Avoid This Company Like the Plague

Online person-to-person lending seemed like a terrific concept. People with a bit of available cash could have the opportunity to loan their money to folks who needed it. Without the expensive branches and staffs of brick-and-mortar banks, an online intermediary could keep its costs low. In theory, that would result in higher-than-bank-interest returns for the folks who could lend cash and lower-than-bank-interest costs for the people who needed to borrow it.

If it worked, it would have been a tremendous win for all involved. It's too bad that online-lending pioneer Prosper.com botched the execution of that concept. Sure, any start-up will have growing pains. It's how a company responds and adapts to those pains that really matters.

On that count, Prosper has earned an F.

Perjury or fraud?
The most egregious misstep by the company happened in May of this year. In a filing in United States bankruptcy court, Prosper denied it directly loaned money to either a man who was declaring bankruptcy or to his wife, whom he accused of stealing his identity. Instead, Prosper claimed that it was acting as the authorized agent of individual lenders who loaned the money.

That may seem straightforward, but it's actually directly contrary to the contract that Prosper had with the people who bought the loans it originated. Prosper may call those folks "lenders," but as the contract states, Prosper was the lender and the people it called lenders were really loan purchasers.

So was Prosper misrepresenting itself to the bankruptcy court, or did it execute phony contracts with the people who purchased loans through its service? Either way, if you were looking to get into the money-lending business, you might think twice about whether that's the kind of company you should want to do business with -- especially since you need to give it personal information like:

  • your name,
  • your Social Security number,
  • your bank account information, and
  • your home address.

Why it really matters
In this particular case, whether it was truly identity theft is tough to discern. If it was, Prosper would be on the hook to buy back the loan through its identity-theft guarantee. That's important to the people who bought the loan from Prosper, but it's truly a secondary concern to the real problem unveiled by Prosper's statement to the court.

The real problem is this: Only Prosper knows the true identity of and has the ability to directly verify any claims (such as income) made by anyone looking to borrow money on its site. With Prosper as the original creditor on its older loans (WebBank originates the newer ones), it has rights to attempt to collect under the Fair Debt Collection Practices Act. By its agreement with its loan buyers, in fact, Prosper does administer collections on loans that go sour.

And far too many of those loans are going sour -- fast. Fully 18.5% of all dollars loaned on Prosper between its inception and the end of June 2008 have gone delinquent. Some individual months look substantially worse: More than 35% of the dollars loaned in February 2007 are in some stage of evaporating.

Customers are not amused
Prosper.com member Fred93, who has apparently invested more than $800,000 in Prosper loans, has repeatedly called into question the efficacy of Prosper's collections. Likewise, Prosper.com member ira01, who has also reportedly invested a decent chunk of change, has posted to a discussion forum about several areas in which he says the company is not living up to customer expectations. They include:

  • Misleading advertising
  • The (now defunct) process for selling off non-performing loans
  • Poor identity and income verification
  • Erasing the old discussion forums where borrowers and loan purchasers could interact

With Prosper now denying in court that it even made a particular loan, the problems that customers like Fred93 and ira01 raise take on an even sharper focus. Issues that may once have been excused as start-up pains can't be so easily overlooked. While some loan buyers trust Prosper as if it were their fiduciary, Prosper's statements before the court seem to confirm that it does not act with full fiduciary care of its loan buyers' money.

A better way to loan money
A standard Prosper loan lasts three years. If you have money to loan and that you won't need for three years, an FDIC-insured bank CD is certainly a safer option than buying a Prosper loan. And given the tremendous rates of non-payment on Prosper loans, you just might see a higher return in any of these CDs:

Bank

3-year CD Rate

Discover (NYSE: DFS  ) Bank

4.70%

GMAC (NYSE: GJM  )

4.40%

M&T Bancorp (NYSE: MTB  )

4.40%

Intervest (Nasdaq: IBCA  )

4.36%

California First National Bancorp (Nasdaq: CFNB  )

4.22%

Capital One (NYSE: COF  )

4.07%

Washington Mutual (NYSE: WM  )

3.93%

There may still be a future in online person-to-person lending, but I wouldn't invest another dime in Prosper.com.

The author would like to thank Fred93, ira01, and the other sleuths at http://www.prospers.org for all their hard work uncovering the data that went into this article. At the time of publication, Fool contributor Chuck Saletta owned shares of Discover and Washington Mutual. Discover is an Inside Value selection. The Fool has a disclosure policy.


Read/Post Comments (81) | Recommend This Article (76)

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  • Report this Comment On August 29, 2008, at 5:48 PM, EquityPro wrote:

    Nice read. I will stay away from Prosper.com for sure now.

  • Report this Comment On August 29, 2008, at 6:20 PM, ProspersDotOrg wrote:

    Nice article. Lenders beware indeed.

    I have been involved with Prosper for several years. I stopped lending a year ago. Prosper has gone through excruciating pains to shut up lenders who pointed out issues and tried to have them corrected. You have no idea.

    A lawsuit seems to be brewing over this though which is good. Hopefully lenders will finally get some due respect. Check out fred93's blog.

  • Report this Comment On August 29, 2008, at 6:32 PM, Xenon481 wrote:

    Don't forget to mention xraider as the person that found this BK case and did all the initial digging.

  • Report this Comment On August 29, 2008, at 7:26 PM, bcinvest wrote:

    It's about time a major website listed prosper in a negative light.

  • Report this Comment On August 29, 2008, at 7:44 PM, opinion1956 wrote:

    Did you do any research for this article? Most of these people who groan on all day on the forum you quote are better off with their money in Prosper than in the DJIA. Out of thousands of investors, these same 5 or 10 people complain all day long about Prosper. I really think they need something better to do with their time.

  • Report this Comment On August 29, 2008, at 8:03 PM, j9359 wrote:

    I was an active lender between Dec'06 and May'08 and loaned out a bit over $4k over those 18 months. Prosper had a nice idea but execution was poor at best. Lots of promises but very few were delivered. IMHO the team at Prosper got in over their heads and was naive about the risks associated with making unsecured loans to strangers.

    john.

  • Report this Comment On August 29, 2008, at 8:37 PM, Xenon481 wrote:

    @ opinion1956: There are a lot more than just 5-10 people on Prospers.org. Also, this article has very little to do with the very many, large, important issues that Prosper has, it focuses on one absolutely undebatable issue; that Prosper told a Bankruptcy Court that it operates in a manner exactly opposite of how it agreed with us "lenders" how it operates via its Lender Registration Agreement.

    This means that Prosper *LIED*. Either it lied to the Bankruptcy Court, in which case Prosper is in some big trouble, or it lied to "lenders" via its LRA in which case Prosper has lead us "lenders" into a very sticky and potentially actionable (against us) situation under false pretenses.

  • Report this Comment On August 29, 2008, at 9:51 PM, opinion1956 wrote:

    Respond to this. Lesson One. Prosper carries insurance which will cover the expense of litigation involving their officers and directors. Can you folks at .org say the same thing? Do you realize you are exposing yourselves personally to any costs that may be associated with any suit which may result from the comments you have made, including those now in this article? I think your blogging has now crossed the line. If you cannot prove these serious charges you are acting very irresponsibly. Do you think if you were sued individually the others on the forum would hang in there with you and share the costs?

  • Report this Comment On August 29, 2008, at 10:01 PM, Xenon481 wrote:

    @ opinion1956: What in what I or this article have said is personally actionable against either me or the author? There is no libel here as what we are stating are facts.

  • Report this Comment On August 29, 2008, at 10:10 PM, fool384 wrote:

    Thank you for the first article to appear in a major news source which tells about the problems with Prosper's management.

  • Report this Comment On August 29, 2008, at 10:40 PM, johnrals wrote:

    Thanks for shedding light on these issues. I have had a similar experience - I wish this information would have been available before I got involved in Prosper.

  • Report this Comment On August 30, 2008, at 12:25 AM, futuretrump2 wrote:

    This article is spot on and describes my now two year nightmare of dealing with Prosper. Prosper is completely broken unfortunately. Do not under any circumstances lend on Prosper.

