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[christoofar215]

And the VC capital has probably been completely written down to nothing and taken as a capital loss by now by the funders.     I'm sure that aftermath with CL went down early on last year; which none of us were privy to.


And muchas gracias por la Fredmeister for these charts.   This grand Internet community experience has proven without a shadow of a doubt... P2P lending == toxic waste.

Your charts confirm my experience: Prosper should never come out of its quiet period.  It seems that the only people who make money on this site, as a rule, are Prosper itself and the borrowers.

Not Prosper itself -- it has lost more than $30 million so far.  Of course, that's less than the lenders' losses. 

How are they losing money since they don't have default risk? Also, the 40% default number is staggering. I wouldn't have guessed it be that high.

They're losing money from an operating standpoint.  $30M of operating losses.

Which is VC money. I think they hoped to have this lipsticked pig sold by now.

[christoofar215]

Oh my! The trend continues upward. "Never LEND MONEY to strangers over the internet."

There's hope for community lending... it will always be there.


It's called Payday lending.    Cash America Pawn, people.    Cash America Pawn.   

[ira01]

And the VC capital has probably been completely written down to nothing and taken as a capital loss by now by the funders.     I'm sure that aftermath with CL went down early on last year; which none of us were privy to.

I strongly doubt it -- not while Prosper is still operating (sort of).

[Fred93]

mar = 05/01/06?  I assume numbers are correct, so 1st line is in fact May?

A loan that originated 03/01/06 doesn't have its first payment become due until 04/01/06, and that payment cannot become one month overdue until 05/01/06.

The horizonal axis is the observation date.

[Elmslice]

Thanks, Fred, for continuing to put in the time and effort.  Such a pathetic story, really.  It's hard not to think of the ruins of Prosper without wishing they had done a couple of simple things differently, i.e., 1) treated their lenders as the business partners they are (or were), instead of alienating us by scolding, banning, and deleting and 2) done a small amount of real work by creating a functioning business operation, including minimally competent collections and customer service departments.   

[mothandrust]

Oh my! The trend continues upward. "Never LEND MONEY to strangers over the internet."

There's hope for community lending... it will always be there.

It's called Payday lending.    Cash America Pawn, people.    Cash America Pawn.   

If Obama has his way (and with both houses of Congress on his side, who can stop him?) then payday lending will be capped at 36%, effectively outlawing most of the payday lending that goes on in this country.

Community lending will continue--in the back alley behind the shuttered Cash America building you will be able to borrow from a loan shark who will break your kneecaps if you can't pay him his 10% per week interest.

http://www.forexhound.com/article.cfm?articleID=127377

[CleanRivers]

On a personal level, I am glad that Obama will do that to the legal loan sharks. Let loan sharking be where it is supposed to be, out back behind the Trash bins or inside the restaurant with the best ethnic food.

[HollowOak]

Oh my! The trend continues upward. "Never LEND MONEY to strangers over the internet."

There's hope for community lending... it will always be there.

It's called Payday lending.    Cash America Pawn, people.    Cash America Pawn.   

If Obama has his way (and with both houses of Congress on his side, who can stop him?) then payday lending will be capped at 36%, effectively outlawing most of the payday lending that goes on in this country.

Community lending will continue--in the back alley behind the shuttered Cash America building you will be able to borrow from a loan shark who will break your kneecaps if you can't pay him his 10% per week interest.

http://www.forexhound.com/article.cfm?articleID=127377

This repugnican attitude is what got us into this mess in the first place. By hard experience here at Prosper we have learned that high-interest loans default at rates so great that there is no profit in them. I still recall BigGulp crowing about his 42% loans. And go look at the stats and see the status of loans at 25% or higher.

We also know from our experience that lending to people who are desperate enough to take out loans at such rates  do not actually help them in the long-term. They are in so deep, it is like throwing a little bit of extra gas on a fire, or giving an alcoholic in withdrawal another drink to quieten their delirium tremens.

So banning loans at higher than 36% is really doing the nation, the lenders and the borrowers a favor.

Please look around you and quote me one legitimate place lending money at rates >36% and that is actually making money. I guess you will find some with highly unethical practices and rates in the 560-2000% that totally rips off those few borrowers who actually have a little bit of cash, but  reputable lender lending at rates > 36% and making money on those loans? Not a chance.

[bamalucky]

HO,i agree with most of what you typed but not this..

Please look around you and quote me one legitimate place lending money at rates >36% and that is actually making money.

Pawn shops charge 25% per month,300% annum & I don't see any going out of business.

[lenderguy]

Please look around you and quote me one legitimate place lending money at rates >36% and that is actually making money. I guess you will find some with highly unethical practices and rates in the 560-2000% that totally rips off those few borrowers who actually have a little bit of cash, but  reputable lender lending at rates > 36% and making money on those loans? Not a chance.

