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Credit Acceptance Corp (NASDAQ:CACC)
Q3 2019 Earnings Call
Nov 4, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day everyone and welcome to the Credit Acceptance Corporation Third Quarter 2019 Earnings Call. Today's call is being recorded. A webcast and transcript of today's earnings call will be made available on Credit Acceptance website.

At this time, I'd like to turn the call over to Credit Acceptance's Senior Vice President and Treasurer, Doug Busk.

Douglas W. Busk -- Senior Vice President and Treasurer

Thank you. Good afternoon and welcome to the Credit Acceptance Corporation third quarter 2019 earnings call. As you read our news release posted on the Investor Relations section of our website at creditacceptance.com and as you listen to this conference call, please recognize that both contain forward-looking statements within the meaning of Federal Securities Law. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control and which could cause actual results to differ materially from such statements.

These risks and uncertainties include those spelled out in the cautionary statement regarding forward-looking information included in the news release. Consider all forward-looking statements in light of those and other risks and uncertainties. Additionally, I should mention that to comply with the SEC's Regulation G, please refer to the financial results section of our news release, which provides tables showing how non-GAAP measures reconcile to GAAP measures.

At this time, Brett Roberts, our Chief Executive Officer; Ken Booth, our Chief Financial Officer, and I will take your questions.

Questions and Answers:

Operator

[Operator Instructions] Your first response is from John Rowan of Janney. Please go ahead.

John Rowan -- Janney -- Analyst

Good morning, guys.

Douglas W. Busk -- Senior Vice President and Treasurer

Good morning.

John Rowan -- Janney -- Analyst

So obviously, I think I'm most concerned here is just the disclosure on CECL and the 10-Q. Is it -- are you going to have two portfolios when you adopt CECL or is this all going to be just one loan portfolio?

Douglas W. Busk -- Senior Vice President and Treasurer

I mean you're going to have a dealer loan portfolio and then you'll have the purchase loan portfolio that exists as of 12/31/2019 will be continue to be accounted for as it is today and purchase loans originated after 01/01/'20 will be accounted for under CECL. Well, let me clarify the purchase loans will be accounted for as prescribed under transition relief.

John Rowan -- Janney -- Analyst

Okay. Is it a timing issue? It sounds like in the Q that there is a big upfront provision to establish your allowance for new loans, right? And obviously you guys have to generate a lot of new loans given the asymmetrical nature in which you collect loans, a lot of early payment, defaults and -- not only early payments, but there's a lot of losses that are upfront in a typical pool. Is this, like I said, is it a timing issue like when we get to a period in which your portfolio kind of has a full duration of CECL compliant loans within it. Does -- do the economics moderate out meaning like just 2021 or 2022 when you get to the back-end where its conceivably more profitable to CACC, so that we got -- get to some type of parity in the reported results?

Douglas W. Busk -- Senior Vice President and Treasurer

I mean CECL was all timing. So we're going to record a provision upfront. And as we say in the Q, we're going to record more revenue, an equivalent amount to the provision upfront in revenue over time. So the impact of a CECL would be greatest as we say in the period of adoption because you have all of the upfront provisions, but a modest amount of revenue recorded at that higher yield.

John Rowan -- Janney -- Analyst

Okay. So we start off -- let's just say, we start off with a 60% reduction in comparable net income and we get down to 30% by the end of the year, so the ranges that you provided in the Q. I mean, does it continue to moderate down into 2021 as the revenue catches up to that upfront provision. I'm trying to figure out if 2021 and 2022 earnings are down 30% or 60% as well or if there is a point in time at which the revenue catches up to the provisioning and you have a full duration portfolio of CECL loans in there, where now you reported results match the economics of the loans, which frankly are probably more appropriate under the current accounting methodology, what point in time does that match?

Douglas W. Busk -- Senior Vice President and Treasurer

Well, it all -- it all depends on growth. So if you assume a constant growth rate and assume loan performance is exactly as forecast, the difference between CECL net income and net income as reported under our current accounting will narrow over time.

John Rowan -- Janney -- Analyst

But you don't want to give us an idea of how far out that time is when the narrowing gets indiscernible?

