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The Collections Procedure at Prosper

by Peter Renton on August 29, 2012

When I was at Prosper headquarters earlier this month I sat down with Nancy, the operations manager, who is also in charge of loan collections. She walked me through the collections procedure they follow for all borrowers who become past due.

For a start she said that around 98% of borrowers are on an automatic ACH withdrawal so Prosper is alerted immediately if there is not enough funds to make the loan payment. Here is the procedure they follow when that happens:

  1. With an ACH failure an email is immediately sent to the borrower.
  2. Make two more attempts at ACH payment, notifying the borrower each time there is a failure.
  3. Make regular phone calls to the borrower until they are able to get an answer. Try and work out some kind of payment on the loan.
  4. If after 30 days no payment has been made hand off borrower to the collection agency, Amsher.
  5. Amsher will send letters and continue to make phone calls. Amsher emphasizes the peer to peer aspect of this debt to try and persuade the borrower to pay back the loan.
  6. If Amsher is unsuccessful after 120 days past due the loan is charged off.
  7. The loan is then often handed to a different collection agency, IC System, where they continue to try and collect on the charged off loan.

The collection process at Prosper is not set in stone. They are always working to try and improve their success rate. Right now Prosper is testing manual phone calls rather than using an auto-dialer. This is less efficient but results in fewer hang-ups. They are also testing different wording in their collection letters.

The success of the Amsher is also monitored closely by Prosper. Nancy can listen in on collection calls and she works with the management there to try and improve their success rate. She has also spent some time in Alabama visiting Amsher headquarters to meet the people doing these calls to borrowers.

Prosper does not file judgments against borrowers at this time primarily because of the court costs involved. Before the financial crisis they used to get judgments against homeowners and attach liens. But with so many homes underwater this strategy is no longer effective. The real estate market would have to improve for Prosper to consider this again.

In a bankruptcy filing they will immediately pull the loan back from collections. If it is a Chapter 7 filing then all debts are discharged so Prosper will usually get nothing. With a Chapter 13 filing the borrower has to file a plan to make payments and Prosper will file a proof of claim in those situations.

Some people had questions about those borrowers who take out a loan, never make a payment and then files for bankruptcy. Prosper has sought to challenge some of these people in the past but the success rate was not worth the cost associated with challenging.

While there is no log available to investors regarding collection efforts on Prosper it was pretty clear to me in my discussion with Nancy that there is a detailed procedure that is strictly followed. Of course, we would all like to see better success at collecting past due loans but I came away from this talk satisfied that Prosper is doing what they can to return some money to investors from delinquent borrowers.

{ 60 comments… read them below or add one }

Danny S August 29, 2012 at 7:18 am

I’d love to hear how LC handles these situations as well.

Obviously, since they are unsecured loans, if a Borrowers doesnt pay, recourse options are limited, but I’m a little surprised Prosper seems to shy away from going to court. In the case of a BK filing, then I understand, but if the borrower simply refuses to pay, they still dont file suit?

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Peter Renton August 29, 2012 at 7:58 am

Danny, The Lending Club article on collections will be coming soon. As for going to court it all about return on investment – and Prosper have figured out that the returns are not worth the costs involved.

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Danny S August 30, 2012 at 5:02 am

Agree and disagree.

When you default on a credit card, whether its a Visa/MC or a store card like Target, or whatever, they are not going to walk away.

They come after you themselves, then engage outside companies, then sue you, etc.

If a person files for Chapter 7, fine, I would end efforts because unlikely to recover. But if a person has a job, has assets, and is just refusing to pay, there are ways to get recovery.

A lot of debt collectors will go to court, get a judgement, and then the fun begins in finding out how to collect. But that collections process usually doesnt need to cost $ upfront, as the collection agency will work on a % basis of whats recovered.

I dont see why Prosper/LC’s efforts should be any less comprehensive than what other creditors do.

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Peter Renton August 30, 2012 at 5:28 am

Fair points. I really can’t speak to the collection procedures at the credit card companies because I have no idea what they do. But I can’t see why LC and Prosper shouldn’t put in as much effort as those companies do – it is probably for a similar dollar amount I would think.

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Martin September 16, 2014 at 6:07 pm

It might not be cost effective for Prosper to go to court because they make only a 1% fee. If the loan is lost, not a big deal for them. But for investor it’s a big hit when someone refuses to pay the money back to him. Prosper should not only be looking at their own interest, they should be looking after the inverstors, too. With no investors Prosper is dead.

Tyler Specht November 14, 2012 at 11:06 am

“Not worth the costs involved”… Its not Prospers money that is funding the loans, its my money that is tied up in a delinquent loan. Who is to judge what is cost beneficial? I want my money that I gave. There is a promissory agreement, a legal document, USE IT!

