Edgar Filing: CONSUMER PORTFOLIO SERVICES INC

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

FORM 10-K/A
Amendment No. 1

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006
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 Identification No.)
incorporation or organization)

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
------------------- -----------------------------------------
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 13,522,700 shares of the registrant's common
stock held by non-affiliates, based upon the closing price of the registrant's
common stock of $6.71 per share reported by Nasdaq as of June 30, 2006, was
approximately $90,737,317. 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
April 27, 2007, was 21,581,683.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for registrant's 2006 annual shareholders
meeting are incorporated by reference into Item 11 hereof.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding the executive officers of the registrant (the "Company" or
"CPS") as of March 9, 2007, appears in Part I of this report, and is
incorporated herein by reference. In addition, the Company on April 17, 2007
promoted two individuals to positions as executive officers:

TERI L. CLEMENTS, 44, is the Company's Senior Vice President-Originations. She
joined the Company in 1991, and held a series of successively more responsible
positions prior to being appointed Vice President-Originations in 1998.

JAYNE M. HOLLAND, 45, is the Company's Senior Vice President-Operations. She
joined the company in 1992, and held a series of successively more responsible
positions prior to being appointed Vice President-Operations in 1999.

The names of the Company's directors, their principal occupations, and certain
other information regarding them are set forth below.

NAME AGE POSITION(S) WITH THE COMPANY
---- --- ----------------------------
Charles E. Bradley, Jr. 47 President, Chief Executive Officer, and
Chairman of the Board of Directors
E. Bruce Fredrikson 69 Director
John E. McConnaughy, Jr. 78 Director
John G. Poole 64 Vice Chairman of the Board of Directors
Brian J. Rayhill 44 Director
William B. Roberts 69 Director
John C. Warner 59 Director
Daniel S. Wood 48 Director

CHARLES E. BRADLEY, JR. has been the President and a director of the Company
since its 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 of the Company. 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.

E. BRUCE FREDRIKSON has been a director of the Company since March 2003. He is a
Professor of Finance, Emeritus, at Syracuse University's Martin J. Whitman
School of Management, where he taught from 1966 to 2003. Mr. Fredrikson has
published numerous papers on accounting and finance topics. He is also the
non-executive chairman of the board of directors of Track Data Corporation and a
director of Colonial Commercial Corp.

JOHN E. MCCONNAUGHY, JR. has been a director of the Company since 2001. He is
the Chairman and Chief Executive Officer of JEMC Corporation, which is a
personal holding company he formed in 1985. From 1981 to 1992 he was the
Chairman and Chief Executive Officer of GEO International Corp, a company in the
business of nondestructive testing, screen-printing and oil field services. Mr.
McConnaughy was previously and concurrently Chairman and Chief Executive Officer
of Peabody International Corp., from 1969 to 1986. He currently serves as a
director of Levcor International, Inc., Wave Systems Corp. Allis Chalmers Corp.,
Arrow Resources Development Inc. and Kinetitec Corp. Mr. McConnaughy is also
Chairman of the Board of Trustees of the Strang Clinic and is the Chairman
Emeritus of the Board of the Harlem School of the Arts.

JOHN G. POOLE has been a director of the Company since November 1993 and its
Vice Chairman since January 1996. He is now a private investor, having
previously been a director and Vice President of Stanwich Partner Inc. ("SPI")
until July 2001. SPI, which Mr. Poole co-founded in 1982, acquired controlling
interests in companies in conjunction with their existing management. Mr. Poole
is also a director of Reunion Industries, Inc.

BRIAN J. RAYHILL has been a director of the Company since August 2006. Mr.
Rayhill has been a practicing attorney in New York State since 1988.

WILLIAM B. ROBERTS has been a director of the Company since its formation in
March 1991. Since 1981, he has been the President of Monmouth Capital Corp., an
investment firm that specializes in management buyouts.

JOHN C. WARNER was elected as a director of the Company in April 2003. Mr.
Warner was chief executive officer of O'Neill Clothing, a manufacturer and
marketer of apparel and accessories, from 1996 until his retirement in May 2005.

DANIEL S. WOOD has been a director of the Company since July 2001. Mr. Wood was
president of, a manufacturer of custom injection moldings, until his retirement
in April 2006. He now serves as a consultant to that company. Previously, from
1988 to September 2000, he was the chief operating officer and co-owner of
Carrera Corporation, the predecessor to the business of Carclo Technical
Plastics.

The Board of Directors has established an Audit Committee, a Compensation and
Stock Option Committee, and a Nominating Committee. Each of these three
committees operates under a written charter, adopted by the Board of Directors
of the Company. The Board of Directors has concluded that each member of these
three committees (every director other than Mr. Bradley, the Company's chief
executive officer) is independent in accordance with the director independence
standards prescribed by Nasdaq, and has determined that none of them have a
material relationship with the Company that would impair the independence from
management or otherwise compromise the ability to act as an independent
director.

The members of the Audit Committee are E. Bruce Fredrikson (chairman), John C.
Warner and John G. Poole. The Audit Committee is empowered by the Board of
Directors to review the financial books and records of the Company in
consultation with the Company's accounting and auditing staff and its
independent auditors and to review with the accounting staff and independent
auditors any questions that may arise with respect to accounting and auditing
policy and procedure.

