How is a charge off acceptable? What does that get us?
I think it may be an excellent thing. Present system wasn't working.
I hope that what "charge off" means is that they will now consider the entire loan due, not just a few payments, and will therefore commission whoever is going to do the collecting from that point (inside or outside) to collect the ENTIRE loan amount, and make their compensation therefore be a percentage of that entire loan amount instead of a percentage of a few payments. This is necessary to fund an appropriate final collection process. See the discussion of this in my "open letter #2" to prosper.
Sure, there are some legal details in the way, and Prosper's lawyers have been stupid about drafting the documents, and revising them when they knew changes were needed, aren't helping now by figuring out a way to properly proceed, and so forth, but I don't think that's Doug's fault.
Adaptation is necessary. Present system wasn't working.
So now Prosper can call up a borrower who has a 10K loan that went bad and say, "Hey, I hear you have this $1200 stimulus check coming next week. How about you send us the $1200 and we'll consider your 10K debt payed in full."
Lenders here will be overjoyed, since they will be getting 6.67 cents on the dollar, higher than the what the JDB was offering. (Okay, so it's really 8.33 cents on the dollar, but shouldn't Prosper get a 20% cut for its hard work and diligence? Lenders were saying they didn't mind paying AmSher 17% if they could get a payment, so it's the same idea).
I'd rather get 1.5 cents on the dollar and have Prosper honor its agreements than be given a promise for more where there is no accountability.
Present system wasn't working. Agreed. One way to fix that is to:
(1) Sell all the 4+ loans at the market price, since that is required under the LRA in effect when lenders bid and the loans were originated. Honor current agreements.
(2) Change the LRA and prominently announce the change--that Prosper reserves the right to accept the LRA price or pursue its own post-charge-off collection techniques.
(3) For the next quarterly debt sale, the bad loans were probably all made under the old LRA, so sell those at the best market price. Be transparent.
(4) For the next quarterly sale after that one, get bids from the JDB's just like before.
(5 When the JDB bids are known, take a poll on the Lender Forum and ask lenders if Prosper should a. Sell at the best offered price (xx cents on the dollar) or b. Use Post-Charge-Off Collection Techniques (which Prosper hopes will get more).
The poll could be structured so that lenders who have more $$$ in 4+ lates could be given more voting power than someone who has just one bad snickers--this might take a couple hours of programming time for someone.