed and added to the amount financed.
The interest on such contracts is included in unearned finance charges. Unearned
finance charges are amortized using the interest method over the contractual
term of the receivables. Generally, payments received on finance receivables are
restricted to certain securitized pools, and the related contracts cannot be
resold. Finance receivables are charged off pursuant to the controlling
documents of certain securitized pools, generally before they become
contractually delinquent five payments. Contracts that are deemed uncollectible
prior to the maximum delinquency period are charged off immediately. Management
may authorize an extension of payment terms if collection appears likely during
the next calendar month.

Our portfolio of finance receivables consists of smaller-balance
homogeneous contracts that are collectively evaluated for impairment on a
portfolio basis. We report delinquency on a contractual basis. Once a Contract
becomes greater than 90 days delinquent, we do not recognize additional interest
income until the borrower under the Contract makes sufficient payments to be
less than 90 days delinquent. Any payments received on a Contract that is
greater than 90 days delinquent is first applied to accrued interest and then to
principal reduction.

ALLOWANCE FOR FINANCE CREDIT LOSSES

In order to estimate an appropriate allowance for losses to be incurred on
finance receivables, we use a loss allowance methodology commonly referred to as
"static pooling," which stratifies the finance receivable portfolio into
separately identified pools based on their period of origination, then uses
historical performance of seasoned pools to estimate future losses on current
pools. Using analytical and formula driven techniques, we estimate an allowance
for finance credit losses, which we believe is adequate for probable credit
losses that can be reasonably estimated in our portfolio of finance receivable
contracts. Provision for loss is charged to our Consolidated Statement of
Operations. Net losses incurred on finance receivables are charged to the
allowance. We evaluate the adequacy of the allowance by examining current
delinquencies, the characteristics of the portfolio, the value of the underlying
collateral and historical loss trends. As conditions change, our level of
provisioning and/or allowance may change as well.

F-11

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CHARGE OFF POLICY

Delinquent contracts for which the related financed vehicle has been
repossessed are generally charged off at the earliest of (1) the month in which
the proceeds from the sale of the financed vehicle were received, (2) the month
in which 90 days have passed from the date of repossession or (3) the month in
which the Contract becomes seven scheduled payments past due (see Repossessed
and Other Assets below). The amount charged off is the remaining principal
balance of the Contract, after the application of the net proceeds from the
liquidation of the financed vehicle. With respect to delinquent contracts for
which the related financed vehicle has not been repossessed, the remaining
principal balance thereof is generally charged off no later than the end of the
month that the Contract becomes five scheduled payments past due for CPS Program
receivables, and no later than the end of the month that the Contract becomes
seven scheduled payments past due for other receivables.

CONTRACT ACQUISITION FEES AND ORIGINATIONS COSTS

Upon purchase of a Contract from a Dealer, we generally either charge or
advance the Dealer an acquisition fee. Dealer acquisition fees and deferred
originations costs are applied to the carrying value of finance receivables and
are accreted into earnings as an adjustment to the yield over the estimated life
of the Contract using the interest method.

REPOSSESSED AND OTHER ASSETS

If a customer fails to make or keep promises for payments, or if the
customer is uncooperative or attempts to evade contact or hide the vehicle, a
supervisor will review the collection activity relating to the account to
determine if repossession of the vehicle is warranted. Generally, such a
decision will occur between the 45th and 90th day past the customer's payment
due date, but could occur sooner or later, depending on the specific
circumstances. At the time the vehicle is repossessed we stop accruing interest
on the Contract, and reclassify the remaining Contract balance to other assets
at its estimated fair value less costs to sell. Included in other assets in the
accompanying balance sheets are repossessed vehicles pending sale of $11.5
million and $10.1 million at December 31, 2007 and 2006, respectively.

Included in Other Assets are non-finance receivable assets totaling $1.8
million as of December 31, 2006, net of a valuation allowance of $1.9 million.
The valuation allowance was established in 2005 and is included in general and
administrative expenses in the Company's Consolidated Statement of Operations.
Included in the $1.9 million valuation allowance is $900,000 associated with
related party receivables. These assets are no longer on the balance sheet as of
December 31, 2007.

TREATMENT OF SECURITIZATIONS

Prior to July 2003, dispositions of contracts in securitization
transactions were structured as sales for financial accounting purposes. As a
result, gain on sale was recognized on those securitization transactions in
which the Company, or a wholly-owned, consolidated subsidiary of the Company,
retained a residual interest in the contracts that were sold to a wholly-owned,
unconsolidated special purpose subsidiary. These securitization transactions
included "term" securitizations (the purchaser held the contracts for
substantially their entire term) and "warehouse" securitizations (which financed
the acquisition of the contracts for future sale into term securitizations).

The line item "Residual interest in securitizations" on our Consolidated
Balance Sheet represents the residual interests in term securitizations
completed prior to July 2003. This line represents the discounted sum of
expected future cash flows from recoveries on charge-offs from these
securitization trusts. The terms of the securitizations provide us the option to
repurchase the underlying receivables from the trust and retire the related
bonds. Such repurchases are referred to as "clean-ups". When a clean-up takes
place, we purchase the underlying receivables and record them on the balance
sheet and remove that portion of the residual interest that is attributable to
the trust that is terminated when the related bonds are retired. We conducted
such clean-ups on the three remaining unconsolidated trusts during 2007. The
remaining portion of the residual interest at December 31, 2007 represents an
estimate of the future cash flows from recoveries on charge offs from clean-up
securitizations and will remain on the balance sheet for some time until those
particular cash flows are realized but in no case later than 84 months from the
inception date of the term securitization .

All securitizations since July 2003 have been structured as secured
financings. The warehouse securitizations are accordingly reflected in the line
items "Finance receivables" and "Warehouse lines of credit" on our Consolidated
Balance Sheet, and the term securitizations are reflected in the line items
"Finance receivables" and "Securitization trust debt."

F-12

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our term securitization structure has generally been as follows:

We sell contracts we acquire to a wholly-owned special purpose subsidiary
("SPS"), which has been established for the limited purpose of buying and
reselling our contracts. The SPS then transfers the same contracts to another
entity, typically a statutory trust ("Trust"). The Trust issues interest-bearing
asset-backed securities ("Notes"), in a principal amount equal to or less than
the aggregate principal balance of the contracts. We typically sell these
contracts to the Trust at face value and without recourse, except that
representations and warranties similar to those provided by the Dealer to us are
provided by us to the Trust. One or more investors purchase the Notes issued by
the Trust (the "Noteholders"); the proceeds from the sale of the Notes are then
used to purchase the contracts from us. We may retain or sell subordinated Notes
issued by the Trust. We purchase a financial guaranty insurance policy,
guaranteeing timely payment of interest and ultimate payment of principal on the
senior Notes, from an insurance company (a "Note Insurer"). In addition, we
provide "Credit Enhancement" for the benefit of the Note Insurer and the
Noteholders in three forms: (1) an initial cash deposit to a bank account (a
"Spread Account") held by the Trust, (2) overcollateralization of the Notes,
where the principal balance of the Notes issued is less than the principal
balance of the contracts, and (3) in the form of subordinated Notes. The
agreements governing the securitization transactions (collectively referred to
as the "Securitization Agreements") require that the initial level of Credit
Enhancement be supplemented by a portion of collections from the contracts until
the level of Credit Enhancement reaches specified levels which are then
maintained. The specified levels are generally computed as a percentage of the
principal amount remaining unpaid under the related contracts. The specified
levels at which the Credit Enhancement is to be maintained will vary depending
on the performance of the portfolios of contracts held by the Trusts and on
other conditions, and may also be varied by agreement among the Company, the
SPS, the Note Insurers and the trustee. Such levels have increased and decreased
from time to time based on performance of the various portfolios, and have also
varied by Securitization Agreement. The Securitization Agreements generally
grant us the option to repurchase the sold contracts from the Trust (i.e., a
"clean-up call") when the aggregate outstanding balance of the contracts has
amortized to a specified percentage of the initial aggregate balance.

Our warehouse securitization structures are similar to the above, except
that (i) the SPS that purchases the contracts pledges the contracts to secure
promissory notes that it issues, (ii) no increase in the required amount of
Credit Enhancement is contemplated, and (iii) the Company does not purchase
financial guaranty insurance. Upon each sale of contracts in a securitization
structured as a secured financing, we retain on our Consolidated Balance Sheet
the contracts securitized as assets and record the Notes issued in the
transaction as indebtedness.

