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[ira01]

Right on Prosper's home page, is a gigantic banner at the top stating "Become A Lender. Earn 9.28% returns¹."  (footnote 1, burried halfway down the page on the right, describes the cherry-picked collection of loans that supposedly generates this return.) 

Well, as if this gigantic ad wasn't already misleading enough, Prosper has outdone itself.  The new ad states:

Become A Lender. Earn 9.49-12.81% returns¹.

 
The footnote (still burried halfway down the page off on the right) states:

Rates of return shown are the average annual returns on Prosper loans originated between 7/1/06 and 10/30/07 to borrowers with AA - C credit grades who requested automatic funding, have 0 - 1 current delinquencies and 0 inquiries in the last 6 months on their credit record, as of 11/30/07.

 
Talk about your carefully cherry-picked collection of loans!  0-1 CDQ, 0INQ, AF loans.  Unbelievable.  Moreover, when I just attempted to duplicate their results, I got 9.25%-12.49%.  The 9.25% is for AA's, of which there are only 71 loans.  The 12.49% is for C's, of which there are only 116. 

So aside from the fact that I bet that these loans (especially the C's) will default at rates considerably higher than what Prosper's performance page is currently predicting (thereby lowering the returns), once newbies see the ad and figure "I've got to get a piece of that," the rates on this basket of loans will get bid way down, thereby substantially decreasing the returns.

Well, Prosper has now changed the footnote again, leaving the banner ad the same ("Earn 9.49-12.81% returns¹.")  The new footnote, which is now at least close to the bottom of the page (who says Prosper doesn't read this board?) reads:

Rates of return shown are the average annual return on Prosper loans originated between 6/1/06 and 10/26/07 to borrowers with AA credit grades who have 0 delinquencies and 0 to 2 inquiries on their credit record, as of 11/26/07. For more information click here.

Frankly, I don't even know where to start with this bullshit.  The first thing that is apparent, is that it makes zero sense for the footnote to now include a single credit grade (AA) while the banner ad continues to include a range of returns.  What is the range of returns supposed to signify -- whether you are lucky or not?  The return is what it is, and there is no range.

Second, Prosper's description of the cherry picked bucket of loans in the footnote is ambiguous -- what does "0 delinquencies" mean?  0 CDQs, 0DQ7s, or both?  I ran the numbers all three ways, and (to no one's surprise, I'm sure), Prosper's banner ad still misrepresents the return by substantially overstating it.  For 0CDQ's, the return for the described bucket is 9.26% (which is also the best return for any credit grade with those parameters).  For 0DQ7s, the return is 9.16% (which is also the best return for any credit grade with those parameters).  If you interpret the footnote to mean 0 CDQs and 0 DQ7s, the return for AA is 9.21% (although the return for B is 10.53).  Bottom line -- under any of these interpretations of the footnote, the banner ad's statement "Earn 9.49-12.81% returns" is a misrepresntation, if not simply fraudulent.

Third, as if to prove that Prosper is so incompetent they cannot do even the simplest things correctly, recall that the footnote ends: "For more information click here."  That is a link to the performance page -- however, the paramaters preloaded into the performance page when you click the link are completely different than what is specified in the footnote -- it uses DTI 0-40%, 0 CDQ's, 0-3 INQs, and (6/1/06-11/22/07, observed 12/22/07), which is apparently the current default settings for the performance tab.  That search yields a return of 9.09 for AA (and worse for all other credit grades).  Would it really be too much to expect that the footnote to the banner ad actually describes a cherry-picked subset of loans that actually have the same performance touted in the ad (and that the link in the footnote takes you to the performance page running those particular numbers)?  What is the point of Prosper's constant tinkering with the footnote, if they never fix the problem (and in fact, seem to make it worse each time)?

[Fred93]

Well, as if this gigantic ad wasn't already misleading enough, Prosper has outdone itself.  The new ad states:

Become A Lender. Earn 9.49-12.81% returns¹.

 
The footnote (still burried halfway down the page off on the right) states:

Rates of return shown are the average annual returns on Prosper loans originated between 7/1/06 and 10/30/07 to borrowers with AA - C credit grades who requested automatic funding, have 0 - 1 current delinquencies and 0 inquiries in the last 6 months on their credit record, as of 11/30/07.

 
Talk about your carefully cherry-picked collection of loans!  0-1 CDQ, 0INQ, AF loans.  Unbelievable.  Moreover, when I just attempted to duplicate their results, I got 9.25%-12.49%.  The 9.25% is for AA's, of which there are only 71 loans. 

Wow.  I didn't mind too much when they started advertising a return based on a subset of loans.  They probably should have made it clearer, but the idea itself isn't bad.  They are endorsing the notion that you should be selective, and use the credit data they provide.  So far so good.  But this latest example is really pretty funny.  My guess is that the marketing person took the idea and ran with it, constantly tweaking, and not really understanding what she's doing.

Hey, here's a little subset of 71 listings that comes out lookin' good on the performance page.  Quick ... lets run a national ad campaign!