Sorry for the length and depth of this post, but was required to get all the points in...
OK the original question asked in this thread was, "What gives Prosper the authority to change the terms of the LRA?" First and foremost I would ask how any of you believe they changed the terms of the LRA?
It seems to me that the fallacy most of you are working under here is that Prosper has done something underhanded (please note I am only talking about this specific thing, not all the other beefs we have, so please respond only to the point) that is precluded in the LRA. But that is just not so!
There appear to me to only be three sections in the LRA that pertain to the “change in procedure” that Prosper outlined in the original notice presented in this thread.
Section 5 dealing with Sale and Servicing of the note. This section has a clause about the Servicing Standard that many of you seem to continue to point to as an area that Prosper is violating. This clause I believe is “Prosper shall not permit any modification with respect to any Note that would change the interest rate, defer or forgive the payment of principle or interest, reduce or increase the outstanding principal balance, or change the final maturity date on the Note.”
So let’s break that clause down a little shall we?
Did prosper actually modify the note? No the note stands as originally written (please go read a promissory note, you will find some clauses in there that address partial payments).
Did they change the interest rate? No same interest rate applies to the unpaid balance.
Did they defer or forgive the payment of principal or interest? No they did not, the payment was still due on the original date it was due, and Prosper still says it is owed. May seem kind of grey since it implies that they have deferred it, but the wording is tricky, they did not defer it. All late fees, interest etc still apply. So no deferral took place.
Did they reduce or increase the outstanding principle balance? No still the same.
Change the final maturity? No still due at the final payment date.
So no modification there….
In fact there is actually a clause in this section that would indicate that you have actually already agreed to let them do what they have done: “Prosper shall have full power and authority to do or cause to be done any and all things that it may reasonably deem necessary or desirable in connection with such servicing and administration of the Notes on your behalf, and you agree to cooperate with Prosper in the performance of its servicing and other obligations under this agreement.”
Sounds to me like you have already agreed to let them, “suggest” to the borrower that they will not report them to collections as an incentive to collect more money on your behalf.
The part titled "Reporting” in Section 5 is perhaps most germane to our conversation. It states; “Prosper will report loan payments and delinquencies to credit reporting agencies with Prosper listed as the servicer, and without displaying your identity as the owner of the Note.” Where in this section is there a timeframe listed that the reporting must be done in? I think the intent of this section could be interpreted to be that Prosper is protecting your identity, not that they are obligated/required to report to a credit agency. But that could be construed as grey, and since there is no timeframe required Prosper can delay their reporting as long as they like without your approval.
Section 6 Collections of delinquent loans.
Part c. deals with turning this loan over to collections at 30 days when a payment becomes past due 30 days. Now this is the main grey area for me, is a partial payment a payment that is past due or not? Prosper has obviously interpreted that to mean that it is not past due and so is not being turned over to collections. I would add that there is an ability under the Lender Promissory Note (that the borrower signed) that seems to indicate that if the borrower makes a late payment we can only ask for a late charge, AND/OR accelerate the full loan to be due and payable now. There is nothing in the borrowers’ agreement requiring that they either become current or pay the full monthly payment. We can only continue to collect the late fee each and every month until the end of the term.
But here is the reason that Prosper used the 30 day timeframe in their “suggestion”; if the borrower does not pay something in that timeframe then Prosper is obligated to take the action indicated in this section. While I would prefer that they wait 60-90 days before taking this action, the LRA forces them to use the 30 days.
Part d. talks about the collection agency not Prosper changing or making any agreements, so that is out as a problem.
Part f. Talks about the 120 day rule, again deals with what is considered past due? Partial payments appear to be allowed in the borrower notes and nothing precludes it in the LRA.
Please continue to note, that nowhere in the LRA is there a clause saying that Prosper has an obligation to report the late payment to credit reporting agencies within any period of time.
Section 8 Defaults and remedies.
This statement is pretty clear “you may at your option accelerate the maturity of this Note and declare all principal, interest and other charges due under this note immediately due and payable.” This is our, through Prosper, only true remedy on the note.
Conclusion
Prosper acted within the letter of the LRA and the Lender Promissory Note in its “suggesting” that the borrower pay something to avoid a reporting to the credit agencies. I have not seen where any of you have pointed to an area of the LRA that Prosper has violated. Please do so.
So I continue to stand by my statement that I am happy Prosper has taken a creative and innovative approach to try to collect more money on my behalf.
Thank you for reading this far, if you did.
WFT
Author
Topic: Collections – Hardship Arrangement are Benefiting Lenders (Read 52992 times)