Under the prior securitizations structured as sales for financial
accounting purposes, we removed from our Consolidated Balance Sheet the
contracts sold and added to our Consolidated Balance Sheet (i) the cash
received, if any, and (ii) the estimated fair value of the ownership interest
that we retained in contracts sold in the securitization. That retained or
residual interest (the "Residual") consists of (a) the cash held in the Spread
Account, if any, (b) overcollateralization, if any, (c) subordinated Notes
retained, if any, and (d) receivables from the Trust, which include the net
interest receivables ("NIRs"). NIRs represent the estimated discounted cash
flows to be received from the Trust in the future, net of principal and interest
payable with respect to the Notes, the premium paid to the Note Insurer, and
certain other expenses.

We recognize gains or losses attributable to the changes in the estimated
fair value of the Residuals. Gains in fair value are recognized as other income
in the income statement with losses being recorded as an impairment loss in the
income statement. We are not aware of an active market for the purchase or sale
of interests such as the Residuals; accordingly, we determine the estimated fair
value of the Residuals by discounting the amount of anticipated cash flows that
we estimate will be released to us in the future (the cash out method), using a
discount rate that we believe is appropriate for the risks involved. The
anticipated cash flows may include collections from both current and charged off
receivables. We have used an effective pre-tax discount rate of 14% per annum
for cash flows from current receivables and 25% for cash flows from charged-off
receivables.

We receive periodic base servicing fees for the servicing and collection
of the contracts. In addition, we are entitled to the cash flows from the Trusts
that represent collections on the contracts in excess of the amounts required to
pay principal and interest on the Notes, the base servicing fees, and the
premium paid to the Note Insurer, and certain other fees (such as trustee and
custodial fees). Required principal payments on the Notes are generally defined
as the payments sufficient to keep the principal balance of the Notes equal to
the aggregate principal balance of the related contracts (excluding those
contracts that have been charged off), or a pre-determined percentage of such
balance. Where that percentage is less than 100%, the related Securitization
Agreements require accelerated payment of principal until the principal balance
of the Notes is reduced to the specified percentage. Such accelerated principal
payment is said to create "overcollateralization" of the Notes.

F-13

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

If the amount of cash required for payment of fees, interest and principal
exceeds the amount collected during the collection period, the shortfall is
withdrawn from the Spread Account, if any. If the cash collected during the
period exceeds the amount necessary for the above allocations, and there is no
shortfall in the related Spread Account or other form of Credit Enhancement, the
excess is released to us. If the total Credit Enhancement amount is not at the
required level, then the excess cash collected is retained in the Trust until
the specified level is achieved. Cash in the Spread Accounts is restricted from
our use. Cash held in the various Spread Accounts is invested in high quality,
liquid investment securities, as specified in the Securitization Agreements. In
determining the value of the Residuals, we have estimated the future rates of
prepayments, delinquencies, defaults, default loss severity, and recovery rates,
as all of these factors affect the amount and timing of the estimated cash
flows. Our estimates are based on historical performance of comparable
contracts.

Following a securitization that is structured as a sale for financial
accounting purposes, interest income is recognized on the balance of the
Residuals. In addition, we will recognize as a gain additional revenue from the
Residuals if the actual performance of the contracts is better than our estimate
of the value of the residual. If the actual performance of the contracts were
worse than our estimate, then a downward adjustment to the carrying value of the
Residuals and a related impairment charge would be required. In a securitization
structured as a secured financing for financial accounting purposes, interest
income is recognized when accrued under the terms of the related contracts and,
therefore, presents less potential for fluctuations in performance when compared
to the approach used in a transaction structured as a sale for financial
accounting purposes.

In all our term securitizations, whether treated as secured financings or
as sales, we have transferred the receivables (through a subsidiary) to the
securitization Trust. The difference between the two structures is that in
securitizations that are treated as secured financings we report the assets and
liabilities of the securitization Trust on our Consolidated Balance Sheet. Under
both structures the Noteholders' and the related securitization Trusts' recourse
to us for failure of the contract obligors to make payments on a timely basis is
limited to our Finance receivables, Spread Accounts and Residuals.

SERVICING

We consider the contractual servicing fee received on our managed
portfolio held by non-consolidated subsidiaries to be equal to adequate
compensation. As a result, no servicing asset or liability has been recognized.
Servicing fees received on the managed portfolio held by non-consolidated
subsidiaries are reported as income when earned. Servicing fees received on the
managed portfolio held by consolidated subsidiaries are included in interest
income when earned. Servicing costs are charged to expense as incurred.
Servicing fees receivable, which are included in Other Assets in the
accompanying balance sheets, represent fees earned but not yet remitted to us by
the trustee.

FURNITURE AND EQUIPMENT

Furniture and equipment are stated at cost net of accumulated
depreciation. We calculate depreciation using the straight-line method over the
estimated useful lives of the assets, which range from three to five years.
Assets held under capital leases and leasehold improvements are amortized over
the lesser of the estimated useful lives of the assets or the related lease
terms. Amortization expense on assets acquired under capital lease is included
with depreciation expense on Company owned assets.

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of carrying
amount or fair value less costs to sell.

F-14

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

OTHER INCOME

Other Income consists primarily of gains recognized on our Residual
interest in securitizations, recoveries on previously charged off CPS and MFN
contracts, fees paid to us by Dealers for certain direct mail services we
provide and proceeds from the sale of previously charged-off receivables to
independent third parties. The gain recognized related to the Residual interest
was $6.2 million for 2007 and $1.2 million for 2006. There were no gains
recognized in 2005. The recoveries on the charged-off CPS contracts relate to
contracts from previously unconsolidated trusts and MFN contracts acquired in
the MFN acquisition. These recoveries totaled $3.0 million, $4.3 million and
$4.9 million for the years ended 2007, 2006 and 2005, respectively. The direct
mail revenues were $5.3 million, $3.8 million and $4.5 million for 2007, 2006
and 2005, respectively. The proceeds from the sale of previously charged-off
receivables to independent third parties were $1.8 million in 2007 and $2.7
million in 2005.

EARNINGS PER SHARE

The following table illustrates the computation of basic and diluted
earnings per share:

2007 2006 2005
----------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Numerator:
Numerator for basic and diluted earnings per share............ $ 13,858 $ 39,555 $ 3,372
=========== =========== ==========
Denominator:
Denominator for basic earnings per share
- weighted average number of common shares
outstanding during the year................................ 20,880 21,759 21,627
Incremental common shares attributable to exercise
of outstanding options and warrants........................ 1,715 2,293 1,886
----------- ----------- ----------
Denominator for diluted earnings per share.................... 22,595 24,052 23,513
=========== =========== ==========
Basic earnings per share...................................... $ 0.66 $ 1.82 $ 0.16
=========== =========== ==========
Diluted earnings per share.................................... $ 0.61 $ 1.64 $ 0.14
=========== =========== ==========

Incremental shares of 1,539,000, 950,000 and 639,000 related to stock
options have been excluded from the diluted earnings per share calculation for
the year ended December 31, 2007, 2006 and 2005, respectively, because the
effect is anti-dilutive.

DEFERRAL AND AMORTIZATION OF DEBT ISSUANCE COSTS

Costs related to the issuance of debt are deferred and amortized using the
interest method over the contractual or expected term of the related debt.

INCOME TAXES

The Company and its subsidiaries file a consolidated federal income tax
return and combined or stand-alone state franchise tax returns for certain
states. We utilize the asset and liability method of accounting for income
taxes, under which deferred income taxes are recognized for the future tax
consequences attributable to the differences between the financial statement
values of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date. We have estimated a valuation allowance against
that portion of the deferred tax asset whose utilization in future periods is
not more than likely.

In July 2006, the FASB issued Interpretation No. 48 (FIN 48), "ACCOUNTING
FOR UNCERTAINTY IN INCOME TAXES". FIN 48 is an interpretation of "Statement of
Financial Accounting Standards No. 109", which provides criteria for the
recognition, measurement, presentation and disclosures of uncertain tax
positions. A tax benefit from an undertain tax position may be recognized if it
is "more likely than not" that the position is sustainable based solely on its
technical merits. We adopted FIN 48 on January 1, 2007.

PURCHASES OF COMPANY STOCK

We record purchases of our own common stock at cost and treat the shares
as retired.

F-15

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STOCK OPTION PLAN

Effective January 1, 2006, we adopted SFAS No. 123 (revised), "Share-Based
Payment" (SFAS 123(R)) utilizing the modified prospective approach. Under the
modified prospective approach, Employee Costs include all share based payments
granted subsequent to January 1, 2006, based on the grant date fair value
estimated in accordance with the provisions of SFAS 123(R). Prior periods were
not restated to reflect the effect of adopting the new standard.