  • Report this Comment On August 30, 2008, at 12:30 AM, ira01 wrote:

    I am the ira01 mentioned in the article. It was a pleasure finally reading an article about Prosper that didn't appear to be written by Prosper's marketing department. If I had a nickel for every "article" appearing in newspapers, magazines, or online that simply regurgitated Prosper's misleading statements about its default rate, typical lender performance, and the like, I could retire a rich man. Perhaps Chuck Saletta can do another piece on some of those issues.

    For example, using lendingstats.com, one of the two main third-party data sites (which compile Prosper's own data in easy to use formats), the median (i.e., half do better, half do worse) estimated ROI of all 13,000+ "moderately seasoned" lenders (those with >20 loans and an average loan age of >6 months) is a paltry 2.57%. Considering that E-Trade and others are offering 3.3% on 100% liquid, FDIC-insured savings accounts (with better tax treatment to boot), that is obviously terrible. But you surely won't see that figure anywhere on Prosper's website or in its advertisements.

    @opinion1956: Prosper already tried to silence a lender critic last year by sending a cease and desist letter from its lawyer seeking to take away the www.prosperreport.com website (which hosts an archive of Prosper's own former official forum which it deleted without warning last year in an effort to keep lenders in the dark) on baseless cybersquatting and other legal theories. Public Citizen graciously agreed to represent the lender pro bono, and sent Prosper a letter essentially telling it to "bring it on." Prosper folded like a cheap suit (no doubt realizing that its position was without merit). So too here. Believe it or not, we do still have free speech in this country -- including criticism of corporations. And in California, where both Prosper and I are located, there is extremely strong protection against SLAPP suits seeking to punish the "little guy" for exercising his free speech rights.

  • Report this Comment On August 30, 2008, at 9:20 AM, xraider wrote:

    Opinion1956, what in the Fool article is inaccurate? More importantly, for purposes of your accusation, what in the blogging is false? Feel free to post your response on the www.prosper.com forums if you're a Prosper employee or if your response somehow otherwise passes moderation there, or on www.prosper.org. If you're not a member at www.prosper.org, there are several topics in the lobby, including one about this article, where you can comment.

    Many lenders, myself included, were led to Prosper by irresponsibly optimistic reporting in financial articles. It's nice to see that a respected financial service is reporting on some of the warts that have caused a lot of people to lose a chunk of money.

    At least in the stock market we can sell and move on at any time. Since Prosper now refuses to default late loans (in violation of the terms of service in effect when most of us started lending, I might add), the end of my Prosper relationship is nowhere in sight.

  • Report this Comment On August 30, 2008, at 10:58 AM, dtpilot wrote:

    I am just wondering whether the author of this article sought any comments or response to the charges they have made against the company from any representatives of Prosper management? Relying primarily on information from sources such as bloggers in a forum could prove to be be misleading to readers. I did check out the current loan statistics of the two lenders mentioned in this article on www.lendingstats.com. Fred93 still has over $265K invested with an estimated ROI of 6.77% (Experian ROI 11.13%) with average loan age of over 500 days and average weighted credit grade of A. IRA01 has only 49 small loans, but so far has 0 defaults, an estimated ROI of 7.87% (Experian ROI 12.08%), and average loan age of 370 days, and average credit grade of C. I realize statistics can be misleading, but this doesn't seem too bad to me considering alternative investments lately and the poor economy and high number of foreclosures. I have had a negative rate of return in my 401K over the past year in comparison.

    There are many lenders on Prosper who rather than carefully select loans to bid on bid blindly on listings using portfolio plans, or very hurriedly at the start to build their loan portfolios. It takes some time to become an educated lender, as many of us have found out the hard way. In addition, I've been told, that some of the information available to lenders on borrower's credit profile now were not available on the loans during the startup phase, so that has to be considered as well when evaluating loan statistics.

    Anyway, I'm hoping the Prosper owners/operators will see this article and respond to all the charges, before I decide whether to continue my investments in peer to peer lending on Prosper or any other site.

  • Report this Comment On August 30, 2008, at 11:01 AM, akkaufman wrote:

    This is an extraordinarily misleading article! The beauty of Prosper is that Prosper has absolutely ZERO responsibility to guarantee your return. As a lender, it's your job to find the good lending opportunities yourself!

    What people using Prosper don't realize is that "diversification" on a platform like this is just begging for trouble. If you don't know personally your borrowers on Prosper then it's simply not worth your time. I rigorously screen my borrowers and then I fully invest in the individual person. They're able to call me anytime with any questions they may have. It's absolutely worth the effort. The individual lenders have to put up genuine effort to find good opportunities on Prosper, just like with anything in life. Just like with the stock market.

    I definitely have tons of money in FDIC-insured instruments that earn a paltry 3.5% and 4.5% - but my one Prosper borrower who has been paying on time (and often over-paying at my occasional request) for OVER A YEAR and speaks with me every couple of months on the phone, was willing to pay me 21% because the payday loans I helped her eliminate were orders of magnitude greater than that number.

    There are not enough good things I can say about Prosper.com. Finally, a platform that allows the individual to control the destiny of their money.

  • Report this Comment On August 30, 2008, at 11:08 AM, opinion1956 wrote:

    A typical complaining investor, "onthefence". Four loans, $200.00 invested, no defaults, no lates. The complaint?

    My point is that the cost of defending yourself can be daunting. Is it worth it? Most of the complainers have little "skin in the game".

    This article has no attribution. Screen names are meaningless.

  • Report this Comment On August 30, 2008, at 11:13 AM, laurast wrote:

    I have also invested a significant amount of time and equity in Prosper - I started investing Sept. '07 and continued until recently. I became disappointed in my returns and the company's (non) responsiveness to its community. I checked lendingstats and looks like I am not alone. Of the first 10,000 lenders only 132 are bidding (and their average total amount bid is only ~$75). As investors get experience with Prosper they realize the pitfalls and problems (and re/the previous post, Prosper discourages lenders from contacting borrowers).

  • Report this Comment On August 30, 2008, at 11:20 AM, xraider wrote:

    Two things.

    First, I cited to prospers(dot)org.

    Second, I have to laugh at dtpilot's comment that Ira01 has no "defaults." I don't either. I DO, however, have a loan that hasn't made a payment in more than a year, and several that haven't made payments in more than 6 months. However, Prosper's last debt sale was in December, 2007. In May, it determined it would no longer hold debt sales but would, instead, apply its own charge off collection techniques. This permits Prosper to falsely represent its results.

    People can go to www.lendingstats.com (www(dot)lendingstats(dot)com to see the number of loans that are four months or more late, which SHOULD have been defaulted. The numbers are staggering.

  • Report this Comment On August 30, 2008, at 11:35 AM, ProspersDotOrg wrote:

    to be clear:

    1) the issue IS NOT guranteed or expected returns from prosper. There is certainly a risk in lending money to strangers. You should proceed carefully.

    2) one of the main the issues IS: prosper adhering to it's lending agreements and fiduciary responsibilities.

  • Report this Comment On August 30, 2008, at 12:31 PM, beerbud1 wrote:

    I'm on this loan. So don't tell me about Prosper not being personally responsible. The have an id-theft guarantee and they lied in a federal bankruptcy court pleading claiming that they didn't make the loan.

    Prosper did make the loan and individuals like me purchased it from Prosper. Thats the main issue here.

    Aside from the wife applying for the loan in the husbands name and social security but then to not tell her husband, what was happening. Why should lenders always be held accountable.?

    This was promoted as a Clean "C" borrower with an income well over $100k per year.

    Prosper has shown how unethical they really are. Don't tell me about lawsuits, because I welcome it. Go Ahead Prosper sue me. I'm waiting...

  • Report this Comment On August 30, 2008, at 12:41 PM, ira01 wrote:

    @dtpilot: Like many former lenders, I did not stop lending becaause of my returns, but because of my displeasure and discomfort with Prosper's business practices. Thus, my returns (decent, though not stellar, and certainly not sufficient to compensate for the high risk) are irrelevant. There is a high degree of randomness and luck involved in looking at the performance of any one lender (since "most" borrowers do pay their loans). That is why you have to look at large groups of lenders or loans to get an idea about the efficacy of Prosper investing. And, as noted above, the median performance of all "moderately seasoned" lenders tells a dreadful story.

