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[ladeeda]

To be very clear about it, I don't work on anything collections-related at Prosper. That said, I can provide some general background. From what I've seen elsewhere, contingency fees generally range between 20% and 40%, depending on the type of debt and other characteristics, like seasoning, loan size, income, presence of co-signer, and so on, not to mention the size of the overall portfolio in question.

Mechanically speaking, those fees are taken off the top - if an agency collects $100, the creditors receive a check for ~$70. As this is industry-standard, I assume that Prosper's arrangement is similar, in which case it never even saw the $30 that some are decrying as "stolen".

On the debt sale side... if anything, the price for charged-off paper varies more significantly than contingency fee rates. Again, I know nothing about Prosper's relationships, but few parties are likely to be paying good money for unsecured debts in 2010. Unemployment is high, real income is flat, and there's a ton of defaulted paper out there to choose from. If I were to guess, I'd expect to see prices today of about 1%-2% of outstanding principal on unsecured debt.  

To get back to the larger questions, I've noticed two major themes in this thread. One is the idea that Prosper should cover collections expenses, but loan servicers just don't do that. That's just an economic reality imposed by the difficulty of collecting on the paper and the structure of contingency fee contracts. The alternative to a fee pass-through would be a debt sale at 1%-2% or no collections at all, and in most cases I would expect net life-of-loan collections to be better than that, even on an NPV basis.

The other theme is about the transparency of Prosper's collections efforts - like how much is taken from individual payments and why, as well as communication around what exactly is being done. I think that's potentially a more fruitful line of inquiry, albeit one that's easily drowned out.

[ira01]

To be very clear about it, I don't work on anything collections-related at Prosper. That said, I can provide some general background. From what I've seen elsewhere, contingency fees generally range between 20% and 40%, depending on the type of debt and other characteristics, like seasoning, loan size, income, presence of co-signer, and so on, not to mention the size of the overall portfolio in question.

Mechanically speaking, those fees are taken off the top - if an agency collects $100, the creditors receive a check for ~$70. As this is industry-standard, I assume that Prosper's arrangement is similar, in which case it never even saw the $30 that some are decrying as "stolen".

IMHO, it is a fair characterization to call the unauthorized and excessive fees "stolen," since Prosper unilaterally chose to take such fees despite the lack of legal authority in the Lender Registration Agreement (at least on the older loans -- I don't know what Prosper may have put in the LRA more recently).  Under the LRA in effect for many of us, Prosper promised to turn delinquent loans over to the collection agency chosen by a majority interest of lenders on the loan, which would charge specified fees (i.e., 15% or less), and to promptly sell 4+month late loans to JDBs.  Prosper has breached all of these promises.  Moreover, when Prosper (again unilaterally and without authorization) chose to transfer loans from Penncro to Amsher, it promised (in writing) that the collection fees would be no higher than Penncro's.  Prosper also breached that promise.  When Prosper (again unilaterally and without authorization) refused to sell 4+month late loans to a JDB that had made an offer for such loans, supposedly due to unspecified "unsatisfactory conditions," it stated that "post-charge off collections" would be conducted by Prosper in-house as I recall.  Lenders never agreed to allow Prosper to take a cut of any recoveries.  And if Prosper subsequently decided to enter into agreements with other collection agencies with fees roughly double what lenders had agreed to, that was also without authorization.  

[Fred93]

From what I've seen elsewhere, contingency fees generally range between 20% and 40%, depending on

Probably quite reasonable numbers, especially on notes that are 120 days past due.

To get back to the larger questions, I've noticed two major themes in this thread. One is the idea that Prosper should cover collections expenses, but loan servicers just don't do that.

I think you misinterpret some folks' comments.  Its not a theoretical argument about who should pay what.  Its Prosper's attitude and behavior toward its contractual obligations that upsets many people.  Many folks  feel burned by the fact that Prosper charges these fees in violation of its contractual obligations to early lenders.  The lender agreement we agreed to is quite explicit.  Prosper unilaterally decided to do something different than what the contract said.

On this point, Ira is correct.  

Treating contracts in such a nonserious fashion is bad juju, bad public relations, and ... really insulting to your customers who are on the other side of those contracts.

I'm not tryin' to pick a fight here.  Just trying to clarify history, as I figure you weren't around when this bad behavior originally went down.  

[ladeeda]

IMHO, it is a fair characterization to call the unauthorized and excessive fees "stolen," (snip)

To get back to the larger questions, I've noticed two major themes in this thread. One is the idea that Prosper should cover collections expenses, but loan servicers just don't do that.

