In most (all?) states, the filing fee is a cost which is added to the judgment. So if one pays a $320 fee on a $10K suit, and wins, the judgment is for $10320. (There are other costs that are added into the judgment as well; I'm oversimplifying here.)
In California, the filing fee (and I'm pretty sure the cost of service as well) IS indeed a cost that is awarded to the prevailing party. So Prosper would recover this (assuming Prosper can successfully collect on the judgment, of course).
The expenses that normally aren't recoverable are attorney fees (again, oversimplifying), but, for a default judgment, the amount of time and legal talent required is minimal.
In California, attorneys' fees ARE recoverable in a suit on a contract IF the contract so provides. I can't recall (and am too lazy at the moment to check) if the prommissory note contains an attorneys' fees provision, but if not, it probably should. One thing Prosper would have to consider is that in California, if there is an attorneys' fees provision in a contract, it is applied bilaterally (whichever party prevails recovers their attorneys' fees, even if the attorneys' fees provision is expressly written to only give attorneys' fees to a prevailing plaintiff, for example, or a prevailing creditor). Thus, if Prosper added an attorneys' fees provision, it would have to pay the borrower's attorneys' fees if the borrower prevailed. Because Prosper (like other businesses) has money and many borrowers (like consumers in general) often don't, the prevailing wisdom is that it is often better for businesses NOT to include an attorneys' fees provision in their contracts (because when they lose, they have to pay up, but when they win, they might not be able to collect). However, it seems to me that this probably is not applicable here. These collections cases should be no-brainer easy victories for Prosper, so the likelihood of losing many (if any) of these cases seems very slim. And Prosper will be selecting the cases on which to sue based on the likelihood they will actually be able to collect on a judgment, so adding attorneys' fees to the prommissory note would seem to be a good idea. However, I am not sure if that would run into any regulatory issues (i.e., I'm not sure if any states have specific rules about attorneys' fees provisions in prommissory notes for creditors of Prosper's type). Definitely something Prosper should look into. And if the regulatory question was too difficult to untangle, since Prosper is planning on starting by suing California deadbeats, it seems to me that Prosper should immediately consider if there were any California regulatory issues regarding attorneys' fees for California borrowers. If not, Prosper could have a California specific prommissory note that had an attorneys' fees provision.
I'm also not persuaded that Prosper's model is so unique that a law firm would have to throw out everything and start from scratch, or that no firm would handle these cases on contingency (or some sort of modified contingency).
I agree with this. Prosper loans money to borrowers who sometimes default. Nothing unique about that. Sure there are a few complications, but nothing that immediately jumps out at me as being sui generis. Although there are actually fill in the blank form complaints drafted by the Judicial Conference in California that could be used, probably Prosper would draft up its own complaint, which would have a few paragraphs explaining the nature of Prosper and how it works. But once a standard complaint was drafted, it would become a fill in the blanks model, since every lawsuit in California would basically be identical except for the borrower's name, city, date, rate and amount of loan, and repayment history. So even if Prosper spent $10K on the first complaint, each additional one would cost around $1.95 (give or take
![Grin ;D](/forum/Smileys/default/grin.gif)
).
It seems to me that the liability issue in these cases would be virtually cut and dried. Here's the prommissory note, here's the repayment history, the borrower is in default, owes this much money, now pay me my money down. The only real question IMHO is whether a judgment would be collectable. And collections attorneys' are quite good at figuring that out. Thus, I don't see why there wouldn't be attorneys who would take these cases on some sort of contingency.