    In addition, the "default" numbers are essentially meaningless, because although Prosper's legal agreement with lenders states (and used to state even more clearly) that loans will be sold to junk debt buyers after they become 4 months late, Prosper's last debt sale (which it previously stated would be held on a quarterly basis) was in December 2007. I have 4 loans that should have been defaulted long ago. One, originated in October 2007, never bothered to make a SINGLE payment. A seemingly clear case of fraud (this borrower was a clean B rated borrower), there is no indication that Prosper has done anything about this borrower, despite lender demands that it investigate. Nor is this a unique case.

    As for the "Experian" numbers cited by dtpilot, he/she knows or should know that these numbers, heavily promoted by Prosper, have turned out to be worthless (wildly optomitsic), something Prosper should have known (since they were intended for credit card products, not unsecured loans made over the internet to strangers, with lackluster at best verification processes).

    @akmicrokid2003: You have made only two Prosper loans, one of which repaid in full early. Yes you are making a 20%+ return, but you could just have easily been facing a 50% or more loss (and you still might, if your one borrower stops paying).

    @opinion1956: For someone complaining about the lack of attribution, it is highly ironic to see that you aren't even posting under your Prosper screen name (unlike almost everyone else here), so we can't tell if you are even a Prosper member (or perhaps a Prosper employee).

  • Report this Comment On August 30, 2008, at 2:01 PM, christoofar215 wrote:

    I think it's great this article came out when it did, because what Prosper has said to the BK court is just too damning.

    I've already sent two messages to Prosper customer support and have not heard any response about this issue.

    I've also posted on Prosper's moderated forums and have got back nothing.

  • Report this Comment On August 30, 2008, at 2:50 PM, TMFBigFrog wrote:

    All,

    As the author of this piece, I very much appreciate the passionate discussion that it has generated. I would like to make a few things clear.

    .

    First and foremost, I apologize to xraider for failing to attribute that person as the one who originally uncovered the court document I referenced when writing the article.

    .

    Second, this article was not a blog entry. It was a personal finance/investing commentary -- a mix of data and analysis and referencing others' opinions. It went through an extensive editing process by at least two people other than me before being published. Standard practice at the Fool (and this article was no exception) is for a financial editor to verify the financial data and a copy editor to make sure the wording is appropriate.

    .

    Third, while the article as published did not reference its sources, my initial submission was one of the most heavily footnoted pieces I have ever submitted for publication. I mostly pulled from three different sources: Prosper's own web site, LendingStats, and Prospers.org. Much of what I pulled from Prospers.org was the content that its members had archived from elsewhere, like old lending agreements and the documentation on the bankruptcy court case, though I did reference ira01's and Fred93's comments from that site, as well.

    .

    Fourth, Prosper is a very difficult company for me to write about, so I'm not quite sure what any follow-up articles would look like. Since it is not public, it has no ticker and there is very little public financial data about it. Since it is relatively small, it's tough to come up with articles that are compelling to the general investing / personal finance community. Additionally, in many of the other controversies regarding the company, there seem to be a fair amount of interpretation and perception mixed in with the actual data. I'm really not interested in getting in the middle of a "he said / she said" battle.

    .

    I certainly empathize with the former Prosper loan buyers who may be stuck for the next few years in an investment they no longer wish to have.

  • Report this Comment On August 30, 2008, at 4:17 PM, akkaufman wrote:

    Let me follow up my former comment with another - I'm not sure if my point was clear.

    I am a Prosper user and fan, and so do not speak for or represent Prosper.com - but the problem here is really in the misunderstanding and misinterpretation of what Prosper is really all about.

    Prosper does not and should not have ANY liability, period, for the decisions made by any of its users. That's something the vast userbase of Web 2.0 tools need to understand - by default, if you lent the money, or if you borrowed it, you own everything about that transaction. Just as if you loaned your brother $200 in cash and ask to be paid back "whenever". Calling Prosper users "loan purchasers" is clearly a formality that is necessary given their unique business model - but when signing up that never gave me any misconception about the security of my money.

    Prosper adds a handful of formalized features to make otherwise personal loans into loans that can positively impact a person's credit score. There ought to be no guarantees by Prosper that the credit information presented is correct 100% of the time - there may be such guarantees, but it would only confuse the issue in my opinion.

    If you know how to use Prosper, you figure out who the PERSON IS first before you do anything else. They can lie. Email them. Call them. Go with your gut. Maybe even forget shopping around Prosper's listings and find someone you know and trust in your family or group of friends to lend your money to. Prosper's infrastructure simply formalizes loans that would have been otherwise impossible to formalize.

    The fact that people are throwing around $50 chunks of money on Prosper to "diversify" across wide swaths of complete strangers is just plain stupid - and they really deserve what they get. Screen, screen, and screen again (it works) - and maintain a quality lender-borrower relationship at all times during the life of the loan. That's what big impersonal banks have failed over and over again to provide us with in this day and age - not to mention their unfair license to print money out of thin air.

    If you treat it like a business, then Prosper is a stellar tool. If you think it's just free money - well then you have a lot more to worry about than whether or not Prosper is a decent company.

  • Report this Comment On August 30, 2008, at 5:01 PM, ProspersDotOrg wrote:

    Let me follow up my former comment with another - by stating the same thing I said before

    1) the issue IS NOT guranteed or expected returns from prosper. There is certainly a risk in lending money to strangers. You should proceed carefully.

    2) one of the main issues IS: prosper adhering to it's lending agreements and fiduciary responsibilities.

  • Report this Comment On August 30, 2008, at 6:47 PM, PeerLend wrote:

    TMFBigFrog: "As the author of this piece, I very much appreciate the passionate discussion that it has generated. I would like to make a few things clear."

    Translation: "I feel the need to revisit what I wrote, but am glad that it's driving traffic."

    TMFBigFrog: "Second, this article was not a blog entry. It was a personal finance/investing commentary -- a mix of data and analysis and referencing others' opinions."

    Translation: "I wish to avoid personal liability for making a bifurcated allegation of either perjury or fraud - and hide behind the coat-tails of The Motley Fool. Also, I am confused about what a "blog" is."

    TMFBigFrog: "It went through an extensive editing process by at least two people other than me before being published."

    Translation: "It's not all my fault, let's spread the culpability around a bit."

    TMFBigFrog: "Standard practice at the Fool (and this article was no exception) is for a financial editor to verify the financial data and a copy editor to make sure the wording is appropriate."

    Translation: "I claim that someone else fact-checked the numbers claimed in the article, though not the content or claims therein, and that yet some other user checked my spelling. Therefore, I'm not responsible for what I wrote - my "editors" and "sources" are."

    TMFBigFrog: "Third, while the article as published did not reference its sources, my initial submission was one of the most heavily footnoted pieces I have ever submitted for publication."

    Translation: "Normally, I am not so careful in documenting my "sources", but, at the same time I felt this was very necessary in this case, since it's a hit piece. It somehow escaped my attention to actually reference those sources or get any sources which were not anonymous, or to fact check my article by contacting any of the principals involved, including the company concerned, to even ask for a comment, even though I realized that I was making serious claims which require serious evidence. I am a blogger, not a journalist - and I have been used, and knew it from the beginning, but decided to publish anyway."

    TMFBigFrog: "I mostly pulled from three different sources: Prosper's own web site, LendingStats, and Prospers.org. Much of what I pulled from Prospers.org was the content that its members had archived from elsewhere, like old lending agreements and the documentation on the bankruptcy court case, though I did reference ira01's and Fred93's comments from that site, as well."

    Translation: "I was just repeating what some anonymous people on an anonymous internet forum said. It's not my fault. Besides, TMF has built a viable business around this model."

    TMFBigFrog: "Fourth, Prosper is a very difficult company for me to write about, so I'm not quite sure what any follow-up articles would look like."

    Translation: "To do anything more than attempt to smear them, I might have to do actual research, or attempt to at least pretend to objectivity. This is too much hassle."

    TMFBigFrog: "Since it is not public, it has no ticker and there is very little public financial data about it. Since it is relatively small, it's tough to come up with articles that are compelling to the general investing / personal finance community."

    Translation: "This is why I did not ask it for comment, and took the word of anonymous members on an internet forum, who may have another agenda, as truth, without seeking clarification of any sort from any other party. Also, I don't think the truth would be "compelling" (read: sell well/generate traffic), and clearly I've already been called on the nature of this article, so, I'm not going to write another one."