The Board of Directors has further determined that Mr. Fredrikson has the
qualifications and experience necessary to serve as an "audit committee
financial expert" as such term is defined in Item 401(h) of Regulation S-K
promulgated by the SEC. Such qualifications and experience are described above
in this section.

The members of the Compensation and Stock Option Committee are Daniel S. Wood
(chairman), John E. McConnaughy, Jr. and William B. Roberts. This Committee
makes determinations as to general levels of compensation for all employees of
the Company and the annual salary of each of the executive officers of the
Company, and administers the Company's compensation plans. Those plans include
the Company's 1997 Long-Term Stock Incentive Plan, the Executive Management
Bonus Plan, and the CPS 2007 Long-Term Equity Incentive Plan.

The members of the Nominating Committee are Brian J. Rayhill (chairman), Mr.
Fredrikson, and Mr. Wood. Nominations for board positions are made on behalf of
the Board of Directors by the nominating committee. Because neither the Board of
Directors nor its Nominating Committee has received recommendations from
shareholders as to nominees, the Board of Directors and the Nominating Committee
believe that it is and remains appropriate to operate without a formal policy
with regard to any director candidates who may in the future be recommended by
shareholders. The nominating committee would consider such recommendations.

When considering a potential nominee, the nominating committee considers the
benefits to the Company of such nomination, based on the nominee's skills and
experience related to managing a significant business, the willingness and
ability of the nominee to serve, and the nominee's character and reputation.

Shareholders who wish to suggest individuals for possible future consideration
for board positions, or to otherwise communicate with the Board of Directors,
should direct written correspondence to the corporate secretary at the Company's
principal executive offices, indicating whether the shareholder wishes to
communicate with the nominating committee or with the Board of Directors as a
whole. The present policy of the Company is to forward all such correspondence
to the designated members of the Board of Directors. There have been two changes
in the procedures regarding shareholder recommendations in the past year: first,
the Board of Directors established a nominating committee for the first time in
October 2006, and second, shareholders are now requested to address their
communications to "corporate secretary" rather than to "the Board of Directors,"
in order to ensure appropriate handling of any such communications.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Directors, executive officers and holders of in excess of 10% of the Company's
common stock are required to file reports concerning their transactions in and
holdings of equity securities of the Company. Based on a review of reports filed
by each such person, and inquiry of each regarding holdings and transactions,
the Company believes that all reports required with respect to the year 2006
were timely filed, except that Mr. Rayhill filed two reports late, one report
relating to his initial holdings, and the other (one day late) relating to one
transaction.

CODE OF ETHICS

The Company has adopted a Code of Ethics for Senior Financial Officers, which
applies to the Company's chief executive officer, chief financial officer,
controller and others. A copy of the Code of Ethics may be obtained at no charge
by written request to the Corporate Secretary at the Company's principal
executive offices.

ITEM 11. EXECUTIVE COMPENSATION

The following table summarizes all compensation earned during the three fiscal
years ended December 31, 2006, 2005, and 2004 by the Company's chief executive
officer, by its chief financial officer, and by the three other most highly
compensated individuals (such five individuals, the "named executive officers")
who were serving in such positions or as executive officers at any time in 2006.

SUMMARY COMPENSATION TABLE
All Other
Option Compensation
Name and Principal Position Year Salary Bonus Awards(1) (2) Total
------------------------------------------------------------------------------------------------------------
CHARLES E. BRADLEY, JR. 2006 $780,000 $1,250,000 $305,136 $ 1,850 $2,336,986
President & Chief 2005 735,000 1,000,000 458,240 1,600 2,194,840
Executive Officer 2004 700,000 700,000 555,840 1,600 1,957,440

JEFFREY P. FRITZ 2006 276,000 258,000 152,568 1,844 688,412
Sr. Vice President - Accounting 2005 240,000 197,000 281,430 1,552 719,982
& Chief Financial Officer (3) 2004 87,500 70,000 178,416 60,902 396,818

CURTIS K. POWELL 2006 283,000 209,000 152,568 1,850 646,418
Sr. Vice President - 2005 270,000 208,000 124,500 1,600 604,100
Originations & Marketing 2004 252,000 177,000 46,320 1,600 476,920

ROBERT E. RIEDL 2006 281,000 253,000 152,568 1,850 688,418
Sr. Vice President - Finance 2005 255,000 209,000 176,810 1,594 642,404
& Chief Investment Officer (4) 2004 240,000 144,000 185,280 1,576 570,856

CHRIS TERRY 2006 274,000 269,000 152,568 1,822 697,390
Sr. Vice President - 2005 203,000 191,000 281,347 1,463 676,810
Asset Recovery 2004 162,000 125,000 46,320 1,367 334,687
------------------------------------------------------------------------------------------------------------