Prior to the adoption of SFAS 123(R) we accounted for stock-based employee
compensation plans in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations,
whereby stock options are recorded at intrinsic value equal to the excess of the
share price over the exercise price at the date of grant. For the periods prior
to the adoption of SFAS 123(R) we have provided the pro forma net income (loss),
pro forma earnings (loss) per share, and stock based compensation plan
disclosure requirements set forth in SFAS No. 123.

In December 2005, the Compensation Committee of the Board of Directors
approved accelerated vesting of all the outstanding stock options. Options to
purchase 2,113,998 shares of our common stock, which would otherwise have vested
from time to time through 2010, became immediately exercisable as a result of
the acceleration of vesting. The decision to accelerate the vesting of the
options was made primarily to reduce non-cash compensation expenses that would
have been recorded in the income statement upon the adoption of SFAS 123(R) in
January 2006. We estimate that approximately $3.5 million of future non-cash
compensation expense was eliminated as a result of the acceleration of vesting.

At the time of the acceleration of vesting, we accounted for stock options
in accordance with Accounting Principals Board Opinion No. 25, Accounting for
Stock Issued to Employees. Consequently, the acceleration of vesting resulted in
non-cash compensation charge of $427,000 for the year ended December 31, 2005.

The per share weighted-average fair value of stock options granted during
the years ended December 31, 2007, 2006 and 2005, was $2.89, $3.39, and $3.07,
respectively. That fair value was estimated using the Black-Scholes
option-pricing model using the weighted average assumptions noted in the
following table. We estimate the expected life of each option as the average of
the vesting period and the contractual life of the option. The volatility
estimate is based on the historical volatility of our stock over the period that
equals the expected life of the option. Volatility assumptions ranged from 36%
to 48% for 2007, 34% to 50% for 2006 and 51% to 63% for 2005. The risk-free
interest rate is based on the yield on a US Treasury bond with a maturity
comparable to the expected life of the option. The dividend yield is estimated
to be zero based on our intention not to issue dividends for the foreseeable
future.

YEAR ENDED DECEMBER 31,
----------------------------------
2007 2006 2005
---------- ---------- ----------
Expected life (years).................. 5.94 5.69 6.50
Risk-free interest rate................ 4.54 % 4.80 % 4.32 %
Volatility............................. 46 % 47 % 57 %
Expected dividend yield................ - - -

Prior to the adoption of SFAS 123(R) on January 1, 2006, compensation cost
had been recognized for certain stock options in the Consolidated Financial
Statements in accordance with APB Opinion No. 25. Had we determined compensation
cost based on the fair value at the grant date for its stock options under
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock Based Compensation," our net income (loss) and earnings (loss) per
share would have been adjusted to the pro forma amounts indicated below.

YEAR ENDED
DECEMBER 31,
--------------
2005
--------------
(IN THOUSANDS,
EXCEPT PER
SHARE DATA)

Net income (loss)
As reported......................... $ 3,372
Pro forma........................... (648)
Earnings (loss) per share - basic
As reported......................... $ 0.16
Pro forma........................... (0.03)
Earnings (loss) per share - diluted
As reported......................... $ 0.14
Pro forma........................... (0.03)

F-16

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NEW ACCOUNTING PRONOUNCEMENTS

In February 2007, the FASB issued SFAS 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - Including an Amendment of FASB
Statement No. 115". SFAS 159 permits an entity to choose to measure many
financial instruments and certain other items at fair value. Most of the
provisions of SFAS 159 are elective, however, the amendment to SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities", applies to
all entities with available for sale or trading securities. SFAS 159 is elective
as of the beginning of an entity's first fiscal year that begins after November
15, 2007. We are currently assessing this statement to determine whether or not
we would elect to measure any financial instruments at their fair value.

In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement 109" ("FIN
48"). FIN 48 establishes a single model to address accounting for uncertain tax
positions. FIN 48 clarifies the accounting for income taxes by prescribing a
minimum recognition threshold a tax position is required to meet before being
recognized in the financial statements. FIN 48 also provides guidance on
derecognition, measurement classification, interest and penalties, accounting in
interim periods, disclosure and transition. Upon adoption as of January 1, 2007,
we increased our existing reserves for uncertain tax positions by $1.1 million,
largely related to state income tax matters. The increase was recorded as a
cumulative effect adjustment to shareholders' equity.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires us to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements, as well as the reported
amounts of income and expenses during the reported periods. Specifically, a
number of estimates were made in connection with determining an appropriate
allowance for finance credit losses, valuing the Residuals, accreting discounts
and acquisition fees, amortizing deferred costs, the recording of deferred tax
assets and reserves for uncertain tax positions. These are material estimates
that could be susceptible to changes in the near term and, accordingly, actual
results could differ from those estimates.

RECLASSIFICATION

Certain amounts for the prior years have been reclassified to conform to
the current year's presentation with no effect on previously reported earnings
or shareholders' equity.

UNCERTAINTY OF CAPITAL MARKETS

F-17

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-18

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(2) RESTRICTED CASH

Restricted cash is comprised of the following components:

DECEMBER 31,
------------------------
2007 2006
----------- -----------
(IN THOUSANDS)
Securitization trust accounts........... $ 170,191 $ 192,851
Other................................... 150 150
----------- -----------
Total restricted cash................... $ 170,341 $ 193,001
=========== ===========

Certain of our financing agreements require that we establish cash
reserves for the benefit of the other parties to the agreements, in case those
parties are subject to any claims or exposure.

(3) FINANCE RECEIVABLES

The following table presents the components of Finance Receivables, net of
unearned interest:

DECEMBER 31, DECEMBER 31,
2007 2006
-------------- --------------
Finance Receivables (IN THOUSANDS)

Automobile
Simple Interest................................. $ 2,077,542 $ 1,474,126
Pre-compute, net of unearned interest........... 14,350 29,251
-------------- --------------
Finance Receivables, net of unearned interest... 2,091,892 1,503,377
Less: Unearned acquisition fees and discounts... (23,888) (22,583)
-------------- --------------
Finance Receivables............................. $ 2,068,004 $ 1,480,794
============== ==============

Finance receivables totaling $28.5 million and $12.2 million at December
31, 2007 and 2006, respectively, have been placed on non-accrual status as a
result of their delinquency status.

The following table presents a summary of the activity for the allowance
for credit losses, for the years ended December 31, 2007, 2006 and 2005:

DECEMBER 31,
------------------------------------------
2007 2006 2005
------------ ------------ ------------
(IN THOUSANDS)

Balance at beginning of year............... $ 79,380 $ 57,728 $ 42,615
Provision for credit losses................ 137,272 92,057 58,987
Charge-offs................................ (140,963) (88,335) (55,978)
Recoveries................................. 24,449 17,930 12,104
------------ ------------ ------------
Balance at end of year..................... $ 100,138 $ 79,380 $ 57,728
============ ============ ============

Excluded from finance receivables are contracts that were previously
classified as finance receivables but were reclassified as other assets because
we have repossessed the vehicle securing the Contract. The following table
presents a summary of such repossessed inventory together with the allowance for
losses in repossessed inventory that is not included in the allowance for credit
losses.

DECEMBER 31,
---------------------------
2007 2006
------------ ------------
(IN THOUSANDS)

Gross balance of repossessions
in inventory.......................... $ 33,380 $ 22,970
Allowance for losses on
repossessed inventory ................ (21,849) (12,862)
------------ ------------
Net repossessed inventory
included in other assets.............. $ 11,531 $ 10,108
============ ============

F-19

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(4) RESIDUAL INTEREST IN SECURITIZATIONS

The following table presents the components of the residual interest in
securitizations:

DECEMBER 31,
---------------------------
2007 2006
------------ ------------
(IN THOUSANDS)

Cash, commercial paper, United States government securities
and other qualifying investments (Spread Accounts)......... $ - $ 9,987
Receivables from Trusts (NIRs) and recoveries of previously
charged-off receivables.................................... 2,274 808
Overcollateralization......................................... - 3,000
----------- ------------
Residual interest in securitizations.......................... $ 2,274 $ 13,795
=========== ============

The key economic assumptions used in measuring all residual interest in
securitizations as of December 31, 2006 are cumulative prepayment speeds ranging
from 23% to 32% and cumulative net credit losses ranging from 12% to 15%. As of
December 31, 2007 we have exercised our clean-up call option on all
unconsolidated securitization transactions that were outstanding as of December
31, 2006. The remaining residual asset relates to an estimate of cash flows from
charged off receivables related to our securitizations from 2001 to 2003, for
which we have used a discount rate of 25%, which is consistent with previous
periods.

The effect of a 20% adverse change to the fair value of residual cash
flows at December 31, 2007 would result in a decrease of $98,000 to the value of
the asset recorded.