But I am told by Prosper I cant try to get my own money, trust me, if they fail to file suit because it costs them too much money, I will file suit.

Stupid!

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Peter Renton November 14, 2012 at 11:23 am

Yes Tyler is is your money along with many other investors that is tied up in a delinquent loan. I think Prosper should take Lending Club’s lead here and file suit on occasion. But even Lending Club will not file suit on everyone. If the borrower has no job, no money in their bank account and no assets should Prosper or Lending Club still spend the money or time to file suit?

Of course, they should (and do) monitor the borrower and will try and get money back if the financial situation changes for the borrower, assuming there has been no bankruptcy.

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Chris August 29, 2012 at 7:39 am

Makes sense, this is why the interest on unsecured loans are so high. Remember that these people are getting away with your money, but they’re also ruining their credit scores, so it’s not like they’re getting away like bandits. For Pete’s sake if you can’t even get a P2P loan due to past delinquency good luck getting one from a bank!!

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RayJ August 29, 2012 at 8:08 am

I wonder how many of the borrowers who get loans around 30%, realize that if they stop paying this loan, it’s the same as if they stopped paying their credit card.

I’m honestly under the impression they don’t realize this will hurt their credit score in the same fashion. If you have ever looked at some of the people who need these loans, they are normally that that intelligent, at least on the surface.

I think Prosper should do all manual calls. I don’t see how automatic robo calls are going to be effective for people, except those who honestly forgot to pay.

Well, it’s good to know that Prosper does more work than you can see, as their process is not as transparent as LC, and it’s refreshing to see they are looking at new ways to interact with customers in ultimately this should pay off with more payments on loans that have gone late.

Thanks again Peter for the great info!

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Peter Renton August 29, 2012 at 5:46 pm

RayJ, Just a point on the automated calls – these are not computers calling you, like you get every day in this election season. This is an automated call that alerts an operator that someone has answered, so there can be a slight delay before someone is on the phone with you. As I said, they are testing manual calls and if it performs better they will continue with it.

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Hey annony nonny August 29, 2012 at 9:09 am

Why has Prosper discontinued debt sales, ie, sales at discount of discharged notes? That could recover pennies on the dollar, better than nothing.

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Peter Renton August 29, 2012 at 7:35 pm

I did not ask that question so I don’t have an answer, I will see if I can find out.

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NewHorizon December 28, 2012 at 12:42 pm

Fast-foward 2 months.

Word?

If I may, I’m going to guess that the answer is that it’s cheaper for Prosper to not do anything.

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Bilgefisher August 29, 2012 at 9:47 am

I know the costs are high for getting judgements against borrowers, but I would like Prosper to go after a few and make very public examples out of them.

I would especially like Prosper to go after those that file bankruptcy without making a payment. They knew of the bankruptcy before applying for the loan. In my mind that is nothing short of fraud.

If either company were to build a reputation of going after those that default, I believe it would attract better borrowers and encourage folks to work harder to pay off the loans.

Jason

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Peter Renton August 29, 2012 at 5:50 pm

Jason, I am just not sure if making a public example out of borrowers is going to deter people. The way I see it is that there a small percentage who are out to commit fraud and these people will not be deterred by much. Then there are those people who get in over their head through mismanagement of their finances or bad luck and I don’t they will be deterred by the possibility of a judgement. They intend to pay it back anyway.

I think it might make some investors feel good but probably won’t do much for the bottom line. That’s my 2c on it.

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Henry Miller August 30, 2012 at 9:05 am

I used to do bankruptcy, collections and criminal cases as an attorney. (Not practicing law anymore, worked as a statistician, then retired.) Making examples may not deter ordinary borrowers, but criminals and fraudsters, yes. Especially those that might hit a p2p platform repeatedly, using aliases or stolen identities. This is a long range risk for p2p lending, if word gets out that its an easy mark. Example: one of my LC notes, the borrower said that if, in the unlikely event he lost his good job, not a problem, he has six month of savings; then he immediately defaults before his first payment, and rapidly files bankruptcy. In my opinion, this is fraud, and he made about $20,000, substantially more than the average bank robber, with no physical violence risk. Not every case needs to be investigated and litigated, but at least a few. And they should be publicized; as were earlier p2p identity theft cases.

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Bilgefisher August 30, 2012 at 10:27 am

Exactly my point. I tend to wonder if prosper will find themselves in legal trouble if they fail to go after these types. If not legal trouble, lenders may go after them for damages should they prove to be complacent in going after defaulted notes.

