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[God-Father]

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[TotoMMB]

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[NewHorizon]

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It's widely believed that early lenders are misdirecting their angst towards Prosper for picking bad loans.  Instead, what we have here is a nice overview of many of the issues squarely in Prosper's court which drove away many veteran lenders but which are relatively unknown to new lenders and even to later Prosper employees, if their posts here are any indication.  (laleeda's posts and ggmillar's posts)

Hopefully it's ok with JackFlash to move this thread to the "public" Lobby section of this board...?

[ira01]

It's widely believed that early lenders are misdirecting their angst towards Prosper for picking bad loans.  Instead, what we have here is a nice overview of many of the issues squarely in Prosper's court which drove away many veteran lenders but which are relatively unknown to new lenders and even to later Prosper employees, if their posts here are any indication.  (laleeda's posts and ggmillar's posts)

Here are some threads from the past providing more information about some of these matters:

http://www.prospers.org/forum/has_prospers_idtheft_guarantee_essentially_disappeared-t7013.0.html

http://www.prospers.org/forum/my_summary_of_prospers_problems-t5708.0.html

[Ray Kremer]

what we have here is a nice overview of many of the issues squarely in Prosper's court which drove away many veteran lenders but which are relatively unknown to new lenders and even to later Prosper employees, if their posts here are any indication. 

I didn't know about any of that stuff when I threw in $6000 three years ago. Fortunately I came out on top, but after a few months reading things here I decided to never put another penny into Prosper.

[JackFlash]

   This is all amazing stuff. I'm just in awe that if a borrower takes out a loan, never pays on it, and prosper marks it as a Charge-Off,
there is little if any action done to recoup that loan. It's like the borrower got free cash with no consequences.

[ira01]

This is all amazing stuff. I'm just in awe that if a borrower takes out a loan, never pays on it, and prosper marks it as a Charge-Off,
there is little if any action done to recoup that loan. It's like the borrower got free cash with no consequences.

Perhaps that is a big part of the reason why something like 40% of ALL Prosper 1 loans ever originated defaulted.  And why, IIRC, the average ROI for all P1 lenders was negative.

[JackFlash]

 If you ask me, Prosper should put 5% skin in every loan. Instead, their 0% skin in loans means that if it defaults, they aren't out any money.
All they've lost are a few nickels in fees. And to go after defaulted loans costs them money, which explains why they don't have the passion
to push for chasing down bad loans.



  So tell me, if prosper.com goes bankrupt (as I've seen some people predict), what happens to the outstanding loans? Will a bankruptcy judge
hold up prosper's business model of P2P Lending, when none of the money originated with the company itself?  I wonder if a bankruptcy means
all loans (bad or good) are just voided out.

[ira01]

If you ask me, Prosper should put 5% skin in every loan. Instead, their 0% skin in loans means that if it defaults, they aren't out any money.  All they've lost are a few nickels in fees. And to go after defaulted loans costs them money, which explains why they don't have the passion to push for chasing down bad loans.

I certainly agree with that (and have often said so).

So tell me, if prosper.com goes bankrupt (as I've seen some people predict), what happens to the outstanding loans? Will a bankruptcy judge hold up prosper's business model of P2P Lending, when none of the money originated with the company itself?  I wonder if a bankruptcy means all loans (bad or good) are just voided out.

Certainly not.  A Prosper BK wouldn't affect the validity of any of the loans.  But the real question will be who gets the money.  That will take a long time to sort out, and the outcome it isn't crystal clear.  Prosper says that (hopefully) a new servicing company will take over collecting the money and doling it out, and that "lenders" will still receive their payments, although the servicing fees may well go up.  But that is not at all certain.  I think it is more likely that since all Prosper 3.0 "lenders" are really just unsecured creditors of Prosper, they will have to get in line along with all the other unsecured creditors (including the class action class), and everyone gets a pro rata share of Prosper's assets (which include its portfolio of P3 loans).  But that is also complicated by whether and which individual defendants are also found liable in the class action.  Many of the individual defendants have deep pockets, so if the class wins a big judgment against Prosper and them jointly and severally, then their personal fortunes will also be available to pay the class. 

[JackFlash]

 Talk about a legal mess. I think it is pretty clear that P2P Lending is a dead business model.

[NewHorizon]

Well but fwiw, and just in my opinion, the death of the pure P2P business model wasn't due to legal issues.  It was the overestimation - by Prosper and lenders alike (including myself) - of the power of people-to-people connections.  True, there are a precious few number of borrowers who feel obligated to continue to repay even after the loan defaults.  But in general, not only were early loans underperforming at a surprising rate, but even face-to-face meetings between some lenders (we called 'em "group leaders") and borrowers failed - again in general - to reduce risk (or at least not nearly as much as expected).  

But even if one wasn't following the performance numbers that closely, surely Prosper's deletion of their online forums without notice served as a clue that "P2P" wasn't all that it was cracked up to be.  Also at about that time, IIRC, Prosper started losing some of their key customer-facing people (Shira, AMF...).

But anyway, looking at Prosper itself, not only are they in an industry that has fallen way short of expectations, but they've executed poorly as you've read here.  Now that they've had a total turnover of staff, they might be able to turn things around if they survive the lawsuit, I suppose.  But I haven't seen anything in their defense which has merit, in my biased non-lawyerly opinion, and so it doesn't look good for them.

(Meanwhile, I'm a new and very small-time lender over at LendingClub.)

[ira01]

Now that they've had a total turnover of staff, they might be able to turn things around

Isn't Chris Larsen still the CEO?  Prosper should start at the top in cleaning house.

[Urbi_et_Orbi]

Now that they've had a total turnover of staff, they might be able to turn things around

Isn't Chris Larsen still the CEO?  Prosper should start at the top in cleaning house.

Dawn Lepore is listed as President and CEO.

http://www.sec.gov/Archives/edgar/data/1416265/000114036113001267/formposam.htm

[ira01]

Now that they've had a total turnover of staff, they might be able to turn things around

Isn't Chris Larsen still the CEO?  Prosper should start at the top in cleaning house.

Dawn Lepore is listed as President and CEO.

http://www.sec.gov/Archives/edgar/data/1416265/000114036113001267/formposam.htm

Yeah, that sounds familiar now.  But he's still Chairman of the Board of Directors. 

[NewHorizon]

... so that [Prosper] has "skin in the game." 

Agreed.  But for historical completeness, I feel compelled to mention that (as you know) key people at Prosper - including co-founders - individually bid on and participated in many loans.  Even went so far as to pump at least one listing - that of a military veteran - in their since-disappeared forums.  (Not sure, but I wanna say that that loan defaulted.)  Some Prosper people put up their own listings too.

But yeah, as for the terrible listings, Prosper otherwise had little motivation to do anything but let them run their course.  Having said that, of course, lenders willingly participated in those (which is unrelated to the merits of the class action lawsuit).