Yup, that matches what I had pretty closely as well (if you also count the ones that were just "Late" in addition to the 1+ month lates)

I believe you are wrong. This isn't a collection agency that has bought the debt. This is the outsourcing of the collections function at prosper. If I'm late on a debt, the store (or whoever) can call me. Don't give me nonsense about waiting 30 days. In fact, prosper sent the first email at day 1-5, a 2nd email at day 8, a 3rd email at day 16, and a 4th at day 26. After that the phone calls should begin immediately.

Prosper is not the ORIGINAL creditor. Prosper is the ONLY creditor. (Well, actually its us who have bought the loan, but its easier to say prosper.) The collection agency is not the creditor at this point. They are only agents.

Sure some debtors will use such tactics, but I believe most will not know all this technical poo. Therefore, there's no reason not to expect SOME action on SOME loans. Remember, if the average age is 35 days, then some are much older.

The truth, as I understand it, is somewhere in between.

Even though the collection agencies are functioning as an outsourced internal collections department (I hope), under the law they are still third-party debt collectors subject to the FDCPA rules.

However, the requirement that a CA cease collection efforts only comes into play if the debtor demands within the first 30 days that the CA produce evidence that the debt is legitimate (validation). And the CA is only required to cease collection efforts only until it mails that documentation to the debtor. If the CA and Prosper have their acts together, then that will happen quickly, and collection efforts can resume right away.

If I'm wrong, hopefully PsychDoc or another expert will be along to straighten things out.

I think you've stated it well, trav.

Just for fun, I'd like to mention an unresolved statutory conundrum (which I believe has been raised before but without consensual resolution)...

Prosper Marketplace, Inc. is the ORIGINATING ("original") creditor for loans. Shortly after loans close and pass final approval, the promissory notes which transfer ownership from Prosper Marketplace, Inc. to the individual community bidders are actuated and the transfer is finalized. Since the debt is sold to a third-party, doesn't that make all community bidders (termed "lenders" in Prosper nomenclature) subject to provisions of the FDCPA?

And you say that so innocently. ;)

I've generally been on the "yes" side of this debate (since a lender collecting his own debt necessarily must also collect for all the other lenders), but I came across this clause, identifying groups of persons who are not debt collectors for FDCPA purposes:

Since a lender's relationship to the debt (and to his fellow lenders' chunks of the debt) pre-dates the default, I wonder it this would protect lenders from FDCPA issues. (Footnotes: State law may be broader, and I haven't looked at any case lae interpreting this clause. I suspect that exemptions in FDCPA tend to be interpreted narrowly to carry out the Congressional intent of protecting consumers.)

:lol:

Pninen - I respectfully disagree. It doesn't matter if the collection agency has purchased the debt or not. Even if they are working on an assignment agreement basis, if they are contacting a debtor under their collection agency name (not on behalf of "Prosper" internal collections) then they must abide by collection laws. So, even if they are just an "extended arm" of Prosper, for collection purposes they must follow different regulations than the original creditor would if trying to collect themselves.

Possibly. But of course you and I don't know what name they use. For all we know they use the name "prosper", which would clearly avoid the problem you describe.

Ya' know... there are a lot of "internet lawyers". We could debate our interpretations forever. Lets just not go down that rat hole. There is no value in it.

I started this thread to discuss the problem with the collection arm of prosper apparently producing no results. We've gotta get that fixed.

My theory is that ALL FOUR of the possibilities I suggested above are true to some extent. Need y'all to express your dissatisfaction with the current situation when you talk with Prosper folks. Need to get 'em workin' on all four of these issues.

Let's not go there. Am I going there by saying "let's not go there?"

...

And even if we were professional lawyers, it wouldn't matter. It's a judge's opinion that counts. I'm still waiting for the lawsuit.

I am a new Prosper member, and I own a collection agency. I can tell you two things. First, if those recovery numbers are accurate, they are horrible and I would fire any collector on my staff who had liquidation rates that low. To make matters worse, this is 30 day old paper, usually chargeoffs are placed at 90 days at the earliest. These agencies should be recovering 30-50% of this bad debt.

