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[ira01]

It's petty to jump up and down demanding the Prosper "do something" and then to jump up and down saying "but the agreement says they can't do that."  We can't have this both ways.

You ignore the fact that there is a big difference between "do something" and "do this."  It is not trying to "have this both ways" to want Prosper to choose something to do that is also in compliance with the legal agreements.  I already posted above one thing that Prosper could have done -- use opt-in, rather than opt-out.  And there are other options as well.

Moreover, it is not I, but Prosper, that is trying to have it both ways.  Don't forget that Doug Fuller's asserted (though patently false) rationale for denying Traveler's offer to repurchase one of the defaulted loans (for $500 more than Prosper later received from the JDB) was that doing so would not be in compliance with the Lending Agreement.  Funny how Prosper only seems to care about that when convenient to Prosper.

[LoanChimp]

Unless a majority of lenders object (highly unlikely), all of Penncro's loans will be switched over to Amshar.

Has anyone considered that Penncro fired Prosper as a customer?

If I remember correctly, they were operating at a loss to gain the lions share of Prosper's business, hoping it would grow to infinity and beyond. They might have grown tired of bleeding red on the Prosper account.

I wouldn't be surprised to see penncro off the list once the collections switcharoo happens...

(just a theory)

[traveler505]

Unless a majority of lenders object (highly unlikely), all of Penncro's loans will be switched over to Amshar.

Has anyone considered that Penncro fired Prosper as a customer?

If I remember correctly, they were operating at a loss to gain the lions share of Prosper's business, hoping it would grow to infinity and beyond. They might have grown tired of bleeding red on the Prosper account.

I wouldn't be surprised to see penncro off the list once the collections switcharoo happens...

(just a theory)

Prosper was fired by one of the original collection agencies, and it simply switched all of the loans over to a new agency.  The fact that they are using an opt-out process with a virtually pretertermined outcome this time around - rather than just announcing the change - suggests that either (a) Prosper has become more sensitive to the contractual compliance issues, and at least wants to present a plausible claim that lenders consented to modification of the contract, or (b) Prosper is making this change by choice, not by necessity, and as a result believes its legal position is more tenuous this time around, so it has to cover its arse a bit better, if still imperfectly.

[traveler505]

As an aside, I wonder whether Prosper's agreement with Penncro entitles Prosper to make this change.  If not, Penncro may well sue Prosper.

The agreement is here:

http://www.sec.gov/Archives/edgar/data/1416265/000110465907078072/a07-27421_1ex10d4.htm

[LoanChimp]

Unless a majority of lenders object (highly unlikely), all of Penncro's loans will be switched over to Amshar.

Has anyone considered that Penncro fired Prosper as a customer?

If I remember correctly, they were operating at a loss to gain the lions share of Prosper's business, hoping it would grow to infinity and beyond. They might have grown tired of bleeding red on the Prosper account.

I wouldn't be surprised to see penncro off the list once the collections switcharoo happens...

(just a theory)

Prosper was fired by one of the original collection agencies, and it simply switched all of the loans over to a new agency.  The fact that they are using an opt-out process with a virtually pretertermined outcome this time around - rather than just announcing the change - suggests that either (a) Prosper has become more sensitive to the contractual compliance issues, and at least wants to present a plausible claim that lenders consented to modification of the contract, or (b) Prosper is making this change by choice, not by necessity, and as a result believes its legal position is more tenuous this time around, so it has to cover its arse a bit better, if still imperfectly.

Perhaps. It all depends on how it's spun...

[Fred93]

They were curing about 6% of 1 mo late accounts back then.  Now they are curing about 20% (of loans recently gone 1 mo late).  That's a big improvement.  Apparently the turnip has some blood after all. 

I disagree with you accounting, at least based on the numbers provided by Prosper here: http://www.prosper.com/help/topics/lender-collection_agencies.aspx

Look down at the Penncro section, and under "Last 3 months" the amounts brought current within one month in the three separate credit buckets are 7.26%/7.43%/5.6%.  That's a far cry from the "20% of loans ...

