Interesting new "loan" site

[Olav23]

Came across this today. Hopefully this won't come across as spam, just interesting that they are basically creating an "aftermarket" of personal loans. Not sure how they are backed and what protection you are given, but still an interesting concept.

http://www.prosper.com/public/welcome/default.aspx

[Martha]

Interesting, how much do you want to bet you will get your loan paid back? Also, let me count the potential violations of the law . . . 1, 2, 3, 4. . . . .

[CybrMike]

This idea is going to make millions. Backed by several VC funds and the old CEO of E-LOAN.com. Going to be huge. I've just signed up as a group leader.

[Martha]

Ok, let me give you an example from the site. Vicki is looking for a loan to finance her mother's kidney operation. Vicki says she is from California. The current "bids" are for loans at 11.75% interest rate. According to the California's attorney general website, California usury law prohibits interest in excess of 10% per annum on unsecured loans for personal family or household purposes. The attorney general website says that penalties for usury are severe.

And there are potential securities issues, truth in lending issues, collection issues, and licensing issues.

[MasterBlaster]

Martha:

Please correct me, but my understanding is that when you borrow money from a lender in another state then the California usary laws are not applicable.


Credit card companies do this on a regular basis

[Martha]

Originally Posted by MasterBlaster

Martha:

Please correct me, but my understanding is that when you borrow money from a lender in another state then the California usary laws are not applicable.


Credit card companies do this on a regular basis

How state and federal law and court decisions effect whether a transaction is usurious is really a mess. Yes, credit card companies base themselves in states like South Dakota and Delaware that have limited usury laws. But, what if you are a lender from Minnesota (usury 8% unless an exception applies) lending to someone from California? What if you have individuals from all over the place making a loan? What law applies? What if a third party makes the loan with your money? What law applies? And, to make it messier, if a third party is making the loan from your money, is that an offer of a security? If so, what did that third party do to comply with securities laws?


EDIT: So I read some more on Prosper's web site. It says that it makes the loans and sells them to you. Also interesting is that you do not have control over collection of your loan, Prosper does. I wonder if it warrants compliance with all applicable laws? I wonder how it deals with potential securities issues that arise from selling loans.


EDIT again: Prosper does have a page on what interest rate limits and the like might apply for a transaction based on the borrower's home state. It uses the 8% usury limit for Minnesota. I couldn't find anything on my securities concerns.

[justin]

I just glanced at the site - aside from an auction-based model for pricing loan interest rates (for lender and borrower), how is this service that much different from a bank? A bank collects money by paying interest to depositors, then lends the money out at a higher rate, collecting the spread as profit.

What makes prosper unique? It looks like a kind of micro-finance in that you can get small loan amounts and can join a group of borrowers where you use the reputation of the group as evidence of your good risk profile. Is that the key?

Why is lending to Billy Joe Bob on the other side of the country at 9% interest better than lending to General Motors at 9% interest? There's plenty of junk-rated debt on the market already paying good rates, if you don't care about the default risk.

I see Prosper makes their money off of being intermediaries - 1% initial plus 0.5% annually, plus assorted late fees. Can't want for the bang-fizzle IPO!

[Marshac]

This is interesting.... I might throw a few hundred into some of the higher rate loans and see what happens....could liven up an otherwise boring weekend.



Edit: We can't collect? Breaking kneecaps was going to be the fun part....nevermind....

[haha]

Sure Marshac, you look like a kneecapper. That should endear you to your nurse lady friend too.

Ha

[Martha]

Originally Posted by Marshac

Edit: We can't collect? Breaking kneecaps was going to be the fun part....nevermind....

From Prosper's web site:

Can I contact the delinquent borrower directly myself?

For privacy reasons, we do not disclose the identity or contact information (like an email or telephone number) of members on the site for any reason. If you would like to contact the borrower yourself, you can go to that borrower's member page, and click "Contact member." Your message will be sent to the individual anonymously through the Prosper messaging system.

What happens if one of my loans is written off?

Loans that are written off as uncollectable are offered for sale at an auction to a selected group of debt collection companies that are in the business of purchasing defaulted loans. Since you were the owner of the loan, you will receive all of the proceeds from the sale of your loan to a debt buyer. Because the debt is already fairly old by the time it reaches the debt buyer, you should not expect to receive much of your original investment in return for the outstanding debt.

Doesn't much sound like a loan sale when you don't even know who your borrower is.

[haha]

IMO, individuals really should not make unsecured personal loans. Become a pawnbroker if that line appeals to you, and get some collateral.

Ha

[Marshac]

Originally Posted by HaHa

That should endear you to your nurse lady friend too.

It's increasing her job security.... she should be grateful.

[CybrMike]

Here is some stuff about laws in each state:

https://www.prosper.com/public/legal..._licenses.aspx


Think of it in this context. My brother has $10,000 in credit card debt (across several cards), with interest rates as high as 30%. He has AA credit and wants to consolidate the debt to lower interest rate. He puts up a profile, auctions off the debt. 100 people put up $100.00 @ 10% (or maybe less) interest.

My brother is happy. Lenders are happy making 10%. And prosper.com is happy.

I think this service has some real potential. Time will tell.

[Arif]

The site is good for a few laughs* . One auction is for $2700 for someone to buy new clothes to better compete at a new job. What are the odds of that one being paid back So far it got 11 bids at 8%. I am going to check back to see how this ends. Sort of like watching a car wreck that is about to happen.

Edit: Haven't read who verifies the borrower's debt to income ratio. As a landlord I can pull someone's credit report but I think it is illegal to use it to verify people's credit for other reasons besides landlording.

[justin]

Originally Posted by Arif

The site is good for a few laughs . One auction is for $2700 for someone to buy new clothes to better compete at a new job. What are the odds of that one being paid back So far it got 11 bids at 8%. I am going to check back to see how this ends. Sort of like watching a car wreck that is about to happen.

He he... I think I saw that one too! New clothes and matching accessories (like a laptop and a new cell phone) to help her succeed in her new career. Prosper - what you do after you max out your credit cards.

I think I'll post a request for a loan for $1,623,000. That's what I need to retire early. Think that request is too frivolous? I'll pay it back, promise