Tempest In a Teapot Brewing in SanFran | P2P Lending, Peer to Peer Lending, People to People Lending

The old forums were a mess, Leperello, Ira01 and a couple of others made unfair, inflammatory and sometimes flat out false statements. They were running an “I hate Prosper” club on it, ragged on anyone who didn’t tow their party line and were shocked and surprised when Prosper took action again. I’ve started looking at the rules for other forums I visit and they are practically the same as the rules on the old forum (and not much different from the new forum).
I haven’t visited Prospers.org,so I don’t know exactly what they are saying, but Prosper isn’t the bad guy, so much as a company that seeks to protect themselves from a small group of irate egomaniacs.

If you go to a restaurant and put down $300 for a big meal, and then start to cuss out the staff and disturb the other diners, you’re going to get kicked out, even if you did put down $300, and complaining that the restaurant treat’s it’s customers badly isn’t going to help you. If the choice is between old forum and new forum, I’ll take new forum with it’s flaws. Over time maybe they can be fixed. The old forum was irrepairable

Can you post some graphs of the Teapot Tempest to Prospers.org?

I am particularly interested in vortex speed vs teapot size

chrisfs, your comment above is quite interesting.

First you say, “Leperello, Ira01 and a couple of others made unfair, inflammatory and sometimes flat out false statements.”

Then go on to say in the same paragraph, “Prosper isn’t the bad guy, so much as a company that seeks to protect themselves from a small group of irate egomaniacs.”

To me, your comment sounds a bit unfair and inflammatory, perhaps flat out false – hypocritical at least.

Small group? I would venture a guess that active prospers.org members make up at least 3-5% of all lender money lent on prosper.I’m guessing the total is somewhere around $4 million from the (small group)

I just saw chrisfs’s comment, and I feel compelled to respond. I think everyone who is moderately experienced with Prosper and the various forums knows that chrisfs is little more than a Prosper cheerleader. The comments I made on the old Prosper forum were not unfair, inflammatory, or false. They were, in sum, an accurate description of Prosper’s many problems, including in many cases possible solutions. But Prosper doesn’t care about solutions to its many problems; it cares mostly about sweeping them under the rug so new lenders do not learn of them intil after investing a bunch of money. For the sake of balance, here are some of Prosper’s many problems:

I have been a lender on Prosper since March, with about $2400 invested. Although my projected ROI is about 8.6%, I stopped lending in October for a variety of reasons all linked to Prosper’s management. Basically, the best way to summarize Prosper is that it is a wonderful concept, executed horribly due to the incompetence and arrogance of management.

There are too many serious problems with Prosper to list here, but brief review of http://www.Prospers.ORG, which is the largest Prosper forums, will provide anyone interested with a long list. Here are a few:

1) The default rate on Prosper is MUCH higher than advertised. Chris Larsen, Prosper’s CEO has been quoted in recent news articles saying the default rate is 2.7%. While perhaps technically accurate using Prosper’s narrow definition of “default,” this is utter balderdash from any real perspective. Prosper only counts a loan as defaulted when it sells it to a junk debt buyer for pennies on the dollar. However, Prosper currently has such sales only quarterly, so it is not uncommon for there to be many loans that are 5, 6, 7, or more months late. Historically, loans almost never come back from being even 3 months late, so all of these loans are defaults in everything but name. Moreover, Prosper calculates its official default rate as the number of defaults divided by the number of loans, but because many loans are too new to have defaulted even if the borrower never made even the first payment (which happens far more often than you might think), this also tends to understate the default rate. So far as can be seen, the real default rate appears likely to be close to 20%.

2) One of the contributing factors to issue #1, is that Prosper’s collections are anemic. When a loan turns 1 month late it is turned over to prosper’s collection agency, but historically, only around 15% of loans in collections are brought current. There have been many annecdotal stories by late or defaulted borrowers on Prosper’s old forums that they either were never contacted by the collection agency, or the contact consisted of an email or 2 and maybe a phone call or two. Prosper’s own newly-hired VP of Collections admitted that the call logs from the collection agency showed that they were repeatedly trying to contact borrowers at the same time of day, such as between 3-5 pm, so if the borrower worked during the day, no contact was made.

3) Very little information about the borrowers is verified by Prosper. Prosper selects a subset of fully-funded listings to verify employment and income, but many listings become loans without such verification. Prosper has already had to repurchase about $400,000 of loans under its ID-theft guarantee, meaning that Prosper let many fraudulent loans through its systems. Indeed, there is one case (identified by a dilligent forum member) where one person obtained a dozen loans from Prosper under different identities. After the forum member outed this on the old forum, Prosper repurchased the loans and sued the borrower in Los Angeles Superior Court to get its own money back. However, there is substantial doubt among the lending community that Prosper tries very hard to identify ID-theft loans, because when it does, it has to repurchase them from lenders. There was one case where a different forum member conducted some excellent detective work (the borrower included enough information in the listing to enable their identity to be discovered), including determining that the “borrower” of a Prosper loan was the victim of ID-theft from other creditors, and he actually spoke with the NYPD detective investigating the case. The forum member gave all this information to Prosper, including the name of the detective, and for months Prosper apparently did nothing (the NYPD detective later told the forum member that he had NOT been contacted by Prosper). Only after a major firestorm errupted on the forum about this, did Prosper repurchase the loan from lenders (after it was about 10 months old, as I recall).

