Washington, D.C. 20549
A. Full title of the plan and the address of
the plan, if different
Consumer Portfolio Services, Inc. 401(k) Plan
B. Name of issuer of the securities held pursuant
to the plan and the
I. Financial Statements.
Financial statements and schedule prepared in
accordance with the financial reporting requirements of the Employee Retirement Income Security Act of 1974, together with the
report of independent registered public accounting firm thereon, are filed herewith.
II. Exhibits:
Consent of Independent Registered Public Accounting
Firm is filed herewith as Exhibit 23.1.
Notes to Financial Statements
December 31, 2016 and 2015
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(1)
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Description of the Plan
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The following description of the Consumer Portfolio
Services, Inc. (the “Plan Sponsor” or “CPS, Inc.”) 401(k) Plan (the “Plan”) provides only general
information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions.
The Plan was established as a profit sharing
plan with cash or deferred arrangement on January 1, 1994. The Plan was restated as of January 1, 1996 to permit investment
in the Plan Sponsor’s common stock without regard to Section 407(a) of the Employee Retirement Income Security Act of
1974 (“ERISA”). Effective January 1, 2003, the Plan Sponsor adopted the MassMutual Life Insurance Company Flexinvest®
Prototype Non-Standardized 401(k) Profit Sharing Plan. During 2012, the Plan was amended to allow for automatic enrollment with
automatic deferral contributions of 3% of eligible compensation of employees eligible to participate in the Plan, unless otherwise
elected by such employees.
The Plan is a defined contribution plan which
provides retirement benefits for eligible employees of the Plan Sponsor. It is subject to the provisions of ERISA.
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(b)
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Administration of the Plan
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The Plan is administered by the Human Resources
Department (the “Plan Administrator”) of the Plan Sponsor. The Plan Administrator consults with the benefits committee
and other key management of the Plan Sponsor when managing the operations and the administration of the Plan.
The Plan is operated under an agreement which
requires that MassMutual Retirement Services (MassMutual), as custodian and record-keeper, hold and distribute the funds of the
Plan in accordance with the text of the Plan and the instructions of the Plan Administrator or its designees.
Employees are eligible to participate in the
Plan after completing 90 days of service. In accordance with the Plan, participants may contribute up to 100% of their annual compensation,
after required deductions, such as those required by the Federal Insurance Contributions Act. Contributions are subject to certain
limitations as defined in the Plan agreement, as well as a maximum of $18,000 for both of the years ended December 31, 2016
and 2015, under the Internal Revenue Code (IRC) of 1986. Catch-up contributions (within the meaning of Section 414(v) of the IRC)
can also be made by participants who reach age 50 during the plan year. Participants are only permitted to make catch-up contributions
after they have already contributed the maximum amount for the year. The catch-up contribution limit was $6,000 for both 2016 and
2015. Participants may roll over into the Plan amounts representing distributions from other qualified plans.
The Plan Sponsor may make a discretionary matching
contribution equal to a discretionary amount of each participant’s pretax contributions up to a maximum of $1,500. Discretionary
cash matching contributions were $934,834, and $838,155 for the years ended December 31, 2016 and 2015, respectively. Effective
January 1, 2017, the Plan Sponsor increased its discretionary matching contributions up to a maximum $2,000.
CONSUMER PORTFOLIO SERVICES, INC. 401(K)
PLAN
Notes to Financial Statements
December 31, 2016 and 2015
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(1)
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Description of the Plan (continued)
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Each participant’s account is credited
with the participant’s contributions, allocations of the Plan Sponsor’s matching contributions and investment earnings
and charged with an allocation of expenses and investment losses. Allocations are based on participant earnings or account balances,
as defined in the Plan agreement.
Participants are immediately vested in their
contributions plus actual earnings thereon. Vesting in the Plan Sponsor’s matching contributions plus actual earnings thereon
is based on years of continuous service. A participant vests at the rate of 20% after two years of credited service and 20% each
year thereafter until 100% is reached after six years of credited service. Participants are also fully vested at death, retirement
and upon termination for disability.
The Plan offers various investment options
which are managed by several outside investment managers. Upon enrollment in the Plan, participants may direct their contributions
in any of the investment options offered at the time. Participants may change their investment options daily. Participants should
refer to the investment literature provided by the Plan Sponsor for a complete description of the investment options and for the
detailed composition of each investment fund.
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(g)
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Notes Receivable from Participants
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Participants may borrow from their fund accounts.
Such borrowings and repayments are treated as transfers from and to, respectively, the participant’s investment funds. Borrowings
are secured by the participant’s vested account balance and bear interest at a rate commensurate with local prevailing rates
as determined by the Plan Administrator. Loans are limited to the lesser of $50,000, reduced by the highest outstanding loan balance
during the preceding 12 months, or 50% of the participant’s vested account balance. A loan shall be repaid within five
years, unless it is used for the purchase of a primary residence.
