[This report was originally posted on the Lenders - General forum of Prospers.org (as well as the now-deleted official Prosper.com discussion boards) on October 31, 2007; I am eposting it here so that it can be read by visitors to the site as well as registered users. Extensive discussion appears on the origianl thread at
http://www.prospers.org/forum/index.php?topic=3671.0 (registration required).
I will also be re-posting the MNH Reports series on my new blog at
http://blog.traveler505.com.]
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MNH Report #1Under Section 5 of the Lender Registration Agreement,
With respect to each Note you purchase from Prosper, the Servicing Fee is payable only upon Prosper's receipt of the full monthly payment from the borrower on such Loan no later than thirty (30) days after the due date of the payment.
It appears that Prosper has repeatedly violated the terms of this agreement – and breached its fiduciary duty to lenders as the servicing agent for these loans -- by deducting Servicing Fees from payments which are made more than 30 days after the due date.
I was a lender on Loan #1976 (Borrower: abrittain), now defaulted. Every payment which was made on this loan was made in the form of a community payment, and almost all of them were made by me (on her behalf). Given this dual role, I can say with certainty that every payment on this loan was made “later than thirty (30) days after the due date of the payment” and, beyond that, that no payment made on this loan ever brought this loan to within 30 days of being current. As a result, under the terms of the Lender Agreement, no Servicing Fee was payable to Prosper.
Nevertheless, Prosper abused its power as servicing agent to deduct a Servicing Fee from each payment, as shown on my Account Activity page:
Nov-21-2006 003386713 $0.10
Dec-04-2006 003666637 $0.01
Dec-28-2006 004400835 $0.02
Jan-17-2007 005066722 $0.02
Jan-22-2007 005327198 $0.00
Feb-21-2007 006500138 $0.03
Mar-19-2007 007844654 $0.02
Apr-23-2007 009751255 $0.03
Jun-18-2007 011192551 $0.03
Jul-09-2007 013384189 $0.04
(While the Servicing Fee charged on the Jan-22-2007 payment is listed as $0.00, this is due to rounding. The full six-digit display shows that a fee was taken by Prosper.)
No refunds or Servicing Fee Adjustments associated with this loan appear on my Account Activity page.
Unfortunately, this is not an isolated incident. Two other borrowers in my portfolio have made payments more than 30 days after the due date of the payment. In each case, Prosper deducted a Servicing Fee without the legal right or authority to do so:
Loan 1236 (Borrower: cheriamor01) Feb-01-2007 005647157 $0.05
Loan 1380 (Borrower: laurenleigh) Jan-09-2007 004909806 $0.04
If the limited data from my account is any indication, it would appear that Prosper has taken a Servicing Fee from every 30+-day-late payment made by a borrower.
While these unauthorized deductions are only pennies each, this data covers only one lender account (with only a $50-$62 stake in each loan) and only three loans. If this pattern extends across all loans and all lenders, and through the full history of Prosper, as I suspect it does, then Prosper has taken thousands dollars from lenders’ accounts without legal authority to do so. (If the collection agencies had been effective in collecting 30+-day-late loans, the total amount of unlawfully misappropriated funds would have been much higher.)
None of these loans involved borrowers in groups whose group leaders charged fees. However, a report on this forum from I_M_Spartacus suggests that Prosper has also been deducting funds from late payments for group leader fees.
http://forums.prosper.com/index.php?showtopic=31528Paragraph 13 of the Lender Agreement provides, in part:
a. You acknowledge that the group leader on certain loans that resulted from listings that were posted prior to September 13, 2007 may receive a percentage of the interest portion of each monthly loan payment made by each borrower on your Notes, provided that no loan payment is more than thirty (30) days past due. ….
b. The group leader will not receive any Finder's Payment Reward at a time when any payment on a Note is more than thirty (30) days past due. With respect to loan payments received by Prosper on a Note that is more than thirty (30) days past due, Prosper will pay you, rather than the group leader, the entire amount of principal and interest received on such Note.
Since any payment made while a loan is in collections would be “received by Prosper on a note that is more than thirty (30) days past due,” the lenders would be legally entitled to “the entire amount of principal and interest received,” with no deduction for group leader fees.
I am unable to verify the accuracy of I_M_Spartacus’s post using data from my personal lender account, but, if that post is correct, Prosper is also breaching its fiduciary duty to lenders by misappropriating lender funds for the benefit of group leaders. (Because group leader fees could range as high as 5.0%, while the Prosper servicing fee was set at 0.5%-1.0%, the total dollar amount taken by Prosper without legal authority for the benefit of group leaders may be much higher than the amount taken for Prosper’s own benefit.)
Because the Lender Agreement specifically precludes Prosper from deducting Servicing Fees and Group Leader Fees from payments made more than 30 days after the due date, and because doing so constitutes a breach of contract and breach of fiduciary duty on the part of Prosper Marketplace Inc., I request that Prosper make immediate restitution of the misappropriated funds to lender accounts.
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How can you, as a lender, know if your funds have been misappropriated?
There may be a simpler way, but here’s how I did it: While signed in at Prosper, select the “Your Account” tab, then the “Accounts” tab. Click on the link for “Activity.” Set the Recorded Dates to cover the entire period during which you have been a Prosper member, and set Purpose to “Collection agency fee”. Then click the “Search” button.
This will generate a list of payments on which a Collection Agency Fee was deducted; these should also be the payments received on loans which are 30+ days late. Sort this list by Loan ID.
For each Loan ID, click on the link for the loan number; this will take you to the payment history for that loan. Locate the line in the payment history which corresponds to the payment from which a Collection Agency Fee was deducted.
If you see a deduction for “Servicing fee” or “Group rewards” associated with a payment from which a “Collection agency fee” was deducted, then you have probably been a victim of this practice.
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Final disclaimer: I am not a lawyer, and nothing in this post constitutes legal advice.
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Topic: Misappropriation of lender funds by Prosper Marketplace Inc. (Read 11125 times)