Friday, May 30, 2008

StZA: Criticisms of

I while ago I posted a thread about P2P lending through, and similar sites.

Anybody thinking about that would be well-served spending and hour reading the forums, especially this thread, and browsing and

It appears that a lot of the lenders have lost huge amounts of money since defaults are much higher than advertises. See this and this; within six months of opening, more than 30% of loans were delinquent. Delinquincies and defaults are probably 15-20%.

One problem seems to be that doesn't have incentive to aggressively pursue delinquincies; in order to sue delinquent borrowers, the company has to buy back the loan and assume the credit risk, whereas otherwise lenders have all the credit risk.

If collections are as pitiful as some post, defrauding lenders must be relatively lucrative and risk-free. If a grifter already has bad credit already, what would they lose from taking out a loan for $20,000, never paying on it, and sending a PFD letter to the collection agency a few years later?

Browsing through the list of borrowers asking for loans, there are lots and lots of people who are sitting under huge debt loads that are turning to Prosper as a lender of last resort, or have a brief credit history of maxing out credit cards whenever they want to buy something. There are relatively fewer borrowers who have established themselves as responsible users of credit at all, or have ample income to meet their obligations.

Another problem is that none of the borrowers have been there long enough to develop social capital, while ordinary lenders do not have sufficient experience or skills to adequately price risk. It looks like many iffy loans are filled by newbie lenders bidding through portfolio plans.

A number of disgruntled lenders are skeptical that the company will even survive the three-year term of its first loans.

Check out the $1,000 coup d'etat. It was killed as obvious fraud, apparently.