Jason

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Danny S August 30, 2012 at 11:48 am

This is an excellent point, and although as lenders we wont ever know the full story of this particular case, from the info we do get, it certainly seems like the potential for fraud. I would hope LC has its outside agency aggressively pursue this case to the end and try to get at least partial repayment.

I had a similar situation on an LC note a few weeks ago; $32k borrowed, default before first payment ever made, filing for CH7. No further updates yet, but I’m hoping LC doesn’t just walk away from this person; they should have an attorney show up at the BK hearing and contest it.

As an investor, if this type of thing starts happening with any level of frequency, and I see that LC is not pursuing all of its options aggressively, it would absolutely make me think twice about continuing to invest.

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Peter Renton August 30, 2012 at 3:46 pm

As a bankruptcy attorney I will defer to you on this opinion. Everything you say sounds reasonable and when I talk with the LC about collections I will certainly be bringing this matter to their attention.

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Ryan August 30, 2012 at 12:48 pm

Random question, are there less available loans than usual on Prosper today? I went on and very few loans turned up through my usual filters.

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Peter Renton August 30, 2012 at 3:47 pm

Yes Ryan, they are making their big end of month push. I think on Monday there was around 580 loans available and now they are down to 215. It happens every month at Prosper in the last couple of days of the month.

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Roy S August 30, 2012 at 6:41 pm

http://www.prosper.com/security/identity_fraud_guarantee.aspx

Just remember people, “If you are a lender who suspects that one of your loans belongs to a person who has committed identity theft, please contact customer support and include the loan number and the reason you suspect identity theft.” Perhaps we should be reporting loans where the borrower does not make a payment on the loan, since Prosper seems to be actively avoiding looking into potential fraud and identity theft by not looking into/challenging these borrowers any more. That’s my $0.02!

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RayJ August 31, 2012 at 5:47 am

Good idea, at least contact customer support to report it. Let them do the leg work, but I agree, there is nothing worse than when a borrower never makes a payment, and only to find out that they file bankruptcy shortly after.

Even if Prosper or LC take a standard percentage of the loan in attorney fees, they need to go after these individuals in a court of law.

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Dan B August 31, 2012 at 12:26 pm

I’m sorry, are all these suggestions intended on trying to get some money back……………..or are they really about making oneself feel better??

“Believing” that fraud has occurred just because one wants to believe it has occurred or because someone doesn’t make a payment is one thing, proving it is another entirely different matter.

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Bilgefisher August 31, 2012 at 12:58 pm

Dan,

Your point is valid on “feeling” better. My concern is p2p becomes a target for fraud because it becomes known as an easy mark. Same reason I put security alarm signs in the yard.

Jason

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Roy S August 31, 2012 at 1:42 pm

Yes, Dan, it is to make me feel better. I just find it frustrating that Prosper doesn’t seem to make a real effort at going after those who default on their loans. I know it costs them money in the short term, but it costs investors in the long term–and Prosper if lenders don’t feel that Prosper is doing enough to protect their investments. I think that any borrower who doesn’t make a single payment should be gone after. I also think that Prosper shouldn’t advertise something like that when (at least from my perspective) it doesn’t seem like they are even attempting to discover whether any fraud is occurring…it reminds me of a famous quote, “I’m shocked, shocked to find that gambling is going on in here!” It hasn’t really affected me yet (I’m lucky to only have ~1.3% default rate–this is based on the number of Notes, not based on value) with none of my defaults being a deadbeat borrower and only 1 who made a solitary payment before defaulting. But I would like them to make it known that they are pursuing deadbeat borrowers and anyone else suspected of fraud…and have it all out in the open to deter people as well. I don’t think that Prosper has any intent on doing anything (unless it really starts to affect returns), so my complaints are more cathartic in nature…

Elise K August 31, 2012 at 10:55 am

Unfortunately, this is inaccurate. Prosper did file a number of lawsuits once upon a time, but dismissed them all. It did not share with the lenders why it did so. I’m not aware of ANY successful suits filed against defaulting borrowers, except one in which there was clear fraud. (And, I’m not sure that was successful; I just recall that it wasn’t dismissed without service.)

I also have a loan where Prosper did NOT file a proof of claim in a ch 13 bankruptcy, so, instead, Prosper is making payments to the lenders on the same timing as the borrower would have paid.

Finally, Amsher was remarkably unsuccessful on my lates.

In short, with MY Prosper loans, I saw no evidence of any strict procedures, and very minimal results.

I hope that things are better for current lenders.

For posts providing details about actual loans, results, defaulted borrowers’ experiences with Amsher and the like, please go to http://www.prospers.org

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Peter Ninen August 31, 2012 at 12:48 pm

If you believe Prosper “used to get judgements and liens” against borrowers, I would ask you to provide a list of same. I believe this is a totally made up fantasy.