(1) Represents the dollar value of accrued for financial accounting
purposes in connection with the grant of such options. The fair value
was estimated using the Black-Scholes option-pricing model in
accordance with SFAS 123R. The assumptions used for those estimates are
discussed in note 1 to the financial statements of the Company filed
pursuant to item 8 of this report, under the subheading "Stock Option
Plan." Such discussion is incorporated herein by reference.
(2) Amounts in this column represent (a) any Company contributions to the
Employee Savings Plan (401(k) Plan), and (b) premiums paid by the
Company for group life insurance, as applicable to the named executive
officers. Company contributions to the 401(k) Plan were $1000 per
individual in 2004, 2005 and 2006.
(3) Mr. Fritz became an executive officer in August 2004, and was named
chief financial officer in April 2006. The amount shown under "All
other compensation" includes $59,782 paid to him for consulting
services provided in 2004 prior to his becoming an employee and officer
of the Company.
(4) Mr. Riedl became an executive officer in January 2003, was chief
financial officer from August 2003 to April 2006, and was named chief
investment officer in April 2.

GRANTS OF PLAN-BASED AWARDS IN LAST FISCAL YEAR

The Company in the year ended December 31, 2006, did not grant any stock awards
or stock appreciation rights to any of the named executive officers. The Company
has from time to time granted options to substantially all of its management and
marketing employees, and did so in October 2006. The following table provides
information on grants of plan-based awards in 2006 to the named executive
officers, all of which were included in the October grant. Each of the options
reported in the table below becomes exercisable as to 20% of the total number of
underlying shares on the first through fifth anniversaries of the grant date,
and expires on the tenth anniversary.

GRANTS OF PLAN-BASED AWARDS

-------------------------------------------------------------------------------------------------------------
Number of shares Exercise or Grant date fair
underlying base price of value of stock
Name Grant date options option awards and option awards
-------------------------------------------------------------------------------------------------------------
Charles E. Bradley, Jr. October 25, 2006 80,000 $6.85 $305,136
Curtis K. Powell October 25, 2006 40,000 $6.85 $152,568
Robert E. Riedl October 25, 2006 40,000 $6.85 $152,568
Jeffrey P. Fritz October 25, 2006 40,000 $6.85 $152,568
Chris Terry October 25, 2006 40,000 $6.85 $152,568
-------------------------------------------------------------------------------------------------------------

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

The following table sets forth as of December 31, 2006 the number of unexercised
options held by each of the named executive officers, the number of shares
subject to then exercisable and unexercisable options held by such persons and
the exercise price and expiration date of each such option. Each option referred
to in the table was granted under the Company's 1991 Stock Option Plan, 1997
Long-Term Equity Incentive Plan or 2006 Long-Term Equity Incentive Plan, at an
option price per share no less than the fair market value per share on the date
of grant. None of such individuals holds a stock award.

Number of shares Number of shares Option Option expiration date
underlying underlying exercise
unexercised options unexercised options price
(#) exercisable (#) unexercisable ($/share)
-----------------------------------------------------------------------------------------------------------------------
Charles E. Bradley, Jr. 11,100 0 $0.625 October 29, 2009
250,000 0 1.75 September 21, 2010
83,333 0 1.75 September 21, 2010
83,333 0 2.50 January 17, 2011
83,333 0 4.25 January 17, 2011
185,000 0 1.50 July 23, 2012
40,000 0 2.64 July 17, 2013
240,000 0 4.00 April 26, 2014
120,000 0 5.04 May 16, 2015
40,000 0 6.00 December 30, 2015
0 80,000 6.85 October 25, 2016
Jeffrey P. Fritz 80,000 0 4.25 November 12, 2014
80,000 0 5.04 May 16, 2015
20,000 0 6.00 December 30, 2015
0 40,000 6.85 October 25, 2016
Curtis K. Powell 10,000 0 1.75 September 21, 2010
10,000 0 2.50 January 17, 2011
10,000 0 4.25 January 17, 2011
25,000 0 1.50 July 23, 2012
20,000 0 2.64 July 17, 2013
20,000 0 4.00 April 26, 2014
20,000 0 5.04 May 16, 2015
20,000 0 6.00 December 30, 2015
0 40,000 6.85 October 25, 2016
Robert E. Riedl 75,000 0 1.92 February 3, 2013
20,000 0 2.64 July 17, 2013
80,000 0 4.00 April 26, 2014
40,000 0 5.04 May 16, 2015
20,000 0 6.00 December 30, 2015
0 40,000 6.85 October 25, 2016
Chris Terry 5000 0 1.75 September 21, 2010
5000 0 2.50 January 17, 2011
5000 0 4.25 January 17, 2011
27,500 0 1.50 July 23, 2012
30,000 0 1.92 February 3, 2013
20,000 0 2.64 July 17, 2013
20,000 0 4.00 April 26, 2014
20,000 0 5.04 May 16, 2015
46,000 0 6.00 December 30, 2015
0 40,000 6.85 October 25, 2016

OPTION EXERCISES IN LAST FISCAL YEAR

The following table provides information regarding stock options exercised, and
the value realized upon exercise, by the named executive officers during 2006.

