If people default and their loans are moved to "Charge-Off" status, what does that really mean
to the person who defaulted?
This is at the heart of Prosper's malfunction. It means deadbeats get away with stealing money.
Is anything marked on their credit report?
Hard to know for sure, as I'm not allowed to see arbitrary people's credit reports. Reports we get are that Prosper has a spotty record. Sometimes things are reported to credit reporting agencies and sometimes not.
Are they sued in court?
Shockingly, they are not. Prosper did make a big splash about filing some lawsuits once. One time. They hired a supposed hotshot and had him go after 66 borrowers with lawsuits (66 out of something like 9000 charged off loans at that point), and they essentially lost all the suits. Prosper simply withdrew from a great many of the suits. In many cases they were unable to even find the borrower! This demonstrated to thinking borrowers how bad Prosper's systems had been. Their lack of verification of borrower's information allowed a great many fraudulent loans. I wrote a blog about this a long time ago.
http://fred93blog.blogspot.com/2009/11/prospercom-paradise-lost-deadbeats-won.html
Or did they just walk off scott free with a stack of cash?
Bingo.
Wow. I'm just in shock. I suppose word is out, that if you want free money, go to Prosper.
My thinking is that they lost in court because the money they tried to reclaim wasn't their money.
Thus they had no claim to it. The actual lender would have to sue in court. Prosper likely halted their
lawsuits because it was costing them far more money than the loan was worth.
Think about it, Prosper might make $100 in fees on each loan. So if they spend $1000 in court costs
to reclaim a loan, regardless if they win or lose, they lost overall. So it was likely the unwritten company
rule that if a loan goes bad, don't spend a nickel on chasing down the money.