The following table summarizes the cash flows received from (paid to) our
unconsolidated securitization Trusts:

F-20

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
2007 2006 2005
------------ ------------ ------------
(IN THOUSANDS)

Releases of cash from Spread Accounts.............. $ 10,641 $ 5,565 $ 7,420
Servicing Fees received............................ 405 2,435 4,490
Purchase of delinquent or foreclosed assets........ (1,384) (9,068) (22,682)
Repurchase of trust assets......................... (23,359) (8,064) (9,658)

(5) FURNITURE AND EQUIPMENT

The following table presents the components of furniture and equipment:

DECEMBER 31,
--------------------------
2007 2006
----------- -----------
(IN THOUSANDS)

Furniture and fixtures............................ $ 3,996 $ 3,846
Computer and telephone equipment.................. 5,680 5,107
Leasing assets.................................... 673 673
Leasehold improvements............................ 1,085 666
Other fixed assets................................ 17 71
----------- -----------
11,451 10,363
Less: accumulated depreciation and amortization... (9,951) (9,539)
----------- -----------
$ 1,500 $ 824
=========== ===========

Depreciation expense totaled $406,000, $667,000 and $654,000 for the years
ended December 31, 2007, 2006 and 2005, respectively.

(6) RESTRUCTURING ACCRUALS

MFN MERGER

In connection with the MFN Merger in 2002, we subsequently terminated the
MFN origination activities and consolidated certain activities of MFN. In
connection with these changes, we recognized certain liabilities related to the
costs to exit these activities and terminate the affected employees of MFN.
These activities included service departments such as accounting, finance, human
resources, information technology, administration, payroll and executive
management. Of these liabilities recognized at the merger date in the amount of
$6.2 million, none of these liabilities remain outstanding at December 31, 2007
compared with $366,000 outstanding at December 31, 2006.

TFC MERGER

In connection with the TFC Merger in 2003, we consolidated certain
activities of CPS and TFC. As a result of this consolidation, we recognized
certain liabilities related to the costs to integrate and terminate affected
employees of TFC. These activities included service departments such as
accounting, finance, human resources, information technology, administration,
payroll and executive management. The total liabilities recognized at the time
of the merger was $4.5 million. As of December 31, 2006, none of these
liabilities remain outstanding.

(7) SECURITIZATION TRUST DEBT

We have completed a number of term securitization transactions that are
structured as secured borrowings for financial accounting purposes. The debt
issued in these transactions is shown on our consolidated balance sheets as
"Securitization trust debt," and the components of such debt are summarized in
the following table:

F-21

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

WEIGHTED
FINAL RECEIVABLES OUTSTANDING OUTSTANDING AVERAGE
SCHEDULED PLEDGED AT PRINCIPAL AT PRINCIPAL AT INTEREST RATE AT
PAYMENT DECEMBER 31, INITIAL DECEMBER 31, DECEMBER 31, DECEMBER 31,
SERIES DATE (1) 2007 PRINCIPAL 2007 2006 2007
----------------------- ---------------- ------------- -------------- -------------- -------------- -----------------
(DOLLARS IN THOUSANDS)
CPS 2003-C March 2010 $ 5,771 $ 87,500 $ 5,683 $ 14,815 3.57%
CPS 2003-D October 2010 6,815 75,000 6,695 15,191 3.91%
CPS 2004-A October 2010 9,675 82,094 9,849 21,608 4.32%
PCR 2004-1 N/A - 76,257 - 8,097 -
CPS 2004-B February 2011 14,834 96,369 14,937 29,437 4.17%
CPS 2004-C April 2011 18,626 100,000 18,763 35,480 4.24%
CPS 2004-D December 2011 26,209 120,000 25,994 47,384 4.44%
CPS 2005-A October 2011 36,457 137,500 34,154 62,610 5.30%
CPS 2005-B February 2012 42,748 130,625 39,008 70,933 4.68%
CPS 2005-C May 2012 72,759 183,300 67,834 117,434 5.11%
CPS 2005-TFC July 2012 25,666 72,525 24,654 45,444 5.76%
CPS 2005-D July 2012 63,007 145,000 61,857 100,615 5.68%
CPS 2006-A November 2012 122,912 245,000 120,667 195,822 5.30%
CPS 2006-B January 2013 147,589 257,500 144,941 224,478 6.30%
CPS 2006-C July 2013 162,565 247,500 159,308 236,139 5.62%
CPS 2006-D August 2013 162,961 220,000 159,384 217,508 5.61%
CPS 2007-A November 2013 239,038 290,000 233,092 N/A 5.61%
CPS 2007-TFC December 2013 85,894 113,293 84,685 N/A 5.79%
CPS 2007-B January 2014 283,173 314,999 277,878 N/A 5.99%
CPS 2007-C May 2014 314,065 327,499 308,919 N/A 5.99%
------------- -------------- -------------- --------------
$ 1,840,764 $ 3,321,961 $ 1,798,302 $ 1,442,995
============= ============== ============== ==============

--------------------
(1) THE FINAL SCHEDULED PAYMENT DATE REPRESENTS FINAL LEGAL MATURITY OF
THE SECURITIZATION TRUST DEBT. SECURITIZATION TRUST DEBT IS EXPECTED
TO BECOME DUE AND TO BE PAID PRIOR TO THOSE DATES, BASED ON
AMORTIZATION OF THE FINANCE RECEIVABLES PLEDGED TO THE TRUSTS.
EXPECTED PAYMENTS, WHICH WILL DEPEND ON THE PERFORMANCE OF SUCH
RECEIVABLES, AS TO WHICH THERE CAN BE NO ASSURANCE, ARE $714.4
MILLION IN 2008, $530.9 MILLION IN 2009, $324.5 MILLION IN 2010,
$168.7 MILLION IN 2011, $57.3 MILLION IN 2012, AND $2.5 MILLION IN
2013.

All of the securitization trust debt was issued in private placement
transactions to qualified institutional investors. The debt was issued through
wholly-owned, bankruptcy remote subsidiaries of CPS, TFC or MFN, and is secured
by the assets of such subsidiaries, but not by other assets of the Company.
Principal and interest payments on the senior notes are guaranteed by financial
guaranty insurance policies.

The terms of the various Securitization Agreements related to the issuance
of the securitization trust debt require that certain delinquency and credit
loss criteria be met with respect to the collateral pool, and require that we
maintain minimum levels of liquidity and net worth and not exceed maximum
leverage levels and maximum financial losses. We were in compliance with all
such covenants as of December 31, 2007.

We are responsible for the administration and collection of the contracts.
The Securitization Agreements also require certain funds be held in restricted
cash accounts to provide additional collateral for the borrowings or to be
applied to make payments on the securitization trust debt. As of December 31,
2007, restricted cash under the various agreements totaled approximately $170.2
million. Interest expense on the securitization trust debt is composed of the
stated rate of interest plus amortization of additional costs of borrowing.
Additional costs of borrowing include facility fees, insurance premiums,
amortization of transaction costs, and amortization of discounts given on the
notes at the time of issuance. Deferred financing costs related to the
securitization trust debt are amortized using the interest method. Accordingly,
the effective cost of borrowing of the securitization trust debt is greater than
the stated rate of interest.

The wholly-owned, bankruptcy remote subsidiaries of CPS, MFN and TFC were
formed to facilitate the above asset-backed financing transactions. Similar
bankruptcy remote subsidiaries issue the debt outstanding under our warehouse
lines of credit. Bankruptcy remote refers to a legal structure in which it is
expected that the applicable entity would not be included in any bankruptcy
filing by its parent or affiliates. All of the assets of these subsidiaries have
been pledged as collateral for the related debt. All such transactions, treated
as secured financings for accounting and tax purposes, are treated as sales for
all other purposes, including legal and bankruptcy purposes. None of the assets
of these subsidiaries are available to pay other creditors of the Company or its
affiliates.

F-22

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(8) DEBT

The terms of our debt outstanding at December 31, 2007 and 2006 are
summarized below:

December 31,
-------------------------
2007 2006
---- ----
(In thousands)

RESIDUAL INTEREST FINANCING
Notes secured by our residual interests in securitizations.
The notes outstanding at December 31, 2006 were paid off
in July 2007 and replaced with a new $120 million residual
financing facility. This facility, a combined $60 million
term facility and a $60 million revolving residual credit
facility, is secured by residual interests in 16
securitizations. The $60 million term note was drawn in
July 2007, is outstanding at December 31, 2007, and is due
in July 2009. It bears interest at 6.5% over LIBOR. The $60
million revolving facility has an outstanding balance of $10
million and is due in July 2008. It bears interest at 5.5%
over LIBOR. $ 70,000 $ 31,378

SENIOR SECURED DEBT, RELATED PARTY
Notes payable to Levine Leichtman Capital Partners II, L.P.
("LLCP"). The notes consisted of separate term notes that
each accrue interest at 11.75% per annum, required monthly
interest payments and were due in June and July 2007, after
having been amended from higher rates and earlier maturities.
We incurred issuance and amendment fees aggregating $1.3
million in relation to these notes. -- 25,000

SUBORDINATED RENEWABLE NOTES
Notes bearing interest ranging from 6.00% to 14.91%, with a
weighted average rate of 12.23%, and with maturities from
January 2008 to December 2017 with a weighted average
maturity of July 2010. We began issuing the notes in June
2005 and incurred issuance costs of $250,000. Payments are
made monthly, quarterly, annually or upon maturity based on
the terms of the individual notes. 28,134 13,574
----------- -----------
$ 98,134 $ 69,952
=========== ===========

The outstanding debt on our two warehouse facilities was $235.9 million
and $73.0 million as of December 31, 2007 and 2006, respectively. See Note 16
for a discussion of our warehouse lines of credit.