--------------------------------------------------------------------------------
Number of shares Value realized
Name acquired on exercise on exercise (1)
--------------------------------------------------------------------------------
Charles E. Bradley, Jr. 0 0
Curtis K. Powell 20,000 $123,350
Robert E. Riedl 0 0
Jeffrey P. Fritz 0 0
Chris Terry 0 0
--------------------------------------------------------------------------------
(1) Amounts reflect the difference between the exercise price of the
stock option and the market price of the underlying Common Stock at
the time of exercise.

BONUS PLAN

The named executive officers and other officers participate in a management
bonus plan, the material terms of which were described in the Company's 2006
definitive proxy statement filed with the Commission, under the caption
"Proposal 4 -- Approval of the Material Terms of the Company's Executive
Management Bonus Plan." Such discussion is incorporated herein by this
reference. The compensation appearing in the Summary Compensation Table above
the caption "bonus" is paid pursuant to such plan.

PENSION PLANS

The company's officers do not participate in any pension or retirement plan,
other than a tax-qualified defined contribution plan (commonly known as a 401(k)
plan).

DIRECTOR COMPENSATION

During the year ended December 31, 2006, the Company changed its policy of
compensation of directors. Through September, the Company continued its prior
policy of paying all directors, excluding Mr. Bradley, a retainer of $2,500 per
month and an additional fee of $1,000 PER DIEM for attendance at meetings of the
board. The two directors who chaired the Audit Committee and the Compensation
Committee received an additional monthly retainer of $500. Mr. Bradley received
no additional compensation for his service as a director. Effective October
2006, the Company paid all non-employee directors a retainer of $3,000 per
month, with an additional fee of $500 per month for service on a board committee
($1,000 for a committee chairman), and made that policy applicable to the newly
created Nominating Committee, as well as to the Audit and Compensation
Committees. The policy on PER DIEM fees was not changed. Pursuant to the
Company's policy that is applicable to all of its non-employee members, the
Board on October 25, 2006, issued options with respect to 20,000 shares to each
non-employee director. All such options are exercisable at $6.85 per share, the
exercise price being the closing price on the date of grant. Mr. Rayhill had
previously, in connection with his joining the board, received options with
respect to 50,000 shares, at an exercise price of $6.50 per share, which was the
closing price on the date of grant.

FEES EARNED OR PAID
NAME OF DIRECTOR IN CASH (1) OPTION AWARDS (2) TOTAL
==================================== ====================== ======================= =======================

Charles E. Bradley, Jr. (3) 0 0 0
------------------------------------ ---------------------- ----------------------- -----------------------

E. Bruce Fredrikson $45,000 $31,274 $76,774
------------------------------------ ---------------------- ----------------------- -----------------------

John E. McConnaughy $37,500 $31,274 $68,774
------------------------------------ ---------------------- ----------------------- -----------------------

John G. Poole $38,500 $31,274 $69,774
------------------------------------ ---------------------- ----------------------- -----------------------

Brian J. Rayhill $41,500 $105,464 $146,964
------------------------------------ ---------------------- ----------------------- -----------------------

William B. Roberts $37,500 $31,274 $68,774
------------------------------------ ---------------------- ----------------------- -----------------------

John C. Warner $37,000 $31,274 $68,274
------------------------------------ ---------------------- ----------------------- -----------------------

Daniel S. Wood $46,500 $31,274 $77,774
------------------------------------ ---------------------- ----------------------- -----------------------

(1) This column reports the amount of cash compensation earned in 2006 for Board
and committee service.

(2) This column represents the dollar amount recognized for financial statement
reporting purposes with respect to the 2006 fiscal year for the fair value of
stock options granted to the directors in 2006. The fair value was estimated
using the Black-Scholes option-pricing model in accordance with SFAS 123R. The
weighted average fair value per option was $1.54, based on assumptions of 2.0
years expected life, expected volatility of 33.7%, expected dividend yield of
0.0%, and a risk-free rate of 4.80%.

(3) Mr. Bradley's compensation as chief executive officer of the Company is
described elsewhere in this report. He received no additional compensation for
service on the Company's Board of Directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation and Stock Option Committee throughout the fiscal
year ended December 31, 2006 were Daniel S. Wood (chairman), John E.
McConnaughy, Jr. and William B. Roberts. This Committee makes determinations as
to general levels of compensation for all employees of the Company and the
annual salary of each of the executive officers of the Company, and administers
the Company's compensation plans. Those plans include the Company's 1997
Long-Term Stock Incentive Plan, the Executive Management Bonus Plan, and the CPS
2006 Long-Term Equity Incentive Plan. None of the members of the committee is or
has been an officer or employee of the Company or any of its subsidiaries. None
of our executive officers has served as a member of the board of directors or
compensation committee of any entity for which a member of our board of
directors or Compensation and Stock Option Committee served as an executive
officer.

COMPENSATION DISCUSSION AND ANALYSIS

The Company's objectives with respect to compensation are several. The
significant objectives are to cause compensation (i) to be sufficient in total
amount to provide reasonable assurance of retaining key executives, (ii) to
include a significant contingent component, so as to provide strong incentives
to meet designated Company objectives, and (iii) to include a significant
component tied to the price of the Common Stock, so as to align management's
incentives with shareholder interests. The compensation committee ("Committee")
of the Company's Board of Directors is charged with administering compensation
plans to meet those objectives. To the extent that elements of compensation
would not advance such objectives, or would do so less effectively than would
other elements, the Committee seeks to avoid paying compensation in those forms.