Secondly, the 30 day validation period on consumer debt is by no means a moratorium on collection activity. A collection agency has every right to contact the debtor, even file suit during the first 30 days, however the burden is on the creditor at that point to provide validation of the debt, etc. On day 31 the burden is on the debtor to prove he or she DOES NOT owe the money.

The perception of a 30 day grace period is urban legend. If we have a debtor refuse payment that has assets or employment, we will file suit on day one if we have to, after providing full verification of the debt as perscribed by the FDCPA.

I wish Prosper would allow lenders to opt out of their collection agencies. If we have all of the risk associated on the debt, we should have the choice of how we enforce the contract. I can't imagine a national dialer-based agency is doing much more than sending form letters or having a telemarketer call the debtors. I would rather have a local agency or attorney dig into the files and get me paid.

Craig

Hi Craig,

Welcome to Prosper. I think we'll very much enjoy having your point-of-view on this forum. Thanks for your comments.

Urbi et Orbi

Wow! Somebody who knows something! Very glad to hear from you!

I was hoping for 75%. B) Ok, so now what are we gonna do about it? I'd appreciate it if you'd help me get Prosper engaged on this issue. You might call Prosper (at their san francisco phone number) and try to talk with their credit person and find out what is going on. You, knowing this end of the business, could probably engage this person more easily than many of the rest of us. I don't know the vocabulary, etc. If you don't feel confident just poking into the organization, you could start with Karen Appleton, who is the official prosper staffer who handles lender relations. (I have no idea what her title is.)

Yep. Some aggressiveness is required. Imagine my frustration while trying to get Prosper to show us any statistics at all for several months. Now we have statistics and they say there's something horrible wrong, and nobody from Prosper talks about it.

VP of Development. She also handles the lenders side of things.

...Gulp

A few more days have gone by, and no more loans cured. The average cured fraction has gone down. This simply means that more loans have been given to Penncro.

(IMG:http://img.villagephotos.com/p/2006-6/1187065/prospercollections12.JPG)

Average cured is now 1.72%, which means that 1 loan has been cured out of 58 loans total at Penncro.

Don't be confused by the "avg time". I do not expect this number to move up much, as new loans are added every few days with an age of zero, lowering the average. Some of the loans at Penncro have been there quite some time.

The collections function is failing. Why aren't more lenders angry about this?

Honestly, I'm rooting for an NCI change, but I never expected these collectors to do much. Once it goes beyond the <15 mark, I'm writing them off mentally.

When you think about the amount these agencies will collect, getting 20% of two payments on a loan of a few thousand dollars, it's not surprising that they aren't throwing more man-hours at Prosper.

Prosper is a potentially large client for these folks, but not large initially. I do wonder whether they perhaps aren't taking us seriously. Possibly they take us seriously, but they haven't figured out that we need something different than their standard service. In either case, some serious supervision would seem to be in order. Gotta wake 'em up and get 'em interested.

Alternatively, all 4000 lenders could start calling Penncro etc and give them a piece of our minds one at a time.

That's actually a good idea.

That's a lot of work.

Could we send NCI after Penncro?

Heh.

I'm not totally freaking out over the lack of collections yet. First of all, Prosper funds loans to people who can't get loans elsewhere. So the pool of bad loans is even WORSE here than what the agencies normally see. I'm sure that a lot of the collected loans that make the averages higher for these agencies normally are the "sorry, paycheck crunch, I'm up to date now" loans that probably would have been made current with or without intervention. I would venture that the pool of late Prosper loans is as bad, or worse, from a collectable standpoint than any other portfolio of bad loans the agencies have ever seen.

Jeff "dregs of society" D.

I don't believe there's any evidence that a significant fraction of prosper borrowers "can't get loans elsewhere". You just made that up. Now for those who have a large number in the recent inquiries field, maybe. But for the others, I just don't see the evidence for your statement.

And I just don't believe that loans that go 1 month late should end up 99% worthless. That's nuts.

But if it IS true, then the interest rates we're charging are way too low.

I don't recall stating that everyone here couldn't get a loan elsewhere. Read it again.

