There is so much bullshit here that I need waders just to get through it:
The Facts of the Matter
09/2/08 posted by Prosper Blog
A highly unusual Prosper borrower bankruptcy case, which is of course a matter of public record, has raised questions among some members of the Prosper lender community. Therefore, we believe it is appropriate and necessary to provide factual clarity to set the record straight.
Of course Prosper only felt it appropriate and necessary to provide factual clarity after a widely read financial site wrote a highly negative article about it. For the almost TWO MONTHS since xraider first discovered this and posted about it here (which Prosper reads regularly), it apparently couldn't have cared less.
Specifically, the discussion centers on three main questions:
1) Is this a case of identity theft subject to Prosper’s Identity Theft Guarantee?
2) What is the status of debt sales and collection activities on Prosper?
3) What are the net returns on Prosper?
How about the most important issue, which is Prosper's attempted misleading of a federal bankruptcy court?
In the relatively small number of identity theft cases that have occurred on Prosper, the cases typically involve a perpetrator stealing a borrower’s identity and then using it to transfer money into a bank account solely controlled by the perpetrator of which the victim is wholly unaware. In these cases, it’s fairly straightforward for the borrower to show that money was not transferred into an account they own and therefore they did not benefit from or receive the proceeds of the loan. In these cases, Prosper repurchases the loans and works with law enforcement and the courts to find and prosecute the perpetrators. It’s important to underscore that since inception Prosper’s position has always been that in legitimate cases of verifiable identity theft, we will repurchase the loan and return the unpaid principal balance to impacted Prosper lenders.
Uh huh -- care to explain why you didn't repurchase the infamous Leporello ID-theft loan for close to a YEAR (and only after a major shitstorm errupted on the forums), despite the fact that lep provided you with the NYPD detectives name and phone number who was handling the well-documented case of ID-theft (involving other loans too)? And why that NYPD detective told Lep that no one from Prosper had ever called him, long after Lep gave you the information?
However, in more rare cases of identity theft claims, someone who knows the borrower has access to both the borrower’s Prosper ID information and bank accounts. These “friends and family” cases are more complex because it is often difficult to show that the borrower did not benefit from the money if it went into their account. Thus, Prosper follows the guidelines of the Federal Trade Commission in their “Fighting Back Against Identity Theft” program, and industry practice, by requiring borrowers to file a police report and name anyone they know of that may have been the perpetrator of the crime. This is a critical step because it prevents the clear moral hazard of someone taking out a loan, having the money sent to an account they have access to, and then immediately claiming the loan does not belong to them.
OK, fine. Mr. Gaerke apparently gave you a sworn affidavit attesting to the ID-theft (do you contest that?), AND he definitely so stated in a federal BK court pleading, which identified his wife as the perpetrator. That was many months ago. So why didn't you live up to your so-called guarantee then?
And while we're speaking of your so-called "100% ID-theft guarantee," would you like to tell us if it is really your position that only ONE SINGLE LOAN originated in the last THIRTEEN months has been ID-theft meriting your repurchase? Because you've only repurchased ONE loan originated in the last 13 months (originated 11/13/07), compared to SEVENTEEN originated from 1/1/07 through 8/1/07 -- a mere SEVEN months.
Turning to the particular facts at issue, the borrower in this case took out a $25,000 loan in August 2007. After making two payments, the loan became delinquent and went to collections. In January 2008, the borrower filed for bankruptcy protection under Chapter 13, and further claimed that the loan should be excluded from the bankruptcy (i.e. the debtor’s Chapter 13 repayment plan) because it was allegedly made by the borrower’s wife using his identity. The borrower has also claimed identity theft on a number of other debts included in his filing. Two additional payments on the Prosper loan have been made recently.
And isn't it the case that all of the other creditors have accepted Mr. Gaerke's assertion of ID-theft? So it is only Prosper that refuses to do so (because that would mean that you would have to repay the lenders almost $25K)? Is Prosper the only financial institution that follows the "Federal Trade Commission in their 'Fighting Back Against Identity Theft' program, and industry practice"?
The assertion of identity theft has been made despite the fact that the loan was funded into a joint bank account belonging to both the husband (debtor) and the wife, meaning the borrower had full access to the funds.
So? That is not inconsistent with the borrower's claim of ID-theft. Moreover, "friends and family" ID-theft is hardly rare. I don't recall you ever saying that your "100% ID-theft guarantee" only applied in stranger cases. Is that now your position? Have you changed your FAQ and lender help pages to reflect that?
Also, the borrower has claimed that his wife stole his identity, but he did not name her in a police report claiming identity theft.
This is a weasely statement -- do you mean that he filed a police report but named someone else? Named no one? Didn't file a police report at all? Did he not provide you with a fraud affidavit? Did he not identify his wife in his filings in the BK court? Did you ever tell him that if he would only file a police report naming his wife, you would accept his ID-theft claim? Did you ever tell him at all to file a police report naming his wife? And if so, what was his response?
Also noteworthy is that fact that prior to loan funding, Prosper reviewed copies of the borrower’s driver’s license, pay stub and W-2, and a male at the phone number provided on this loan successfully answered all of the screening questions in Prosper’s phone verification process. These facts distinguish this case from the true identity theft scenario.