With respect to the retention objective, the Committee considers an executive's
base salary to be the most critical component. Acting primarily on the basis of
recommendations of the chief executive officer, the Committee adjusts other
officers' base salaries annually, with the adjustment generally consisting of a
3% to 10% increase from the prior year's rate. Where exceptional circumstances
apply, such as recruitment of a new executive officer, a promotion to executive
officer status or a special need to retain an individual officer, the chief
executive officer may recommend, and the Committee may approve, a larger
increase.

To encourage executive officers and key management personnel to exercise their
best efforts and management skills toward achieving designated specific
objectives, the Company has implemented an annual payout bonus plan. Under the
Company's bonus plan as applied to the year ended December 2006, executive
officers of the Company other than its chief executive officer were eligible to
receive a cash bonus of up to 100% of their base salaries. The chief executive
officer in the first quarter of 2006 proposed designated specific objectives
with respect to each named executive officer, and the Committee, after making
certain modifications, set those objectives. In January and February of 2007,
the Committee evaluated achievement of the objectives, and authorized payment of
a specific bonus to each named executive officer. Factors used in determining
the amount of bonus are whether the executive and his department have met
individual objectives set by the chief executive officer, whether the Company as
a whole has met or exceeded budget targets, whether certain objectives for the
individual and for the management group as a whole have been met, and a
subjective evaluation of the officer's performance. Numerical scores are
assigned to each of these factors, and weighed pursuant to a formula that can
result in a maximum bonus of 100% of base compensation.

Applying the above principles, the Committee in January 2007 approved bonus
compensation to the named executive officers, other than the chief executive
officer, of from 74% to 98% of their respective base salaries for the year ended
December 31, 2006. The variation in the percentages awarded is generally
reflective of the extent to which the named executive officers met their
individual and department objectives.

The Committee also awards incentive and non-qualified stock options under the
Company's stock option plans. Such awards are designed to assist in the
retention of key executives and management personnel and to create an incentive
to create shareholder value over a sustained period of time. The Company
believes that stock options are a valuable tool in compensating and retaining
employees. During the year ended December 31, 2006, the Committee granted stock
options to the Company's executive officers. All such grants were awarded in
October 2006, and all carry exercise prices equal to the market price for the
Company's common stock at the date of grant. The terms of such options are
described above, under the caption "Grants of Plan-Based Awards in Last Fiscal
Year." The numbers of shares made subject to each of the option grants were
based on various factors relating to the responsibilities of the individual
officers and to the extent of previous grants to such individuals.

Because the exercise price of all options granted is equal to or above the fair
market value of the Company's common stock on the date of grant, the option
holders may realize value only if the stock price appreciates from the price on
the date the options were granted. This design is intended to focus executives
on the enhancement of shareholder value over the long term.

In exercising its discretion as to the level of executive compensation and its
components, the Committee considers a number of factors. Members of the
Committee conduct informal surveys of compensation paid to comparable executives
within and without the consumer finance industry. The Committee finds these data
useful primarily in evaluating the overall level of compensation paid or to be
paid to the Company's executive officers. Financial factors considered with
respect to the year ended December 31, 2006 included the Company's increases in
earnings, revenue and originations, and its having increased its servicing
portfolio. Most important, the Committee noted that the Company met and exceeded
its budget objectives for the year. Operational factors considered included
individual and group management goals; indicators of the performance and credit
quality of the Company's servicing portfolio, including levels of delinquencies
and charge-offs; and indicators of successful management of personnel, including
employee stability. All of such factors are assessed with reference to the
judgment of the Committee as to the degree of difficulty of achieving desired
outcomes. With respect to payment of annual bonuses and grants of stock options,
the Committee also takes note of factors relating to the degree of the Company's
success over the most recent year.

The Company also maintains certain broad-based employee benefit plans, such as
medical and dental insurance, and a qualified defined contribution retirement
savings plan (401(k) plan), in which executive officers are permitted to
participate. Such officers participate on the same terms as non-executive
personnel who meet applicable eligibility criteria, and are subject to any legal
limitations on the amounts that may be contributed or the benefits that may be
payable under the plans. The Company does not maintain any form of defined
benefit pension or retirement plan in which executive officers may participate,
nor does it maintain any form of supplemental retirement savings or supplemental
deferred compensation plan.

Except as otherwise specifically noted, the principles discussed in this section
regarding compensation and its components apply to all of the Company's
executive officers, including its chief executive officer and also to executive
officers other than the named executive officers. The Company's general approach
in setting the annual compensation of its chief executive officer is to set that
officer's base compensation by reference to his base rate for the preceding
year, to pay an annual bonus that is reflective of the quality of that officer's
performance during the year, and to grant significant equity incentives, to date
in the form of stock options, intended to align the officer's interests with
those of the shareholders. During the year ended December 2006, the Company's
chief executive officer, Charles E. Bradley, Jr., received $780,000 in base
salary. In setting that rate in January 2006, the Committee considered the base
salary rate that the Company had paid in the prior year ($735,000), the
desirability of providing an annual increase (which in this case was
approximately 6%), the desirability of ensuring retention of the services of the
Company's incumbent chief executive officer, and the levels of chief executive
officer compensation prevailing among other financial services companies.