Some loans here are funded to people who can't get credit elsewhere. Not all, some. The mere existence of those loans in the portfolio (and, by implication, their out-sized prescense in the uncollectable portfolio) translates into even lower collection rates compared to traditional financial institutions.

A group of A late's will be more collectable over time than a group of HR late's. Prosper has a greater percentage of sub-prime lending than a traditional bank or credit card company. Therefore, Prosper will have a higher percentage of late loans and those late loans will be more likely to end up as uncollectable.

Just my interpretation of the facts. That doesn't mean I'm not a Prosper supporter, but I do see it as an inefficient marketplace. The successful lenders here will be more judicious. I agree that in aggregate the rates we are charging, especially on E and HR loans, are too low since so much more debt here will default than the Experian rates (which are based on more traditional lenders) predict.

Jeff "I don't make things up, I post thoughts." D.

Jeff,

I think your statement is possibly true for HR loans, and less likely for E loans. The HR bucket is unbounded, so we can't know what selection of HR's the historical default rates apply to. However, with an E rated loan, I suspect an E is an E is an E so these statistics shouldn't deviate far from the norm. Some initial analysis on my part suggests that E's are performing rather decently. However, only time will tell.

HR's and NC's, OTOH, may actually be earning their credit grade.

I'll take your word for your intended meaning.

Collection agencies should be quite familiar with subprime borrowers. I'm sure they are a large fraction of such agency's business. Yet they are producing nothing, as if they don't know what the heck they're doing.

You throw around words like "lower collection rates". What do YOU think the collection rates should be? Is 1.72% at Penncro and 0.00% at AllianceOne are reasonable?

Yea, well as of now it looks like they'are ALL heading toward uncollectable. I have an AA late and a B late, and it looks like the so-called agency is doin' jack.

Do we even know how many loans Prosper has *actually* turned over to collections? Based on the evidence presented in other threads regarding loans "cured" after going 30 days late, I don't think the data we're being shown is representative of what's actually going on.

I don't believe Penncro has actually gotten the number of loans the data says they've gotten, because I don't believe Prosper is actually following the written rule of turning them over after 30 days late.

The data we're being shown is representing what it would look like if Prosper actually followed its own policies.

Some clarification from Prosper on whether they've actually turned over EVERY loan that has fallen 30 days late (including explanations for the ones that were magically cured with apparently no third party intervention) seems to be in order.

- Argonaut

Wow, this discussion of collection agencies and how well they are doing at collecting our payments is pretty scary. I am new to prosper and have gone full speed into lending... but I believe it is time to slow down a bit.

pninen - Thanks for championing these collection agency issues on the forum. My loan portfolio consists mainly of D's and E's with an average rate around 22%. Thirty-one of my 214 loans are late. (Do I win a prize for that?) Seventeen loans are one month late or worse. So far I believe only one of my loans that went beyond one month late has been made current.

Unless the CA's start collecting 30% of payments that are more than one month late, I'm significantly in the red. I stopped investing in Prosper a month ago. Every business day I transfer any payments that have been received in my Prosper account to my high-yield savings account.

IlliniGrad

Illini were your loans all SO.

None of them are standing orders.

How many originated before April 24th?

One question that I've wondered about for a while:

Does anybody know if the CAs are doing _anything_ at all?
I have not seen any indication that they do.

Perhaps we should contact a number of borrowers and ask them whether they actually received any notice, letter, phonecall or something from the CA telling them to pay.

If this horrible performance continues, I sure hope that Prosper will realize that they probably should take the matter in their own hands, rather than trying to outsource as much as possible.

- Daniel

Yep, that's the key question at this point. Since the site has evolved significantly (as have the SO's) over the past few months, we just don't have a sufficient data set from which to draw valid inferences. The early loans should probably be considered outliers or statistical noise.

That said, Pninen is right to keep this thread going - and right about lenders setting their rates unreasonably low.

Approximately 100

How many of your lates are from that time period?

25 of 31

I started this game after the expanded credit data became available. Eric has you weighted in the C/D range... for your loans originating after the expanded credit became available, you're running about a 6% delinquency rate. I'd play with those odds, presuming you got an interest rate that is commenserate with that risk.