Douglas W. Busk -- Senior Vice President and Treasurer

No, we're not really going to provide any incremental disclosure in that regard relative to what's in the Q.

John Rowan -- Janney -- Analyst

Okay. But will your provision expense be -- I mean, are we going to get net charge-off and delinquency data like most finance companies provide or is that still -- or is this just kind of porting your current reporting which has forecasted collections in advance rate? Are we -- is it still going to look the same or is this going to be now look like other types of finance companies with the data that we get to prevailed out an allowance, a charge-off and a provision going forward?

Douglas W. Busk -- Senior Vice President and Treasurer

I mean, we'll continue to provide the forecast in collection rate in advanced information we do today, and we'll comply -- provide whatever supplemental disclosures required under CECL.

John Rowan -- Janney -- Analyst

And then you said that you're going to have to gross-up the loan portfolio and then take -- basically net the difference out of the allowance. Why the gross-up? Is the gross-up because now you're reflecting the loan to the consumer or is it still the advance of the dealer partner that is your receivable, and if so why the gross-up?

Douglas W. Busk -- Senior Vice President and Treasurer

I mean the gross-up is basically what's required under the PCD Method in CECL and what the gross-up reflects is, we'll calculate an effective interest rate based on the expected cash flows and increase both the loan receivable and the related allowance by the PV of the difference between contractual cash flows and expected future cash flows. So CECL has this kind of starting point relative to its accounting -- relative to contractual cash flows. So we're grossing the balance sheet up to reflect the contractual cash flows and the difference between expected cash flows on a present value basis.

John Rowan -- Janney -- Analyst

But is that -- are we talking about cash flows that the consumers are paying, right? Or is that the cash flow based on the pool?

Douglas W. Busk -- Senior Vice President and Treasurer

It would be the pool.

John Rowan -- Janney -- Analyst

Okay, all right. Thanks. I'll let someone else hop on.

Operator

Thank you. Your next response is from James [Indecipherable] at Credit Suisse.

Unidentified Participant

Good morning. Thanks for taking my question. The lifetime loss estimate was pretty good. And I was just wondering, how much the dealer holdback and loss sharing reduces your lifetime loss expectations?

Douglas W. Busk -- Senior Vice President and Treasurer

You know, like I said a minute ago, we're not going to provide any incremental disclosure relative to CECL. But obviously, if they're split in the collections 80/20 with the dealer and you compare expected future net cash flows to contractual future net cash flows that dealer holdback is a significant element.

Unidentified Participant

Got you. And then if I could ask unrelated second question. Revenue from eliminating the dealer fee, can you just talk about that decision and maybe quantify that?

Douglas W. Busk -- Senior Vice President and Treasurer

Well, the disclosure of the amount of dealer enrollment fees is on -- in footnote eight in the 10-Q. it was $1.4 million in the third quarter of this year, and it was just designed to make the portfolio program more attractive.

Unidentified Participant

Got you. That's it from me. Thank you.

Operator

Thank you. Your next response is from Hugh Miller of Buckingham.

Hugh Miller -- Buckingham -- Analyst

Hi. Thanks for taking my questions. Just maybe a couple of follow-ups on the enrollment fee. So you've typically been recognizing about $4 million of that enrollment fee on an annual basis. Is there any run-off to that. Like how do we think about the wavering of that fee? Does that $4 million just basically go to zero in 2020 or is there any kind of run-off or anything on the recognition of that fee?

Douglas W. Busk -- Senior Vice President and Treasurer

Yeah. There will be some run-off. So it'll gradually go from $1.4 million which is what this quarter is, it'll gradually wind down to nothing over the next year or so.

Hugh Miller -- Buckingham -- Analyst

Okay. And then can you give us a sense as to the potential impact on bringing on new dealers to the portfolio program? How often are you seeing kind of that upfront fee being a headwind? I know you provide optionality from which they -- the dealer can pay for that. But what's the potential impact of bringing on new dealers. And then as you think about kind of the dealers, maybe then -- would current dealers be able to maybe then come and go from the program as they may want to for a period of time without having to think about paying that upfront reenrollment fee. So could you -- is there the potential that you could see a dealer that takes six months to 12 months and doesn't do as much business and or any business and then kind of can come back in and reenroll in the program, what's the potential impact from that standpoint?