The Company's policy regarding cash bonuses paid to its chief executive officer
has been similar to its policy regarding cash bonuses for other executive
officers, except that the Committee exercises a greater degree of discretion
with respect to award of a bonus to the chief executive officer than it
exercises with respect to bonuses paid to other executive officers.

The Committee in January 2007 reviewed the Company's and the chief executive
officer's performance in 2006, compared the performance with the objectives set
at the beginning of 2006, and approved bonus compensation for its chief
executive officer in the amount of $1,250,000, representing 160% of that
executive's base salary for the year ended December 31, 2006. In determining the
appropriate levels of cash and equity compensation, the Committee considered the
Company's financial performance, the performance of CPS common stock as compared
with broad equity indices, its success in the securitization market, and the
levels of compensation paid to chief executives of other financial services
companies. The Committee also considered the extent to which the chief executive
had met his individual management goals, which included tiered targets for the
Company's overall budget, increasing the Company's purchases of receivables,
obtaining equity analyst coverage, decreasing operating expenses, meeting the
Company's capital requirements, improving the terms of the Company's warehouse
financing facilities, management of risks, and succession planning.

The Committee's award of stock options to the Company's officers in October 2006
included an option grant to the chief executive officer. In determining the
appropriate level of such grant, the Committee considered the long-term
performance of the chief executive officer and the desirability of providing
significant incentive for future performance, as well as the desirability of
ensuring that officer's continued retention by the Company, and the various
factors noted above with respect to option grants generally.

The Committee has from time to time considered providing additional elements of
executive compensation. It has considered elements such as restricted stock
awards, compensation contingent on a change in control, defined benefit pension
plans, deferred cash compensation, and supplemental retirement plans
(supplemental in the sense that they exceed the limits for tax advantaged
treatment). To date, the Committee has elected not to pay compensation in such
forms, having determined that the Company's objectives are better met by one or
more of the elements of compensation that it does pay. Regarding restricted
stock units, the Committee has noted that any form of equity equivalent to or
closely tied to common stock does serve to meet the objective of aligning
officers' personal interest with that of the shareholders generally. The
Committee believes, however, that the objective is better met by grants of stock
options than by grants of share equivalents, because recipients of the grants
will face the same degree of variance in results at a lesser cost to the
Company, when option grants are compared to grants of restricted stock units.
Regarding compensation that would be payable contingent on a change in control
of the Company, the Committee believes that there are certain legitimate
objectives to be met by such contingent compensation. As of the date of this
report, however, no such contingent compensation plans are in place. Regarding
defined benefit pension plans, deferred cash compensation and supplemental
retirement plans, the Committee believes that the Company's retention objective
is better met by straight cash payments, whether in the form of base salary or
in the form of bonus compensation. The Committee may in the future revisit its
conclusions as to any of the components discussed above, or may consider other
forms of compensation.

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed with CPS management the
Compensation Discussion and Analysis contained in this report. Based on such
review and discussions and relying thereon, we have recommended to the Company's
Board of Directors that the Compensation Discussion and Analysis set forth above
be included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2006.

THE COMPENSATION COMMITTEE

Daniel S. Wood (chairman)
John E. McConnaughy, Jr.
William B. Roberts

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

The following table sets forth the number and percentage of shares of CPS Common
Stock (its only class of voting securities) owned beneficially as of April 27,
2007, by (i) each person known to CPS to own beneficially more than 5% of the
outstanding Common Stock, (ii) each director or named executive officer of CPS,
and (iii) all directors and executive officers of CPS as a group. Except as
otherwise indicated, and subject to applicable community property and similar
laws, each of the persons named has sole voting and investment power with
respect to the shares shown as beneficially owned by such persons. The address
of Charles E. Bradley, Jr. is 16355 Laguna Canyon Road, Irvine, CA 92618.

Amount and Nature of Percent
Name and Address of Beneficial Owner Beneficial Ownership (1) of Class
--------------------------------------------------------------------------------------------------------------------
Charles E. Bradley, Jr. ......................................................... 3,226,990 (2) (3) 15.0%
E. Bruce Fredrikson ............................................................. 81,000 *
John E. McConnaughy, Jr. ........................................................ 30,000 *
John G. Poole ................................................................... 715,193 3.3
Brian J. Rayhill................................................................. 90,000 *
William B. Roberts .............................................................. 914,107 4.2
John C. Warner .................................................................. 80,000 *
Daniel S. Wood .................................................................. 107,000 *
Jeffrey P. Fritz................................................................. 180,000 *
Curtis K. Powell................................................................. 306,262 1.4
Robert E. Riedl.................................................................. 238,008 1.1
Chris Terry...................................................................... 221,076 (2) 1.0
All directors and executive officers combined (15 persons) 6,643,901 (2) (4) 30.8
Levine Leichtman Capital Partners II, L.P., 335 North Maple Drive,
Suite 240, Beverly Hills, CA 90210........................................... 3,681,861 (5) 17.1
Millennium Management, L.L.C., 666 Fifth Avenue, New York, NY 10103.............. 1,527,762 7.1

