Tuesday, February 10, 2009

Prosper.com - one of your loans was charged off

It is so sad. Day after day, lenders see loan after loan go in the toilet. "Charged off" in prosper lingo. Here's my Prosper.com in-box...

I've written extensively about the lack of moxy in Prosper's collections department. (and that's the most polite way I can say it) In May 2007 I wrote an open letter to Prosper.com .

May 2007 - collections is broken

A year later I wrote another appeal to prosper to get their collections act together.

May 2008 - here's what you should do with the lawyers

They never listen.

They never respond, except to say "One of your loans was charged off".

PS: The best discussion among P2P lenders occurs on prospers.org


  1. How are you still getting those emails?

    My loans just stealthily sneak into the "Charge-offs" category.

    Is there some hidden setting that I missed?

  2. Benny, I believe you can choose to receive these messages in your prosper account preferences.

  3. Indeed, I missed it due to bad UI design. Thanks!

  4. Hi Fred. I just read your "open letter" to Prosper and I thought it was great.

    Here's an idea:
    Instead of giving 20% of the collection proceeds to the agency, Prosper should give the agency 20% of the collections PLUS 20% all subsequent payments from the late loan. For most loans, until they are amortized down to the nub, this should align our incentives pretty well.

    Also, perhaps only apply this to loans over 45 days late, as some loans do cure themselves. However, I've found that once they are much over a month late, automatic curing is pretty unlikely.

    I bring up a system like this, instead of simply timely sales of late loans, for several reasons.
    1) Prosper loans are a new phenomenon, and not well understood by the marketplace (i.e. collection agencies)
    2) The potential market thus will be pretty illiquid and inefficient... And pricing may be disadvantageous to us lenders
    3) Prosper loans' unclear legal standing.

    Thus, until late loans can be sold efficiently, and for a decent price, a system like this can be used to both align incentives and allow everyone to season themselves in the collection process. The collection agencies would not need to front any capital--which lowers their risk dramatically and induce them to participate.

    A system like this, (or timely sales of late loans), would serve well for principals of a decent denomination. However, a lot of Prosper loans are for relatively small amounts. What is a good way to align incentives with these, without immediately impairing their value once they go late?

  5. Fred,
    Thanks for being a vigilant and informative Prosper lender. I too have seen many charge-offs, and I am not happy about it. Let me know if there is anything I can do other than rue the day I created a prosper account.

  6. wow, that's something.. Do you get to write them off as loan losses? Or does the Charge-offs offset your 1099 at the end of the year. What is your experiences on that?