I can see that you haven't been reading my blog.  There are some issues you need to understand when interpreting Prosper's numbers.  It isn't straightforward.

First, you can't use the "last 3 months" numbers.  They don't mean what you think they mean.  It would be great if they meant "loans that entered the collections process in the last 3 months".  Instead, they mean "loans that have been in the collections process at any time during the last 3 months".  The "last 3 months" numbers INCLUDE all the horribly old loans 3 months late, 4 months late, 5 months late, 6 months late, 7 months late, that are sitting around at Penncro waiting for the next auction.  The "good" loans get cured, and the bad ones sit around and age.  The "last 3 months" statistics are polluted by the old bad loans sitting around aging.

Therefore, you have to use the "lifetime" numbers.  When interpreting the lifetime numbers, you have to realize that they represent an average over all time.  In the olden days (last year) collections performance was much worse than it is now.  That's obvious by the fact that the fraction brought current has been going up.  By observing how much it has gone up in a time interval, we can estimate what the current performance is.  It is above 20%.  More explanation is available in my blog.

[patio11]

Traveller, my read of the agreement you posted is that Prosper is doing step one of the Prosper Two Step:

1)  Excercize their discretion to withdraw any accounts from Pennecro for any reason whatsoever.
2)  (As soon as every single account is moved, due to the "majority by opt-out" voting requirement, which we all know is impossible to satisfy.) Give Pennecro notice that they intend to terminate their relationship completely in 90 days.

[ira01]

Unless a majority of lenders object (highly unlikely), all of Penncro's loans will be switched over to Amshar.

Has anyone considered that Penncro fired Prosper as a customer?

If I remember correctly, they were operating at a loss to gain the lions share of Prosper's business, hoping it would grow to infinity and beyond. They might have grown tired of bleeding red on the Prosper account.

I wouldn't be surprised to see penncro off the list once the collections switcharoo happens...

(just a theory)

Prosper was fired by one of the original collection agencies, and it simply switched all of the loans over to a new agency.  The fact that they are using an opt-out process with a virtually pretertermined outcome this time around - rather than just announcing the change - suggests that either (a) Prosper has become more sensitive to the contractual compliance issues, and at least wants to present a plausible claim that lenders consented to modification of the contract, or (b) Prosper is making this change by choice, not by necessity, and as a result believes its legal position is more tenuous this time around, so it has to cover its arse a bit better, if still imperfectly.

(a) doesn't make any sense to me, since if Penncro fired Prosper, then there wouldn't be any contract compliance issues for Prosper -- staying with Penncro would have become impossible, so of course there would be a switch.

[ira01]

As an aside, I wonder whether Prosper's agreement with Penncro entitles Prosper to make this change.  If not, Penncro may well sue Prosper.

The agreement is here:

http://www.sec.gov/Archives/edgar/data/1416265/000110465907078072/a07-27421_1ex10d4.htm

Thanks Traveler.  Interesting stuff:

2.6  Collector shall not contact or communicate with any third party investor, owner or purported owner of an Account. All communications of any kind with the owner of an Account shall be by and through Company. If Collector is contacted by a third party investor, owner or purported owner of an Account, Collector shall immediately notify Company of such contact.

So the Penncro/Prosper original contract (9/2005) contained the xraider clause -- very interesting.

2.14 Collector may accept payments from borrowers in multiple formats, including cash, check, wire, ACH, debit card and credit card. Collector shall transfer payments received by Account obligors to Company’s designated account immediately upon receipt and clearance from borrower, on a daily basis, and in ACH or wire format. Collector shall bear the cost of electronic transmission of funds.

So if the suspicions that Penncro is holding back borrower payments are correct, Penncro is breaching its contract with Prosper.

Appendix B

Technology Requirements

•                  Technology requirements may be modified by the mutual written consent of the Parties.

•                  Data transmissions to and from P2P Credit will occur via a secure FTP server on a daily batch basis using a P2P Credit approved format.