Douglas W. Busk -- Senior Vice President and Treasurer

So we eliminated the fee obviously to get rid of an obstacle to growing the dealer program. But it's hard to say how that will play out in the enrollment metrics going forward.

Hugh Miller -- Buckingham -- Analyst

But it is -- would it be a case in a scenario where someone who is an active dealer on the platform could stop participating for a period of time and then come back to the program without any dis-incentives for reenrollment fee?

Douglas W. Busk -- Senior Vice President and Treasurer

I don't think that's going to be a huge factor going forward, I mean, historically dealers have been able to stop using the program and restart. So that's not going to change.

Hugh Miller -- Buckingham -- Analyst

Okay. And then another question just on the auction lands, we've seen some reports that indicate kind of some lame pricing weakness that we've in October. Can you just talk about what you're seeing in the auction lanes so far in October. And have you experienced any uptick in maybe, no sales and the auction lanes if you're not getting the bids that you're expecting?

Douglas W. Busk -- Senior Vice President and Treasurer

As we've talked about on prior calls, used-vehicle prices are a very small percentage of our overall net cash flows. Historically, the best used car market environment and the worst hasn't had a huge impact on the overall collection rate. So we haven't seen anything to date that would materially affect collection rates.

Hugh Miller -- Buckingham -- Analyst

Okay. Thank you.

Operator

Thank you. Your next response is from David Scharf of JMP Securities. Please go ahead.

David Scharf -- JMP Securities -- Analyst

Hi, good morning. Thanks for taking my question. Obviously a lot of moving pieces and we're still going to have to work through regarding CECL and refining our forecast. But I'm wondering, just more of a practical operational, not accounting level. I know you don't give guidance, but I'm wondering directionally as you look at kind of where the size of your sales force is now sort of the seasoning and productivity of them, given your expectations, I guess for the growth in the dealer network, going forward based on those assumptions as well as the competitive environment and what's roughly, give or take 10% year-over-year decline in volume per active dealer. We generally expect origination volume to increase in 2020 on a year-over-year basis based on everything you're seeing right now?

Douglas W. Busk -- Senior Vice President and Treasurer

It does sound like you're asking for a forecast. But I -- we're not going to forecasting next year. I mean we have still a small share of a very large market. So we're open to continue to expand our share in the future and we'll just have to see how that plays out.

David Scharf -- JMP Securities -- Analyst

Okay. Maybe I could try to box you in a little phrasing little differently. Based on the competitive environment you see today, which seems pretty similar to what we've been experiencing for the last couple of years. You've had a couple of rounds in recent years of escalating sales count hiring to expand the footprint. With the pullback in rates, what are still an attractive ABS market, suggestions that they're probably may still not be any kind of competitive shakeout on that horizon. Are you foreseeing any incremental hiring above and beyond just sort of a normal year-to-year. Any kind of ramp up in sales headcount over the next 12 to 18 months?

Douglas W. Busk -- Senior Vice President and Treasurer

Well, we had a material ramp up. We have established the target size of the sales force that we have in every zip code in the country mapped out to a sales territory. We've largely hit our target there, you're never going to have every single territory filled because of turnover. And now it's just a matter of trying to improve the productivity of the sales force we have, that's the current plan.

David Scharf -- JMP Securities -- Analyst

Okay, got it. Thank you very much.

Operator

Thank you. Your next response is from Giuliano Bologna, BTIG. Please go ahead.

Giuliano Bologna -- BTIG -- Analyst

Good morning and thanks for taking my questions. I guess, starting on a similar topic on CECL. Is there a way of thinking about the average duration of the assets, and by that, what I mean is, how fast you would recognize the offsetting revenue that you're taking on the reserve side?

Douglas W. Busk -- Senior Vice President and Treasurer

I mean, I think the best thing to look at is the table in our press release that shows the percent of forecast realized. I mean, I think that'll get you in the ballpark.

