In May Virgin Group purchased a majority stake in CircleLending. Today they have announced they are using that as a platform for a new US peer to peer lending site. Virgin Group is a $20 billion dollar company, and is run by well known billionaire Richard Branson. A coming out party is scheduled to be held in Boston today where Richard Branson is going to hand out red dollar bills with pictures of him and his mom on them. Reportedly Richard's mom lent him several thousand pounds through the new peer-to-peer lending site.
Virgin Group plans to use this site to expand its offerings over the next year to include things like small business financing, student loans, and larger-scale loans.
Prosper market anticipates Fed rate cut
In Prosper's second monthly lending market survey, CEO Chris Larsen says that the Prosper marketplace appears to anticipate Federal cuts in the intrest rate. Specifically he says a drop in the rates borrowers are paying on loans is close "to what was widely anticipated to be a quarter-point instead of a half-point reduction by the Fed." Here is the full text of Larsen's October announcement:
"When the Fed cuts interest rates people often expect mortgage rates to drop. However, this is rarely the case given that mortgage markets typically anticipate rather than react to moves by the Fed. On the flip side of the coin, the variable credit card and savings rate markets react sometime after the Fed moves. In fact, some variable credit cards have a 90-day window to make adjustments reflecting the rate cut. So the question is: did the Prosper marketplace anticipate or react to the Fed rate cut?
Many might assume that the Prosper marketplace would act less like the mortgage markets and more like the credit card and savings rate markets given that the latter compete with Prosper. Nevertheless, the month over month drop in average borrower rates indicates that the Prosper marketplace may have anticipated the Fed cut.
For example, in September the average borrower rates for all prime and near prime loans funded in the Prosper marketplace were 12.29% and 18.22%, respectively; down 0.37% and 0.28%, respectively, from August.
What is interesting about these percentage drops is how close they are to what was widely anticipated to be a quarter-point instead of a half-point reduction by the Fed. However, what remains to be seen is whether the market will continue to push rates down further in line with the Fed’s surprise move."
Last month Larsen said, lenders are exhibiting rational behavior and "being far more cautious about chasing higher rates offered by subprime borrowers."
"When the Fed cuts interest rates people often expect mortgage rates to drop. However, this is rarely the case given that mortgage markets typically anticipate rather than react to moves by the Fed. On the flip side of the coin, the variable credit card and savings rate markets react sometime after the Fed moves. In fact, some variable credit cards have a 90-day window to make adjustments reflecting the rate cut. So the question is: did the Prosper marketplace anticipate or react to the Fed rate cut? Many might assume that the Prosper marketplace would act less like the mortgage markets and more like the credit card and savings rate markets given that the latter compete with Prosper. Nevertheless, the month over month drop in average borrower rates indicates that the Prosper marketplace may have anticipated the Fed cut.
For example, in September the average borrower rates for all prime and near prime loans funded in the Prosper marketplace were 12.29% and 18.22%, respectively; down 0.37% and 0.28%, respectively, from August.
What is interesting about these percentage drops is how close they are to what was widely anticipated to be a quarter-point instead of a half-point reduction by the Fed. However, what remains to be seen is whether the market will continue to push rates down further in line with the Fed’s surprise move."
Last month Larsen said, lenders are exhibiting rational behavior and "being far more cautious about chasing higher rates offered by subprime borrowers."
Prosper Announces New Upcoming Lender Features at Finovate Conference
Prosper announced some new upcoming features at the FINOVATE conference this week. Included in the changes are a more transparent risk estimator when placing a bid. Currently Prosper shows Experian default rates to estimate the risk. Now they have enough data from Prosper loans to start displaying the risk based on Prosper's historical default rates which should give a more accurate picture of the expected returns.
Prosper also announced plans for building auto-portfolios much like the ones that are available at Lending Club. You will be able to select a portfolio based on your risk tolerance and your desired return. This is similar to the standing order options they currently have, but with the new interface Prosper will set the standing order criteria that best matches the selected portfolio.
