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[nonattender]

If someone doesn't intend to re-pay, the rate is irrelevant.  The loan is no safer at 30% than at 10%.  The floor is meaningless.

I wouldn't say that the floor is meaningless.  Collecting higher rates on those loans that do pay will compensate, at least in part, for those loans that don't.  That should boost overall ROI.  It also prevents another Muleshoes.

Agreed.  The floor protects both the greedy and the naive.  And sometimes both, at the very same time.

-t

[lenderguy]

It also prevents another Muleshoes.

For the convenience of onlookers, Muleshoes was of a mind to give low-interest Prosper loans to high risk people.  And he had deep pockets.  Here's how his portfolio is performing as presented by two sites:
http://www.lendingstats.com/lenders/MuleShoes (a few months outdated as of this writing)
http://www.ericscc.com/lenders/MuleShoes

In short, he's lost over $260K of the $400K he loaned out.

To further expound on this, Muleshoes had a hypothesis that High Risk borrowers defaulted on their loans due to the high rates of interest they were normally charged.  He thought that if he gave those same borrowers who were really in need a break, that they wouldn't screw him over.  As you can see from the links to his profile above he turned out to be very very wrong. 

It's a shame.  His heart was in the right place.  And we all would have loved for him to be proven right.  But that's not how high risk borrowers work.

Actually I remember having arguments with him and he actually thought he'd make money on these loans. Thus I wouldn't say he was doing it as an act of charity.

Well, if  you think about it... if they all would have paid him back, he *would* have made money, all while conducting business with them at below market rates.  Isn't that making money and conducting charity at the same time?