I think you misinterpret some folks' comments.  Its not a theoretical argument about who should pay what.  Its Prosper's attitude and behavior toward its contractual obligations that upsets many people… (snip)

I'm not tryin' to pick a fight here.  Just trying to clarify history, as I figure you weren't around when this bad behavior originally went down.  

I understand that these are sensitive issues and that there’s a lot of anger, and in general I’m trying to avoid commenting on the contractual issues.  To summarize my previous post, the current arrangement – given what I’ve read of it here – is likely to be better long-term for lenders than the alternative, and it sounds very much in line with standard industry practice.

So, while I acknowledge that there's real anger about the contractual issues, I feel as though that anger - about the way this was all implemented - has bled over into what was actually implemented. It's that latter that I was trying to focus on, because it's what I can talk semi-knowledgeably about and something about which lenders here do seem to have questions.

[ladeeda]

[accidental double post]

[ira01]

IMHO, it is a fair characterization to call the unauthorized and excessive fees "stolen," (snip)

To get back to the larger questions, I've noticed two major themes in this thread. One is the idea that Prosper should cover collections expenses, but loan servicers just don't do that.

I think you misinterpret some folks' comments.  Its not a theoretical argument about who should pay what.  Its Prosper's attitude and behavior toward its contractual obligations that upsets many people… (snip)

I'm not tryin' to pick a fight here.  Just trying to clarify history, as I figure you weren't around when this bad behavior originally went down.  

I understand that these are sensitive issues and that there’s a lot of anger, and in general I’m trying to avoid commenting on the contractual issues.  

I understand.  It is just that you are Prosper's lone voice over here, so some of us want you to understand our anger.  As Fred commented, it is completely unacceptable for a financial firm like Prosper to treat contracts so cavalierly.  

To summarize my previous post, the current arrangement – given what I’ve read of it here – is likely to be better long-term for lenders than the alternative, and it sounds very much in line with standard industry practice.

I don't know whether that is true in the aggregate or not, but it certainly isn't true in my case.  I have received exactly $0.00 in recovery payments, so by not selling my defaults to a JDB (even at paltry prices) as it was legally obligated to do, Prosper has stolen my money.  

Moreover, there are substantial questions as to whether Prosper really couldn't get a decent price from JDBs in early 2008.  It claimed that it rejected an offer (which was apparently between about 3-4% depending on the loan specifics) due to unspecified "unacceptable conditions" on the offer by the JDB.  Many of us believe that those unspecified conditions were really only unacceptable to Prosper, not to the lenders, and that by refusing the offer for reasons affecting itself, Prosper breached its duties to lenders.  Specifically, we believe that the condition in question may have been that Prosper agree to repurchase loans from the JDB determined to be identity theft -- and that Prosper found that condition to be "unacceptable" because then its so-called "100% identity-theft guarantee" would have been triggered, forcing Prosper to repurchase the loan for 100 cents on the dollar from the lenders.  IOW, we believe that Prosper stiffed lenders by rejecting an acceptable JDB offer in order to avoid triggering its legal obligation to repurchase identity theft loans from lenders.  Do we know that for a fact?  No -- because Prosper refused to tell us why it unilaterally chose to reject a JDB offer that lenders wanted it to accept, in violation of the LRA.

[ladeeda]

I understand.  It is just that you are Prosper's lone voice over here, so some of us want you to understand our anger.

Oh, believe me, I'm very aware that there's anger here. It's hard to miss. Of course I can't and won't speak to whether it's justified. I'm sure you can understand that, as well.

I have received exactly $0.00 in recovery payments, so by not selling my defaults to a JDB (even at paltry prices) as it was legally obligated to do, Prosper has stolen my money.  

Moreover, there are substantial questions as to whether Prosper really couldn't get a decent price from JDBs in early 2008. (snip)

Well, like I said, I don't work on these issues for Prosper and was only speaking from general experience. In short, I've found that in-house collections are a bad idea unless you have serious expertise (generally resulting from having a charge-off portfolio larger than $1B), that contingency fee arrangements are a good thing, and that you can generally do better with outsourced collections than you can with a debt buyer. Of course those are only general rules. If someone offered me 20% for a five-year-old charged-off unsecured loan portfolio, I'd take it in a heartbeat.