I searched for such judgements some time ago, and found none.

When loans go bad, Prosper just lets the deadbeats get away with it.

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Peter Renton August 31, 2012 at 5:11 pm

Roy, Elise, Peter and others, This is the bottom line as I see it. While I know that Prosper 1.0 did not perform according to expectations and many mistakes were made that were obvious in hindsight. But Prosper 2.0 is a different story. I have been investing for almost two years now and I am delighted with my returns. If I am getting 15% on my money I simply don’t care too much how Prosper goes after deadbeat borrowers. Sure, I would like to get another percent or two on my money but I am not going to be too concerned as long as the returns remain excellent.

Elise, I am happy for you to include a link to Prospers.org but I need to give new visitors there a warning. While the intelligence of many of the people on .org is obvious, the amount of hatred and venom directed at Prosper is truly staggering. They provide a wholly negative view on all things Prosper and anyone who goes there should keep that in mind. I still visit .org from time to time because there are people there who know more than I do about p2p lending. But their opinions only cover one side of the story.

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Roy S August 31, 2012 at 5:40 pm

@Peter, I feel that you are lumping me with the Prosper 1.0 investors who are angry with (have a grudge against?) Prosper. I stayed away from Prosper until they did away with the entire auction style system, and I have been an investor with Prosper for just a year and a half. During that time, I have been satisfied with my returns of 12% – 14%. This is even while slightly less than half my portfolio is invested in B or better Notes. I also have around a 1% default rate (much of the credit for this goes to Lendstats). I do not have a grudge against Prosper, and really, in all ways, this issue hasn’t impacted me…yet. But it is the “yet” that I am concerned about. I feel that I am justified in my concern. Investors are heavily dependent on Prosper (as well as LC) to do their best on the behalf of investors–it’s generally called a fiduciary duty. Investors are blind to how Prosper and LC conduct their business. I am grateful for your blog and your efforts in giving us a peek behind the curtain of their operations (and to Prosper and LC for being so willing to allow some transparency), but I still feel that I should be able criticize each when I feel (albeit with less than the full picture) that their modus operandi is not in the best interest of investors. In the year and a half that I have been following your blog and commenting on your blog posts, I don’t believe that I have ever said anything on your blog to warrant what I feel is a personal attack on me (i.e. that I’m upset with Prosper 1.0, so I’m going to strike out against/tarnish Prosper). I generally try to be fair, but I don’t (nor will I ever) hold back my criticism. I will agree that I don’t know the full picture, and I may not always be right. …but that’s why Dan B is here! ;-)

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Dan B August 31, 2012 at 7:12 pm

Roy S…….I’ll make every effort to be worthy of your high praise. Being right all the time is a heavy burden, so i’ll draw strength from your kind words in order to soldier on. :)

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Peter Renton September 1, 2012 at 7:25 am

Roy, I didn’t mean to lump you in with the Prosper 1.0 folks and I always appreciate your thoughtful criticism. I hope you continue not to hold back on that because I think when everyone speaks their mind in a (dare I say it) fair and balanced way we can all learn.

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Dan B August 31, 2012 at 8:07 pm

I agree with Peter on this one. Although I can certainly understand the anguish, resentment etc that a defaulted note brings out, that is just part of the game. The return numbers are the bottom line & as long as they remain way above average, the rest is just about making people feel better.

Of course everyone can feel however they want to & that’s not for me to judge. The only 2 cautions I’d attach to that line of thinking is……………. one not to infer that a more transparent disclosure of collection efforts will necessarily equal better results because as we know informing us better on collections efforts doesn’t add anything to the bottom line. It is just informational.

And two, not to infer that LC collection efforts are necessarily superior just because they provide a couple of generic comments in their collection logs. As I mentioned in another thread previously, there was a documented case last year on another blog of a Chapter 13 BK that LC seemingly documented fully…………………but where they in fact never filed the necessary paperwork on a borrower who made repeated attempts to instruct them to do just that so that she would resume paying her loan on a schedule. LC didn’t do the required paperwork in time & the loan was subsequently discharged.

Just so we’re clear……….I’m not suggesting that scenarios such as the one above happen often. I am suggesting that one may be making a pretty wild assumption if one is assuming that a vigorous collection effort is going on just because it’s written in a log. Some people here seem to be making that very assumption.

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Roy S August 31, 2012 at 8:28 pm

I agree with you, Dan. It is just nice to have some transparency, since lenders already have access to so little information. Prosper’s efforts may even be more vigorous than LC’s even though LC documents their information. My only concerns are that it seems Prosper too quickly writes off Notes, and I don’t think they do enough to deter deadbeat borrowers. Of course, as I previously mentioned, I don’t have the full picture, and I may be incorrect in those views.

