UPDATE: Prosper responds to MNH Reports #1 and #5

Two MNH Reports have gotten results.

On January 5, Prosper Marketplace Inc. promised to make restitution, with interest, to lenders and group leaders affected by the contractual violations outlined in MNH Reports #1 and #5.

MNH Report #1, originally posted at Prospers.org and the now-defunct official Prosper forums on October 31, 2007, revealed that Prosper Marketplace Inc. had violated the Lender Registration Agreement by deducting Servicing Fees and group leader fees (a/k/a “group rewards” or “Finder’s Payment Rewards”) from payments which were made more than 30 days after the due date.

MNH Report #5, posted here and at Prospers.org on December 26, 2007, documented that Prosper had violated the Group Leader Registration Agreement by withholding fees which should have been paid to group leaders during the first three months after loans originated.

In a post to its official blog, Prosper.com established a timetable for refunding servicing fees and group leader fees which had been deducted from late payments, and for releasing withheld group leader fees to group leaders. (Prosper’s Shira Levine had previously promised that Prosper would refund fees which had been improperly deducted from late payments, but no timetable was provided. Her promise -- along with the rest of the official forums -- was deleted shortly thereafter.) The first round of refunds was issued on January 16.

Excerpts from Prosper’s announcement are in italics:

With regard to servicing fees improperly deducted from late payments:
• Any lender who has a loan that came from a listing created before Nov 9, 2007 will receive a refund of his or her servicing fees charged in situations where the full monthly payment was not received within thirty (30) days after the due date of the payment.
• Lenders will also receive a refund of servicing fees on such loans when servicing fees were charged on partial payments received within 30 days of the due date, but where the full payment was not received within thirty (30) days after the due date of the payment.
• As of Nov 9, 2008, the Lender Registration Agreement has been updated to allow the charging of servicing fees on all payments, regardless of the amount and timing of the payment received. Lenders on loans that result from listings created on or after Nov 9, 2007 will have servicing fees deducted on all borrower full or partial payments, whenever received.
We estimate the date of the refund mid to late January, 2008.

These refunds appeared in lender accounts on January 16, 2008.

For group leader fees improperly deducted from late payments:

• Any lender who should have received a forfeited Finder’s Payment Reward will have that reward paid into his or her Prosper account.
• Group leaders who received rewards on late payments in the past will not have these rewards taken back from their accounts.
• Going forward, when loan payments that are subject to Finder’s Payment Rewards are made while a loan is 30 or more days past-due, the Finder’s Payment Reward will be paid to the lenders on the loan.
We estimate the date of the refund to Lenders in mid to late February, 2008.

None of the loans in my portfolio on which payments were made more than 30 days after the due date were originated in groups which charged fees, so I don’t know if these refunds have been made yet or not. I hope that readers of this blog will post a comment when they see credits to their accounts.

Finally, as to the group leader fees which Prosper had withheld from group leaders:

• We will pay the previously held-back rewards on defaulted loans (even though those amounts have already been distributed to lenders) to all the GLs.
• In case of future default on any of those loans, we will pay the amount of the originally held-back rewards to the lenders on those loans.
We estimate the date of disbursement of these rewards by end of February, 2008.

Once these payments are made by Prosper, the issues raised by MNH Reports #1 and #5 will be fully resolved.