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[Urbi_et_Orbi]

From DailyFinanc.com
http://www.dailyfinance.com/story/credit/prosper-microloans-peer-to-peer-lending-problems-default-community/19783406/

Back in 2006, I wrote an article about Prosper.com for Inc. magazine, titled Brother, Can You Spare a Dime? -- after one of the most famous songs from the Great Depression -- and was smitten by the peer-to-peer lending concept. Gung-ho to do well and do good, I sank a small four-figure sum into a portfolio of roughly 20 loans. My borrowers ranged from single parents seeking to start small businesses to college students consolidating credit card debt. Here, I thought, was a way to earn decent 7% or 8% annual returns, on average, between high-risk and low-risk borrowers, and to help my fellow man at the same time. Little did I know.

Soon after my initial investment, things started to go wrong. Within the first few months, I noticed that a significant portion of the borrowers in my portfolio were missing payments. Worse still, under Prosper's model, lenders weren't allowed to contact borrowers to request payment. The company told us to leave that to the collection agencies we selected when we signed up. The actual effect of this contact prohibition was the elimination of any sort of social ties connecting borrowers to lenders, the sort of (admittedly weak) human interaction that might cause a person to feel more obligation to repay their loan.

[Xenon481]

He wrote another article back in 2006 where he was in love with Prosper.

http://www.inc.com/magazine/20060801/handson-finance.html?partner=newsletter_news%22

This is just another of many many stories of people becoming completely disillusioned with Prosper.

[Mtnchick]

Lobby

[TotoMMB]

Quick, someone develop the first peer-to-peer debt collection agency. I'd contribute to buy my own debt from Prosper just for the chance to be able to contact my borrowers.

+1 lobby

[Xenon481]

Quick, someone develop the first peer-to-peer debt collection agency. I'd contribute to buy my own debt from Prosper just for the chance to be able to contact my borrowers.

+1 lobby

This has been attempted before and Prosper refused to allow a lender to purchase a loan (that was later included in a debt sale) for a significantly higher price than the eventual debt buyer. Yet another example of where Prosper failed to uphold it's fiduciary duties to the lenders on that loan.

[ira01]

Quick, someone develop the first peer-to-peer debt collection agency. I'd contribute to buy my own debt from Prosper just for the chance to be able to contact my borrowers.

+1 lobby

This has been attempted before and Prosper refused to allow a lender to purchase a loan (that was later included in a debt sale) for a significantly higher price than the eventual debt buyer. Yet another example of where Prosper failed to uphold it's fiduciary duties to the lenders on that loan.

You beat me to it.  Traveler505 sent Prosper, via certified mail, a binding offer to buy a particular defaulted loan.  He included in his offer an explanation of how under New Mexico law (both he and the borrower were residents of NM) he was not required to be licensed as a debt collector to purchase and collect on this loan, and he also agreed to indemnify Prosper from any liability that might result if Prosper sold him the loan.  Thus, Prosper had NO legitimate reason for declining his offer.  Nevertheless, Prosper chose to sell the loan to a JDB, for less than HALF of what Traveler had offered.  IIRC, that clear breach of Prosper's fiduciary duty to its lenders collectively cost the lenders on that loan about $500.

[AiriusTorpora]

Quick, someone develop the first peer-to-peer debt collection agency. I'd contribute to buy my own debt from Prosper just for the chance to be able to contact my borrowers.

+1 lobby

This has been attempted before and Prosper refused to allow a lender to purchase a loan (that was later included in a debt sale) for a significantly higher price than the eventual debt buyer. Yet another example of where Prosper failed to uphold it's fiduciary duties to the lenders on that loan.

You beat me to it.  Traveler505 sent Prosper, via certified mail, a binding offer to buy a particular defaulted loan.  He included in his offer an explanation of how under New Mexico law (both he and the borrower were residents of NM) he was not required to be licensed as a debt collector to purchase and collect on this loan, and he also agreed to indemnify Prosper from any liability that might result if Prosper sold him the loan.  Thus, Prosper had NO legitimate reason for declining his offer.  Nevertheless, Prosper chose to sell the loan to a JDB, for less than HALF of what Traveler had offered.  IIRC, that clear breach of Prosper's fiduciary duty to its lenders collectively cost the lenders on that loan about $500.

That alone is likely actionable.

Get a few more incidents of it and you have a course of conduct.

/disclaimer: not a lawyer

[havastat]

The people who talked about "social" lending clearly hadn't talked to the lawyers.

If they had, they'd have realized that lenders couldn't be allowed to communicate with borrowers because they'd almost certainly run afoul of the debt collection laws the minute they did. And because lenders aren't allowed to communicate with borrowers, the "social" aspect is diminished to irrelevance. The idea that people will feel more obligation to repay anonymous "ordinary folks" they borrowed money from over the internet then will to repay banks and other institutitons that have regular collections doesn't seem to bare out.

Lending Club used to present the idea that social lending was less risky than regular lending. They've long since removed any mention of the idea.

[God-Father]

Third for lobby.

[ira01]

The people who talked about "social" lending clearly hadn't talked to the lawyers.

If they had, they'd have realized that lenders couldn't be allowed to communicate with borrowers because they'd almost certainly run afoul of the debt collection laws the minute they did.

That's not really true.  For one thing, I don't believe the FDCPA even applies to original creditors like Prosper lenders (although some state laws do).  But in any event, debt collection laws certainly don't prevent creditors from contacting their debtors and seeking repayment.  They generally only prohibit false and misleading statements, harassment, etc.  Prosper could have told lenders "if you contact your debtors you are on your own, and had better follow the law."  If any lenders failed to do so, it would be on them, not on Prosper. 

[Mark12547]

Fourth for Lobby!

[Ray Kremer]

Banks didn't know borrowers, and really didn't want to know them. Contrast this with Kiva.com, a social lending site that not only encourages contact between lenders and borrowers but also makes it a far more important part of the process. Kiva also has a roughly 98.5% payback rate -- far higher than anything I experienced on Prosper.com.

Have any of you spreadsheet wizards that compare ROI and default rates and such between Prosper and Lending Club all the time ever run any numbers on Kiva?

[Urbi_et_Orbi]

Banks didn't know borrowers, and really didn't want to know them. Contrast this with Kiva.com, a social lending site that not only encourages contact between lenders and borrowers but also makes it a far more important part of the process. Kiva also has a roughly 98.5% payback rate -- far higher than anything I experienced on Prosper.com.

Have any of you spreadsheet wizards that compare ROI and default rates and such between Prosper and Lending Club all the time ever run any numbers on Kiva?

You sure ask some funny questions.

[cubbiesnextyr]

Banks didn't know borrowers, and really didn't want to know them. Contrast this with Kiva.com, a social lending site that not only encourages contact between lenders and borrowers but also makes it a far more important part of the process. Kiva also has a roughly 98.5% payback rate -- far higher than anything I experienced on Prosper.com.

Have any of you spreadsheet wizards that compare ROI and default rates and such between Prosper and Lending Club all the time ever run any numbers on Kiva?

I haven't looked at Kiva lately, but isn't the BEST you can hope for 0% ROI on Kiva?

[laxa]

I think you are really lying to yourself if you think you do somebody a favor when you lend them money at 8%-35% interest. I have both borrowed and lent from and to friends and family in my life and every single one of those loans were at 0%. Prosper loans were never anything other than business transactions even though they might have been percieved differently by some.