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Johannes July 26, 2013 at 5:09 pm

Sorry Peter, it’s not that easy. My annualized return with Prosper since 2010 is a comparably meager 4.9%, with 17 out of 278 loans in default. None of those loans that defaulted were recovered, so for me, the Prosper collections procedure is 0% effective. This really hurts my bottom line, and I’m sure they could do better. So the question remains, why don’t they?

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Peter Renton July 27, 2013 at 12:17 pm

This article was written almost a year ago now and there have been many changes at Prosper since then. In my conversations with the new Prosper management team they are more focused on this area than ever before and improvements are being made. I hope to have a follow up to this story in a couple more months.

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NewHorizon July 27, 2013 at 2:14 pm

The follow up will include the prospects for resuming debt sales…?

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Peter Renton July 27, 2013 at 4:38 pm

Yes. I will include that question.

NewHorizon December 20, 2013 at 2:14 pm

In reply to, “Yes. I will include that question.”

Could you post a link here to your follow-up? I saw your “A Visit With Prosper” article, but I didn’t see anything in it about recovery efforts / debt sales. So maybe I missed some other article?

Peter Renton December 20, 2013 at 5:30 pm

From the “A Visit with Prosper” post:
Are sales of charged off loans going to start soon? They are currently reviewing proposals from many firms and are considering the best options.

There has still been no movement here to my knowledge.

Neal S. July 30, 2013 at 9:24 am

@Johannes

Here’s my understanding. Once a Prosper note goes into Default it can never recover, by definition. If Prosper does receive payments on a defaulted loan, they do not go to the lender. So those 17 notes are gone for good.

To assess the effectiveness of Prosper’s collections process, you’d have to look for notes that have “In Collections” status and then later return to “Current”. I have had at least two of those this year and I didn’t have any last year, so that’s one (not statistically significant) datapoint that there may have been some improvement.

17 out of 278 is a default rate of just 6.1%. Depending on the class of notes, that’s not too bad. But 278 notes may not be enough to consider yourself adequately diversified.

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Neal S. August 31, 2012 at 7:01 pm

@Peter,

Thank you for gathering this info from prosper. I do not see in their procedures (as you describe them) where they report delinquencies to the credit agencies. Most prosper borrowers have at least decent credit and they should know it will be ruined if they default.

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Dennis August 31, 2012 at 7:23 pm

I’m in the camp that I would like to see more done in collections at Prosper. I currently have 840 total notes between Prosper and Lending Club and after 1 year have had only one default in total. BUT, at Prosper I currently have 17 lates, 10 in collections. So I know the defaults are lined up and coming. I want to know that Prosper is doing something to deter borrowers from commiting fraud and being late, and I want borrowers to know that too. Two of my notes in collections at Prosper made no payments whatsoever. If Prosper would at least make public (transparrent) what they are doing/pursuing to collect on these notes, even that might be a deterent. But Prosper has all the “appearance” of doing nothing, even though Peter posted what one person at Prosper generically told him they were doing. I want to see what is being done on each note, not be given some generic answers that were made public only because of Peter’s post here. LC posts everything and in my opinion (please note “my opinion”) is doing a better job than Prosper. I have the exact same investment style at both platforms but have 3 to 4 times fewer lates at LC. I know there are variables that could account for that but I still want more from Prosper.

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Roy S August 31, 2012 at 8:33 pm

Dennis, 17 late Notes of 840 active Notes is only 2%. I routinely have 2% of my Notes in late status–currently 3% are in Late status. I even had a 12-month Note that was probably current for only 3 of the months (1 of which was the grace period!). I have found that most of my late Notes return to current status. Whether that is due to the efforts of Prosper’s collections department or other factors, I don’t know.

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Dennis August 31, 2012 at 9:19 pm

Roy:

As I’m still very much learning about investing in P2P I appreciate your comment. Being still new at this yet (1 year) I’d just be happy to achieve average results at this early point. The 17 lates (10 of those in collections) is for Prosper alone, out of 413 notes there. So I guess that would be 4% of my notes there are late. I’m doing much better at LC as I only have 5 lates out of 440 notes (as of today) and that includes any in the grace period. I just found out though, about 2 minutes ago, that I had my first default at LC from a bankruptcy. I also have 1 default at Prosper, for what reason I don’t know, so I now have 2 defaults at the end of my first year of investing in P2P. I like that with LC I at least know the default came from a bankruptcy and there is nothing more that will/can be done. It’s final. I know nothing of the nature of my lates at Prosper, nothing at all. In my opinion that is a serious problem from an investor standpoint. The more information I have as an investor, the better the decsions I will make going forward. But I feel handicapped at Prosper. This is not privileged information in my opinion, and should be shared with all investors, giving specific information like LC does. Prosper needs to fix this and a couple of other things or I will not be putting new money to work there.

