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[Staneslav]

a

[Xenon481]

If there are any amounts under the corresponding borrower loan still due and owing to Prosper after the final maturity, Prosper will have no further obligation to make payments on the related Notes, even if Prosper receives payments on the corresponding borrower loan after final maturity.

 

Of all the bad stuff posted, this is the one that is big news to me.  If I am reading this correctly, any recovery payments after the term of the loan go to prosper, not the lender.  If I am misreading this, someone let me know.

With out post term recovery payments, my ROI would be 1.5% lower.

That is exactly how I interpret that section.

Likewise.

This is a huge incentive for misconduct. A borrower can take out a loan for 10k, make no payments for the term, and then later return 5k to prosper and pocket the difference.

This quite literally OPENS THE DOOR to institutionalized theft.

And by "opens the door" you actually mean "stands a hawker next to the door shouting 'free money!!!'" yes?

Given the lobby status, I was going to refrain from that kind of phrasing, but yes.

Without independent oversight, no lender cannot be certain that ANY default was not a product of organized fraud. Additionally, should such fraud occur with forethought and planning on prospers part, I do believe that would a rather serious criminal charge.

But such preplanned fraud is not necessary. It should be very easy for any person wanting free money to realize that after the term of the loan has ended, they can basically give prosper a share of the money to make the blemish on their credit report go away (if prosper EVER reports it, which they don't have to) and prosper can mark the delinquent loan with any number of misleading statuses.

At this point, I believe that the class action needs to aggressively move forward as quickly as possible to increase the chance of bankruptcy for this immoral company to limit the damage they will do.

Shame on you, Prosper.

Per Prosper's lender agreements and SEC filings, they don't even have to wait for the note to mature to screw you like that:

Prosper may work with the borrower member to structure a new payment plan in respect of the borrower loan without the consent of any holder of the Notes corresponding to the borrower loan.

[havastat]

On the bright side, in 2011 Prosper actually had roughly a million dollars in net revenues, whereas in 2010 their net revenues were essentially nothing.

[Xenon481]

On the bright side, in 2011 Prosper actually had roughly a million dollars in net revenues, whereas in 2010 their net revenues were essentially nothing.

Yes, they increased their net revenues by ~$900k at the cost of ~$1.8million in additional expenses.

[havastat]

On the bright side, in 2011 Prosper actually had roughly a million dollars in net revenues, whereas in 2010 their net revenues were essentially nothing.

Yes, they increased their net revenues by ~$900k at the cost of ~$1.8million in additional expenses.

But given the 2010 expenses, adding the ~1.8M expenses to get the ~900K revenue still raised their ordinary revenue to expense ratio. Going from virtually nothing (<1%) to very, very little (about 7%) is still a big improvement.

And maybe being sued wasn't so bad for Prosper. The ~$2M they got in insurance recoveries for the legal defense was considerably more than their net operating revenues.

[havastat]

Regarding payment plans etc. -

Like it or not, giving people who are behind in payments payment plan options is standard operating procedure. Creditors do it because it brings in more net revenue than not having them. The vast majority of borrowers are honest people going through difficult circumstances. Prosper has no legal obligation to acheive what particular investors might consider perfect "justice" or "fairness." It's not a debating society of Utopian idealists. It's a business with an obligation to maximize its recoveries.  This means it has to balance the prospect of creating fraud opportunities against the ability to recover more from debtors who are simply having difficulty paying.  It can't simply ignore one side of the balance and focus solely on the other.

[Xenon481]

Regarding payment plans etc. -

Like it or not, giving people who are behind in payments payment plan options is standard operating procedure. Creditors do it because it brings in more net revenue than not having them. The vast majority of borrowers are honest people going through difficult circumstances. Prosper has no legal obligation to acheive what particular investors might consider perfect "justice" or "fairness." It's not a debating society of Utopian idealists. It's a business with an obligation to maximize its recoveries.  This means it has to balance the prospect of creating fraud opportunities against the ability to recover more from debtors who are simply having difficulty paying.  It can't simply ignore one side of the balance and focus solely on the other.

Yes, but Prosper has a conflict of interest in these situations. If the adjusted payment plan pushes payments out past the normal maturity date of the notes, then Prosper gets all of the extra payments directly and doesn't redistribute them to the note holders.

[Ray Kremer]

Yes, but Prosper has a conflict of interest in these situations. If the adjusted payment plan pushes payments out past the normal maturity date of the notes, then Prosper gets all of the extra payments directly and doesn't redistribute them to the note holders.

Ah. Yes, that's bad. Seems odd though, I know I've seen people talking about "recovery" payments, money coming in from notes that Prosper has declared defaulted but the borrower manages to start paying again. I would expect (not that that means anything) a note gone past its maturity to be the same, I mean if you are past the maturity date and aren't paid up that's as much a default as if you aren't current with the load halfway through.

Or to say it another way, if all that legal stuff says Prosper doesn't have to pay on loans past their maturity, what does it say about loans that have been declared defunct prior to maturity?

[havastat]

Well, the "final maturity" on the loans is five years. Three year loans? Five years. Five year loans? Five years.

That means that on 3-year loans, there are 2 extra years of wiggle room to deal with being late, payment plans, etc. while still coming out OK. But for five-year loans, there's no wiggle room at all. If the last payment's late, the p2p lending platform has no legal obligation to pay it to the investor.

Both Prosper and Lending Club work this way.

For this reason, a number of people (including myself) aren't putting a lot of money into five-year notes until a bunch of them have matured and we get to see what happens at the end of their five-year term. It may work out just fine. People may pay up in time after all. And even if they don't Lending Club and Prosper may give the post-maturity payments back to the investors anyway, despite what the the fine print says, to keep investor goodwill and dollars coming in. Or things may work out badly, and investors may get burned. We'll see. Once we get to see what happens, I'd say that would be the time to decide whether to put a lot of money in. In the meanwhile, there's no reason to get upset about things. Being safe means not having to be sorry.