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[ira01]

Right on Prosper's home page, is an ad directed to borrowers :  "Get a personal loan at a great rate."  Then it has (in the largest font anywhere on the page by far) "6.58% APR," and in a considerably smaller font above that, "Fixed rates as low as."  In another section of the home page, it states "How Prosper loans compare," and it includes a bar graph with one bar labeled Prosper 6.58% APR" and 4 other (twice as long) bars labeled Citibank, Capital One, Chase, and Wells Fargo, at rates between 14.55% and 16.25%.

Although there is a link to a BankRate page from where Prosper apparently got the comparison rates from the banks, nowhere does Prosper state (or include a link to) how it came up with the 6.58% rate.  So I took a look at Lendingstats.  There have been 8,902 Prosper loans originated so far this year (1/1/08-8/6/08).  Of these, a mere 189 (2.1%) have a rate less than or equal to 6.58%.  And a number of these were clearly family/friend loans at far-below market rates, not available to regular Prosper borrowers.  For example, 3 loans were at 0% interest, and 1 was at 0.01%.  12 of the 189 loans were to HRs, which are obviously friend/family loans. 

So how exactly (other than by tossing ethics to the wind) can Prosper advertise rates "as low as 6.58%" in comparing itself to banks, when only 2.1% of all loans originated this year met that criteria (and many of those were special deals not available to the public)?  I'm surprised that Prosper didn't advertise rates "as low as 0.00%" (after all, there were 3 such loans this year) -- that would have been equally (dis)honest.

Even if you look at only the AA loans originated this year (1,323), only 11.8% of them had a rate less than or equal to 6.58%.  In my humble opinion, advertising a rate that only 1 person in 9 got is fraudulent (and Prosper's actual advertisement, of course, wasn't limited to AA's, so only 2 people in 100 got the rate Prosper advertised).  The MEDIAN (half do better, half do worse) rate for AA loans this year is 35% higher -- 8.9%.  So an honest advertisement would have been "Rates as low as 8.9% for AA credit rated borrowers (interest rate is the median for all such loans this year)."  Not as snappy, but at least it is honest.  Obviously, Prosper doesn't care about that, however.

A moderator should feel free to move this thread to the Lobby.

[NewHorizon]

So how exactly (other than by tossing ethics to the wind) can Prosper advertise rates "as low as 6.58%"...

I thought I saw where the 6.58% figure was said to come from the Jin-Freedman study.  But now, I don't see where they're citing this as the source of that figure. - an unfathomable omission, imho.    ...unless I'm just blind.

But anyway, at http://blog.prosper.com/2008/06/10/new-study-on-prosper-returns-and-dynamics/ where this study is discussed, we read,

The highest returns were in Near Prime loans (grades B-D) at an average of 8.27%, followed by Prime loans (grades AA & A) at 6.78% and sub-prime loans at 1.73%.

I can't explain the 0.20% difference, tho'.
ETA: Maybe they re-ran Jin-Freedman's math more recently and the figure dropped by 0.20%...?

[ira01]

But anyway, at http://blog.prosper.com/2008/06/10/new-study-on-prosper-returns-and-dynamics/ where this study is discussed, we read,

The highest returns were in Near Prime loans (grades B-D) at an average of 8.27%, followed by Prime loans (grades AA & A) at 6.78% and sub-prime loans at 1.73%.

I can't explain the 0.20% difference, tho'.
ETA: Maybe they re-ran Jin-Freedman's math more recently and the figure dropped by 0.20%...?

Nope, that doesn't explain it.  The study was talking about lender RETURNS, while the ad is directed to borrowers' RATES -- two completely different things.

[bookwyrm]

So how exactly (other than by tossing ethics to the wind) can Prosper . . .

I thought that the entire point of that letter that got sent a (couple?) month(s?) ago was that "tossing ethics to the wind" was exactly what Prosper had been doing?

[NewHorizon]

But anyway, at http://blog.prosper.com/2008/06/10/new-study-on-prosper-returns-and-dynamics/ where this study is discussed, we read,

The highest returns were in Near Prime loans (grades B-D) at an average of 8.27%, followed by Prime loans (grades AA & A) at 6.78% and sub-prime loans at 1.73%.

I can't explain the 0.20% difference, tho'.
ETA: Maybe they re-ran Jin-Freedman's math more recently and the figure dropped by 0.20%...?

Nope, that doesn't explain it.  The study was talking about lender RETURNS, while the ad is directed to borrowers' RATES -- two completely different things.

Umm, nevermind, then.   

[Urbi_et_Orbi]

Aren't there strict regulations for financial institutions regarding documentation required for making such claims?

[ira01]

Aren't there strict regulations for financial institutions regarding documentation required for making such claims?

I thought so.  I wonder which agency is responsible for overseeing WebBank?

[Mark12547]

A moderator should feel free to move this thread to the Lobby.

I started a thread in Prospers.ORG Suggestions/Comments, asking if everyone is cool for me to move this thread into the lobby. Please respond in For Lobby: Prosper's Highly Misleading Ad to Borrowers.

Thank you!

[Fred93]

Ira -- you should start a blog.  You've written about a series of these issues, and I think they all get lost among all the discussion threads here.

[loanauctions]

PMI should get an award for converting pig shit into Blue Ribbon Apple Pie.

[xraider]

Ira, please start a blog.

[ira01]

The first thing I noticed after tonight's maintenance was that Prosper changed the rate in its ad to 8.68% (instead of 6.58%).  There's still no explanation anywhere of how Prosper calculated made up this number. 

Although advertising 8.68% is certainly better than advertising 6.58%, IMHO it is still wildly misleading.  From January 1, 2008 through August 18, 2008, Prosper originated 9,399 loans.  Of these, a mere 883 -- 9.4% -- were at 8.68% or below.  Thus, 8.68% is hardly a typical result that should be advertised. 

Even looking at only AA loans (which Prosper nowhere limits its advertisement to), less than half were at 8.68% or below (643 out of 1378).

Prosper, is it really so difficult to try putting some TRUTH in your advertising?

[aurel57]

The add says "rates as low as" I don't see that as being misleading. It says nothing about being an average loan rate. 

[kingnod]

Even looking at only AA loans (which Prosper nowhere limits its advertisement to), less than half were at 8.68% or below (643 out of 1378).

Well using ira01's comment alone would suggest that it may be an average, some kind of mean, or even a median of AA loans.

[God-Father]

Even looking at only AA loans (which Prosper nowhere limits its advertisement to), less than half were at 8.68% or below (643 out of 1378).

Well using ira01's comment alone would suggest that it may be an average, some kind of mean, or even a median of AA loans.

True, but all this justifies is that Propser could have advertised even lower rates and still been truthful as long as they said "rates as low as".