Giuliano Bologna -- BTIG -- Analyst

Okay. That makes a lot of sense. And then, I guess, I think about a similar question about when thinking that you excite the largest impact in the first quarter. Obviously, I heard you say that there's obviously going to be more of an allowance impact and less revenue impact in the first quarter adoption. Is there any difference in the recognition of the gross-up versus the allowance on the legacy portfolio or does that all happen at the same time, and is it all recognized in full?

Douglas W. Busk -- Senior Vice President and Treasurer

I mean, the gross-up will happen all at once. And then we would recognize revenue going forward off to expected future net cash flows off of that yield. So the legacy portfolio, really there won't be much of a -- aside from the balance sheet gross-up, there won't be that much of a CECL related impact.

Giuliano Bologna -- BTIG -- Analyst

Sounds good. Then kind of shifting a little bit to the competitive environment. Obviously, your unit volume hasn't been growing as fast you've seen -- have your dollar volume increased faster than unit volume for a little while. Is there any kind of limitation on your ability to continue increasing dollar volume versus unit volume?

Douglas W. Busk -- Senior Vice President and Treasurer

Yeah, I don't think that's going to be a long-term driver of our results. I mean there is a limit to how much you can increase the size of the average transaction. I mean, what that is, I don't know, but I don't see that being a long-term driver of our results.

Giuliano Bologna -- BTIG -- Analyst

And one -- like I guess one last one, one of the things that, obviously you've historically done a great job in terms of going out and touching all of the used car lots via the buy here, pay here type dealers. At least in some [Indecipherable] have heard of a lot of OEM kind of dealers getting calls from your sales force or at least being pitched. Have you had much success in breaking into some of these new car dealerships?

Douglas W. Busk -- Senior Vice President and Treasurer

Yeah, I think we have, I think we've made a lot of progress there. I think a lot of the increase in the purchase loan penetration rate over the last several years is due to our success riding business with full stores.

Giuliano Bologna -- BTIG -- Analyst

That makes a lot of sense. Thank you for taking my questions.

Operator

Thank you. Your next response is from Benjamin Weinger of 3-Sigma Value. Please go ahead.

Benjamin Weinger -- 3-Sigma Value -- Analyst

Hi. In your CECL disclosures, you say that 2020 earnings will be down approximately 30% to 60%? And I'm looking at consensus for 2019 is about $35 per share. Does that mean that 2020 earnings are going to be between, if I take that 30% and the 60% down range, will be between, call it, $14 and $24?

Douglas W. Busk -- Senior Vice President and Treasurer

I guess, it depends on what your projection for 2020 would have been under current GAAP.

Benjamin Weinger -- 3-Sigma Value -- Analyst

Okay. But based on -- if I'm just using consensus for $35, then we should expect 2020 earnings to be somewhere based on our own modeling between $14 and $24.50?

Douglas W. Busk -- Senior Vice President and Treasurer

I mean, I think you're going to do the math there, I mean do you -- start with the number, and you apply 30% to 60% to it.

Benjamin Weinger -- 3-Sigma Value -- Analyst

Okay. Second question is just regarding on the buildup of the reserve, if I take the 15% just for simplicity loan loss amount and I apply that to the gross-up amount of loans, I'm getting a reserve of about $1.04 billion and your current reserve is about $500 million. So number one, does that mean that the loan loss reserve will increase $900 million. And secondly, is that $900 million going to be deducted from book value, so that book value will be down from it was around 2.2 [Phonetic] so it should be down to around $1.03 billion?

Unidentified Speaker

Ben are you asking relative to the transition relief portfolio I presume?

Benjamin Weinger -- 3-Sigma Value -- Analyst

I'm just -- I'm looking at what is your book value going to be next year? And if we are increasing the reserves by $900 million, then I'm assuming that book value will go down by $900 million, is that correct?

Douglas W. Busk -- Senior Vice President and Treasurer

Well, the transition relief portfolio will have no impact on book value. The CECL as it relates to new loans will require an upfront provision as we described and be offset by an equal amount of revenue earned over the life of the loan.