That is a highly, highly misleading statement and sounds more emotionally charged than anything.  Pay Day Loans are designed to be a short term deal first and foremost.  If there's one thing I learned from Prosper about short term lending, it's that there is no money in at at "normal" rates, and it's the very nature of short term lending that is flawed, not the interest rates charged.  Say I loan $1000 to a borrower for one month at 20%.  After that month, he owes me $1016.67.  Is that usurious?  Me thinks not -- a "finance charge" of 1.67% of principal can hardly be defined as such.  But what happens if that borrower doesn't pay?  The lender is out $1000.  And we know from past experience with Prosper that a few people will not pay a single penny back to the lender.  So, this lender has to make 60 good loans to cover the one default, and that's before he pays any of his overhead, let alone take a profit.

Where pay day loans "get you" is that if you can't pay off the principal (who really can?) you get roped into "rolling over" your balance until the next paycheck... for a fee.  And yes, the fees add up.  The premise to the PDL argument is that the fees and rates are usurious.  But really, even if there were no fees at all, my guess is that it would take people several months, if at all, to cover their principal due.  I hoped that Prosper would be an avenue for people to borrow small amounts with reasonable terms -- paying back $1000 at $30/mo can't be too difficult -- but things just didn't turn out that way.

[HollowOak]

Please look around you and quote me one legitimate place lending money at rates >36% and that is actually making money. I guess you will find some with highly unethical practices and rates in the 560-2000% that totally rips off those few borrowers who actually have a little bit of cash, but  reputable lender lending at rates > 36% and making money on those loans? Not a chance.

That is a highly, highly misleading statement and sounds more emotionally charged than anything.  Pay Day Loans are designed to be a short term deal first and foremost.  If there's one thing I learned from Prosper about short term lending, it's that there is no money in at at "normal" rates, and it's the very nature of short term lending that is flawed, not the interest rates charged.  Say I loan $1000 to a borrower for one month at 20%.  After that month, he owes me $1016.67.  Is that usurious?  Me thinks not -- a "finance charge" of 1.67% of principal can hardly be defined as such.  But what happens if that borrower doesn't pay?  The lender is out $1000.  And we know from past experience with Prosper that a few people will not pay a single penny back to the lender.  So, this lender has to make 60 good loans to cover the one default, and that's before he pays any of his overhead, let alone take a profit.

Where pay day loans "get you" is that if you can't pay off the principal (who really can?) you get roped into "rolling over" your balance until the next paycheck... for a fee.  And yes, the fees add up.  The premise to the PDL argument is that the fees and rates are usurious.  But really, even if there were no fees at all, my guess is that it would take people several months, if at all, to cover their principal due.  I hoped that Prosper would be an avenue for people to borrow small amounts with reasonable terms -- paying back $1000 at $30/mo can't be too difficult -- but things just didn't turn out that way.

Bottom line: It's the size of the payment, not the size of the interest rate, that makes a difference. 

I read your post once only and perhaps should have read it more than once. It seems to me you said in one paragraph that the problem with PDLs are that borrowers are unable to repay the capital in a lump sum. THen you also say that borrowers are unable to repay the smaller repayments on a Prosper loan. Then you conclude that it is the size of the payment that is the problem.

I am saying that poor (as in bad or unsuitable) borrowers are financially unable to repay, regardless of the size of the payment. In a futile attempt to compensate for the 1 in 60 (your numbers) that will repay, the interest rate (or fees or whatever) gets jacked to +500%. That doesn't do the actual repaying borrower any favors and in fact make it more burdensome to repay, perpetuating the bad cycle. So the lenders still don't make profits.

So there isn't anything wrong with the government stepping in and forbidding exploitation by usurious rates when all that happens is that people get more bad credit records and financial problems. That lasst loan at 500+% is not going to help 99% of the borrowers who try to take it out.

But I've said my piece on this often and enough.

[mothandrust]

This repugnican attitude is what got us into this mess in the first place. By hard experience here at Prosper we have learned that high-interest loans default at rates so great that there is no profit in them. I still recall BigGulp crowing about his 42% loans. And go look at the stats and see the status of loans at 25% or higher.

We also know from our experience that lending to people who are desperate enough to take out loans at such rates  do not actually help them in the long-term. They are in so deep, it is like throwing a little bit of extra gas on a fire, or giving an alcoholic in withdrawal another drink to quieten their delirium tremens.

So banning loans at higher than 36% is really doing the nation, the lenders and the borrowers a favor.

It only does us a favor if the ban makes the practice go away, but it doesn't.

Like it or not, some people want to engage in payday lending/borrowing just like they like to engage in prostitution, drinking, pot smoking, gold coin collecting, gambling, gun ownership, gay marriage, and eating horseburgers.

