Well, what I find scary, is simply this. No one who files a BK, should receive an AA credit rating, for ANY amount of money, until their BK disappears off their credit report seven years after filed. Prosper has NO IDEA what type of person files for BK. They don't know if the situation was a desparate attempt to get out from underneath medical bills. Or they got underwater on their mortgage, or whatever their reason. They also DON'T know whether this person is actually going to pay their bills, or whether they've learned to enjoy buying whatever they want, and walking away from the debts later.
I know personally that my husband will never file for BK again. There will never be a reason to. I am a huge saver. I put money away. I use 0% financing every opportunity I get and ALWAYS pay off the balance prior to the term ending. I use 0% credit cards for purchases, and again, pay them off. If I use balance transfer options, I pay them off before the term expires, etc. I also know exactly how much money I can afford to pay out each money. I put 20% of my pretax income away in a TSP (military version of civilian 401K), my husband puts into his pension, and together we put almost 1K into a savings account. We managed last year to pay off a 8k wedding, not using credit cards or charging anything that accrued interest. We finished the basement of our house at a cost of about 10K (to include a freakin' sump pump) that we used a combined savings and our regular incomes to pay for, again, accruing no interest on any charge card. I use my credit card as a debit card, and make weekly payments to the card to make sure I NEVER pay interest. I hate interest, with a passion.
Last year I took out a loan on prosper to reduce an interest rate on a Disney Vacation Club we purchased while on honeymoon. As soon as I found a way a few months later to move that to something else with less interest, I did, and went from the original 12% from Disney, to 9% on prosper (which isn't possible now with their ridiculous services fees, etc), and now only pay 3% and have it paid down to less than 8k (from the orginal 16K back in June of 08. Good credit makes this happen.
So, moral of the story, I KNOW that he'd never again file BK. I KNOW he'd never get himself so into debt that he'd even need to consider a BK because we pay all our bills, and don't spend more than we make. But.........PROSPER doesn't know this.
How they can look at the information supplied by his FICO, etc, and score him a AA, for a 1K loan, with a grade 10 is ABSOLUTELY beyond me. Because they don't know. He could easily take the 1K and run, like everyone else, and take a very simple ding on his credit report... Ohhh...that'd really hurt. We've all seen how others have managed to do that, with amounts far higher than 1K. One of my first charge offs, that eventually led to BK took us lenders for 12K...and only made one payment. And he was an A! How lovely.
I want COMPLETE transparency, which we all know Prosper is NOT capable of, regarding how they score people. Because they check nothing, and give us close to next to nothing in RELIABLE information.
And the scoring situation I just saw regarding myself, and my husband, proofs that.
Prosper management has never been shy about their activist motivations. Just check out the video of the CEO's keynote address at Prosper Days 2007.
Now that Prosper has taken control of what goes into their proprietary scoring model, why should we not expect them to build in certain mechanisms based on their particular brand of founding ideology?
As a lender, I find it muddies my ability to estimate risk, but from the founder perspective, it makes a certain amount of misguided sense.