•                  “Diff” files on P2P Credit account information to be transmitted from Collector to P2P Credit daily. Complete P2P account information to be transmitted on a weekly basis.

•                  Borrower account information to be maintained will include, among other items, number and mode of contact attempts, successful contacts and content of interaction, and repayment information.

So as I've previously speculated, Penncro provides Prosper electronic data daily detailing all its collections activities.  So why hasn't Prosper made that information available to us?  It would be easy for Prosper to make that information visible to the lenders on a loan in collections.

ADDENDUM NUMBER ONE TO COLLECTION SERVICE AGREEMENT

Prosper pays Penncro $.20 per account to make telephone calls on Prosper's behalf to borrowers who are 1-30 days late.  I didn't see a date on the addendum, so I wonder when this started?  Perhaps when Prosper brought CS in house from overseas.  And how does Penncro make any money at this price?  If it made 1 call attempt per minute, it would be paid $12 per hour.  Sure, a lot of calls may result in the borrower not being home and a quick message being left, but some calls must take several minutes (especially if a payment is made).  

[traveler505]

Prosper pays Penncro $.20 per account to make telephone calls on Prosper's behalf to borrowers who are 1-30 days late.  I didn't see a date on the addendum, so I wonder when this started?  Perhaps when Prosper brought CS in house from overseas.  And how does Penncro make any money at this price?  If it made 1 call attempt per minute, it would be paid $12 per hour.  Sure, a lot of calls may result in the borrower not being home and a quick message being left, but some calls must take several minutes (especially if a payment is made). 

I assume these are autodialer attempts, and Prosper pays whether anyone answers or not.  So perhaps only 1 in 10 or 1 in 100 attempted calls ever involves a human being.

[Fred93]

Prosper pays Penncro $.20 per account to make telephone calls on Prosper's behalf to borrowers who are 1-30 days late.  ...how does Penncro make any money at this price?  If it made 1 call attempt per minute, it would be paid $12 per hour.  Sure, a lot of calls may result in the borrower not being home and a quick message being left, but some calls must take several minutes (especially if a payment is made).  

Massively parallel autodialer can generate calls at a tremendous rate.  Only a small fraction of these calls involve a human.  Most are no-answer or answering-machine-answer.  

[elroyskimms]

I wouldn't get too vexed about a Prosper about-face on the legal agreements when the change doesn't adversely affect our interests.  The legal agreement isn't a magical spell that we invoke because it is magic, it is rather just an agreement which is designed to protect Prosper and ourselves.  To the extent that Prosper's actions are not destructive to those ends, hang the text.

Speaking of which, I think we are seeing one of the first major policies of Doug Fuller here.  "Either improve collections or we will find someone that will."  Frankly, I'm not imagining that too many of you folks with lates are that vexed over a chance to better the collection performance.

Totally not the point.  Either a legal agreement is valid and binding, or it isn't.  Prosper doesn't get to pick and choose which provisions apply and which can be disregarded at will.  Moreover, while I think the change is a good one, another lender (who may or may not have received the email from Prosper) may not.  Maybe AmSher is owned by Doug Fuller's brother-in-law, and that's the real reason for the change (ok, probably not, but that too isn't the point).

I know I'm jumping in this one a bit late, but I agree with Ira01. I just sent the following e-mail back to Prosper in response to the AmSher notice:

Please help me understand this process. As a lender, I entered into an agreement, which at that time, had a specific collections agency of my choosing. Now, it looks like Prosper is modifying that agreement without my consent. Yes, I know that I can send an e-mail and request that my accounts remain with PennCro but I should not have to actively respond to a notice in order for my contract to continue under its current terms. Imagine the response if Prosper sent out the following notice to borrowers:

"Due to a high rate of defaults for loans with your Scorex rating, we have decided to protect our Lender's investments and are increasing your interest rate by 3%, effective 5 days from now. If you do not want the terms of your loan altered, please send us an e-mail with the subject of, 'Do Not Increase My Rate'."