    TMFBigFrog: "Additionally, in many of the other controversies regarding the company, there seem to be a fair amount of interpretation and perception mixed in with the actual data. I'm really not interested in getting in the middle of a "he said / she said" battle."

    Translation: "I realize that I've gotten in the middle of a "he said / she said" battle, and now wish to extricate myself from further involvement, without admitting same."

    TMFBigFrog: "I certainly empathize with the former Prosper loan buyers who may be stuck for the next few years in an investment they no longer wish to have."

    Translation: "However, before I go, let me get in one last pithy shot at them."

  • Report this Comment On August 30, 2008, at 7:20 PM, ProspersDotOrg wrote:

    Peerlend, have you looked at the facts here or are you too busy playing amateur psychologist / mind reader?

  • Report this Comment On August 30, 2008, at 7:23 PM, opinion1956 wrote:

    Freedom of speech does not allow all speech. Freedom of speech does not allow libel. How does this piece hold to any journalistic standards. No attribution, no attempt for rebuttal by the company. Were any facts checked?

    I know you .org folks find yourselves amusing, sitting alone blogging on your computers. If you cause anyone, including me, to lose dime one because of any statements which are not true you have opened yourselves up to civil action. Don't you see that. You are so proud of the archived forum. Read through some of the old posts and tell me you are proud to be associated with some of the statements of "bama". Your comments are now in the correct place as you continue to "fool" yourselves.

  • Report this Comment On August 30, 2008, at 7:27 PM, xraider wrote:

    Your point, peerlend? I assume that the author read Prosper's answer in the bankruptcy court (publicly available on PACER) and was able to get the Lender's Registration Agreement that governed at the time the loan was issued. The contradiction is striking. I truly believe that Prosper did not believe it would be caught. IF the answer was a mistake, I would have expected that Prosper's counsel would have filed an errata. The absence of an errata suggests that Prosper and its lawyers were hoping to get away with a fast one.

    Are you a "lender" on Prosper? (TAhe name "PeerLend" does not appear on the third party sites.) If you are a lender, are you comfortable having Prosper tell a court, essentially under penalty of perjury, that it never loaned to the debtor or his wife? What's the likely inference to be drawn if Prosper says it isn't the lender?

    Thanks for your post, though. The more posts, the more likely people will find their way to the article. I hope new or potential lenders see the article and think twice before entering into the very unfulfilling long term relationship I find myself unhappily stuck in.

  • Report this Comment On August 30, 2008, at 7:33 PM, TokyoJoe101 wrote:

    1. This piece is not libelous.

    2. I may be a little one-sided, but the other side had been published repeatedly. This, to my knowledge, is the first time anyone published an article that actually details problems with the program. It's time these complaints are heard, for the good of the platform.

    3. This company from day one has vowed 'transparancy' and has delivered virtually none.

    4. The question of who owns the loans is not academic; individual lenders have put in thousands, tens of thousands, and even hundreds of thousands into loans, and the quesion of whether or not they bought the debt they thought they were buying is one Prosper needs to make clear. So far, they haven't.

  • Report this Comment On August 30, 2008, at 7:38 PM, fool384 wrote:

    The relevant source documents from the bankruptcy case mentioned are available on Fred93's blog, or from the bankruptcy court directly via the PACER web site.

    The facts are not in question.

  • Report this Comment On August 30, 2008, at 7:45 PM, christoofar215 wrote:

    I have worked in a miserable start up company before. The groupthink and psychology is very thick inside a startup.

    Start ups don't have to look good and publish real, detailed and complete financial statements to the public--only to their paid interests, the VC partners who are funding the venture.

    The problem with this is that a Stockholm Syndrome forms within the startup and everyone involved focuses solely on only one thing: placating the board members. This is why I hate a lot of VC startups that are funded by the likes of Goldman Sachs and other investment arms who aren't turning up day by day to actually monitor and steer the company in the right direction. Unless the company is sitting on a really sweet patent--the risks of failure multiply because nobody is thinking straight.

    I think it was clear when Prosper deleted their old public forums, where anybody could contribute with light moderation, that Prosper was suffering the classic Gotta Make The Numbers Look Good Syndrome that almost all start up companies endure.

    I think earlier this year the gold was probably changed from "we need to grow big" to "we need to originate as much as possible so we show a higher cash flow," evidenced by Prosper's origination patterns that Fred's diagrams have shown and the huge surge in originations near the end of the last two months.

    The problem with Prosper is that, put simply, it is failing. ONE THIRD of all loans go into some sort of derogatory state. Those are DISMAL prospects since the highest APR you could possibly get on a loan is a usurious 36%. That's not to cover up for the present loan loss rate.

    AA and A rated loans are showing awful performance given the APRs the loans are getting bid down to---a sign that Prosper's borrowing stock is mostly made up of desperate people with scant financial resources.

    It really is a crapshoot whether you can get the right mix of borrowers to edge out a healthy profit on Prosper.

    Prosper's own portfolio plans suck, as Prosper does not pre-vet any of the incoming listings for outright fraud... making the "conservative" plans just as loss-capable as the highest risk plans.

    With multiple millions of dollars in losses, and ZERO loans this year have been repurchased under Prosper's I.D. Theft Guarantee... it's clear that this is a lending platform that is going down the tubes.

  • Report this Comment On August 30, 2008, at 8:01 PM, opinion1956 wrote:

    christoofar lending stats says 19 loans, no lates, no defaults. Your complaint?

  • Report this Comment On August 30, 2008, at 8:18 PM, todc wrote:

    @opinion1956: Why do you keep avoiding the main point of the article? Prosper made contradictory statements and that is easily verifiable by anyone. One is court record and the other was in the lender agreement that prosper published to their own website.

    We could talk about a great number of actions taken by prosper that seem highly questionable, however people are trying to keep the discussion on topic to things that are easy to verify.

    If someones investment in prosper is doing ok you ask why they are complaining. What would you say to someone who has lost money? My guess is you would use the term "sour grapes" or something similar. I think it is more compelling that someone who is doing well is unhappy with prospers actions.

  • Report this Comment On August 30, 2008, at 8:19 PM, ProspersDotOrg wrote:

    opinion1956, your legal threats are pathetic. they're very reminiscent of prosper itself as well.

  • Report this Comment On August 30, 2008, at 8:37 PM, xraider wrote:

    Opinion1956, I'll ask you again. What, anywhere, is false?

    How would anything posted on prospers(dot)org cause you to lose money? Nothing posted there that I've seen would cause someone to repay, or fail to repay, their loans. The only way you would typically lose money through Prosper is if a loan is not repaid, an unfortunately typical experience. Of course, if you are a Prosper employee, or looking to cash in on stock options, you could make a very attenuated argument that dissatisfied customers do impact a company's bottom line. However, that's hardly actionable against the dissatisfied customers..

  • Report this Comment On August 30, 2008, at 8:56 PM, christoofar215 wrote:

    Open1956, you do not have to get comments from Prosper.com in order to publish a story about Prosper.com.

    Ask the folks over at Dealbreaker, who publish much more damming material, including admitted rumors, about big PUBLICLY TRADED behemoth companies all day long. Most of the under-30 crowd who works on Wall St. has Dealbreaker bookmarked.

    Last I checked, Dealbreaker is alive and kicking, and much of everything that goes up on that site turns out to be not only true, but painfully so.

    Oh by the way, care to explain why Prosper decided to tell a BANKRUPTCY COURT that it does not make loans, and that all the liability of the loans including their origination lies with us?

  • Report this Comment On August 30, 2008, at 10:43 PM, KarkDnight wrote:

    Some commenters on this article have taken the discussion far away from the facts and analysis provided by the author and loaded it up with unsupported opinions and personal attacks.

    Xraider, opinion1956, ira01,ProspersDotOrg, christoofar, peerlend et al, please take your petty bickering to some other forum.