Banning 37%+ loans only drives those loans underground, making the participants criminals, so disputes about loans are much more likely to be resolved with violence rather than in a court of law. 

So the 12,000 former employees of Cash Advance International, EZCorp, and First Cash Financial Services all get jobs working for manufacturers of brass knuckles and firearms, assisting doctors who attend patients with broken arms and kneecaps, and as police and prison guards for the borrowers and lenders convicted of usury.  Some favor.

[cowdog]

This repugnican attitude is what got us into this mess in the first place. By hard experience here at Prosper we have learned that high-interest loans default at rates so great that there is no profit in them. I still recall BigGulp crowing about his 42% loans. And go look at the stats and see the status of loans at 25% or higher.

We also know from our experience that lending to people who are desperate enough to take out loans at such rates  do not actually help them in the long-term. They are in so deep, it is like throwing a little bit of extra gas on a fire, or giving an alcoholic in withdrawal another drink to quieten their delirium tremens.

So banning loans at higher than 36% is really doing the nation, the lenders and the borrowers a favor.

It only does us a favor if the ban makes the practice go away, but it doesn't.

Like it or not, some people want to engage in payday lending/borrowing just like they like to engage in prostitution, drinking, pot smoking, gold coin collecting, gambling, gun ownership, gay marriage, and eating horseburgers.

Banning 37%+ loans only drives those loans underground, making the participants criminals, so disputes about loans are much more likely to be resolved with violence rather than in a court of law. 

So the 12,000 former employees of Cash Advance International, EZCorp, and First Cash Financial Services all get jobs working for manufacturers of brass knuckles and firearms, assisting doctors who attend patients with broken arms and kneecaps, and as police and prison guards for the borrowers and lenders convicted of usury.  Some favor.

YAY! You finally got it!

People who have problems paying their bills will be forced to the black market. They won't repay the sharks either. They will have their legs broken. They will learn. If they continue on the correct path, they can eventually get out of their mess and become normal productive members of society and be legit.

In the meantime, all sorts of jobs are created in other industries as the result, ranging from law enforcement to the medical field and of course government jobs in courts and welfare offices. Stimulates the economy. Think infrastructure.

 

[christoofar215]

YAY! You finally got it!

People who have problems paying their bills will be forced to the black market. They won't repay the sharks either. They will have their legs broken. They will learn. If they continue on the correct path, they can eventually get out of their mess and become normal productive members of society and be legit.

In the meantime, all sorts of jobs are created in other industries as the result, ranging from law enforcement to the medical field and of course government jobs in courts and welfare offices. Stimulates the economy. Think infrastructure.

 

+1


Also failing to mention that unscrupulous lending also damages our capital system because it diverts capital away from resources that can be put to more efficient use.

It IS better that this type of lending be conducted underground, unregulated instead of being legitimate because then the law will offer few protections to either the lender or the borrower in either circumstances.   For one thing, the credit reporting mechanisms in place for legitimate lending won't be clogged up with JDB activity for crap lending products, saving the credit reporting agencies a lot of wasted time and money and a lot of deadbeats will be blocked from the legitimate capital markets which lowers the borrowing costs for everyone else involved.

The parasite lending raises borrowing costs overall because there's no huge motivation for the masses of deadbeat borrowers to not be deadbeats.   The presence of all of these people in the system makes legitimate lenders more fearful of lending, especially now that other bad lending products have exploded spectacularly.   Pushing this crap "off the books" so to speak alleviates the need for huge expensive legislation and regulatory systems to clamp down on other lenders who were following the rules to begin with (which is how your borrowing costs increase through no fault of your own).


If the motivation to repay a debt means some Italian-American guido in a cheap suit in a Town Car is going to come pay you a visit, then so be it.    Don't borrow the money if you do not have the capacity to repay.   It's that simple, and we ALL know this and yet we as a society collectively act surprised when bad things happen to "good" people because they make these types of choices.

[mothandrust]

People who have problems paying their bills will be forced to the black market. They won't repay the sharks either. They will have their legs broken. They will learn. If they continue on the correct path, they can eventually get out of their mess and become normal productive members of society and be legit.

In the meantime, all sorts of jobs are created in other industries as the result, ranging from law enforcement to the medical field and of course government jobs in courts and welfare offices. Stimulates the economy. Think infrastructure.

I readily concede that a spike in the number of broken legs is accretive to quarter GDP and stimulates the different industries you mention.  From SSI social workers to physical therapists to ambulance drivers to ambulance chasers, all will benefit from crippled deadbeats who now have no means to pay for any of these services--but someone will pay.

Is society really better off by replacing well-lighted pawnshops and check cashing with loan sharking and leg breaking? 

If so, we should consider releasing the vandals and arsenists then if we really want to get this economy going--we don't have the luxury of waiting for the good fortune of a natural disaster to produce billions in new construction projects.