Prosper had its crack internal collection team try litigation after pressure from lenders. It ended up dismissing all the suits.
In 2007, I was so frustrated with the poor collection efforts I called one of the collection agencies. Within a week, Prosper changed its terms of service to direct that lenders couldn't call collection agencies.
As Ira pointed out, Prosper's legal agreement with many of us required it to sell late accounts after four months to junk debt buyers. Prosper never sold any of my delinquent accounts, and didn't collect much on them, either.
Finally, Prosper doesn't report to the credit bureaus with any reliability. We know this from borrowers who have told us that.
The bottom line with Prosper is that you are making unsecured loans to strangers over the Internet through a company that cares a lot more about making loans that protecting its investors' interests. That's why many of us don't lend any more.
By the way, welcome.
Holy Crap, seriously? So what you are telling me is that if you loan out money and the borrower defaults, Prosper will sic a collection agency on them, but they do little if anything to press the issue legally with the court system in the borrower's home town? In short, borrowers get away with millions and nothing is done?
Basically correct, except that Prosper won't do "little" legally, it will do NOTHING. Period. After thoroughly fucking up its pilot program in which it tried suing about 60 defaulted borrowers in court in CA (thanks to sheer ineptness, it lost or voluntarily dismissed all but 1 or 2 cases, if I recall correctly), Prosper completely gave up on legal action. There are even cases in which a borrower declared BK, and Prosper failed to file the appropriate documents to perfect a claim -- there are even 1 or 2 loans that after lenders (not Prosper) discovered the problem, Prosper had to agree to make payments on behalf of the BK debtor.
Moreover, despite many lenders (including myself) clearly explaining to Prosper from nearly its beginning the need to go after fraud by making examples of borrowers in egregious cases, Prosper has never done so. There are plenty of borrowers with supposedly excellent credit and low DTI, and self-reported high income, who took out large loans and never made ONE SINGLE payment. Sure, it's possible that in a miniscule number of those cases, the borrower got run over by a bus the day after taking out the loan, or had some other major change in circumstances that rendered him or her unable to pay, but I think it is safe to assume that in the majority of such cases, the borrower never intended to repay the loan when he/she took it out, which is fraud. Prosper could (and should) have easily investigated such "zero-pay" loans, and sued (or referred for criminal prosecution) some of those fraudsters, but it chose not to. Perhaps because Prosper had already been paid its origination fee, so WGAF if the lenders got screwed?
And don't even get me started on Prosper's so called "100% identity theft guarantee." Prosper promised (and legally committed) to repurchase from lenders any loan that was procured through identity fraud -- where the "borrower" was not the person he/she was purporting to be. There are MANY stories of how Prosper stuck its head in the sand and strenuously avoided finding that any loans were procured through identity fraud. In many cases, enterprising Lender "detectives" investigated loans and borrowers, and proved that they were identity theft (in one case, working with the NYPD who had been investigating the "borrower" for other identity theft, and giving Prosper the name and phone number of the NYPD detective on the case -- Prosper didn't bother to call). Then the Lender would publicly post all of the proof on Prosper's official forum (which Prosper deleted, along with hundreds of thousands of posts, one day, without notice), and when the resulting shit-storm got to be a sufficiently bad PR disaster, only then would Prosper repurchase the loan under its "guarantee."
And to avoid such situations in the future (having the fraud exposed, not preventing the fraud), Prosper continually reduced the amount of information that Lenders could get about borrowers, even violating its own privacy policy which expressly stated that borrowers could choose how much information to make available to lenders, and increasingly punishing lenders who exposed such fraud publicly, protecting other lenders (many of us old-timers were suspended from Prosper and/or its forums for such actions to protect lenders -- such as the infamous case of "indictment man," a borrower with an active listing who lender detectives discovered through an FBI press release was under indictment for loan fraud -- when lenders posted links to the PUBLIC FBI press release, Prosper suspended the lenders from its forum!). In another case, a borrower with an active listing was discovered to have been recently convicted of a crime, and was due to report to prison for a several year sentence commencing in a few months (his loan listing was "coincidentally" in the amount of his criminal restitution order). Prosper retaliated against lenders who made that public as well, despite the obvious question of how the borrower was planning on making his loan payments from prison (apparently by making 15 cents an hour making license plates, or whatever prisoners do these days
).
In short, Prosper has rarely failed to take any action it could that it conceived to be in its own interest, despite being horrible for Lenders.