F-23

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The costs incurred in conjunction with the above debt are recorded as
deferred financing costs on the accompanying balance sheets and is more fully
described in Note 1.

We must comply with certain affirmative and negative covenants related to
debt facilities, which require, among other things, that we maintain certain
financial ratios related to liquidity, net worth, capitalization and maximum
financial losses. Further covenants include matters relating to investments,
acquisitions, restricted payments and certain dividend restrictions.

The following table summarizes the contractual and expected maturity
amounts of debt as of December 31, 2007:

RESIDUAL RENEWABLE
CONTRACTUAL MATURITY INTEREST SUBORDINATED
DATE FINANCING NOTES TOTAL
----------------------- ------------ ------------ ------------
(In thousands)
2008................. $ 10,000 $ 8,351 $ 18,351
2009................. 60,000 8,098 68,098
2010................. - 9,341 9,341
2011................. - 950 950
2012................. - 1,274 1,274
Thereafter........... - 120 120
------------ ------------ ------------
$ 70,000 $ 28,134 $ 98,134
============ ============ ============

(9) SHAREHOLDERS' EQUITY

COMMON STOCK

Holders of common stock are entitled to such dividends as our Board of
Directors, in its discretion, may declare out of funds available, subject to the
terms of any outstanding shares of preferred stock and other restrictions. In
the event of liquidation of the Company, holders of common stock are entitled to
receive, pro rata, all of the assets of the Company available for distribution,
after payment of any liquidation preference to the holders of outstanding shares
of preferred stock. Holders of the shares of common stock have no conversion or
preemptive or other subscription rights and there are no redemption or sinking
fund provisions applicable to the common stock.

We are required to comply with various operating and financial covenants
defined in the agreements governing the warehouse lines of credit, senior debt,
residual interest financing and subordinated debt. The covenants restrict the
payment of certain distributions, including dividends (See Note 8.).

Included in compensation expense for the years ended December 31, 2007,
2006, and 2005, is $1.1 million, $244,000, and $644,000 related to the
amortization of deferred compensation expense and valuation of stock options.

STOCK PURCHASES

At four different times between 2000 and 2007, our Board of Directors,
authorized us to purchase a total of up to $27.5 million of our securities. As
of December 31, 2007, we had purchased $5.0 million in principal amount of the
debt securities, and $21.5 million of our common stock, representing 5,417,592
shares.

OPTIONS AND WARRANTS

In July 1997, the Company adopted and its shareholders approved the 1997
Long-Term Incentive Plan (the "1997 Plan") pursuant to which our Board of
Directors may grant stock options, restricted stock and stock appreciation
rights to employees, directors or employees of entities in which we have a
controlling or significant equity interest. Options that have been granted under
the 1997 Plan have been granted at an exercise price equal to (or greater than)
the stock's fair market value at the date of the grant, with terms of 10 years
and vesting generally over five years. Subsequent amendments to the 1997 Plan
have increased the aggregate maximum 6,900,000 shares. There are no shares
available for grant in the 1997 Plan as of December 31, 2007.

F-24

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In 2006, the Company adopted and its shareholders approved the CPS 2006
Long-Term Equity Incentive Plan (the "2006 Plan") pursuant to which our Board of
Directors, or a duly-authorized committee thereof, may grant stock options,
restricted stock, restricted stock units and stock appreciation rights to our
employees or our subsidiaries, to directors of the Company, and to individuals
acting as consultants to the Company or its subsidiaries. In June 2007, the
shareholders of the Company approved an amendment to the 2006 Plan to increase
the maximum number of shares that may be subject to awards under the 2006 Plan
from 1,500,000 to 3,000,000. Options that have been granted under the 2006 Plan
have been granted at an exercise price equal to (or greater than) the stock's
fair market value at the date of the grant, with terms of 10 years and vesting
generally over five years.

Effective January 1, 2006, we adopted Statement of Financial Accounting
Standards No. 123(R), "Share-Based Payment, revised 2004" ("SFAS 123R"),
prospectively for all option awards granted, modified or settled after January
1, 2006, using the modified prospective method. Under this method, we recognize
compensation costs in the financial statements for all share-based payments
granted subsequent to January 1, 2006 based on the grant date fair value
estimated in accordance with the provisions of SFAS 123(R). Results for prior
periods have not been restated.

For the year ended December 31, 2007, we recorded stock-based compensation
costs in the amount of $1.1 million. As of December 31, 2007, unrecognized
stock-based compensation costs to be recognized over future periods equaled $4.2
million. This amount will be recognized as expense over a weighted-average
period of 4.1 years.

At December 31, 2007, the aggregate intrinsic value of options outstanding
and exercisable was $2.7 million. The total intrinsic value of options exercised
was $1.0 million, $2.2 million, and $1.3 million for the years ended December
31, 2007, 2006, and 2005, respectively. New shares were issued for all options
exercised during the years ended December 31, 2007, 2006 and 2005. At December
31, 2007, there were a total of 760,000 additional shares available for grant
under the 2006 Plan.

Stock option activity for the year ended December 31, 2007 is as follows:

WEIGHTED
NUMBER OF WEIGHTED AVERAGE
SHARES AVERAGE REMAINING
(IN THOUSANDS) EXERCISE PRICE CONTRACTUAL TERM
-------------- -------------- ----------------

Options outstanding at the beginning of period..... 5,352 $ 4.11 N/A
Granted......................................... 1,235 5.78 N/A
Exercised....................................... (336) 3.22 N/A
Forefeited...................................... (55) 6.78 N/A
-------------- -------------- ----------------
Options outstanding at the end of period........... 6,196 $ 4.47 6.85 years
============== ============== ================
Options exercisable at the end of period........... 4,319 $ 3.75 6.05 years
============== ============== ================

The per share weighted average fair value of stock options granted whose
exercise price was equal to the market price of the stock on the grant date
during the years ended December 31, 2007, 2006 and 2005, was $2.91, $3.39, and
$2.77, respectively.

The per share weighted average fair value and exercise price of stock
options granted whose exercise price was above the market price of the stock on
the grant date during the year ended December 31, 2007 was $2.53 and $5.00,
respectively. The per share weighted average fair value and exercise price of
stock options granted whose exercise price was above the market price of the
stock on the grant date during the year ended December 31, 2005 was $3.61 and
$6.00, respectively. We did not issue any stock options above the market price
of the stock during the year ended December 31, 2006.

We have not issued any stock options with an exercise price below the
market price of the stock on the grant date.

Subsequent to December 31, 2007, our Board of Directors on January 30,
2008 granted a total of 555,000 stock options to officers, managers and
directors of the company at an exercise price of $3.18 per share, which was the
closing price of our stock on that day.

F-25

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On August 4, 2005, we issued six-year warrants with respect to 272,000
shares of our common stock, in a transaction exempted from the registration
requirements of the Securities Act of 1933 as a transaction not involving a
public offering. The warrants are exercisable at $4.85 per share, and were
issued to the lender's nominee in settlement of a claim against us that arose
out of a loan of $500,000 made in September 1998. The Company and the claimant
dispute whether the loan was to us or to Stanwich Financial Services Corp.
("Stanwich"). We received in exchange for the warrants an assignment of the
lender's claim in bankruptcy against Stanwich, as well as a release of all
claims against us. We estimated the value of the warrants to be $794,000 using a
Black-Scholes model, assuming a risk-free interest rate of 3.41%, a six-year
life and stock price volatility of 63%. We included the value of the warrant,
net of a previously recorded accrual of $500,000, in general and administrative
expense for the year ended December 31, 2005.