No we don't. All we know is what we can milk out of the crap statistics they are giving us. Specifically, we know that 1.72% of accounts given to Penncro have been "cured". 1.72% is 1 out of 58, or 2 out of 116. Because there aren't yet 116 loans late enough to go to collection, Penncro must have 58 loans. The total number of 1+ mo late loans is 78. That bounds the number of loans at AllianceOne to be less than or equal to 20. We know that NCI has zero.

The data really does look screwed up.

Yep. Please tell 'em so directly.

This weeks column by Washington Post money columnist Michelle Singletary was about debt collection. Registeration maybe required.

I found this part educational
"There are two types of debt collectors, those who work on commission and get a percentage of the debt they collect, and those who purchase the debt at a discount. Debt purchasers contract to buy debt from companies, usually for pennies on the dollar. It is true that a creditor who sells a portfolio of past-due accounts relinquishes all right, title and interest to the accounts once the sale of the debt is closed. But again, that's between the creditor and the debt purchaser.

Nonetheless, the overwhelming majority of collection agencies are working on a commission and are collecting debt on behalf of the borrower's creditor.

Commission debt collectors do not own title to the debt. These agencies collect on delinquent accounts referred to them by various credit grantors, such as credit card issuers, banks, retail stores, hospitals and other health-care services, or by federal, state and local governments. It is true the agencies charge a hefty fee for their services. Generally, 33 percent of the original debt is considered a reasonable commission, said Rozanne M. Andersen, general counsel and senior vice president of legal and government affairs for ACA International, the Association of Credit and Collection Professionals.

In the survey, conducted by PricewaterhouseCoopers LLP, ACA found that of the $141 billion in bad debt charged off by private businesses in 2005, third-party debt collection agencies recovered about $51.4 billion. Subtract the cut to the agencies, and $39.3 billion was returned to creditors.

Most of that was collected on commission. Of the debt collected by agencies in 2005, just $2.3 billion was on purchased debt, the ACA report found."

It does seem on average debt collectors do a much better job than I thought or Prosper statistic would indicated.

A colection agency sales rep dropped off literature a couple days ago, claiming (as I recall, I don't have the flyer in front of me), that the national average was 14% recovery, but that her firm (of course) recovered closer to 50%. I supposse the 14% might be a blended average of both types of collection agencies -- the commission CAs and the JDBs. Or perhaps, as is the case with 83.6% of statistics, someone simply made it up.

mmm

I was on the debtor side of collection agencies for quite some time (a number of years ago) and I remember the 30 day text very well. Nolo Press has some good books out about it. I think Trav is generally right on this and yes, I concur, community lenders are liable under FDCPA. This is why Prosper states that Lenders should NOT approach debtors on their own. If you break the FDCPA, even out of ignorance, you could be looking at some legal action of your own, if the debtor knew enough.

Collection agencies are a small percentage business. I know from being there. And actually, even as a lender, I don't really mind. There's a risk that comes with return. Keep in mind, with a $2000 loan, if you filed a suit, how much could you really expect to get back ?
You'd have to cover lawyer's fees and court costs, and when you got a judgment, you would have to attach assets, only the people who are default usually don't have any assets to take. (I know I didn't. if fact sometimes It was a weird comfort, that I really had nothing credit card companies could take). So you won your case and you still have nothing. Makes sense to sell it off after 90 days and let someone else take the risk.

Hire her!

Actually her results are probably even better, because the paper she gets is probably farther past due when she gets it than the stuff prosper sends to collection agencies.

Whether its 14% or 50% or some better number, its all very different than the 1.72% or 0.00% we're getting.

Some change. As you can see 1.61% "cured in 1 month". Because we know the number of accounts must be an integer, this means there are now 62 loans at Penncro. 1.61% is "1 loan". The 3.23% "cured in 2 months" is therefore "2 loans".

That means a total of 3 out of 62 loans have been cured at Penncro. These results are much improved, but still crap.

(IMG:http://img.villagephotos.com/p/2006-6/1187065/prospercollections13.JPG)

Do you suppose the management of Penncro reads this board?

I wonder have they called these people? Have they tracked them down? Have they garnished wages? Have they filed suit?