Benjamin Weinger -- 3-Sigma Value -- Analyst

Okay. So what you're saying is when CECL is adopted, there won't be a step down in the adjustment in book value?

Unidentified Speaker

Correct. There will be a difference in the timing of income recognition.

Benjamin Weinger -- 3-Sigma Value -- Analyst

Okay. So just so I understand, so we're not going to see adoption -- we're not going to see a decrease in book value upon adoption?

Unidentified Speaker

Correct.

Benjamin Weinger -- 3-Sigma Value -- Analyst

Okay, thank you. That's it.

Operator

Thank you. Your next response is from Dominick Gabriele of Oppenheimer. Please go ahead.

Dominick Gabriele -- Oppenheimer -- Analyst

Hey guys. Thanks for taking my questions. Just real quick, when you're thinking about CECL and you've built the dealership -- your web of dealers, I should say, has grown quite nicely across the country and some would say that the real opportunity here given the penetration has been under pressure a little bit would be when others pull back, you can really jump in and get -- and really increase the penetration. But this would be at a time, obviously when most likely the -- when other people are pulling back -- the economic outlook is not the best potentially. And so when you think about the capital you would have to raise, given what you have to reserve because of CECL in that environment, does that create any obstacles to that type of plan of attack if that would be your plan to increase penetration? Is capital an issue during that time period? Or would you change your plans, should I say, given some of that [Speech Overlap]?

Unidentified Speaker

I don't think we change our plan. We operate the liability side of the balance sheet very conservatively. We have a lot of unused availability under our revolvers. We have modest reliance on short-term financing and we're lowly leveraged. So I think that that capital structure sets us up to deal with stress capital market scenario, pretty well. But obviously it have to see how that plays out.

Dominick Gabriele -- Oppenheimer -- Analyst

Okay, great. And then have you -- has there been any difference in the volumes or the penetration this quarter, given that a large player had stepped away for quite some time and it seems to have had their originations jump up a little bit in this quarter. Have you seen any increased competition because of any large entrants reentering the market? And how do you -- and would you expect that to potentially put pressure on in the coming quarters?

Brett Roberts -- Chief Executive Officer

It's a very large market. So one player does usually doesn't impact our results. What happens going forward, we don't really have a prediction on that.

Dominick Gabriele -- Oppenheimer -- Analyst

Sure, sure. And then maybe I just missed it in the Q, did you provide the lifetime loss? I might have just missed it. Was there a lifetime loss estimate?

Brett Roberts -- Chief Executive Officer

I mean the lifetime loss estimates, so just be in our Q or our press release and they'd be one minus the forecasted collection rate. Obviously, on the portfolio program you need to think about dealer holdback too. But--

Dominick Gabriele -- Oppenheimer -- Analyst

Yeah. All right, great. Thanks so much guys. I really appreciate it.

Operator

Thank you. Your next response is from Mark Hammond of Bank of America. Please go ahead.

Mark Hammond -- Bank of America -- Analyst

Thanks, good morning. What the general rally in rates? Have you had an opportunity to get or maintain more favorable pricing either on the consumer loan, the advance or the purchase loan?

Brett Roberts -- Chief Executive Officer

We haven't changed pricing in response to rates.

Mark Hammond -- Bank of America -- Analyst

Got it. And a similar kind of question on rates, but more on the liability side. So how are you thinking about addressing the 2021 unsecured bonds, two years away. But is it worth taking advantage of the rate environment and calling the 21's early at par and extending maturity?

Brett Roberts -- Chief Executive Officer

It's certainly something we've been considering. We haven't made a decision yet.

Mark Hammond -- Bank of America -- Analyst

Understood. Thanks for taking my questions.

Operator

Thank you. Your next response is from Randy Heck of Goodnow Investments. Please go ahead.

Randy Heck -- Goodnow Investment Group -- Analyst

Thanks for taking my questions. So I just have a few questions on the CECL matter. Brett, is there any change to the economics of the business, because of CECL?

Brett Roberts -- Chief Executive Officer

No, CECL is just accounting.

Randy Heck -- Goodnow Investment Group -- Analyst

Right. And is there any change to the free cash flow or the return on investment in the business?