(10) INTEREST INCOME

The following table presents the components of interest income:

YEAR ENDED DECEMBER 31,

2007 2006 2005
------------ ------------ ------------
(IN THOUSANDS)

Interest on finance receivables......... $ 358,862 $ 251,609 $ 163,552
Residual interest income ............... 2,324 5,656 5,338
Other interest income................... 9,079 6,301 2,944
------------ ------------ ------------
Net interest income..................... $ 370,265 $ 263,566 $ 171,834
============ ============ ============

(11) INCOME TAXES

Income taxes consist of the following:

YEAR ENDED DECEMBER 31,

2007 2006 2005
------------ ------------ ------------
(IN THOUSANDS)

Current federal tax expense...................... $ 10,385 $ 19,036 $ 5,340
Current state tax expense........................ 2,200 1,193 1,687
Deferred federal tax (benefit).................. (2,538) (9,660) (3,537)
Deferred state tax expense (benefit)............. 52 4,877 (2,114)
Change in valuation allowance.................... - (41,801) (1,376)
------------ ------------ ------------
Income tax expense (benefit)..................... $ 10,099 $ (26,355) $ -
============ ============ ============

Income tax expense/(benefit) for the years ended December 31, 2007, 2006
and 2005, differs from the amount determined by applying the statutory federal
rate of 35% to income before income taxes as follows:

YEAR ENDED DECEMBER 31,

2007 2006 2005
------------ ------------ ------------
(IN THOUSANDS)
Expense at federal tax rate............. $ 8,385 $ 4,620 $ 1,180
State taxes, net of federal income
tax benefit........................... 1,458 5,585 (277)
Other adjustments to tax reserve........ (110) 5,136 -
Effect of change in state tax rate...... - 486 -
Valuation allowance..................... - (41,801) (1,376)
Stock-based compensation................ 279 47 -
Other................................... 87 (428) 473
------------ ------------ ------------
$ 10,099 $ (26,355) $ -
============ ============ ============

F-26

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The tax effected cumulative temporary differences that give rise to
deferred tax assets and liabilities as of December 31, 2007 and 2006 are as
follows:

DECEMBER 31,
---------------------------
2007 2006
------------ ------------
(IN THOUSANDS)

DEFERRED TAX ASSETS:
Finance receivables................. $ 37,812 $ 30,777
Accrued liabilities................. 728 1,297
Furniture and equipment............. 417 524
NOL carryforwards and BILs.......... 19,547 21,321
Pension Accrual..................... 123 -
Other............................... 208 846
------------ ------------
Total deferred tax assets........ 58,835 54,765
------------ ------------

DEFERRED TAX LIABILITIES:
Pension Accrual..................... - (96)
------------ ------------
Total deferred tax liabilities... - (96)
------------ ------------
Net deferred tax asset........... $ 58,835 $ 54,669
============ =============

As part of the MFN and TFC Mergers, CPS acquired certain net operating
losses and built-in loss assets. Moreover, both MFN and TFC have undergone an
ownership change for purposes of Internal Revenue Code ("IRC") Section 382. In
general, IRC Section 382 imposes an annual limitation on the ability of a loss
corporation (that is, a corporation with a net operating loss ("NOL")
carryforward, credit carryforward, or certain built-in losses ("BILs")) to
utilize its pre-change NOL carryforwards or BILs to offset taxable income
arising after an ownership change.

In determining the possible future realization of deferred tax assets, we
have considered the taxes paid in the current and prior years that may be
available to recapture as well as future taxable income from the following
sources: (a) reversal of taxable temporary differences; (b) future operations
exclusive of reversing temporary differences; and (c) tax planning strategies
that, if necessary, would be implemented to accelerate taxable income into years
in which net operating losses might otherwise expire. During the year ended
December 31, 2007, the Company determined that deferred tax assets totaling
approximately $9.8 million, which were subject to a 100% valuation allowance at
December 31, 2006, were permanently not available for future utilization. As a
result, the deferred tax assets and the related valuation allowance were
adjusted with no impact on the net deferred tax assets recorded or to the
provision for income taxes.

As of December 31, 2007, we had net operating loss carryforwards for state
income tax purposes of $30.3 million. The state net operating losses expire
through 2013-2014.

The following is a tabular reconciliation of the total amounts of
unrecognized tax benefits including interest and penalties for the year:

2007
--------------
(IN THOUSANDS)

Unrecognized tax benefit - opening balance......... $ 11,612
Gross increases - tax positions in prior period.... 1,357
Gross decreases - tax positions in prior period.... (965)
Gross increases - tax positions in current period.. 1,279
Settlements........................................ (119)
Lapse of statute of limitations.................... (884)
--------------
Unrecognized tax benefit - ending balance.......... $ 12,280
==============

F-27

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Included in the balance of unrecognized tax benefits at December 31, 2007,
are $7.4 million of tax benefits that, if recognized, would affect the effective
tax rate. Also included in the balance of unrecognized tax benefits at December
31, 2007 are $1.3 million of tax benefits that, if recognized, would result in
adjustments to other tax accounts, primarily deferred taxes.

We recognized potential interest and penalties related to unrecognized tax
benefits as income tax expense. Related to the uncertain tax benefits noted
above, we accrued penalties of $0.3 million and gross interest of $1.5 million
during 2007 and in total, as of December 31, 2007, have recognized a liability
for penalties of $1.2 million and gross interest of $2.4 million.

We do not anticipate a significant change in unrecognized tax positions
within the coming year. In addition, we believe that it is reasonably possible
that none of our currently remaining unrecognized tax positions, each of which
are individually insignificant, may be recognized by the end of 2008 as a result
of a lapse of the statute of limitations.

We are subject to taxation in the US and various states and foreign
jurisdictions. The Company's tax years for 2001, 2002, 2003, 2004, 2005, and
2006 are subject to examination by the tax authorities. With few exceptions, we
are no longer subject to U.S. federal, state, or local examinations by tax
authorities for years before 2001.

(12) RELATED PARTY TRANSACTIONS

LOANS TO OFFICERS TO EXERCISE CERTAIN STOCK OPTIONS

During 2002, our Board of Directors approved a program under which
officers of the Company were advanced amounts sufficient to enable them to
exercise certain of their outstanding options. Such loans were available for a
limited period of time, and available only to exercise previously repriced
options. The loans accrue interest at a rate of 5.50% per annum, and were due in
2007. At December 31, 2007 and 2006, there was $383,000 and $407,000,
respectively outstanding related to these loans. Such amounts have been recorded
as contra-equity within common stock in the Shareholders' Equity section of our
Consolidated Balance Sheet.

DIRECTOR PURCHASE OF RETAIL NOTE

In December 2007, one of our directors purchased a $4 million subordinated
renewable note pursuant to our ongoing program of issuing such notes to the
public. The note was purchased through the registered agent and under the same
terms and conditions, including the interest rate, that were offered to other
purchasers at the time the note was issued.

(13) COMMITMENTS AND CONTINGENCIES

LEASES

The Company leases its facilities and certain computer equipment under
non-cancelable operating leases, which expire through 2013. Future minimum lease
payments at December 31, 2007, under these leases are due during the years ended
December 31 as follows:

AMOUNT
--------------
(IN THOUSANDS)

2008................................. $ 3,172
2009................................. 1,300
2010................................. 990
2011................................. 671
2012................................. 577
Thereafter........................... 246
--------------
Total minimum lease payments......... $ 6,956
==============

F-28

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Rent expense for the years ended December 31, 2007, 2006 and 2005, was
$4.0 million, $3.9 million, and $3.4 million, respectively.

Our facility leases contain certain rental concessions and escalating
rental payments, which are recognized as adjustments to rental expense and are
amortized on a straight-line basis over the terms of the leases.

During 2007, 2006 and 2005, we received $113,000, $194,000 and $482,000,
respectively, of sublease income, which is included in occupancy expense.

LITIGATION

STANWICH LITIGATION. CPS was for some time a defendant in a class action
(the "Stanwich Case") brought in the California Superior Court, Los Angeles
County. The original plaintiffs in that case were persons entitled to receive
regular payments (the "Settlement Payments") pursuant to earlier settlements of
claims, generally personal injury claims, against unrelated defendants. Stanwich
Financial Services Corp. ("Stanwich"), an affiliate of the former chairman of
the board of directors of CPS, is the entity that was obligated to pay the
Settlement Payments. Stanwich defaulted on its payment obligations to the
plaintiffs and in June 2001 filed for reorganization under the Bankruptcy Code,
in the federal bankruptcy court in Connecticut. By February 2005, CPS had
settled all claims brought against it in the Stanwich Case.