[yankeefan]

ladeeda-

I don't doubt your comments on market rates for collections and bad debt.  However, Prosper Prosper originally underpriced its product/services in teh early lender agreements, arguably on the theory that everything is easier/cheaper on the Internet.  When regulat colectionswerre more expensive to handle, and no collection agency was getting results at the prices they agreed to, and, as well, teh JDBs backed away, either completely or wby demanding conditions from Prosper, then Prosper started to change the way they serviced our loans, without permission and, perhaps, inviolation of contractual terms.   

Prosper never came to lenders and honestly admitted, "hey, guys, it won't work at these terms- we need to charge more on origination and verification, more on servicing, and more on late collections. "  rather, they used a spurious (in my opinion) argument that SEc rules imposed a "quiet period" even on communications with customers.   

[Mtnchick]

Well, like I said, I don't work on these issues for Prosper and was only speaking from general experience. In short, I've found that in-house collections are a bad idea unless you have serious expertise (generally resulting from having a charge-off portfolio larger than $1B), that contingency fee arrangements are a good thing, and that you can generally do better with outsourced collections than you can with a debt buyer. Of course those are only general rules. If someone offered me 20% for a five-year-old charged-off unsecured loan portfolio, I'd take it in a heartbeat.

IIRC, that was the "expertise" that was brought to Prosper when they hired Doug Fuller.

[ira01]

Well, like I said, I don't work on these issues for Prosper and was only speaking from general experience. In short, I've found that in-house collections are a bad idea unless you have serious expertise (generally resulting from having a charge-off portfolio larger than $1B), that contingency fee arrangements are a good thing, and that you can generally do better with outsourced collections than you can with a debt buyer. Of course those are only general rules. If someone offered me 20% for a five-year-old charged-off unsecured loan portfolio, I'd take it in a heartbeat.

IIRC, that was the "expertise" that was brought to Prosper when they hired Doug Fuller.

Yeah, too bad he turned out to be all hat no cattle (or, just as likely, Prosper supported him like it supports lenders). 

[Urbi_et_Orbi]

Well, like I said, I don't work on these issues for Prosper and was only speaking from general experience. In short, I've found that in-house collections are a bad idea unless you have serious expertise (generally resulting from having a charge-off portfolio larger than $1B), that contingency fee arrangements are a good thing, and that you can generally do better with outsourced collections than you can with a debt buyer. Of course those are only general rules. If someone offered me 20% for a five-year-old charged-off unsecured loan portfolio, I'd take it in a heartbeat.

IIRC, that was the "expertise" that was brought to Prosper when they hired Doug Fuller.

Oh, there was "expertise" a-plenty...

http://www.prospers.org/forum/empty-t3312.0.html

ETA: fixing link

[ladeeda]

IIRC, that was the "expertise" that was brought to Prosper when they hired Doug Fuller.

Yeah, too bad he turned out to be all hat no cattle (or, just as likely, Prosper supported him like it supports lenders). 

Oh, there was "expertise" a-plenty...

Well, I guess we're done here.

[ira01]

IIRC, that was the "expertise" that was brought to Prosper when they hired Doug Fuller.

Yeah, too bad he turned out to be all hat no cattle (or, just as likely, Prosper supported him like it supports lenders). 

Oh, there was "expertise" a-plenty...

Well, I guess we're done here.

The truth hurts, huh?  Doug Fuller rode into town with his ego writing checks his body couldn't cash (to borrow a phrase from Top Gun).  Why don't you read Shira's "interview" with him introducing him to the lenders.

[ladeeda]

The truth hurts, huh? 

Ha, no, that wasn't what I was referring to.

[nonattender]

I don't know whether that is true in the aggregate or not, but it certainly isn't true in my case.  I have received exactly $0.00 in recovery payments, so by not selling my defaults to a JDB (even at paltry prices) as it was legally obligated to do, Prosper has stolen my money.

Ok, Ira, if it's not true in your case, let's talk about your case.

You have ~20 defaulted $50 loans.  Forget payments.  Use your 4% JDB estimate.  So, you're out...  $40.
(I'm notoriously bad at math - and I only glanced at your portfolio - but I think this is relatively accurate.)
(It's also incredibly unrigorous - payments you received would reduce this amount tremendously, but, OK!)

I'll send you $50 IF you'll stop making me read posts about how you think you got screwed (out of less!).
Don't get me wrong - I think you're wrong - but, I'm happy to free you from such obvious misery over it.

I know you're going to say it's the principle of the matter, but, that's all you can say, given the principal.

Let me make you whole?

-t