Along with these changes Prosper has announced that they will be increasing the servicing fees for A loans to 1% and decreasing the servicing fee for AA loans to 0% (not a misprint).
Prosper also announced plans for building auto-portfolios much like the ones that are available at Lending Club. You will be able to select a portfolio based on your risk tolerance and your desired return. This is similar to the standing order options they currently have, but with the new interface Prosper will set the standing order criteria that best matches the selected portfolio.
Along with these changes Prosper has announced that they will be increasing the servicing fees for A loans to 1% and decreasing the servicing fee for AA loans to 0% (not a misprint).
Prosper Announces Second Annual Prosper Days Conference
Prosper has announced it's second annual Prosper Day's conference, and is now taking reservations. Prosper Days is a one and a half day conference that brings together active lenders, group leaders, and borrowers for networking and education on how Prosper works. Prosper CEO Chris Larsen is scheduled to give the keynote address followed by a series classes such as "Lending 101" and "Collections with Doug Fuller". Noticeably absent from this year's Prosper Day's is anything related to Prosper Groups. Groups and Group Leaders were a big part of last year's Prosper Days, but after changing the structure of groups they play a much smaller role in the Prosper community.
Prosper hires new Vice President of Operations to Improve Collections
One of Prosper's greatest challenges has been handling collections from loans that go late. After a loan is more than 30 days late Prosper turns the loan over to a collections agency, but lenders have a had ongoing complaints about how this collections process is handled. Their complaints are that not enough work is being done by Prosper before the loan goes to collections, and then once in collections sometimes it is little more than automated dialers handling the collections. Prosper has recognized this as a primary concern, and in an effort to improve this process they hired a new Vice President of Operations. The following is some background on Doug from the Prosper Forums along with some questions and answers from Shira, one of Prosper's employees.
Doug Fuller, background:
For over two decades Doug Fuller has been a leader in data driven operations management and process optimization with a specialty in collections and risk-management.
Most recently he served as Chief Research Officer at Credigy, a provider of receivables management services focused on the purchase and servicing of distressed receivables. Prior to Credigy, Dr. Fuller served as a principal consultant for Priority Perspective, where his clients included Credigy, GE Card Systems, Ontario Systems, and Thornton Capital Advisors. Prior to his consultancy, he served as Senior Vice President at First Select Corporation/Providian Financial where he led the development and implementation of collection and recovery management systems. In addition, he led Providian’s fraud management activities including detection and prevention of transactional fraud and identity theft.
Dr. Fuller has served as an advisor for the Visa International Fraud Executive Committee, TransUnion Risk Management Panel, Ontario Systems – Artiva Advisory Group, Intelligent Results – Predigy Advisory Group, and Royal Media – Collection Technology Summit. He holds a Ph.D. in Systems Engineering from the University of Virginia and a B.I.E. with highest honors from the Georgia Institute of Technology.
Doug views his role as a steward for Prosper lenders and the integrity of the marketplace. He believes that it is necessary to be as aggressive as regulations permit and to prosecute the most egregious debtors to the full extent of the law.
Doug is methodical in his approach to collections. Drawing on his decades of experience, Doug has already begun an intensive quantitative and qualitative examination of Prosper and its third party collection agencies’ payment recovery techniques and performance. Based on his initial findings, he is confident that there are some short-term solutions that will have a positive near-term impact on Prosper’s recovery rate. In addition, he has developed a laundry list of longer-term strategies aimed at earning Prosper a reputation as one of the leading payment recovery operations in the industry.
Q: Doug, what’s the best way to evaluate your experience in risk management?