I understand that this change is supposed to be in the best interest of the Lenders, and I sincerely appreciate it. The fictitious example above would also be in the best interest of Lenders as well, but it is a flagrant disregard for the terms of an existing contract. Good intentions are not enough to justify unilaterally altering a contract.

I appreciate that Prosper has taken the time to seek out a new collections agency, and also report that PennCro's performance is lacking in the worst sense of the word. This is a tremendous step forward and a welcome announcement to us Lenders. However, knowing that Prosper believes it has the right to alter my existing contract based on the lack of a response from an e-mail does not make me feel warm and fuzzy. It actually gives me cause for concern. I need to know that Prosper will stick to its obligations in the loan agreements that I am on. Should Prosper decide to make a change to an existing agreement while I am on vacation, I may not get the e-mail in time to respond. If a Lender wishes to use the new agency, they should acknowledge the change. This would serve as consent to alter the agreement. The lack of a response should never imply consent to alter an existing agreement. I am not a lawyer, but I shudder at the thought of a company with thousands of my hard earned dollars tied up for 3 years and given a free hand to alter existing contracts.

Regards,

[lenderguy]

I can see that you haven't been reading my blog.  There are some issues you need to understand when interpreting Prosper's numbers.  It isn't straightforward.

Guilty as charged.  My statistics professor would shoot Prosper, 'cause they never properly describe their summary statistics.

That's obvious by the fact that the fraction brought current has been going up.  By observing how much it has gone up in a time interval, we can estimate what the current performance is.  It is above 20%.  More explanation is available in my blog.

I read your blog, but under your entry dated 12/30, your graph (Prosper/Penncro brought current function) still shows cure rates at just below 16%.  16% is a far cry from 6%, but it still isn't 20%.  Why does your math say one thing, and your graph say another?

[elroyskimms]

It's petty to jump up and down demanding the Prosper "do something" and then to jump up and down saying "but the agreement says they can't do that."  We can't have this both ways.

My issue is that the change is "opt-out" via e-mail. They didn't even use Prosper.com's built-in messaging system which Ira made such good use of a few months back. It's as if they don't want us to respond. Good intentions or not, a contract is a contract. If it were "opt-in", I'd have nothing but smiles for the announcement. IANAL, but I assume that a contract can change if both parties agree to the changes. Of course I would choose AmSher... my options are no collections at all (AKA PennCro) or something new. You could just make it say, "Anything BUT PennCro" and I would choose it. Considering that Prosper has a secure messaging system which they fiercely protect (as Ira's ban has demonstrated), I would think that they should have used that as well as the e-mail announcement if they really cared about lenders getting the message. Without using that, I can't imagine the "opt-out" e-mail having any legal standing.

My $0.02...

-E

[Mark12547]

I'm on the side of thinking Prosper Marketplace, Inc., should do something more unambiguous than "opt out".

There are several problems of "opt out":

• Contracts need an unambiguous sign of agreement. The problems with an "opt out" email is that it is ambiguous whether the customer has agreed, or the email got lost on the way to the customer or the reply got lost on the way back to the company and, with spam filters getting tighter and tighter each month due to the increasing flood of spam, it is too easy for a valid piece of email to be eaten by a spam filter, not to mention the usual problems from the inception of email, such as a server receiving the email and crashing so the email disappears completely or gets delayed by days or even a couple of weeks.
• Human nature is to do nothing unless prompted to act. By using "opt out", this "momentum factor" biases the results.
• Someone who doesn't carefully read the message might not realize the nature of the response needed.
• The Attorney General's Office of many states require positive affirmation, not an "opt out", for a change in contract that raises expenses. AOL, for example, got nailed for this a decade ago and had to write a routine that would capture logons of those who hadn't indicated a decision and specifically ask if they agreed to a change in terms.

I think it is great that Prosper Marketplace, Inc., is attempting to do something positive for collections, but they still need to dot the i's and cross the t's and the fairest, most unambiguous way to do this is to request an unambiguous sign of acceptance or decline, such as requesting lenders to click on a choice when they log on to Prosper.com.