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Dan B August 31, 2012 at 9:35 pm

Dennis………..What are you actual return numbers at each site? What is your breakdown between 3 & 5 year notes at each site? What is the average weighted return of your portfolio on each site?

As for your “collections” comments, would it be accurate to say that you would like to see Prosper disclose in detail whatever they’re doing with their collections efforts? That you want to be better informed, &/or informed in detail, correct?

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Dennis August 31, 2012 at 10:37 pm

I have 2 LC accounts, one is an IRA but is too new yet for results. I’ll give you the numbers on the LC account I’ve been in for 1 year and Prosper:

Lending Club:

Total active notes: 393
Late in Grace Period: 0
Late 16 – 30 days: 0
Late 31 – 120 days: 5 (3 are 3/yr, 2 are 5/yr)
Charged off: 1 (3/yr)
Fully paid: 20
NAR: 19.05 %
Weighted average: 19.01%
3 year notes: 36%
5 year notes: 64%

Prosper:

Total active notes: 413
Past due 1 – 30 days: 7 (5 are 3/yr, 2 are 5/yr)
Past due 31+ days: 10 (all are 3 yr)
Charged off: 1
Paid in full: 41
NAR (seasoned): 19.58%
NAR (all notes): 19.54%
Avg. note yield at aq.: 25.56%
3 year notes: 59%
5 year notes: 41%

The biggest surprise in these 1 year numbers is the large number of fully paid notes at Prosper, 41 out of 454 total (413 + 41) or 9% of total notes issued. It doesn’t help that Prosper encourages people to refinance into lower interest loans as soon as a few payments are made and the borrowers credit score increases – more origination fees for Prosper but a real pain for investors. Just one more thing to my growing list of complaints at Prosper.

And all yes’s to your other questions. I know you question the validity of LC logs, but at some point you have to have faith that LC is being honest, maybe not always, but 99.9% of the time. Faith and trust is fundamental to making decisions. Having faith and trust is not a foolish endeavor. I don’t see the money in my bank account but through reasonable faith and trust I know it’s there, and that’s the best I can do to weighing risk. Is it really there? I can’t see it so I guess I can say I don’t really know. But how far will you get if you never trust anyone/anything?? If you don’t trust the logs at LC then you have a fundamental problem with them and perhaps shouldn’t be investing there. I’m just saying…….

Dan B August 31, 2012 at 11:14 pm

Dennis…………Like I said in my post, I don’t believe that there is pervasive misinformation at LC. What I was simply pointing out was that it is somewhat silly to believe that something is being done effectively just because someone writes down “attempted to contact borrower”, or sent email to borrower, or my personal favorite, “contacted borrowers’ acquaintance”. I mean, really, so what?
And incidentally your bank statement analogy isn’t quite as appropriate, simply because you could always confirm its veracity by going to the bank & demanding your money thereby confirming its existence. But anyway…………….

For me personally the whole collections thing is a moot point anyway. I believe that they exist just as a “feel good” gesture to appease investors & to address concerns like the ones you’ve brought up. I don’t need to believe that the logs are accurate nor do I really care whether someone is calling defaulting borrowers 24/7. These are as we all know, unsecured loans & we are handsomely compensated (in my opinion) for the risk. In my irresponsible youth I had personally experienced credit problems & I can tell you that no amount of phone calls or other collection attempts were ultimately even minimally effective. But like I said before, people are free to believe otherwise or as they see fit.

Thx. for sharing your detailed results. I found it very interesting that despite more defaults & certain misgivings that you’re actually doing better at Prosper. If I were you, that would be the bottom line. I’m just saying :)

PS………….Here’s something you might find useful, considering you just read through my long rambling response. Your LC lates & defaults will very likely accelerate from now & through the 2 year mark due to your heavier weighting in 5 year loans.

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Dennis August 31, 2012 at 11:57 pm

Dan:
Not true about the bank. I bank at various locations around the country. No branches where I’m at. Unless I get on a plane and demand to see that money, I have to have faith it’s there. And even at that one of my banks is online only, no location for me to demand to see that money. Faith again. And even where I bank locally, I could not demand to see my money right now, it’s almost 2am where I am, what bank is open? Faith, faith, faith. These arguments are getting silly.