Brett Roberts -- Chief Executive Officer

No, there is not.

Randy Heck -- Goodnow Investment Group -- Analyst

What was the -- what were your lenders focus on? Will they continue to focus to accept adjusted earnings or will they focus on CECL?

Brett Roberts -- Chief Executive Officer

I think they'll primarily focus on adjusted earnings.

Randy Heck -- Goodnow Investment Group -- Analyst

Okay. And so will you continue to report adjusted earnings like you have for the last 10 years or whatever the number is?

Brett Roberts -- Chief Executive Officer

That's our plan.

Randy Heck -- Goodnow Investment Group -- Analyst

Okay. All right. I think that's it. Thank you.

Brett Roberts -- Chief Executive Officer

Thank you.

Operator

Thank you. Your next response is from the line of John Rowan of Janney.

John Rowan -- Janney -- Analyst

Hey guys. Just a follow-up here. Just to be clear, so the allowance for loan losses is going -- on 01/01/'20 will gross up and keep the net number the same. But if you look at -- your number for the -- was it 10% to 15% or 12% to 15% booked upfront when you make a new loan. That's not the lifetime loss meaning that that's not going to be the allowance ratio of the overall pool because that would imply that the net number is going to have to actually go up. To me it looks like you're going to have to have a $3 billion-ish allowance on 01/01/'20 for your entire consolidated loan pool which is about right, you'd be about 30% of the overall gross balance, meaning, that would be the inverse of your forecasted collections? Does that sound right? Because one of the other questioners was focusing on like a $1.5 billion number for an allowance, that sounds kind of low to me.

Brett Roberts -- Chief Executive Officer

Yeah, the two separate things. The 12% to 15% would be -- our current estimate of the provision recorded at the time of assignment for new loans originated after 01/01/'20.

John Rowan -- Janney -- Analyst

Okay. So that's not like a -- that's not a full lifetime loss meaning that it's going to be your allowance ratio, right. It's going to be closer to 30% which is--

Brett Roberts -- Chief Executive Officer

No that would -- that's the amount of the provision we'd record at origination.

John Rowan -- Janney -- Analyst

Okay. And then going forward, is the provision just going to be the net differential between the allowance from period-to-period? Or is that still based on the expected cash flows of the pool?

Brett Roberts -- Chief Executive Officer

It'll still be adjusted for the expected cash flows of the pool.

John Rowan -- Janney -- Analyst

But so -- and as time goes on does the portfolio -- so the provision expense jumps at first, but then you said, the revenue yield comes up over time. So the provision expense goes up and that dilutes earnings, but the portfolio yield will come up as well over time, did I hear that correctly?

Brett Roberts -- Chief Executive Officer

Yes. We'll -- the revenue on loans originated after 01/01/'20, the revenue will be recognized at an effective interest rate that is based on contractual future cash flows. So that's how you recognize incremental revenue over time that offsets the upfront provision.

John Rowan -- Janney -- Analyst

Okay, all right. Thank you very much.

Operator

[Operator Instructions] Your next response is from Vincent Caintic of Stephens.

Vincent Caintic -- Stephens -- Analyst

Hey, thanks. Good morning, guys. And sorry some more CECL questions just because I know it's a big topic, but just to clarify, so first quarter 2020 EPS or results are going to be the same metrics, the same tables that you have now, it's just you're going to add the CECL disclosures you have to but the EPS that you're focused on and then presumably what we're going to be modeling on is going to be on -- what your current methodology for your financials?

Brett Roberts -- Chief Executive Officer

I mean, we have always run our business off of the adjusted financial results because we think that's the truest reflection of our underlying economic performance and that's what we're going to continue to focus on and we'll continue to disclose that.

Vincent Caintic -- Stephens -- Analyst

Okay, that's helpful and that's smooth things out. So very helpful. And so no book value impact on January 1st, because you're already -- your balance sheet already has net losses and so you're just basically going to break it out by having the gross -- sorry net loans by having the gross loans and then the allowance broken out separately. But I guess I'm wondering for the -- on the disclosure, but the 2020 net income being affected 30% to 60% with the greatest impact occurring in the quarter of adopt. I guess what -- why in -- why is the greatest impact going to be in the first quarter, given that you've already I guess made the adjustments to book value there and you're just focusing on originated loans going forward.