CPS has reached an agreement in principle with the representative of
creditors in the Stanwich bankruptcy to resolve the adversary action. Under the
agreement in principle, CPS would pay the bankruptcy estate $625,000 and abandon
its claims against the estate, while the estate would abandon its adversary
action against Mr. Pardee. The bankruptcy court has rejected that proposed
settlement, and the representative of creditors has appealed that rejection. If
the agreement in principle were to be approved upon appeal, CPS would expect
that the agreement would result in (i) limitation of its exposure to Mr. Pardee
to no more than some portion of his attorneys fees incurred and (ii) stays in
Rhode Island being lifted, causing those cases to become active again. CPS is
unable to predict whether the ruling of the bankruptcy court will be sustained
or overturned on appeal.

OTHER LITIGATION. In December 2006 an individual resident of Ohio,
Agborebot Bate-Eya, filed a purported class counterclaim to a collection lawsuit
brought by SeaWest Financial Corp. ("SeaWest") in Ohio state court. The
counterclaim alleged that a form notice sent by SeaWest to counterplaintiff in
December 2000, and used then and at other times, was not compliant with Ohio
law. In August 2007, the counterplaintiff added the Company as an additional
defendant, noting that the Company in April 2004 had purchased from SeaWest a
number of consumer receivables, including that of the counterplaintiff. The
Company has filed a motion to dismiss the counterclaim, and believes that its no
more than tenuous connection to the counterplaintiff will protect it from any
material liability or expense. There can be no assurance, however, as to the
outcome of contested litigation, including this case.

The Company has recorded a liability as of December 31, 2007 that it
believes represents a sufficient allowance for legal contingencies. Any adverse
judgment against the Company, if in an amount materially in excess of the
recorded liability, could have a material adverse effect on the financial
position of the Company. The Company is involved in various other legal matters
arising in the normal course of business. Management believes that any liability
as a result of those matters would not have a material effect on the Company's
financial position.

(14) EMPLOYEE BENEFITS

The Company sponsors a pretax savings and profit sharing plan (the "401(k)
Plan") qualified under Section 401(k) of the Internal Revenue Code. Under the
401(k) Plan, eligible employees are able to contribute up to 15% of their
compensation (subject to stricter limitation in the case of highly compensated
employees). We may, at our discretion, match 100% of employees' contributions up
to $1,500 per employee per calendar year. Our contributions to the 401(k) Plan
were $674,000, $520,000 and $439,000 for the year ended December 31, 2007, 2006
and 2005, respectively.

F-29

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We also sponsor the MFN Financial Corporation Pension Plan (the "Plan").
The Plan benefits were frozen June 30, 2001.

In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans - an amendment of
FASB Statements No. 87, 88, 106 and 132(R)" ("SFAS No. 158"). SFAS No. 158
requires an employer that sponsors one or more single-employer defined benefit
plans to (a) recognize the overfunded or underfunded status of a benefit plan in
its statement of financial position, (b) recognize as a component of other
comprehensive income, net of tax, the gains or losses and prior service costs or
credits that arise during the period but are not recognized as components of net
periodic benefit cost pursuant to SFAS No. 87, "Employers' Accounting for
Pensions", or SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions", (c) measure defined benefit plan assets and obligations as
of the date of the employer's fiscal year-end, and (d) disclose in the notes to
financial statements additional information about certain effects on net
periodic benefit cost for the next fiscal year that arise from delayed
recognition of the gains or losses, prior service costs or credits, and
transition asset or obligation. SFAS No. 158 was adopted by the Company in the
fourth quarter of 2006. The adoption did not have a significant effect on our
financial position or results of operations. The disclosure requirements of this
standard are included herein.

The following tables set forth the plan's benefit obligations, fair value
of plan assets, and amounts recognized at December 31, 2007 and 2006:

DECEMBER 31,
-------------------------
2007 2006
----------- -----------
(IN THOUSANDS)

CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected benefit obligation, beginning of year.... $ 15,456 $ 15,799
Service cost....................................... - -
Interest cost...................................... 881 876
Actuarial gain..................................... (723) (494)
Benefits paid...................................... (645) (725)
----------- -----------
Projected benefit obligation, end of year....... $ 14,969 $ 15,456
=========== ===========

The accumulated benefit obligation for the plan was $15.0 million and
$15.5 million at December 31, 2007 and 2006, respectively.

DECEMBER 31,
-------------------------
CHANGE IN PLAN ASSETS 2007 2006
----------- -----------
Fair value of plan assets, beginning of year....... $ 15,696 $ 13,812
Return on assets................................... (543) 1,770
Employer contribution.............................. 200 900
Expenses........................................... (65) (61)
Benefits paid...................................... (645) (725)
----------- ------------
Fair value of plan assets, end of year.......... $ 14,643 $ 15,696
=========== ============

F-30

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31,
---------------------------
2007 2006
------------ ------------
(IN THOUSANDS)

BENEFIT OBLIGATION RECOGNIZED IN OTHER COMPREHENSIVE INCOME
Net loss (gain).................................................. $ 1,126 $ (1,223)
Prior service cost (credit)...................................... - -
Amortization of prior service cost............................... - -
------------ ------------
Net amount recognized in other comprehensive income........... $ 1,126 $ (1,223)
============ ============

Additional Information

Weighted average assumptions used to determine benefit obligations and
cost at December 31, 2007 and 2006 were as follows:

DECEMBER 31,
---------------------------
2007 2006
------------ ------------

WEIGHTED AVERAGE ASSUMPTIONS USED TO DETERMINE BENEFIT
OBLIGATIONS
Discount rate.................................................... 6.45% 5.88%

WEIGHTED AVERAGE ASSUMPTIONS USED TO DETERMINE NET PERIODIC
BENEFIT COST
Discount rate.................................................... 5.88% 5.50%
Expected return on plan assets................................... 8.50% 8.50%

Our overall expected long-term rate of return on assets is 8.50% per annum
as of December 31, 2007. The expected long-term rate of return is based on the
weighted average of historical returns on individual asset categories, which are
described in more detail below.

DECEMBER 31,
---------------------------
2007 2006
------------ ------------
(IN THOUSANDS)

Amounts recognized on Consolidated Balance Sheet
Other assets..................................................... $ - $ 240
Other liabilities................................................ (326) -
------------ ------------
Net amount recognized.......................................... $ (326) $ 240
============ ============

AMOUNTS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME
CONSISTS OF:
Net loss (gain).................................................. $ 3,964 $ 2,838
Unrecognized transition asset.................................... - -
------------ ------------
Net amount recognized.......................................... $ 3,964 $ 2,838
============ ============

COMPONENTS OF NET PERIODIC BENEFIT COST
Interest Cost.................................................... $ 881 $ 876
Expected return on assets........................................ (1,312) (1,149)
Amortization of transition asset................................. - (10)
Amortization of net loss........................................ 71 179
------------ ------------
Net periodic benefit cost...................................... $ (360) $ (104)
============ ============

F-31

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The weighted average asset allocation of our pension benefits at December
31, 2007 and 2006 were as follows:

DECEMBER 31,
---------------------------
2007 2006
------------ ------------

WEIGHTED AVERAGE ASSET ALLOCATION AT YEAR-END

ASSET CATEGORY
Equity securities................................. 77% 79%
Debt securities................................... 23% 21%
------------ ------------
Total........................................... 100% 100%
------------ ------------

CASH FLOWS

EXPECTED BENEFIT PAYOUTS (IN THOUSANDS)
2008............................................................. $ 584
2009............................................................. $ 590
2010............................................................. $ 610
2011............................................................. $ 687
2012............................................................. $ 728
Years 2013 - 2017................................................ $ 4,490

Anticipated Contributions in 2008................................ $ -

Our investment policies and strategies for the pension benefits plan
utilize a target allocation of 75% equity securities and 25% fixed income
securities. Our investment goals are to maximize returns subject to specific
risk management policies. We address risk management and diversification by the
use of a professional investment advisor and several sub-advisors which invest
in domestic and international equity securities and domestic fixed income
securities. Each sub-advisor focuses its investments within a specific sector of
the equity or fixed income market. For the sub-advisors focused on the equity
markets, the sectors are differentiated by the market capitalization and the
relative valuation of the underlying issuer. For the sub-advisors focused on the
fixed income markets, the sectors are differentiated by the credit quality and
the maturity of the underlying fixed income investment. The investments made by
the sub-advisors are readily marketable and can be sold to fund benefit payment
obligations as they become payable.