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Dennis August 31, 2012 at 11:49 pm

Below is the log of my first charge off at LC. I saw these entries posted on their respective dates as the late borrower continued to be late and then finally defaulted. At least I knew what was going on with my investment dollars for those 3 1/2 months and because of that log I became more aware of the increasing risk of default on that note. As an investor I always want to know what is going on with my money. Always. If someone owes you money, and they don’t pay, do you just say “oh well” and walk away? I don’t. I will never just accept that . At Lending Club and Prosper though I have to let them do the fighting for me. I have no choice. But I at least want to see the fight.

Keeping the investor informed of his investments is an important part of the investing process. At Prosper, it has to be “oh well” for the investor on defaults because of Prospers lack of transparency. I don’t accept that and it needs to be fixed. The other thing brought up about these logs is that they could be fake. Are they? I don’t know, but if I have proof of that then there is a real problem here. Probably something the SEC would be interested in. Like in all investments, I have to put some degree of faith and trust into those I do business with. If LC is lying about these logs, then there’s a real problem and I’m out of here and I’m sure LC understands that nature of investors, not to mention the trouble they’d be in with the SEC. So I have a really hard time believing they’re lying on these logs.

$12,300 LC loan defaulted on 8/31/2012 (D3, 17.27% IR, 2 payments made)

8/31/12 (Friday) Charged off. Bankruptcy: economically infeasible to recover
7/31/12 (Tuesday) Borrower filed for Chapter 7 Bankruptcy
7/5/12 (Thursday) Collections Agency contacted a borrowers coworker
7/5/12 (Thursday) Attempted to contact borrower (no voicemail)
7/2/12 (Monday) Attempted to contact borrower (no voicemail)
7/2/12 (Monday) Attempted to contact borrower (no voicemail)
7/2/12 (Monday) Attempted to contact borrower (no voicemail)
6/27/12 (Wednesday) Engaged external collections agency
6/27/12 (Wednesday) Engaged external collections agency
6/19/12 (Tuesday) Notified borrower of failed payment (e-mail)
6/19/12 (Tuesday) PAYMENT Failed
6/5/12 (Tuesday) Seeking to locate borrower using alternative means (skip trace)
6/5/12 (Tuesday) Attempted to contact borrower (left voicemail)
5/17/12 (Thursday) Notified borrower of failed payment (e-mail)
5/17/12 (Thursday) Attempted to contact borrower (left voicemail)
5/17/12 (Thursday) PAYMENT Failed

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Dan B September 1, 2012 at 1:06 am

Where did I say that the logs were fake? I said they exist to make you feel better. Big difference.That’s a very impressive log & an interesting read, I’m sure. But that’s your first & the novelty of that will wear off after your next 5 or 10 roll in. I didn’t get my first one at LC until the end of the first year too. I read & obsessed over that one & the next 5 defaults at least 10 times. I went back & looked at each of the original listings to look for patterns etc etc. in order to try to predict/prevent etc. Most of us who have been doing this for a while have been there, done that. But perhaps it’s something that we each have to experience & draw whatever from it, so I’ll leave you to that.

Dennis, on a scale of 1 to 10, this whole collections debate is a 0.5 for me personally, so I’m going to step away from this because you appear to be reading what you want to read from my responses & blowing things just a tad out of proportion. So I retract my earlier comments & apologize for getting you all riled up.

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Dennis September 1, 2012 at 3:41 am

Dan:

I was referring to a previous conversation we had a while ago (Aug 19) which also ties into what is being discussed now. We were talking then about the Lending Club logs and you said, “What I do believe is that some people…” (I believe you were referring to me) “…draw way too much comfort from this whole notion that just because it’s written down it somehow must be true.” From that I got the idea that you were implying Lending Club logs might not be true, or fake (my words). I apologize if I misunderstood you then. You kind of stunned me with that at the time, that’s why I remember it so well.

Anyway, I’m not riled up at all. I do appreciate everything you’ve said, and the funny thing is that you’re not the first to tell me I blow things out of proportion. I have to believe there’s some truth to that, so I apologize for getting carried away. It takes a bigger man to step away from a foolish fight and I believe that’s you here. Thanks for comforting me in that these defaults are normal and will not be that important after awhile. That is a relief to me, they are bothering me for now as you know, and I hope a year from now I’ll be telling someone else they’re blowing it out of proportion and it’s not a big deal. I am doing the exact same thing you did in the begining, trying to figure out where I went wrong on those notes. So thanks again for the advice.

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Dan B September 1, 2012 at 9:40 pm

Dennis……….I do remember that discussion & I can see why you would interpret what I said in that manner, especially as a standalone statement. My main point though was ironically something I said directly after the sentence you mentioned & that was……….. Or that a written down action must be superior to some other action that is not written down, just because it’s written down! I was referring to the lack of a Prosper log vs the LC log.
You may find it surprising, but I actually agree in principle with almost all your suggestions for improvements. I just don’t attach the same level of importance to some of them as you do.