  • Report this Comment On August 31, 2008, at 12:05 AM, johnrals wrote:

    Good comment - to reiterate the facts:

    1. Prosper's filing in the BK case was contrary to its contract w/lenders (Source: Prosper, courts)

    2. Lender returns are low: lenders with > 20 loans > 6 months earn an avg. 2.57% (Source: Lendingstats)

    3. The process for selling non - performing loans appears to be defunct (Source: Prosper (no debt sales in '08))

    4. The collection process never worked (Source: Lendingstats (based on above comment that ~30% of loans are 'derogatory') & Prosper switching agencies)

    5. Also, several people mentioned lenders should get to know borrowers - this is forbidden by Prosper (Source: contract with lenders - maybe this has changed though - I have over 250 loans but do not have a recent contract - I have not made a loan in over six months)

  • Report this Comment On August 31, 2008, at 1:44 AM, johnrals wrote:

    TheTruthSpeaks - you (and peerlend and opinion1956) are taking this off topic, making it personal and not dealing with facts. No problem if you want to defend Prosper, but as several people above have requested please base it on facts:

    1. Prosper's filing in the BK case was contrary to its contract w/lenders (Source: Prosper docs., BK court filing)

    2. Lender returns are low: lenders with > 20 loans > 6 months earn an avg. 2.57% (Source: Lendingstats)

    3. The process for selling non - performing loans appears to be defunct (Source: Prosper (no debt sales in '08))

    4. The collection process never worked (Source: Lendingstats (based on above comment that ~30% of loans are 'derogatory') & Prosper switching agencies)

    5. Also, several people mentioned lenders should get to know borrowers - this is forbidden by Prosper (Source: contract with lenders - maybe this has changed though - I have over 250 loans but do not have a recent contract - I have not made a loan in over six months)

  • Report this Comment On August 31, 2008, at 2:12 AM, Xenon481 wrote:

    @TheTruthSpeaks Re "Maybe Prosper has submitted an retraction. . .":

    Prosper filed their statement with the court on April 29th, 2008. It doesn't take 4 months to amend a filing.

  • Report this Comment On August 31, 2008, at 3:28 AM, ira01 wrote:

    @TheTruthSpeaks: Nice ad hominum attacks. Instead of disputing anything I have said, you dredge up one of my several thousand posts at prospers.org in which I use some profanity (which is, actually, pretty rare for me). Oooooh, you got the better of me alright. Prospers.org is a completely unmoderated forum, on which many spirited discussions take place. That doesn't change the fact that there are many highly knowledgeable people there, and an incredible amount of collective wisdom about Prosper.

    As to whether it is your perrogative to loan money to people who may or may not pay you back -- yes, it absolutely is. But you should do so knowing the facts about the likelihood of being paid back, and about the borrower you might loan to. For example, there was a borrower on Prosper with an active loan listing. With a little detective work, a lender discovered an FBI press release showing that the borrower was UNDER INDICTMENT at the time for loan fraud, and posted a link to the press release on Prosper's then useful forum. Did Prosper thank this lender? No, it suspended this lender from the forum for disclosing "PII." In another case, a forum detective and lender discovered that a different borrower with an active loan listing, had recently been convicted of a federal crime, and was shortly due to report to federal prison for about two years (and the amount of the loan listing was "coincidentally" the same as his criminal restitution/fine). Most people would think this is highly relevant information to lenders considering bidding on his loan (since it is pretty unlikely he was planning to make his monthly loan payments from prison using his wages making license plates or whatever prisoners do these days). But not Prosper.

    You say that you "seriously doubt if the agencies that Prosper contracted with never made calls to the delinquent accounts. Again...turnips and blood." This just shows your lack of knowledge about Prosper. If you had read more on prospers.org, you would have seen that no less than Prosper's own head of collections (Doug Fuller) discovered that Prosper's main collection agency had been calling borrowers at exactly the same time of day every day (during the workday, no less), thereby often never reaching anyone. Also, many borrowers have reported few or no calls from Prosper or its collection agencies. If you are interested, Fred93 wrote (almost a year and a half ago) a stinging critique of Prosper's collections activities. http://www.prospers.org/blogs/media/blogs/Fred93/open-letter.... Nothing much changed (certainly not its efficacy).

  • Report this Comment On August 31, 2008, at 4:11 AM, TokyoJoe101 wrote:

    @ TheTruthSpeaks --

    You searched for f*ck and sh*t and came to the conclusion ira101 and xraider are 'not reputable people' ???

    1. I have never heard either one of them cuss.

    2. Since when is cussing a mark of being 'reputable' anyway...?

    These ad hominin attacks on people replying to this article spooks me even more than Prosper.com does.

    Why not address the points made in the article, mediocre or not? What on earth is up with trying to character assasinate people?

    Prosper isn't going to win this argument by sending henchmen to tell the lenders they aren't 'reputable'. Prosper is going to learn the meaning of the word "Backfire" if they continue down this course.

    @opinion1956 : SInce when does a lender have to have a late before he can voice concern whether or not the company told him the truth about ownership of the loans and how his money is being handled? It seems to me, the best time to speak up about malfeasance is BEFORE you lose your money.

    None of the 'cheerleaders' here have even attempted to answer the charges in the article; they've attacked and attempted to smear the people responding to it.

    Prosper has tried this tactic before; humiliating its own customers (lenders). That was the infamous "3/30/07 Incident".

    Attempting it again is the wrong avenue to take...

    Instead, let Prosper.com either confirm or deny the story, and clarify what needs to be clarified.

    Lender-newbies who attack current and past lenders and lie about wheteher they ever uttered "f*ck" on a forum is beyond the pale.

    So, yes, stop the sniping, and start answering to the article, thx.

  • Report this Comment On August 31, 2008, at 5:20 AM, TsarBovidae wrote:

    There are emotions on both sides, but the simple and absolute bottom line for potential investors: Prosper is not a viable investment; the risk outweighs even the maximum possible profit.

  • Report this Comment On August 31, 2008, at 11:42 AM, xraider wrote:

    To those who say we should not bring our snits from other forums here, you're right, and I apologize.

    To Motley Fool: Thank you for publishing this article. It is nice to see some specific, documentable problems with Prosper posted.

    To other readers of the article and this message board: Please realize that those of us who are posting our unhappiness with Prosper were all enamored with Prosper once, as is demonstrated by our own investments ("lending") on Prosper. From that, you can draw your own conclusions.

  • Report this Comment On August 31, 2008, at 11:43 AM, ProspersDotOrg wrote:

    anybody who spends time searching for profanity by its sources in order to evaluate the content of a article is not a reputable commenter IMHO.

    now back to the facts of the article, puhleeze

  • Report this Comment On August 31, 2008, at 10:35 PM, akkaufman wrote:

    I want to apologize for prior comments which were in fact somewhat off-topic.

    The only comment I have on this accusation of Prosper's legal misrepresentation is that I want Prosper to defend its statements.

    Could we all perhaps make a coordinated effort to have these particular concerns addressed by some representative of Prosper.com before muddying their name in front of such a wide audience of readers?

    I for one would be happy to call them - or email them - this article and its lengthy comment stream. They need to get in on this and clear the air.

  • Report this Comment On August 31, 2008, at 10:48 PM, Xenon481 wrote:

    @akmicrokid2003: Prosper has been notified about this in a number of ways including unanswered e-mails to support and numerous posts about it on their own official forums (all of which are read by a Prosper employee). It should be noted that just about the only posts that Prosper is allowing on its forums are the ones that say that these statements (Filing vs LRA) are not contradictory. Because all of these posts must go through a Prosper employee, I feel that this could be interpreted as an official Prosper position on the issue.

  • Report this Comment On August 31, 2008, at 11:09 PM, MFGBill wrote:

    1. Prosper's filing in the BK case was contrary to its contract w/lenders (Source: Prosper docs., BK court filing)

    So what? they were trying to keep the client from filing bankruptcy on your loan!

    2. Lender returns are low: lenders with > 20 loans > 6 months earn an avg. 2.57% (Source: Lendingstats)

    Can anyone dispute ALOT of lenders need to have their heads examined? Yes there are cases where good loans go bad on all lenders including Banks too but holy crap have you guys looked at how many people loan to HR and E candidates with current DQ's. HELLO? I agree with akmicrokid2003 that Lender returns are not the fault of Prosper. These are unsecured loans and thus Loan at your own risk.

    3. The process for selling non - performing loans appears to be defunct (Source: Prosper (no debt sales in '08))

    So what. We're only gonna get pennies on the dollar. Write it off and move on.

    4. The collection process never worked (Source: Lendingstats (based on above comment that ~30% of loans are 'derogatory') & Prosper switching agencies)

    Again, so what? I'm sure Propser is working to fix it as evidenced by them switching agencies but again so what.