A: In my opinion, in order to really evaluate the breadth and depth of somebody’s experience, it is important to look at such things as “span of control”, size of budget and/or P&L and the number of people that a person has hired or fired. In my case, the largest number of people that I’ve had reporting to me was 342 (Providian Fraud). In my most recent job (Chief Research Officer of Credigy); I headed an organization of 72. In terms of P&L experience, my experience was in the small business environment – the maximum P&L that I was responsible for was $22 million. In terms of budget, while head of Fraud at Providian, I controlled an expense line of more than $110 million.
Q: What kind of experience do you have related to unsecured lending risk?
A: My first experience with unsecured lending risk was when I consulted for Capital One while working on my PhD at the University of Virginia. My PhD advisor and I were brought in by Rich Fairbanks, the founding CEO of Cap One, to look at how well, or even if, they were applying their “Information Based Strategy” to the world of Risk Operations. The resulting report served has the blueprint for a complete overhaul of their Risk organization – including the creation of a new SVP position heading Risk Analytics.
Q: What came next?
A: In the course of doing the “Systems Analysis” for Cap One, it became apparent that they had no analytic talent looking at their credit card authorization subsystem. The problem statement that I was given was “Increase our authorization approval rate without increasing our risk.” The resulting “soft credit limit analysis” system was credited with an $8 million impact to Cap One’s bottom line in the first 12 months of operation.
Q: That’s interesting, but is it relevant to Prosper’s business?
A: It depends on how you look at it – I believe that the combination of quantitative and process analytics can improve virtually any business situation – be it optimizing test coverages to maximize the capacity of a semiconductor module line, revising block scheduling procedures to triple patient capacity in an out-patient endoscopy lab or revising the call sequencing strategy to more than double the number of “right party connects” in a collections call shop.
Q: That last one sounds like its directly relevant, will you tell us more?
A: When I arrived at First Select (charged-off debt buying and collections subsidiary of Providian Financial), the first thing that I looked at was our dialer strategy. It was painfully bad – we had an example of an account where 49 calls had been placed to the same phone number in the course of three weeks – all 49 calls covered a span of less than 90 minutes of the day. We had another case where we made 61 calls to the same disconnected number. The first step was to “stop the bleeding” – quit doing the really, really dumb stuff. The second step was to implement a well designed call coverage and rotation strategy. The first step bought us more than 20% improvement. The second step took about 4 months to accomplish, but doubled our results.
Q: Can you do the same thing with Prosper’s collections calls?
A: Actually, for the month of September, we’ve seen greater than a 40% increase in the contact rates at our primary collection agency.
Q: To what do you attribute the improvement?
A: The squeaky wheel gets the grease. Seriously, the problem that we have is that we have very low volume. At our current primary agency, we represent about 2.5 full time employees of a workforce in a 700+ collector organization. It turns out that on a lot of days, our dialer job was started at about the same time (of day) – not the way to maximize your contacts.
Q: How will you bring about the rest of the improvements you discussed?
A: If the agency is willing to work with me, I’m confident that we can improve. If not, I’m going to find a different agency – or possibly just bring it in-house.
Q: What else are you thinking about for Prosper collections?
A: We have to have a legal strategy. I listened to hours-worth of calls with delinquent Prosper borrowers. One of the things that we emphasize in the call is that the delinquent borrower is not hurting some faceless corporation, they are impacting the 20, 50, 200 “ordinary Joes” that funded their loan. Based on the calls that I’ve listened to, this is a clear advantage in some portion of early delinquency calls – there is a personal connection that motivates the borrower to pay. At some point, this advantage flips – the “debtor” (and I use that term with intent) says to themselves that Citibank and American Express are going to sue me – GMAC going to repossess my car -- what’s Prosper going to do to me? Even though debtors could face lawsuits from the debt buyers of Prosper’s defaulted loans, if debtors don’t think they will be sued, this is a perception we have to change.
Q: Do you have experience with suing people?
A: Oh yes. Between First Select and Credigy, I have been responsible for making the decision to sue more than 150,000 people. There are a lot of lawyers that can’t claim that number of suits in a lifetime.
Q: Well why don’t we just sue everybody?