3) Although Prosper has funded a number of fraudulent loans, it has also cancelled a number of legitimate loans, apparently through incompetence. One such loan involved the brother of a well-respected Prosper lender and very active forum participant. After claiming that faxed doduments were illegible and then that Prosper couldn’t open a .pdf file, it cancelled the fully-funded listing with no opportunity for the borrower to resubmit the documents. There have been many other Keystone Kops situations involving Prosper’s verification, including one case where Prosper’s telephone system apparently couldn’t connect to an 888 number (the employer of a borrower), so the loan was cancelled, even though the Prosper employee was able to reach the company on his personal cell phone.

4) Related to issue #3, Prosper’s customer service is terrible. Often, they let the phone just ring and ring without answering it. When you send an email, the response is often irrelevant boilerplate. Lenders used to provide a lot of Prosper’s customer service for free on their old forums.

5) Prosper’s advertising is highly misleading in many ways, if not downright fraudulent (specifically including that “9.49-12.81%” ad, which is discussed in several threads on http://www.Prospers.ORG). They overstate interest rates in ads directed to lenders, and understate them in ads directed to borrowers. Prosper was caught once having photoshopped a screen shot of an actual listing in an advertisement about the rate (they changed the actual rate to something more beneficial). Also, Prosper has repeatedly sent out mass email ads featuring borrower and lender testimonials that were quickly proven to be false. After the first time, Prosper admitted that it hadn’t verified the facts claimed by the person, and said it would do so in the future. But whoops, they promptly did it again (in a different testimonial) in the next ad.

6) Prosper used to have a vibrant community on its official forums, with about 400,000 posts. These forums were an amazing learning experience for lenders, so that new lenders could avoid the mistakes of their predecessors. Prosper banned me from the forums and from lending (although I had already publicly announced that I had stopped lending due to prosper’s mismanagement) because I sent a bunch of PM’s to new lenders alerting them to the existence of Prosper’s own official forums. Then, the day before Thanksgiving, Prosper deleted its entire forum with no notice, in an effort to hide the truth from new lenders. It then replaced the old forums with a super-moderated version that is completely useless (every post must be approved before being posted, which often takes days even when the moderator lets it through, which is rare except for cheerleading posts).

7) When another forum member made an archive of the old forums available on http://www.ProsperReport.com, Prosper had its lawyers send a threatening letter seeking to take the domain away on baseless trademark, unfair competition and cybersquatting grounds. Undoubtedly, Prosper figured this person would cave in and take down the site. Instead, he retained a lawyer from Public Citizen, who responded to Prosper’s letter by explaining how Prosper’s claims are entirely without merit. Both letters are posted on the site. Prosper has yet to respond.

(8) Prosper has also misappropriated thousands of dollars of lenders’ money by charging its servicing fee on loans that were more than a month late, contrary to Prosper’s own legal agreements. This too was discovered by yet another forum member. Prosper admitted that its action was “in error,” but so far has not returned this money to lenders despite having promised to do so months ago, and it has not yet stated whether it would pay interest on this wrongfully taken money.

(9) Another significant issue is whether Prosper will even survive as a company for the three year term of its loans. As can be seen on Lendingstats, loan originations have been essentially flat for the last six months, and Prosper’s CEO has admitted that loan originations need to increase 400%-500% in order for Prosper to turn a profit. Given that, clearly the outlook is troubling. Although the Prosper Lending Agreement specifies that if Prosper goes out of business the loan servicing will be taken over by another servicing company, there is no guarantee that any such company can and will be found, or that the transition will go smoothly, or that the new company won’t require higher fees in order to do the servicing.

The above issues are really just the tip of the iceberg. If anyone is considering lending on Prosper, do your due dilligence. Read http://www.Prospers.ORG, and check out the actual performance of lenders on http://www.LendingStats.com. For example, you will see that looking at ALL moderately seasoned lenders on Prosper (those with >20 loans and >6 month average loan age), the median projected ROI is a mere 4.49% as of yesterday. That is less than the 4.5% E-Loan is offering on its FDIC-insured, 100% liquid savings accounts. And the tax treatment of Prosper loans is also worse (for one thing, you have to pay income tax on the servicing fee that you pay Prosper due to the way it is collected).

Caveat lender!

Leave a Reply

Your email address will not be published. Required fields are marked *