    5. Also, several people mentioned lenders should get to know borrowers - this is forbidden by Prosper (Source: contract with lenders - maybe this has changed though - I have over 250 loans but do not have a recent contract - I have not made a loan in over six months)

    The statement was made to get to know your borrowers but he meant BEFORE you loan them money and that isn't forbidden. The inference was to research your potential borrowers before loaning them money to give you a feel for your risk in addition to the tools Propser provides to vet loans.

    Finally, I have to say this author has ZERO credibilty when the simpliest of all facts that he could have EASILY verified he fails to verify...

    Prosper.com member Fred93, who has apparently invested more than $800,000 in Prosper loans, has repeatedly called into question the efficacy of Prosper's collections.

    http://www.ericscc.com/lenders/Fred93

    Fred93 has invested an incredible $258,607.19 but not $800,000 as the author CHUCK SALETTA stated. Futhermore in Chuck's follow up post he states the facts in his article were checked by 2 other staff members. Well, if they failed to check this one fact why would we as intelligent readers believe they checked any of the facts in the article?

    Finally, if the issue is Prosper either lied to us or lied to the court then in fairness we need to ask is the author CHUCK SALETTA attempting to lie to the public by stating one of the subjects in his article loaned over 300% more than they actually did or did FRED93 lie to the author? How about we ask the Author of the article himself to clarify how such a misrepresentation occured?

    I'm sorry you guys didn't get the return you expected. However, I can't fathom how you think Prosper is in any way to blame for it. UNSECURED LOAN says it all to me.

  • Report this Comment On August 31, 2008, at 11:33 PM, AirForceFool wrote:

    Great article IMO... I also read through almost all of the comments... at first I was laughing, but by the end I was mostly just a little sad. I checked into these guys a little over a year ago... seemed interesting enough... make a few bucks helping someone out... my sister got into the payday loan deal, so I know how life can be for some folks... eventually I decided against it because there are just a ton of people out there not paying their bills, and I assigned it more risk then the actual reward.

    The crux of the entire issue (IMO) revolves around wether or not Prosper is ultimately responsible for the underlying loan. I think that answer should be yes. I base this on the fact that Prosper does all the legwork (for a fee of course). It isn't like lenders are running background checks on these folks. This of course is a receipe for disaster based on the default rates, and will probably never result in a profitable company. If on the other hand the lenders are ultimately responsible, one would hope there is full disclosure on Prosper's part to this effect. This would beg the question as to why anyone would lend money with no guarantee... no amount of interest is gonna be worth it if the default rate is near 20% (well, at least not to me). And don't even get me started on collections... sheesh, what a nightmare...

    I'm looking forward to hearing the rebuttal from Prosper management... but I'm not gonna hold my breath waiting.

    Chris

  • Report this Comment On August 31, 2008, at 11:40 PM, Xenon481 wrote:

    @MFGBill re Fred93's investment:

    It is you that has your facts wrong about Fred93, not CHUCK SALETTA. Fred93 has in fact originated over $800,000 worth of loans as can be seen on both the EricsCC link you provided and http://www.lendingstats.com/lenders/fred93

    On EricsCC, you can find this number by adding together all of the amounts in the "Loan Breakdown" table.

    On Lendingstats, it is the "Total Loan Amount" field.

    The number that you appear to be looking at (incorrectly) is where Fred93 has approximately a quarter of a million dollars in estimated *REMAINING* loan value.

    Please get your facts straight before accusing reputable institutions of failing to check their facts.

    And I haven't even talked about why you think it is perfectly ok for Prosper to file false statements with a US Bankruptcy *COURT* just because you think you might get something out of it.

  • Report this Comment On August 31, 2008, at 11:53 PM, TMFBigFrog wrote:

    MFGBill,

    .

    I believe you may be misinterpreting the ericscc page. Please allow me to point you to the very same page: http://www.ericscc.com/lenders/Fred93

    .

    It says the following under "Loan Breakdown By Status":

    Current: $447,384.66

    Paid: $263,361.87

    Repurchased: $3,200.00

    Late: $3,534.92

    1 month late: $8,420.00

    2 months late: $3,962.98

    3 months late: $5,187.23

    4+ months late: $50,837.53

    Default: $38,443.51

    Cancelled: $500.00

    .

    My math says that totals to $824,832.70 . Back out the Cancelled and Repurchased loans and that's still over $800,000. If I'm reading the page correctly, I think the $258,607.19 you referenced represents something closer to the current loan value of the remaining loans Fred93 has purchased and are still active in the system, rather than the total he has invested in buying loans from Prosper.

    .

    Additionally, my original source for that $800,000+ number was this page: http://www.lendingstats.com/lenders/Fred93 , which says under "total loan amount" that Fred93 has loaned $824,652.70 . That's remarkably close to what I got by adding up the data from the ericscc page you referenced, and both numbers are consistent with the "more than $800,000" I used in the article.

  • Report this Comment On September 01, 2008, at 12:33 AM, Mark12547 wrote:

    Chuck (TMFBigFrog), thank you for the article! I almost missed it because the title looked like another one of TMF's push to sell newsletters, but when I saw it mentioned on prospers.org and it showed up in my Google alerts, I realized it was something I should take a look at.

    Thank you for writing an article that shows one of the several concerns us former lenders have with Prosper Marketplace, Inc., namely, stating one thing to lenders (Lenders' Agreement, help screens) and the SEC (S-1 filing), and another to a judge. It will be interesting to see how this plays out. I had also sent an email to the SEC (enforcement@sec.gov) because, since they have an S-1 from Prosper on file, they may also be interested in this issue. Until recently, I knew we either purchased loans (or Notes) (and all we really had was the right to an income stream minus fees, but no other rights of ownership) or we purchased unlicensed securities, but recently Prosper's counsel added the twist of us making the loans with Prosper just as a broker.

    It will be interesting to see how this plays out.

    PS: for a while, if one searched for prosper.com in Google news, your article came out on top. Even today, it is the second link on the results from searching Google news. Maybe the publicity might get them interested in answering some questions instead of the silent treatment they usually give us.

    Thanks again, Chuck, for the article!

  • Report this Comment On September 01, 2008, at 7:37 AM, lillama wrote:

    I don`t know if it is too late for Prosper to improve, but I hope that the online person-to-person lending model will continue to exist. I have been lending on Prosper for a few years, and although I am very disappointed in some of the decisions Prosper has made, I am happy with my returns, which are estimated to be 12% on LendingStats.com. I realize they may end up lower, but my point is that P2P lending really does work. Those of you who scoff at the idea of ``lending to strangers`` might want to consider that banks do that all the time, and it can be very profitable. Keep in mind that the huge losses many lenders experienced happened with shockingly reckless loans, to high risk candidates with 99 delinquencies in the past 7 years and 2 or more public records (such as bankruptcies). People made these loans because of the exciting possibility of earning 35% on the loan. One lender on prosper invested over 400K in nothing but junk loans like those. For those willing to look, it is entirely possible to find verified Ivy League educated professionals who are willing to pay 17 to 22% because they have just one black mark on their records for a late tax payment or something similar. I have a few like that in my portfolio. There really are good people out there who benefit from these loans, and I don`t want to see the baby thrown out with the bathwater.

  • Report this Comment On September 01, 2008, at 11:31 AM, johnrals wrote:

    Thanks MFGBILL for the response - here are a few thoughts:

    1. You said 'so what' that Prosper's filing in the BK case was contrary to its contract w/lenders. Among the 'so what' reasons is that Prosper either misled us as lenders or the court - either has serious implications.

    2. Agree with the concept that a lot of lenders "need to have their heads examined" (altho I would not say that so strongly). As you point out, this is a pitfall in unsecured lending and is why avg. return for seasoned lenders is 2.57% - lending is a risky business.

    3. You said 'so what' that the process for selling non - performing loans appears to be defunct. I don't remember exactly, but I think the very first debt sale was for over 25 cents on the dollar - not great, but not just 'pennies on the dollar'. Doing this right can make a big difference.

    4. Same comment as above re/collections - aggressive collections works - it helps with getting $$s from lenders and also deterring borrowers from being late.

    5. You might be right. I was told by Customer Service when I started lending not to contact borrowers I was thinking of lending to since that started to cross the line with underwriting. I just checked my agrmnt. and the explicit comment there pertains to collections and other contact once a prospect becomes a borrower. This may have also been true since Prosper is noted as the lender in my agrmnt. If terms have changed (see #1), maybe that also changes permissible contact. However, personally contacting potential borrowers is not efficient for creating a portfolio of loans.