Notes receivable from participants are payable
through payroll deductions in installments of principal plus interest at rates between 4.25% and 6.00%, with final payments due
between January 2017 and August 2031.
Upon termination of service, a participant
may elect to receive either a single lump sum payment in cash equal to the value of the vested interest in his or her account,
or a series of substantially equal annual or more frequent installments over a period not to exceed the participant’s life
expectancy. Benefits are recorded when paid.
CONSUMER PORTFOLIO SERVICES, INC. 401(K)
PLAN
Notes to Financial Statements
December 31, 2016 and 2015
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(1)
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Description of the Plan (continued)
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In accordance with the Plan agreement, forfeitures
attributable to matching contributions must be applied first to reduce expenses related to the administration of the Plan and then
to reduce any employer contributions. As of December 31, 2016 and 2015, forfeited accounts totaled $39,927 and $22,228 respectively.
Although it has not expressed any intent to
do so, the Plan Sponsor has the right under the Plan to terminate the Plan subject to the provisions of ERISA. In the event of
the Plan’s termination, participants will become 100% vested in their accounts.
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(2)
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Significant Accounting Policies
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The financial statements of the Plan have been
prepared on the accrual basis of accounting.
The Plan Administrator evaluated subsequent
events through June 29, 2017 the date the financial statements were available to be issued.
Publicly traded securities are carried at fair
value based on published market quotations. Shares of registered investment companies are valued at the net fair value of the underlying
assets at year-end. Purchases and sales of investments are recorded on a trade-date basis. Dividends are recorded on the ex-dividend
date. Interest income is recorded on the accrual basis.
Realized gains and losses on investments are
based on the market value of the asset at the beginning of the year or at the time of purchase for assets purchased during the
year and the related fair value on the date investments are sold during the year.
The Plan invests in a Guaranteed Interest Account
(“GIC”) which is valued at contract value based on the underlying value of the account’s group annuity contract.
In the event that the underlying agreements in the Plan’s Investments in fully benefit-responsive investment contracts are
fully or partially terminated, participants will receive the liquidation value instead of the contract value. The Plan Administrator
does not anticipate the full or partial termination of such agreements in the foreseeable future.
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(d)
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Notes Receivable from Participants
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Notes receivable from participants are measured
at their unpaid principal balance plus any accrued but unpaid interest. Delinquent participant loans are recorded as distributions
based on the terms of the Plan agreement.
CONSUMER PORTFOLIO SERVICES, INC. 401(K)
PLAN
Notes to Financial Statements
December 31, 2016 and 2015
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(2)
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Significant Accounting Policies (continued)
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(e)
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Administrative Expenses
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The Plan and the Plan Sponsor share plan expenses.
Certain direct investment expenses, such as record keeping fees, brokerage fees, loan, withdrawal or distribution processing fees
are deducted from participants’ accounts. During the years ended December 31, 2016 and 2015, $116,697 and $112,981, respectively,
in Plan investment and administrative expenses were paid through the use of forfeitures.
The Plan Administrator has made a number of
estimates and assumptions relating to the reporting of assets and liabilities to prepare these financial statements in conformity
with GAAP. Accordingly, actual results may differ from those estimates.
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(g)
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Recent Accounting Pronouncements
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In May 2015, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update 2015-07,
Fair Value Measurement (Topic 820): Disclosures for Investments
in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent) (“ASU 2015-07”).
ASU 2015-07 removes
the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset
value per share practical expedient. However, sufficient information must be provided to permit a reconciliation of the fair value
of assets categorized within the fair value hierarchy to the amounts presented in the statement of net assets available for benefits.
ASU 2015-07 also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair
value using the net asset value per share practical expedient. The Plan adopted the provisions of ASU 2015-07 on January 1, 2016
and applied this update retrospectively to all periods presented. The adoption of ASU 2015-07 reduced fair value disclosures in
the Plan’s financial statements.
In July 2015, the FASB issued Accounting Standard
Update No. 2015-12,
Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962)
and Health and Welfare Benefit Plans (Topic 965): Part I – Fully Benefit-Responsive Investment Contracts, Part II –
Plan Investment Disclosures and Part III – Measurement Date Practical Expedient (“ASU 2015-12”).
The amendments
in the update remove the requirement to record fully benefit-responsive investment contracts at fair value and designate contract
value as the only required measure for these contracts. The amendments also remove the requirement to disclose (a) individual investments
that represent five percent or more of net assets available for benefits and (b) the net appreciation or depreciation for investments
by general type, however, the net appreciation or depreciation in investments is still required to be presented in aggregate. This
amendment also provides a practical expedient to permit plans to measure investments and investment related accounts as of a month
end date that is closest to the plan’s fiscal year end when the fiscal year period does not coincide with month end. The
Plan adopted the provisions of ASU 2015-12 on January 1, 2016 and applied this update retrospectively to all periods presented.
The adoption of ASU 2015-12 reduces the required disclosures in the Plan’s financial statements.