A: The phrase “blood from a turnip” comes to mind. One of the ways that you can go broke in a big way is by suing people that will never be able to pay you at all. Simple math, it costs a lot of money to sue people.
Q: Okay, so you need to decide who to sue, then what?
A: Put quite simply, my philosophy is this – if you won’t pay, but can (or will in the future) be able to pay, I’m going to sue you. If I sue you I’m going to win.
Q: That sounds kind of arrogant, can you back it up?
A: Courts in seven states have recognized me as an expert at consumer debt litigation. At Credigy, if a case got really nasty, I would go testify live. I refuse to lose.
Q: Really? What’s your win/lose record?
A: In my last 18 months at Credigy, I testified live at 42 trials. My record was 41-1. By the way, I fired the law firm where we lost.
Q: What’s the toughest aspect of this type of lawsuit?
A: By and large, judges are comfortable if you can show them a signature on a piece of paper. The vast majority of judges grew up long before the internet and the passage of the “e-signature” bill during the Clinton administration. Sometimes you’ve got to spend a lot of time educating them.
Q: How do you do this?
A: I have been qualified as an “expert witness” in seven states on the subject of the electronic records of consumer lending transactions. There was a judge in Texas that had me on the stand for more than three hours – the majority of the time, the judge was quizzing me. Other than I missed the last flight home, I thought it was time well spent – he never questioned any of our requests for default judgment after that.
Doug Fuller, background:
For over two decades Doug Fuller has been a leader in data driven operations management and process optimization with a specialty in collections and risk-management.
Most recently he served as Chief Research Officer at Credigy, a provider of receivables management services focused on the purchase and servicing of distressed receivables. Prior to Credigy, Dr. Fuller served as a principal consultant for Priority Perspective, where his clients included Credigy, GE Card Systems, Ontario Systems, and Thornton Capital Advisors. Prior to his consultancy, he served as Senior Vice President at First Select Corporation/Providian Financial where he led the development and implementation of collection and recovery management systems. In addition, he led Providian’s fraud management activities including detection and prevention of transactional fraud and identity theft.
Dr. Fuller has served as an advisor for the Visa International Fraud Executive Committee, TransUnion Risk Management Panel, Ontario Systems – Artiva Advisory Group, Intelligent Results – Predigy Advisory Group, and Royal Media – Collection Technology Summit. He holds a Ph.D. in Systems Engineering from the University of Virginia and a B.I.E. with highest honors from the Georgia Institute of Technology.
Doug views his role as a steward for Prosper lenders and the integrity of the marketplace. He believes that it is necessary to be as aggressive as regulations permit and to prosecute the most egregious debtors to the full extent of the law.
Doug is methodical in his approach to collections. Drawing on his decades of experience, Doug has already begun an intensive quantitative and qualitative examination of Prosper and its third party collection agencies’ payment recovery techniques and performance. Based on his initial findings, he is confident that there are some short-term solutions that will have a positive near-term impact on Prosper’s recovery rate. In addition, he has developed a laundry list of longer-term strategies aimed at earning Prosper a reputation as one of the leading payment recovery operations in the industry.
Q: Doug, what’s the best way to evaluate your experience in risk management?
A: In my opinion, in order to really evaluate the breadth and depth of somebody’s experience, it is important to look at such things as “span of control”, size of budget and/or P&L and the number of people that a person has hired or fired. In my case, the largest number of people that I’ve had reporting to me was 342 (Providian Fraud). In my most recent job (Chief Research Officer of Credigy); I headed an organization of 72. In terms of P&L experience, my experience was in the small business environment – the maximum P&L that I was responsible for was $22 million. In terms of budget, while head of Fraud at Providian, I controlled an expense line of more than $110 million.
Q: What kind of experience do you have related to unsecured lending risk?