    Re/your comment about Fred93, someone above corrected your mis-statement and told you how to read ericscc.

    I appreciate that you don't agree with my comments - that is fine - but please do not attack me personally. I have been involved with Prosper for over eighteen months and have a significant investment in my Prosper loan portfolio.

  • Report this Comment On September 01, 2008, at 1:08 PM, MFGBill wrote:

    Mea Culpa. I did misread the Erics page and I am WRONG! Fred has it appears $258,000 still on the books and the rest is as you guys pointed out already rolled off. My apologies to Fred and the author for stating otherwise. However, if I may I stand by my dislike of this article. The author did not present an unbiased view of the facts to allow the reader to decide for themselves. He instead presented only one side of the argument and I find that distasteful. I want to be clear I'm not attacking any of you guys personally for your opinions. You are entitled to them and in the end Prosper will be better for it and new lenders will benefit for it. I'm just not sure you guys want Prosper to survive and I don't get that...

  • Report this Comment On September 01, 2008, at 2:16 PM, Mark12547 wrote:

    To: lillama,

    "Those of you who scoff at the idea of ``lending to strangers`` might want to consider that banks do that all the time, and it can be very profitable."

    There are some differences, though:

    1. Banks have professionals do this for a living; on Prosper we start out as a bunch of amateurs and try to beat experts at their game. (hubris, anyone?)

    2. On Prosper we get just a summary of the Experian report. Banks get full credit reports from all three credit reporting agencies and thus are more likely to see a complete picture. They can easily check if 17 inquiries, for example, was shopping for a car or a mortgage, vs. going after 17 credit cards, but on Prosper we only see it is 17 inquiries.

    3. On Prosper we get a letter grade that is derived from Experian's ScoreX PLUS. Banks have more choice on what they use for credit scores, and I suspect it is more likely a FICO score, or rather a trio of FICO scores (one score per agency).

    4. Banks have address information and time at that address, employer information and time at that employer, and if they want, salary information, and they can verify the information. Lenders on Prosper have only as much as borrowers chose to disclose to us, which by default is very little, and we are told to trust Prosper because they have a model of who needs checking more thoroughly, but they don't share that information with us.

    Overall, I'd say banks have more information on the strangers they lend to than we do.

    There are now about 117 banks on FDIC's watch list in danger of having to go into FDIC receivership, which suggests that even banks with their professional lenders sometimes make big mistakes.

  • Report this Comment On September 01, 2008, at 3:05 PM, TokyoJoe101 wrote:

    @MFGBill...

    1. You accuse the author of having no credibility after you completely misread the stats about Fred93's account.

    2. Then, you say the author didn't present an unbiased view...

    "Bias" is not the issue, and the cheerleaders have to understand that. YOU have no credibility. If this was a news article about a abnk robbery, is it biased if it doesn't include interviews with the bank robbers' friends stating that the robbers are really 'nice' people? Since when is a Prosper fulff piece ever unbiased?

    What I want to know is very simple: Did I lend money, or did I buy debt? All along, Prosper has been telling me I bought debt. Now I find out that they're telling a judge i did't buy debt, I made the loan myself.

    The difference is not academic; a lot of people have money riding on the answer.

    Tell your beloved Prosper to answer the question, and stop sniping at the author and commenters, thx.

  • Report this Comment On September 01, 2008, at 3:34 PM, TMFBigFrog wrote:

    All,

    .

    Many of the people posting these comments appear to be either new members to the Motley Fool or existing members who have never before posted to its discussion boards. The same ID you use to post here you can also use to post within the Fool's message board system.

    .

    In order to both provide information about the sources I used in the article and to offer an alternative place for continuing this discussion, I've posted a message to the Fool's own "Prosper.com Discussion" message board. You can find that message here: http://boards.fool.com/Message.asp?mid=26949441

    .

    Please feel free to take this discussion to that board. The message board system is a much more conducive place for ongoing discussions.

  • Report this Comment On September 01, 2008, at 5:49 PM, MFGBill wrote:

    Tokyo Joe you can make me the issue all you want but its my RIGHT to say I dislike the article. I didn't defend any PUFF piece on Prosper so no argument there. I believe a good journalistic piece covers both sides and lets readers draw their own conclusions. The title of the Article says it all doesn't it? Listen I'm not saying your views or opinions aren't warranted but I darn sure believe this author failed to present an informed piece to his readers. It was biased, slanted and well how could it not be with the title he chose. He could have titled it... "Avoid this company like the plague?" Then laid out the Pro's and Con's and if he wanted to say Buyer beware I could respect that but he didn't and thus I don't like the article while Clearly you do.

    Look here are your real problems. Dumb lenders doing dumb things with their money. Point in fact...

    http://www.prosper.com/lend/listing.aspx?listingID=388070

    Fully funded a dude with 1 current DQ, 4 DQ's in the past 7 years and 6 inquiries in 6 months. Folks the odds are not in your favor here. Why would you loan this guy your money?

    http://www.prosper.com/lend/listing.aspx?listingID=389642

    This one is projected to fund and he has 1 current DQ and 18 (YES 18) more over the past 7 years. Did you catch it was 18!!!!! Hey just open your window at home and start throwing your money out. Then odds of it coming back to you are better than these 2 loans. Yet they will get funded and these lenders will likely lose their money and how anyone can blame Propser for that is beyond me. UNSECURED LOAN means you can lose it all. Lenders beware.

  • Report this Comment On September 01, 2008, at 8:13 PM, TokyoJoe101 wrote:

    @MFGBill

    The author cited his statistics, you are free to interpret them your own way. But the writer cited his/her sources behind each assertation made. You are trying to imply otherwise.

    The author's article is an argumentative piece, and as such is allowed to interpret the evidence in support of or a thesis. That, by nature is "once sided".

    Prosper is free to present the other side any time they want to. I wonder why they don't?

    And I still want to know if I am a debt-buyer or lender on these loans, and I want to know why the company is telling a judge the opposite of what's in their own TOS. That is not "minor" issue; I have two different doomsday scenarios I'm working on, dependant on the answer.

  • Report this Comment On September 02, 2008, at 4:49 AM, TsarBovidae wrote:

    MFGBill,

    It really wasn't wise to publicly disclose specific information from those borrower's ScoreX reports... it is a violation of privacy and you have now exposed yourself to possible legal repercussions and sanctions.

    I had hoped you at least understood the law, and moreover, respected the rights and privacy of others, to conduct yourself accordingly. That obviously isn't the case.

  • Report this Comment On September 02, 2008, at 5:24 PM, jasonwisdom wrote:

    I am a fairly avid user of Prosper, and have been so since March 2007. I've loaned about $4,000, and borrowed $2,000.

    My biggest concern, upon reading this article, is their (deliberate?) mis-filing with the US Bankruptcy department. To me, that is pretty serious and I am strongly considering pulling all of my Prosper money out.

    My return has been OK...I do have 2 loans that are "4+ months late", probably about 3% of my loan portfolio. my Prosper username is "sagittarius," if you want to check out my performance on LendingStats. Probably a good 10% even considering late loans.

    However....unethical companies tend to come back & bite people in the end. Would Warren Buffet invest in this company? It's a red flag.

  • Report this Comment On September 02, 2008, at 7:29 PM, Caladia wrote:

    TMFBigFrog, it looks like this article did a great job of driving traffic to TMF! It's a good article.

    One thing I'm noticing in the responses is some question about why it *matters* that Prosper said something in court that is directly contrary to what it has been telling "Lenders" in its contracts.

    Your article points out that it matters on a moral/ethical level, and on a practical level because of Lenders' rights when it comes to collections. There's more to it than that. There's the issue of licensing.

    The reason Prosper was so careful to explain that people who bid on Prosper loans were not technically "Lenders" is that individuals bidding on Prosper loans are not LICENSED to lend. By claiming that Prosper bidders are the actual Lenders, Prosper is saying that successful bidders on Prosper loans have been lending without licenses for the past 2 years, an activity that carries penalties and fines of thousands of dollars.

    In attempting to win one bankruptcy case, Prosper basically threw its "Lenders" to the wolves. It's an incredibly short-sighted thing to have done.