Brett Roberts -- Chief Executive Officer

Well, it relates to the loans originated after 01/01/'20 and that is because that we'll recognize the provision at loan originations on all the loans originated in the first quarter. We'll recognize revenue on those loans at a higher effective interest rate based on contractual future cash flows. But you'll have an upfront provision for each loan, but you'll have a modest amount of income recorded on those loans at that higher yield. So that's why the impact will be greatest in the quarter of adoption. In subsequent quarters, you'll still have the upfront provisions, but you'll have a larger portfolio on which you're recognizing revenue at that higher contractual future net cash flow based effective interest rate.

Vincent Caintic -- Stephens -- Analyst

Okay, got it. So each quarter will look the same, but because you're building up a portfolio of higher revenue, it sort of neutralizes the future quarters. Is that the right way to think about it?

Brett Roberts -- Chief Executive Officer

Over time, all else equal.

Vincent Caintic -- Stephens -- Analyst

Okay, perfect. And then, sorry, I also had a question about the 12% to 15%, when we think about that. So that's unrelated to the lifetime loss, which is -- which you disclose in your forecasted tables. The 12% to 15% that's -- I guess how is that number determined? That's the offset -- the direct offset or what would be directly off-setted by the finance structure revenue. I'm just kind of wondering how that's determined?

Brett Roberts -- Chief Executive Officer

No, that's the difference between what we pay for the loan and the present value of what we expect to collect discounted at that effective rate associated with contractual cash flows. So its outlined under -- in our 10-Q, there is the section called application of CECL to future loans that describes how it's done.

Vincent Caintic -- Stephens -- Analyst

Okay. I got it. Okay, thank you very much. Very helpful.

Operator

Your next response is from Dominick Gabriele of Oppenheimer.

Dominick Gabriele -- Oppenheimer -- Analyst

Hey, sorry, for the follow-up. Just to be clear I -- when you're -- going forward then you're saying your existing book on both the dealer loans, I know this has kind of been asked. But your existing book on the dealer loans and the purchased loans have already been reserved in the way they should be. So going -- there's no four-year phase and of any kind of two-year reserve, we're just talking about new originations going forward, the rest is, is staying the way it is, is that correct?

Brett Roberts -- Chief Executive Officer

Well, as we described in the Q, we are applying transition relief to the existing portfolio and we're grossing that up as we've discussed. So that portfolio is -- will be accounted for under CECL after that gross-up. And then loans originated after 01/01/'20, you'll record a provision and origination and then more revenue over time and you'll end up in the same place, where it ultimately cash equals accounting.

Dominick Gabriele -- Oppenheimer -- Analyst

Okay. Thanks so much. I really appreciate it.

Operator

There are no further questions in the queue at this time.

Brett Roberts -- Chief Executive Officer

We'd like to thank you -- sorry.

Operator

Go ahead. I'm sorry.

Brett Roberts -- Chief Executive Officer

We'd like to thank everyone for their support and for joining us on our conference call today. If you have any additional follow-up questions, please direct them to our Investor Relations mailbox at ir@creditacceptance.com. We look forward to talking to you again next quarter. Thank you.

Operator

[Operator Closing Remarks]

Duration: 35 minutes

Call participants:

Douglas W. Busk -- Senior Vice President and Treasurer

Unidentified Speaker

Brett Roberts -- Chief Executive Officer

John Rowan -- Janney -- Analyst

Unidentified Participant

Hugh Miller -- Buckingham -- Analyst

David Scharf -- JMP Securities -- Analyst

Giuliano Bologna -- BTIG -- Analyst

Benjamin Weinger -- 3-Sigma Value -- Analyst

Dominick Gabriele -- Oppenheimer -- Analyst

Mark Hammond -- Bank of America -- Analyst

Randy Heck -- Goodnow Investment Group -- Analyst

Vincent Caintic -- Stephens -- Analyst

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