* Less than 1.0%
(1) Includes certain shares that may be acquired within 60 days after April 27,
2007 from the Company upon exercise of options, as follows: Mr. Bradley,
Jr., 1,136,099 shares; Mr. Fredrikson, 65,000 shares, Mr. McConnaughy,
30,000 shares; Mr. Poole, 50,000 shares; Mr. Rayhill, 70,000 shares; Mr.
Roberts, 20,000 shares; Mr. Warner, 80,000 shares, Mr. Wood, 60,000 shares;
Mr. Fritz, 180,000 shares; Mr. Powell, 125,000 shares; Mr. Riedl, 235,000
shares; and Mr. Terry, 178,500 shares. The calculation of beneficial
ownership also includes, in the case of the executive officers, an
approximate number of shares each executive officer could be deemed to hold
through contributions made to the Company's Employee 401(k) Plan (the
"401(k) Plan"). The 401(k) Plan provides an option for all participating
employees to indirectly purchase stock in the Company through buying units
in a mutual fund. Each "unit" in the mutual fund represents an interest in
Company stock, cash and cash equivalents.
(2) Includes shares pledged as security by the named person, with respect to
1,140,000 shares of Mr. Bradley, 28,900 shares of Mr. Terry, and an
aggregate of 37,400 shares of two executive officers other than those named
in the table above.
(3) Includes 495,540 shares held by trusts of which Mr. Bradley is the
co-trustee, and as to which shares Mr. Bradley has shared voting and
investment power. The co-trustee, who has shared voting and investment
power as to all such shares (representing 2.3% of outstanding shares), is
Kimball Bradley, whose address is 11 Stanwix Street, Pittsburgh, PA 15222.
(4) Includes 2,529,099 shares that may be acquired within 60 days after April
27, 2007, upon exercise of options and conversion of convertible
securities.
(5) Comprises 3,680,861 issued shares and 1,000 shares that are issuable upon
exercise of an outstanding warrant.

The table below presents information regarding securities authorized for
issuance under equity compensation plans, including the CPS 2006 Long-Term
Equity Incentive Plan.

NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES FUTURE ISSUANCE UNDER
TO BE ISSUED UPON WEIGHTED-AVERAGE EQUITY COMPENSATION
EXERCISE OF EXERCISE PRICE OF PLANS (EXCLUDING SECURITIES
PLAN CATEGORY OUTSTANDING OPTIONS OUTSTANDING OPTIONS REFLECTED IN FIRST COLUMN)
---------------------------------------------------------------------------------------------------------------------------
Plans approved by stockholders 4,863,654 $ 3.38 165,261
Plans not approved by stockholders None N/A N/A
Total 4,863,654 $ 3.38 165,261
---------------------------------------------------------------------------------------------------------------------------

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

LEVINE LEICHTMAN. At December 31, 2005, the Company was indebted to Levine
Leichtman Capital Partners II, L.P. ("LLCP") in the amount of $40.0 million.
Such debt comprised three parts, represented by the "Term D Note," "Term E Note"
and "Term F Note," respectively. The basic terms of such indebtedness are set
forth in the table below. LLCP is also the holder of in excess of 10% of the
outstanding common shares of CPS.

On May 28, 2004 and June 25, 2004, the Company borrowed $15 million and $10
million, respectively, from LLCP. The indebtedness, represented by the "Term E
Note," and the "Term F Note," respectively, bears interest at 11.75% per annum.
Both the originally were to mature two years from their respective funding
dates. In May 2006, the Company agreed with LLCP to extend the maturity dates of
Term E Note and the Term F Note to May 31, 2007. The Company paid LLCP fees
equal to $500,000 for this amendment, which will be amortized over the remaining
life of the two notes.

DATE DUE AFTER
PRINCIPAL INTEREST DATE DUE PRIOR TO MAY 2006
NOTE AMOUNT RATE MAY 2006 AMENDMENTS AMENDMENTS
----------------------------------------------------------------------------------------
Term D Note $15,000,000 11.75% December 18, 2006 December 18, 2006
Term E Note $15,000,000 11.75% May 27, 2006 May 31, 2007
Term F Note $10,000,000 11.75% June 24, 2006 May 31, 2007

The Term D Note, due December 18, 2006, was paid on that date.

All of the Company's indebtedness to LLCP is secured by a blanket security
interest in favor of LLCP. The terms of the transactions between the Company and
LLCP were determined by negotiation.