  • Report this Comment On September 02, 2008, at 9:57 PM, xraider wrote:

    I checked PACER today, and Prosper has not filed anything correcting the statements made months ago. This has been discussed on prospers.org for quite some time, so Prosper has had plenty of time to correct its answer, either by errata or some other supplemental filing.

  • Report this Comment On September 02, 2008, at 11:51 PM, ProsperDotCom wrote:

    Well, not the plague, but maybe a common cold?

  • Report this Comment On September 03, 2008, at 12:12 AM, manban wrote:

    For those of us who are interested in hearing both sides of the story, has anyone seen what seems to be Prosper's official response on their blog?? http://blog.prosper.com/2008/09/02/the-facts-of-the-matter/

    Sounds like you've all made a mountain out of a mole hill.

  • Report this Comment On September 03, 2008, at 12:18 AM, fool384 wrote:

    Not a mountain out of amolehill at all. Prosper has now validated that Fred93 was right, and Chuck Saletta's article was right. Only with this intense bad publicity have they finally decided to admit their transgression to the court. This is what it takes, apparently.

  • Report this Comment On September 03, 2008, at 2:27 AM, ira01 wrote:

    @Manban: Absolutely not a mountain out of a molehill. I give a detailed response to Prosper's blog post here -- http://www.prospers.org/forum/prospers_response_to_fool_arti...

  • Report this Comment On September 03, 2008, at 7:25 AM, SwingPoint wrote:

    There is a website (lendingstats.com) that shows the people who lent money and the amounts they put out along with their ROI. The bigger players were getting not much better than if they simply took their money and put it in a longer term CD.

    Look at the top 10 individuals in the top right hand corner. Click on each and observe their ROI.

  • Report this Comment On September 03, 2008, at 9:16 AM, xraider wrote:

    Manban, Prosper's answer was filed several months ago, and was posted on prospers.org on July 9, 2008. Prosper had plenty of time to correct this "mistake" before the Motley Fool article was published. I'm glad it's been shamed into correcting its filing, but if it Prosper had a genuine desire to correct its filing, it would have done so weeks ago.

  • Report this Comment On September 03, 2008, at 10:02 PM, Mark12547 wrote:

    Before letting Prosper Marketplace, Inc. (prosper.com) off the hook, let's wait and see how long it is before they correct their error to the Court. Prosper hasn't been know to be speedy with their promises, e.g., "right of offset" (for blenders), "secondary market", even "community voice" (or was that "Village Voice"?) were promised a long time ago and we are still waiting. Past behavior leads me to suspect this won't be speedy, either.

  • Report this Comment On September 04, 2008, at 1:32 PM, epetroel wrote:

    This is a bit of a tangent from the gist of the article, but since another commenter mentioned it and I've been asked about this many times myself, I thought I'd mention that the $800k invested figure for Fred93 from LendingStats is a bit misleading.

    I've posted a little article on my blog at blog.ericscc.com about this to hopefully clear up this issue a bit.

  • Report this Comment On September 05, 2008, at 2:37 PM, Xenon481 wrote:

    Prosper Marketplace Inc. has filed their correction with the US Bankruptcy Court. The first paragraph of the affidavit (by Doug Fuller) states the following:

    .

    "I am Prosper Bank's Vice President of Operations. . ."

    .

    Doug Fuller is NOT Prosper Bank's VP of Ops, he is Prosper Marketplace Inc's VP of Ops.

    .

    Prosper Bank is a bank in the Dallas/Ft-Worth area of Texas. www.bankprosper.com

    .

    This affidavit was signed before a Notary Public by both Doug Fuller (VP of Ops) and Edward Giedgowd (Chief Compliance Officer and General Counsel).

    .

    The incompetency at this company never ceases to amaze me.

  • Report this Comment On September 30, 2008, at 1:17 PM, jmweese wrote:

    I know this conversation has moved on to other blogs and discussion boards but in the interest of time I would like to post my own small concern about Prosper.

    As an investor, I like to carry out quite a bit of research before purchasing a stock (not as much as I should though). Likewise, I would like to carry out similar research on the borrowers especially on their income. As an accountant accustomed to auditing, I would at least like some documentation conerning what these people make. Yet, Prosper does not allow such information. As part of a business idea, I thought offering that verification (for a fee of course) would lend credibility to some borrowers with poor credit. To cover my butt legally, I asked Prosper if it would allow such a service. The answer? NO.

    Now, despite the fact that I would have personally benefited from such assurance, I would just like to be able to do my due diligence and research these people and loans further. Also, according to the Prosper terms of use...you cannot contact the borrower in any form other than the little e-mail on their website. Prosper borrowers are prevented from giving out any personal information at any time (other than to group leaders). Thus, I am curious how non-group leaders can access that information. Please inform me if I am incorrect.

    P.S. My Prosper ID is WeeseandAssociatesLLC

  • Report this Comment On November 30, 2008, at 2:54 PM, janiejohns wrote:

    I think a better way to execute person-to-person financing online is the way 40billion.com and SchoolRaise.com do it, through friends-and-family contributions and loan agreements.

    Check out 40billion.com ( http://www.40billion.com ), which focuses on entrepreneurs and helping them to raise money for their small businesses through friends and family, rather than through traditional financial institutions. It is the first friends-and-family funding network for entrepreneurs.

    Entrepreneurs connect with their social networks - friends, family, friends of family, colleagues, and others – to raise capital by requesting loans and contributions, and entrepreneurs can share their fundraising pages on MySpace, Facebook, and LinkedIn too.

    SchoolRaise.com ( http://www.schoolraise.com ) does the same thing for college students who need to raise money for school.

  • Report this Comment On December 09, 2008, at 3:58 AM, glcorbett wrote:

    I take some issue with this Motley Fool post, though recent Prosper missteps are indeed disheartening and raise legitimate concerns. It can be easy to blame others for personal investment decisions that in hindsight, may have been imprudent. I spent many hours over the past two and a half years determining who to lend to. Many loans have been small, some relatively large if my confidence was there. For most loans, I conducted my own due diligence, asking questions, examining proposed budgets or new business ideas- but fully aware that I was taking real risk. While the economy has become awful (and the stock market horrendous!), I have managed to eek out an 8%+ return. Not as good as I hoped, but I have helped some worthy folks in serious jams as well as small businesses. And at the same time I certainly did better than I would have if I had invested these funds elsewhere. I believe in the model, and hope Prosper regains its footing.

  • Report this Comment On April 13, 2009, at 3:23 PM, Gemini846 wrote:

    As an on-time borrower only it is upsetting that this type of lending has dried up along with the other types of traditional bank credit.

    In an ideal scenario the lenders should have had enough information to know whether or not they were making good loans. In theory AAA-A loans should never default, but I guess many of those people had issues paying their overpriced mortgage too.

    Loaning even small amounts of money to people at 35% should give anyone pause. It should be obvious that these people aren't financially responsible. Banks get around this by offering shorter term loans than 3 years.

    One of the problems with Fred's data as posted is its collective nature. Of course even one or two defaults on AAA loans with bad interest rates would kill your return, but the concept was to accept higher interest for that risk than a bank would give you.

    There were also a lot of lenders who were also borrowers trying to "make a spread" by borrowing at 7% and lending at 15%. If they wen't into the hole on thier return then they may have defaulted as well.

    I can't comment on thier collection efforts. I'm pretty sure that most bank collection efforts aren't that hot either, and personally I think selling off a non-performing loan should be criminalized since it causes a lot more problems than it solves. Replace this practice with loan insurance if you're worried about your principal. All you have to do is be on the wrong end of a shady collector who re-sells your info 4-5 times to agree with me.

  • Report this Comment On May 21, 2010, at 9:32 AM, bigsapper wrote:

    I'd like to see a followup article on this subject. I've heard that the Facebook community has something similar. Also, what impact does the recent FinReg legislation have on this business model?

  • Report this Comment On September 06, 2013, at 1:32 AM, thecpa wrote:

    I too lost money on Prosper due to their inadequate vetting process resulting in dreadful default volumes. They did revise their model and supposedly are doing better now for all concerned. A class action was filed in 2012 ( http://prosperclassaction.com/ ). The suit was recently settled for $10 million. I don't believe proof of claim forms have gone out yet.

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