Indexfundfan\’s blog (new URL is Indextown.com)

March 28, 2006

Do you Prosper?

Filed under: Finance — indexfundfan @ 7:53 am

I loaned out $200 as a test of the Prosper system before deciding whether to commit more money. To date, however, I am quite disappointed with the system. From my experience, I found a long overhead waiting time before your money can be loaned out and before payment can be collected and deposited back into your bank.

The following is my experience:

1) Funding of the account. The money disappeared from my linked bank account on the morning of 2/15 but appeared in the Prosper system for use more than two full days later on the evening of 2/17. I lost 2 days of float of my money.

2) I funded two loans which were closed on 2/18 but for whatever reason, the origination date was delayed to 2/22. I lost another 4 days of float of my money here.

3) The borrower made a payment on 3/22 but the money was only available on 3/28. Six days are lost here.

4) You need to have $25 before you can transfer out any payment. If your loan payments are too small, sorry, they cannot be transferred out.

Bummer. I can’t transfer out the loan payment because the amount is too small.

5) When you have finally accumulated $25 of payment, it again will take a few days for the money to make it to your bank after you submit a request at Prosper. I estimate I will lose another 3 days of float.

I am sure glad that I tried out the system with only $200. On hindsight, I should never have signed up with Prosper at all. Until Prosper can positively address the above concerns, I will pull out the money at the first opportunity. (But alas, the loans are all for three years unless the borrower decides to pay up early).

Conclusion? With the long delays associated with funding and loan payment, Prosper seems to be skewed against the lender.

EDIT 04/05/06: See also Vanguard Diehards’ discussion HERE.

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4 Comments »

  1. Hi indexfundfan,

    Andrew from Prosper here. I appreciate your critical discussion of being a lender on our site, but in the spirit of truth in advertising, I’d like to clear up a couple of your misconceptions (using the same numbering you use in your post):

    1) When you transfer money in or out of Prosper, all transfers between your bank and ours operate on the nationwide ACH (automated clearinghouse) system, which requires a delay of 2-4 business days in all funds transfers. Additionally, Prosper waits to allow you access to your transfers until the right of recision period (usually 2 additional business days) is up. This protects us from lending out money that a lender might pull back from his account. It should also be noted that at no point (and we are bound by law in this regard) is Prosper making interest on the money in your account.

    2) Your loans which closed on 2/18 but did not originate until 2/22 were likely the result of borrowers who had not yet confirmed their bank account (for receipt of funds) before their listings ended. This can happen because the time between listing and deposit verification on their bank accounts can be a few days (especially in the case of a weekend listing, like yours were). Some borrowers also refuse to put their bank account info on file until they know that there are funds waiting for them. We have to do things that favor borrowers sometimes, too. Again, Prosper wasn’t making any money on your money during this time.

    3) In the case where a payment was made on 3/22 but funds didn’t appear in your account for 6 days – again, we’re operating on the ACH network. We clearly display that those funds are in transit, and are not comfortable delivering funds to your account which might be rescinded by the borrower. Again, Prosper wasn’t making any money on your money during those 6 days.

    4) Our financials don’t support letting lenders transfer money out of the system at amounts less than $25 per transfer. Sorry if you feel like that’s unfair.

    5) Again, we’re using the ACH system. Not to belabor the point, but most of your complaints seem to center around our use of this industry-standard method for bank transfers, and we’re not doing anything different than other companies are. And, just to be totally clear about it, we are prohibited from earning interest on funds that you have deposited into the platform or that are yours as the result of a loan repayment. So we don’t earn anything on the float, either.

    I take no issue with your decision to not continue using Prosper, but I hope your decision won’t be made because of misunderstandings of the way the system works. I also invite you to send any other feedback that you have to feedback@prosper.com.

    Best regards,
    Andrew

    Comment by Andrew — March 28, 2006 @ 3:26 pm

  2. Thanks for responding Andrew. From a lender point of view, I did lose the use of my money for those days mentioned.

    Many other companies have worked around the ACH limitations. One example I can think of is the brokerage Ameritrade which lets you ACH the money in and these can be used to settle a trade the very next day. I guess then it’s a matter of the unwillingness of Prosper to take any small amount of risk whereas Ameritrade believes that taking the small risk of a ACH recision is better for attracting customers. In any case, Prosper has the lenders’ social numbers and they cannot run away.

    I don’t believe the minimum transfer of $25 was ever mentioned on the Prosper website.

    OK, in the interest of fairness, I decide to remove the ‘cheat’ part in the Blog.

    Comment by indexfundfan — March 28, 2006 @ 4:54 pm

  3. Perhaps ‘Prosper’ should put all the info that Andrew just shared in a FAQ on their website. I do know that ACH deposits/transfers can be held for a few days while waiting to clear, but not everybody knows the details inside out. Since this ‘legal delay’ really effects lenders, Prosper.com should clearly indicate what is going on in an F.A.Q., so nobody is surprised. Perhaps, even a ‘lending timeline’ can be shown to a lender.

    Comment by Anonymous — March 29, 2006 @ 12:18 pm

  4. Prosper has been fairly good about correcting various things that came up, though it is very much a startup. The flip side to not being ready for the prime time, is the ability of early adopters to have fairly large roles in shaping the experience — weekly updates are significant, and greatly change the capabilities available to users. (Comments in next paragraph should establish that I’m not a shill)

    A lot of controversy arose on Friday due to a basically unwarned of decision to change the max interest rate from 36% to 24%, which raised considerable ire amongst Prosper netizens. I say this relatively neutrally now, though I suppose I was contributing considerably (and fairly heatedly) to the discussion, which you can find on the bulletin boards

    http://prosper.spreebb.com/index.php?showtopic=394
    and
    on my blog.

    I also got to speak to the CEO of Prosper today as a result of posting a lot, which was fairly amusing.

    Comment by cellardoor — April 1, 2006 @ 12:08 am


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