Prosper has asked me to publish the following response:
Thanks for keeping up-to-date on the latest Prosper newsletter. In the Borrower Success Story that you’ve quoted (above), we faithfully reproduced his submitted story without changes. The user's Borrower Success Story quoted the interest rate of "13.4%" when, as you pointed out in your blog, his borrower rate was actually "14.3%." Going forward with the newsletter, we will diligently fact-check each story before publication.
Thanks for posting,
Hey, whadda ya know, they read my blog!
Back in April'07 I wrote an open letter to Prosper.com titled "Don't Mislead People". I think that's a pretty good mantra. I don't know how people write entire books on corporate ethics, when you can say most of it in 3 words. That letter contained a long list of things that Prosper was doing that I thought were misleading. To Prosper's credit I think someone understood at least some of what I was saying, because some of 'em got fixed. I don't think they really intended to mislead. They just weren't thinking clearly. End of story, right?
Recently a few more have appeared. There was a recent Prosper.com online advertisement that used a screen image of a listing page where the interest rate was "photoshopped" to show a lower interest rate than the actual loan. To their credit, Prosper fixed it after a member pointed this out. I wasn't on the ball, and didn't save a copy of the original photoshopped ad. Must have been some overzealous marketing person, eh? End of story, right?
Oops. They did it again! The September borrower newsletter contains a story about a borrower and his loan. It says he obtained an interest rate of 13.4%. Here's a picture from the newsletter. (I have added the red oval.)
Note that it says he "obtained 13.4%". We have to assume that they mean the interest rate that he actually had to pay. On the prosper.com system, that's called the "borrower rate" to distinguish it from the lower interest rate that lenders receive. In fact, it is very clear from context of the ad that they mean the rate he had to pay, because in the quote he compares this to "14%" that the bank wanted to charge him. Well, 13.4% is indeed lower than 14%, so this sounds great until we look at the actual listing page. It tells a different story.
Again I added a red oval, circling the borrower rate this borrower actually obtained. It doesn't agree with the story. It is even a higher interest rate than his bank wanted to charge!
Surely prosper.com would not intentionally publish a misleading story, eh? What do you think?
In either case, it is another in a series of confidence eroding developments. Golly guys, at the very least get your compliance guy to check facts in your ads and newsletters.
Ned: Well Fred, I see you haven't updated your blog since the two open letters to prosper.com . Does that mean everything is going along smoothly now?
Fred: Well... not exactly.
Ned: So did Prosper respond to any of the issues you raised?
Fred: There was a little correspondence, but no action.
Ned: So collections hasn't been fixed?
Fred: We haven't seen any change in collections at all. Zip. Nada. Nothing. This is one area where I got some agreement from Prosper management that things were broken. They just don't care. They view themselves as a broker (ala Ebay), and view the loan servicing business as one where you just turn some cranks and money flows thru (or not) and you scrape off some revenue. They don't take ownership of their own performance at all. The entire collections operation continues to be simply an autodialer. This is one of the reasons default performance is so bad. Its not the only reason, but it is a major one.
Ned: Sad. Well what about groups. Are they fixed?
Fred: Well, no. They aren't. There haven't been any substantive changes in groups at all. Prosper management seemed to think that the little change they made in group leader remuneration would have a large effect on group leader behavior. I don't think that's had much fundamental effect. Prosper invented this fabulous friends/endorsement system which has the potential to provide community effects far superior to the silly group system, but they haven't gone anywhere with it. Frustrating to watch.
Ned: So are the issues you raised in your two open letters still valid?
Fred: Generally yes. Especially open letter #2, because it dealt with collections, and collections has been untouched. Letter #1 on the other hand gave a long list of little detailed examples where Prosper misled folks, or allowed group leaders to mislead folks, and some of those have been cleaned up.
Ned: What other subjects did you plan to hit in your letters?
Fred: I had hoped to do one on communication and community. On the other hand, a lot of people are hitting Prosper pretty hard on these issues of late, so it seems like the problems should be obvious. Can I really add any understanding to the issue? Not sure. Also I'd have to work really hard to stay calm while writing on this subject. Also hoped to do one on the math involved in estimating lender performance. Actually have that half written. Just need to find the enthusiasm to finish it.
Ned: Anything else you'd like to say?
Fred: The lendingstats web site is great. I really missed it when it was down for a few weeks. I thank Mr Lendingstats for bring it back up.
Ned: Thanks Fred. We'll check back in another few months.
Fred: See you then.
Second installment of my recommendations to Prosper.com management.
Click the link below to view the letter.