What effort was put forth to get 3 loans cured out of 62. Hell, I bet you could get those results by doing absolutely nothing, which is what I think they are doing.

we have a principal-agent problem -- the consumers of the product that collections agents offer, lenders, are not the ones who actually hire the collectors. Prosper is. Prosper's incentives are significantly different from ours when it comes to hiring the best possible agency/getting the best possible performance from collection agents.

as a result, the optimal behavior on the part of the collectors will converge towards heads they win, tails we lose -- where the minimum possible effort that won't get them fired/sued/etc, will still net them a nice slice of delinq loans that they have no role in curing, and they rationally minimize their efforts to collect on other loans.

the principal-agent problem isn't a big deal in and of itself -- corporations are walking examples of principal agent problems writ large, but over time, they've evolved a fairly stable version of something that doesn't screw shareholders enough on average, to make them seek out alternatives to equities during most time periods.

constructive actions:
1.Someone should write up a succint and accurate description of our issues,
2.Get some explicit assurance of the degree to which our contractual agreements w/prosper have been enforced (prompt reporting of delinq loans to collection agencies, etc).
3.Ask for a list of relatively easy to get, but hopefully signal-rich indications from our chosen collectors of their ability to get stuff done/concrete examples of what level of service is being provided to us. (Even a pamphelet, or whatever pitchbook they showed prosper would be helpful).
4.Some selection of lenders (balancing a combination of $'s, eloquence, assertiveness, diplomacy, community activity, etc) should attempt to address 1, 2 and 3 by communicating directly w/Chris, Karen, or whoever is actually responsible on a day-to-day (or maybe week to week) basis for communicating w/Penncro.

side note: to the degree that in all credit grades, but more so in lower ones, the average lender fails to appreciate that our default rate stats are from people of a given credit grade _assuming someone decides to give them a credit card_, and not "people of a given credit grade," jeff may be correct in assuming that we to some degree adversely select for people who despite a scorex/fixo score of such-and-such, would be less likely to qualify for a loan w/a traditional lender.

CD,

You can all but assume that in the lower credit grades, almost all borrowers would not qualify for a signature loan product. Quite honestly, in the subprime world, we're talking about borrowers wtih unsecured (or secured) credit cards with a $600 limit maximum.

The numbers keep bumping up bit by bit.

(IMG:http://img.villagephotos.com/p/2006-6/1187065/prospercollections14.JPG)

6.15% = 4/65
7.69% = 5/65
Therefore 9 of 65 loans have been cured so far at Penncro which is 13.85%
13.85% of the (>1 mo) late loans have been cured. We need this number to be 75%.

The total number of loans at Penncro doesn't go up very often, which makes me think either prosper is delivering them weekly, or prosper is updating this number weekly in their database.

It looks to me like someone woke up a couple of weeks ago and got some activity going at Penncro. The results are still bad, but at least they're off the starting block. I would feel better about this if there were less stonewalling, more openness.

I can't provide similar analysis for Alliance One, because no loans at all have been cured there. As a result, I have no numbers to work backwards, and can't even detemrine how many loans have gone to Alliance One. Could be as many as 24 if all loans >1 mo have indeed been sent to a collection agency. (Because 89 minus 65 is 24.) Somebody needs to give Alliance One a kick in the ass.

Can't analyze anything at NCI, because still no loans have gone there. Thank you to those of you who have changed your agency settings to NCI.

I bet that the "cured in 2 months" stat is cumulative, so that only 5 in total have been cured, 4 in the first month and 1 in the second. :ph34r:

That's how I interpreted it as well.

Oh my gosh. Well, that just highlights the serious lack of documentation. I have no evidence one way or the other.

I nominate PNinen, the closest thing we have to a consumer advocate on this issue and the one person with enough diligence and fire to get things across to the right people.

Oh, and the one person who can practically copy and paste his already-written posts into a nice letter.

Umm, wow it took me about 1.5 hrs to read this entire thread.


Great job pninen, some really good information. One of my questions is addressed to lenderguy and wisecrack(claus).


How are you tracking individual listings and their payment history? Is this just from your own portfolio of loans? Performance data I see from prosper is only available at aggregate levels.