CONSUMER PORTFOLIO SERVICES, INC. 401(K)
PLAN
Notes to Financial Statements
December 31, 2016 and 2015
In accordance with GAAP, the Plan uses a hierarchy
for measuring the fair value of all financial assets and liabilities that are being measured and reported at fair value on a recurring
and non-recurring basis. Fair value is measured in levels, which are described in more detail below, and are determined based on
the observability and reliability of the assumptions used to determine fair value.
Level 1: Valuations for assets and liabilities
traded in active exchange markets. Valuations are obtained from readily available pricing sources for market transactions involving
identical assets or liabilities.
Level 2: Valuations for assets and liabilities
traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable
assets or liabilities.
Level 3: Valuations for assets and liabilities
that are derived from other valuation methodologies, including option pricing models, discounted cash flow models, and similar
techniques, and not based on market exchange, dealer or broker traded transactions. These valuations incorporate certain assumptions
and projections in determining the fair value assigned to such assets or liabilities.
Investments in the Plan are measured and reported
at fair value on a recurring basis. The following tables show the balances of these assets based on their GAAP designated levels:
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As of December 31, 2016
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Total
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Level 1
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Level 2
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Level 3
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Registered investment companies
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$
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17,190,686
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$
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17,190,686
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$
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–
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$
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–
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CPS, Inc. common stock
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3,145,098
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3,145,098
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–
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–
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Interest bearing cash
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59,345
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59,345
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–
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–
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Total
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$
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20,395,129
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$
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20,395,129
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|
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$
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–
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|
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$
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–
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As of December 31, 2015
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Total
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Level 1
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Level 2
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Level 3
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|
|
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|
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|
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Registered investment companies
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$
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15,642,210
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$
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15,642,210
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$
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–
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$
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–
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CPS, Inc. common stock
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3,026,196
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3,026,196
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–
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–
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Interest bearing cash
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39,464
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39,464
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–
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|
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–
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Total
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$
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18,707,870
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$
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18,707,870
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$
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–
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$
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–
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Registered investment companies were valued at their daily closing price.
CONSUMER PORTFOLIO SERVICES, INC. 401(K)
PLAN
Notes to Financial Statements
December 31, 2016 and 2015
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(3)
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Investments (continued)
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The Plan is a party to a fully benefit-responsive
guaranteed interest contract with MassMutual. The account is credited with earnings on the underlying investments and charged for
participant withdrawals and administrative expenses. The guaranteed interest contract issuer is contractually obligated to repay
the principal and a specified interest rate that is guaranteed to the Plan. Because the guaranteed investment contract is fully
benefit-responsive, contract value is the relevant measurement attributed for that portion of the net assets available for plan
benefits attributable to the guaranteed investment contract. The guaranteed interest contract is presented on the face of the statements
of net assets available for benefits at contract value. Contract value, as reported to the Plan by MassMutual, represents contributions
made under the contract, plus earning, less participant withdrawals, and administrative expenses. Participants may ordinarily direct
the withdrawal or transfer of all or a portion of their investment at contract value. For the years ended December 31, 2016 and
2015, the average yield was 3.60% and 3.77%, respectively, and the average crediting interest was 2.73% and 2.88%, respectively.
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(4)
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Risks and Uncertainties
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The Plan provides for various investment options
in money market funds, registered investment companies, guaranteed interest accounts and the common stock of Consumer Portfolio
Services, Inc. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level
of uncertainty related to changes in value of investment securities, it is at least reasonably possible that changes in the various
risk factors could materially affect participants’ account balances and the amounts reported in the financial statements.
The Internal Revenue Service (“IRS”)
has determined and informed the Plan Sponsor by a letter dated February 7, 1996 that the Plan and related trust are designed in
accordance with applicable sections of the IRC and is, therefore, exempt from Federal income taxes. As described in Note 1, the
Plan has been amended since receiving the determination letter, including the adoption of the MassMutual Life Insurance Company
Flexinvest® Prototype Non-Standardized 401(k) Profit Sharing Plan. The IRS has determined and notified MassMutual Life Insurance
Company by a letter dated February 20, 2015 that the form of the prototype plan is acceptable under section 401 of the Code for
use by employers for the benefit of their employees. The Plan Administrator believes that the Plan is designed and is currently
being operated in compliance with the applicable requirements of the IRC. Accordingly, no provision for income taxes is included
in the accompanying financial statements.
Certain Plan investments are managed by MassMutual.
MassMutual is the custodian of these assets and provides record keeping services to the Plan and; therefore, these transactions
qualify as permitted party-in-interest transactions. The Plan Sponsor offers its common stock as an investment option and performs
administrative functions at no cost. These are also considered permitted party-in-interest transactions.
CONSUMER PORTFOLIO SERVICES, INC. 401(K) PLAN
Schedule H, Line 4i – Schedule of Assets (Held at End of Year) – December 31, 2016