(15) FAIR VALUE OF FINANCIAL INSTRUMENTS

The following summary presents a description of the methodologies and
assumptions used to estimate the fair value of our financial instruments. Much
of the information used to determine fair value is highly subjective. When
applicable, readily available market information has been utilized. However, for
a significant portion of our financial instruments, active markets do not exist.
Therefore, considerable judgments were required in estimating fair value for
certain items. The subjective factors include, among other things, the estimated
timing and amount of cash flows, risk characteristics, credit quality and
interest rates, all of which are subject to change. Since the fair value is
estimated as of December 31, 2007 and 2006, the amounts that will actually be
realized or paid at settlement or maturity of the instruments could be
significantly different. The estimated fair values of financial assets and
liabilities at December 31, 2007 and 2006, were as follows:

F-32

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31,
-------------------------------------------------------------
2007 2006
----------------------------- -----------------------------
CARRYING FAIR CARRYING FAIR
FINANCIAL INSTRUMENT VALUE VALUE VALUE VALUE
-------------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)

Cash and cash equivalents................ $ 20,880 $ 20,880 $ 14,215 $ 14,215
Restricted cash and equivalents.......... 170,341 170,341 193,001 193,001
Finance receivables, net................. 1,967,866 1,967,866 1,401,414 1,401,414
Residual interest in securitizations..... 2,274 2,274 13,795 13,795
Accrued interest receivable.............. 24,099 24,099 17,043 17,043
Note receivable and accrued interest..... - - 2,371 2,371
Warehouse lines of credit................ 235,925 235,925 72,950 72,950
Notes payable............................ - - 45 45
Accrued interest payable................. 6,740 6,740 3,870 3,870
Residual interest financing.............. 70,000 70,000 31,378 31,378
Securitization trust debt................ 1,798,302 1,786,263 1,442,995 1,441,881
Senior secured debt...................... - - 25,000 25,000
Subordinated renewable notes............. 28,134 28,134 13,574 13,574

CASH, CASH EQUIVALENTS AND RESTRICTED CASH

The carrying value equals fair value.

FINANCE RECEIVABLES, NET

The carrying value approximates fair value because the related interest
rates are estimated to reflect current market conditions for similar types of
instruments.

RESIDUAL INTEREST IN SECURITIZATIONS

The fair value is estimated by discounting future cash flows using credit
and discount rates that we believe reflects the estimated credit, interest rate
and prepayment risks associated with similar types of instruments.

ACCRUED INTEREST RECEIVABLE AND PAYABLE

The carrying value approximates fair value because the related interest
rates are estimated to reflect current market conditions for similar types of
instruments.

NOTE RECEIVABLE

The fair value is estimated by discounting future cash flows using credit
and discount rates that we believe reflects the estimated credit and interest
rate risks associated with similar types of instruments.

WAREHOUSE LINES OF CREDIT, NOTES PAYABLE, RESIDUAL INTEREST FINANCING, AND
SENIOR SECURED DEBT AND SUBORDINATED RENEWABLE NOTES

The carrying value approximates fair value because the related interest
rates are estimated to reflect current market conditions for similar types of
secured instruments.

SECURITIZATION TRUST DEBT

The fair value is estimated by discounting future cash flows using
interest rates that we believe reflects the current market rates.

(16) LIQUIDITY

F-33

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

have been the purchases of automobile contracts, repayment of amounts borrowed
under warehouse credit facilities and otherwise, operating expenses such as
employee, interest, occupancy expenses and other general and administrative
expenses, the establishment of spread accounts and initial
overcollateralization, if any, and the increase of credit enhancement to
required levels in securitization transactions, and income taxes. There can be
no assurance that internally generated cash will be sufficient to meet our cash
demands. The sufficiency of internally generated cash will depend on the
performance of securitized pools (which determines the level of releases from
those portfolios and their related spread accounts), the rate of expansion or
contraction in our managed portfolio, and the terms upon which we are able to
purchase, sell, and borrow against automobile contracts.

F-34

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The second of two warehouse facilities is similarly structured to allow us
to fund a portion of the purchase price of automobile contracts by drawing
against a floating rate variable funding note issued by our consolidated
subsidiary Page Funding LLC. This facility was entered into on June 30, 2004. On
June 29, 2005 the facility was increased from $100 million to $125 million and
further amended to provide for funding for automobile contracts purchased under
the TFC programs, in addition to our CPS programs. The available credit under
the facility was increased again to $200 million on August 31, 2005. In April
2006, the terms of this facility were amended to allow advances to us of up to
80% of the principal balance of automobile contracts that we purchase under our
CPS programs, and of up to 70% of the principal balance of automobile contracts
that we purchase under our TFC programs, in all events subject to collateral
tests and certain other conditions and covenants. On June 30, 2006, the terms of
this facility were amended to allow advances to us of up to 83% of the principal
balance of automobile contracts that we purchase under our CPS programs, in all
events subject to collateral tests and certain other conditions and covenants.
In February 2007 the facility was amended to allow for the issuance of
subordinated notes resulting in an increase of the maximum advance rate to 93%.
The advance rate is subject to the lender's valuation of the collateral which,
in turn, is affected by factors such as the credit performance of our managed
portfolio and the terms and conditions of our term securitizations. Senior notes
under this facility accrue interest at a rate of one-month LIBOR plus 2.00% per
annum while the subordinated notes accrue interest at a rate of one-month LIBOR
plus 5.50% per annum. The facility expires on September 30, 2008, unless renewed
by us and the lender before that time. At December 31, 2007, $132.7 million was
outstanding under this facility. In January 2008 the interest rate on the
subordinated notes increased to one-month LIBOR plus 12%.

F-35

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-36

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
-------------- -------------- --------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

2007
Revenues................................. $ 86,495 $ 95,800 $ 102,755 $ 109,501
Income before income taxes............... 5,410 6,237 6,340 5,970
Net income............................... 3,231 3,488 3,677 3,462
Income per share:
Basic................................. $ 0.15 $ 0.16 $ 0.18 $ 0.18
Diluted............................... 0.14 0.15 0.16 0.17
2006
Revenues................................. $ 58,024 $ 67,233 $ 73,713 $ 79,893
Income before income taxes............... 1,790 2,627 4,265 4,518
Net income............................... 1,790 2,627 4,265 30,873
Income per share:
Basic................................. $ 0.08 $ 0.12 $ 0.20 $ 1.43
Diluted............................... 0.07 0.11 0.18 1.30

F-37

(18) RECLASSIFICATION WITHIN THE QUARTERLY CONSOLIDATED STATEMENTS OF CASH
FLOWS

We have made a reclassification of an item within our consolidated
statement of cash flows for the years ended December 31, 2007 and 2006. The
reclassification affects only the totals for net cash provided by operating
activities and net cash used in investing activities. There is no effect on the
totals for net cash provided by financing activities or on the net increase (or
decrease) in cash for the periods shown. The reclassification does not affect
our consolidated balance sheets, consolidated statements of operations or
consolidated statements of shareholders' equity for any of the periods. The
following table sets fourth the effects of the reclassification for the
quarterly consolidated statements of cash flows for the quarters in 2007 and
2006.

Three Months Ended Six Months Ended Nine Months Ended
March 31, 2007 June 30, 2007 September 30, 2007
---------------------------- ---------------------------- ----------------------------
LINE ITEM FROM CONSOLIDATED STATEMENTS As Previously As As Previously As As Previously As
OF CASH FLOWS Reported Reclassified Reported Reclassified Reported Reclassified
------------- ------------ ------------- ------------ ------------- ------------
(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:
Changes in assets and liabilities:
Restricted cash and cash equivalents,
net.................................. $ (36,574) $ - $ (54,326) $ - $ (65,058) $ -
Net cash provided by (used in)
operating activities.............. $ (6,033) $ 30,541 $ 13,399 $ 67,725 $ 52,133 $ 117,191

CASH FLOWS FROM INVESTING ACTIVITIES:
Decreases (increases) in restricted
cash and cash equivalents, net....... $ - $ (36,574) $ - $ (54,326) $ - $ (65,058)
Net cash used in investing activities.. $ (194,232) $ (230,806) $ (398,127) $ (452,453) $ (584,507) $ (649,565)

Three Months Ended Six Months Ended Nine Months Ended
March 31, 2006 June 30, 2006 September 30, 2006
---------------------------- ---------------------------- ----------------------------
As Previously As As Previously As As Previously As
Reported Reclassified Reported Reclassified Reported Reclassified
------------- ------------ ------------- ------------ ------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Changes in assets and liabilities:
Restricted cash and cash equivalents,
net.................................. $ (51,192) $ - $ (43,490) $ - $ (39,412) $ -
Net cash provided by (used in)
operating activities................. $ (33,499) $ 17,693 $ (10,642) $ 32,848 $ 22,856 $ 62,268

CASH FLOWS FROM INVESTING ACTIVITIES:
Decreases (increases) in restricted
cash and cash equivalents, net....... $ - $ (51,192) $ - $ (43,490) $ - $ (39,412)
Net cash used in investing activities.. $ (153,849) $ (205,041) $ (314,046) $ (357,536) $ (448,669) $ (488,081)

F-38