In any case, I’m glad that you found some of the other stuff I wrote more helpful. Your results so far are way above average & I have little doubt that you will continue to show above average results longer term. You have also definitely come to the right place, as you won’t find any other site that has the quality of posters & the quality of discussion/debate as you will here.

Peter will tell you that I’m often the one questioning everything around here, but at the end of the day I look back at my results & I’ve never in my life had a better 3 year stretch of consistent above average results than I have had with these investments. I have every confidence that you’ll be making the same sort of statement a couple of years from now.

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neal smith September 1, 2012 at 8:18 am

Let’s look at this from prosper’s perspective: collections is an expense but generates no revenue for them. So any effort they make is for investor goodwill.

Would investors be willing to increase the lender fee in order to fund more collections effort? Would we expect a positive return from that?

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Jim Marshall September 20, 2012 at 12:00 am

Peter,

I am coming in a little late here. As you know in our prior exchanges I work for a collection agency and I have been trying to get Prosper to give my agency a chance since inception.

I am glad to hear they are doing what we call a ” second” placement after Amsher, however with IC Systems, I can tell you based on current volumes Prosper is not even a top 50 client for either of these agencies and are certainly not that profitable based on the commission rates being paid and the sub prime borrower demographics.

I seriously doubt the accounts are getting much attention at both agencies and Prosper as a whole is still all about the front-end and not the back.

Furthermore a legal strategy would be profitable if they were taking the time to simply verify current employment to garnish paychecks. We do it all day long at my company.
But it would be an up-front cost I guess they are not willing to bare for their investors at this point.

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Peter Renton September 21, 2012 at 12:19 pm

Hi Jim, It is good to hear the perspective from a collection agency insider. There is certainly more that Prosper could be doing, that is clear, and maybe they would have better success if they moved to a different agency. As I said in the article Prosper have to balance the additional costs involved in any legal activity with the potential returns and they have obviously deemed additional steps to not be worthwhile.

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Matt G October 17, 2012 at 4:43 am

Peter,

I’m an attorney in Minnesota and it almost seems criminal that Prosper won’t pursue borrowers through the court system. Obtaining a judgment is critically important because it attaches to property, both real and personal. If a debtor sells a motor vehicle or home, the judgment effectively acts a passive lien on the property. Additionally, a judgment can be used in combination with a Writ of Execution to garnish earnings or levy bank accounts.

At least in Minnesota, by having borrowers sign a Confession of Judgment when they sign a Promissory Note, attorney’s won’t actually have to “go to court” and judgments can be entered against borrowers through an Affidavit of Default. The only cost that may need to be paid is a case filing fee.

Other collection options include conciliation court, where any Prosper employee can show up and ask the Court to enter Judgment.

Many successful collection firms will bring a series of actions, dozens at a time. One prominent Minnesota firm that engages in various types of litigation, is notorious for bringing dozens of borrower default cases on a single hearing date. The firm’s collection efforts have been so successful that the firm has given their employees the option of receiving an annual bonus or putting it into a pool that is used to purchase and collect debt. Most, if not all of the employees in the almost 100 attorney firm opt for the return on collecting the debt which has been referred to as one of the best retirement plans in Minneapolis/St. Paul. Selecting and taking the right cases to Court is a successful debt collection strategy.

If all major credit card companies (whom also hold unsecured debt) do not hesitate to sue out defaulting borrowers, why shouldn’t Prosper?

While you seem uninterested in an additionally 1 % to 2 % extra return on your investment, assuming a more aggressive collection strategy yields an additional 2% return on your behalf across all of your P2P accounts, you will earn $3,357.63 more annually. That sounds like a very nice all-inclusive vacation to the Caribbean to me.

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Peter Renton October 17, 2012 at 9:38 am

Hi Matt, Thanks for chiming in. It is clear from your comments and those of others that Prosper should be doing more when it comes to collections. After I wrote this post I interviewed the head of collections at Lending Club and they view judgments very differently. Lending Club vigorously pursues late borrowers so there is no reason why Prosper shouldn’t do the same. And of course, I would love an additional 1-2% return in my account. I am going to follow up with Prosper on this matter and see if we can encourage some changes there.

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Matt G October 18, 2012 at 5:30 am

Thanks Peter, I love the site and your work. Keep it up.

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Neal S. July 30, 2013 at 9:10 am

Hi. In the last week I’ve received 4 emails notifying me of new comments to this topic. But the comments do not show on this page. Something odd with the website software?

Correction. The comments do show, but they are out of order. They show up in the middle of the page.

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