CPS LEASING. The Company holds 80% of the outstanding shares of the capital
stock of CPS Leasing, Inc. ("CPSL"). The remaining 20% of CPSL is held by
Charles E. Bradley, Jr., who is the President and a director of the Company.
CPSL engaged in the equipment leasing business, and is currently in the process
of liquidation as its leases come to term. CPSL financed its purchases of the
equipment that it leases to others through either of two lines of credit.
Amounts borrowed by CPSL under one of those two lines of credit have been
guaranteed by the Company. As of December 31, 2005, both lines of credit had
been paid. The Company has also financed the operations of CPSL by making
operating advances and by advancing to CPSL the fraction of the purchase prices
of its leased equipment that CPSL did not borrow under its lines of credit. The
aggregate amount of advances made by the Company to CPSL as of December 31,
2006, is approximately $575,000. The advances related to operations bear
interest at the rate of 8.5% per annum. The advances related to the fraction of
the purchase price of leased equipment are not interest bearing.

EMPLOYEE INDEBTEDNESS. To assist certain officers in exercising stock options,
the Company or a subsidiary lent to such officers the exercise price of options
such officers exercised in May and July 2002. The loans bear interest at 5.50%
per annum, which compounds annually. The entire principal and accrued interest
is due in July 2007. The chief executive officer (Mr. Bradley), one executive
officer (Mr. Terry), and four officers other than executive officers borrowed
money on those terms and still have a balance outstanding. One of the other
officers (Teri L. Clements) was promoted to an executive officer position in
April 2007. The highest balances of the loans for the period January 1, 2006
through the date of this proxy statement were $433,589 for Mr. Bradley, $23,538
for Ms. Clements, and $22,376 for Mr. Terry. Consistent with the terms of the
loans, none of such officers has paid any interest on or principal of such
loans, and the accrued interest has been added annually to the principal
outstanding. Pursuant to the Sarbanes-Oxley Act of 2002, Company has ceased
providing any loans to its executive officers.

The agreements and transactions described above (other than those between the
Company and LLCP) were entered into by the Company with parties who personally
benefited from such transactions and who had a control or fiduciary relationship
with the Company. It is the Company's policy that any such transactions with
persons having a control or fiduciary relationship with the Company may take
place only if approved by the Audit Committee or by the members of the Company's
Board of Directors who are disinterested with respect to the transaction, an
independent in accordance with the standards for director independence
prescribed by Nasdaq. Such policy is maintained in writing in the charter of the
Audit Committee. In each case above such agreements and transactions have been
reviewed and approved by the members of the Company's Board of Directors who are
disinterested with respect to the transaction. The company has determined that
each of its nonemployee directors (Messrs. Fredrikson, McConnaughy, Poole,
Rayhill, Roberts, Warner and Wood) is independent in accordance with the Nasdaq
standards.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The accounting firm McGladrey & Pullen, LLP ("McGladrey") has been the Company's
independent auditor for the two fiscal years ended December 31, 2006.
Information relating to the fees billed by McGladrey to the Company appears
below.

AUDIT FEES

The aggregate fees billed by McGladrey for professional services rendered for
the audit of the Company's annual financial statements for the fiscal year ended
December 31, 2006, for the review of the financial statements included in the
Company's quarterly reports on Form 10-Q filed in 2006 and for services that are
normally provided by the auditor in connection with statutory or regulatory
filings or engagements were $1,169,900.

The aggregate fees billed by McGladrey for professional services rendered for
the audit of the Company's annual financial statements for the fiscal year ended
December 31, 2005, for the review of the financial statements included in the
Company's quarterly reports on Form 10-Q filed in 2005, and for services that
are normally provided by the auditor in connection with statutory or regulatory
filings or engagements were $518,000.

AUDIT-RELATED FEES

The aggregate fees billed by McGladrey for audit-related services for the fiscal
years ended December 31, 2006 and 2005 were $16,255 and $136,000, respectively.
These professional services were rendered in conjunction with the Company's
securitization and financing transactions, the audit of the MFN Financial
Corporation benefit plan, and consultations concerning financial accounting and
reporting standards.

TAX FEES

The aggregate fees billed by McGladrey for tax services in the fiscal years
ended December 31, 2006 and 2005 were $514,905 and $346,025, respectively. Tax
services provided by McGladrey consisted of preparation of various State and
Federal income tax returns for the Company and its subsidiaries.

ALL OTHER FEES

No other fees were billed by McGladrey in the last fiscal years ended December
31, 2006 and December 31, 2005.

The Audit Committee acts pursuant to a written charter adopted by the Board of
Directors. Pursuant to the charter, the Audit Committee pre-approves the audit
and permitted non-audit fees to be paid to the independent auditor, and
authorizes on behalf of the Company the payment of such fees, or refuses such
authorization. The Audit Committee has delegated to its chairman and its
vice-chairman the authority to approve performance of services on an interim
basis. In the fiscal years ended December 31, 2006 and December 31, 2005, all
services for which audit fees or audit related fees were paid were preapproved
by the Audit Committee as a whole, or pursuant to such delegated authority.

In the course of its meetings, the Audit Committee has considered whether the
provision of the non-audit fees outlined above is compatible with maintaining
the independence of the respective audit firms, and has concluded that such
independence is not impaired.

SIGNATURES

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

CONSUMER PORTFOLIO SERVICES, INC. (REGISTRANT)

April 30, 2007 By: /s/ JEFFREY P. FRITZ
------------------------------------------
Jeffrey P. Fritz, Sr. Vice President