Bullshit. They may distinguish this case from more common ID-thefts, but that doesn't make it not "true identity theft." Furthermore, nothing here is inconsistent with the borrower's story. I always leave my wallet in the kitchen drawer, my paystubs and W-2's in a stack on my file cabinet, and we have a copy machine here. It would take my wife 5 minutes to make copies of that stuff and send it to you. I'm sure that's true for most, if not all, married couples. As to the screening call, "a male" (that's only about 150 million people in the United States "at the phone number provided" (you mean the phone number allegedly provided by the wife -- i.e., her cell phone, her home phone, or her work phone) successfully answered the screening questions. First of all, do you have a recording of this call? I bet you don't (but you should). Second, many borrowers have reported that the "screening questions" are a joke. Third, presumably you take your screening questions from the purported borrower's credit report. Which the wife would undoubtedly have access to. So how does any of this support your contention that Mr. Gaerke lied to the BK Court (especially considering that it was Prosper that filed the false court document, as you belatedly admit after having little choice but to admit the obvious)?
Based on these principles and the evidence developed in this case at this point in time, Prosper believes that the case is not one of verifiable identity theft and intends to treat the case and defend the matter on that basis.
We'll be eagerly following your "defense." I predict you'll soon give in to Mr. Gaerke, perhaps for a token payment that will be less than his legal fees. Otherwise, I don't think the BK judge is going to be too happy with you over your misleading filing.
However, in the event that new substantiated evidence was to come to light proving that this was a legitimate case of identity theft, Prosper would naturally change its position with respect to the litigation, while also honoring its Identity Theft Guarantee.
Of course it would.
In other words, you'll get Mr. Gaerke to sign a new, slightly different affidavit or file a new police report (i.e., a "face-saving maneuver), and then you will repurchase the loan. That saves you from having to "'splain" things to the BK judge.
We would also like to address questions raised about statements made in Prosper’s pleadings as to who made the loan to the borrower in this case. Specifically, there was understandable confusion about a statement in one of Prosper’s court documents that incorrectly described the legal relationship among Prosper, the borrower and the lenders. Although the incorrect statement is not germane to the central issue in the case, we are currently in the process of correcting this in an amended filing with the court. We want to apologize for any confusion this mistake on our part may have caused for Prosper lenders.
Aha -- the "mistakes were made" defense. Xraider found and described this "incorrect statement" in a public post here almost two months ago (and Prosper management reads here often, so you undoubtedly knew about it within days of her post) -- why didn't you correct it before The Motley Fool write about it this weekend? Moreover, instead of your weasily "understandable confusion" statement, why don't you explain to us exactly how this "error" was made. After all, it certainly wasn't a clerical error, or a calculation error. It was a blatent, 100% diametrically opposed statement to numerous statements in many of your fundamental legal documents (the Lender Registration Agreement, the Prommissory Notes, your FAQ, your help pages, your SEC filing) -- statements that go to the very underpinning of your entire business. How, exactly, could anyone at Prosper write or approve the statement filed on your behalf in the Ohio BK court? Did Ed review that pleading before it was filed? Did anyone at Prosper?
Regarding the second question about debt sales and collections, Doug Fuller has communicated that the current economic environment has significantly lowered the value of bids from debt buyers, meaning bids have been insufficient from a net return perspective in comparison to continuing to work to collect on 4+ months late loans.
The "economic environment" was substantially better in March (when the debt sale should have taken place) and in April (when you first tried to hold a debt sale) than it is now. Is Prosper going to make up that difference to lenders? Furthermore, Doug's post on this issue stated that there were no high enough bids "without unacceptable conditions" (or something close to that). What does that mean? Lenders have repeatedly asked you that question, and you've refused to answer. Was one of the "unacceptable conditions" from a JDB bidder that Prosper would have to repurchase any ID-theft loans from the JDB (and thus from the lenders)? Because that sure doesn't sound like an "unacceptable condition" to the lenders.
Moreover, another question that lenders have repeatedly asked Prosper, to no avail, is what, exactly, is meant by the alleged "post-charge off collections techniques" that Prosper is supposedly applying to OUR 4+++++++++++ month late loans? We have a RIGHT to know -- they are our property; you are just our servicing agent.
Finally, it is important to reiterate that the best estimate of net returns from the entire portfolio of Prosper loans are roughly 6% as demonstrated by an independent University of Maryland study conducted using Prosper’s data, which is fully transparent and publicly available via Prosper’s API and data downloads.
Would that be the same study that Fred93 has already found numerous methodology errors in, which he has communicated with the study authors about? The one that says loans don't go delinquent after 10 months? And in any event, no lender invests in the entire Prosper portfolio. How about looking at typical lender performance, such as the median LendingStats estimated ROI for ALL lenders with >20 loans and >6 month average loan age -- a dismal 2.57%. Moreover, if you are asserting that the "best estimate of net returns" is 6%, why are you advertising lender rates double that (9.49%-12.81%)?
We hope this discussion helps clarify the facts of the case in question and related matters to interested members of Prosper’s lender community.
As you should have gathered from the above, not even close. What you really "hope" is that this quiets down the uproar over the Motley Fool article before the bad PR tanks your originations even further.