A: My first experience with unsecured lending risk was when I consulted for Capital One while working on my PhD at the University of Virginia. My PhD advisor and I were brought in by Rich Fairbanks, the founding CEO of Cap One, to look at how well, or even if, they were applying their “Information Based Strategy” to the world of Risk Operations. The resulting report served has the blueprint for a complete overhaul of their Risk organization – including the creation of a new SVP position heading Risk Analytics.
Q: What came next?
A: In the course of doing the “Systems Analysis” for Cap One, it became apparent that they had no analytic talent looking at their credit card authorization subsystem. The problem statement that I was given was “Increase our authorization approval rate without increasing our risk.” The resulting “soft credit limit analysis” system was credited with an $8 million impact to Cap One’s bottom line in the first 12 months of operation.
Q: That’s interesting, but is it relevant to Prosper’s business?
A: It depends on how you look at it – I believe that the combination of quantitative and process analytics can improve virtually any business situation – be it optimizing test coverages to maximize the capacity of a semiconductor module line, revising block scheduling procedures to triple patient capacity in an out-patient endoscopy lab or revising the call sequencing strategy to more than double the number of “right party connects” in a collections call shop.
Q: That last one sounds like its directly relevant, will you tell us more?
A: When I arrived at First Select (charged-off debt buying and collections subsidiary of Providian Financial), the first thing that I looked at was our dialer strategy. It was painfully bad – we had an example of an account where 49 calls had been placed to the same phone number in the course of three weeks – all 49 calls covered a span of less than 90 minutes of the day. We had another case where we made 61 calls to the same disconnected number. The first step was to “stop the bleeding” – quit doing the really, really dumb stuff. The second step was to implement a well designed call coverage and rotation strategy. The first step bought us more than 20% improvement. The second step took about 4 months to accomplish, but doubled our results.
Q: Can you do the same thing with Prosper’s collections calls?
A: Actually, for the month of September, we’ve seen greater than a 40% increase in the contact rates at our primary collection agency.
Q: To what do you attribute the improvement?
A: The squeaky wheel gets the grease. Seriously, the problem that we have is that we have very low volume. At our current primary agency, we represent about 2.5 full time employees of a workforce in a 700+ collector organization. It turns out that on a lot of days, our dialer job was started at about the same time (of day) – not the way to maximize your contacts.
Q: How will you bring about the rest of the improvements you discussed?
A: If the agency is willing to work with me, I’m confident that we can improve. If not, I’m going to find a different agency – or possibly just bring it in-house.
Q: What else are you thinking about for Prosper collections?
A: We have to have a legal strategy. I listened to hours-worth of calls with delinquent Prosper borrowers. One of the things that we emphasize in the call is that the delinquent borrower is not hurting some faceless corporation, they are impacting the 20, 50, 200 “ordinary Joes” that funded their loan. Based on the calls that I’ve listened to, this is a clear advantage in some portion of early delinquency calls – there is a personal connection that motivates the borrower to pay. At some point, this advantage flips – the “debtor” (and I use that term with intent) says to themselves that Citibank and American Express are going to sue me – GMAC going to repossess my car -- what’s Prosper going to do to me? Even though debtors could face lawsuits from the debt buyers of Prosper’s defaulted loans, if debtors don’t think they will be sued, this is a perception we have to change.
Q: Do you have experience with suing people?
A: Oh yes. Between First Select and Credigy, I have been responsible for making the decision to sue more than 150,000 people. There are a lot of lawyers that can’t claim that number of suits in a lifetime.
Q: Well why don’t we just sue everybody?
A: The phrase “blood from a turnip” comes to mind. One of the ways that you can go broke in a big way is by suing people that will never be able to pay you at all. Simple math, it costs a lot of money to sue people.
Q: Okay, so you need to decide who to sue, then what?
A: Put quite simply, my philosophy is this – if you won’t pay, but can (or will in the future) be able to pay, I’m going to sue you. If I sue you I’m going to win.
Q: That sounds kind of arrogant, can you back it up?
A: Courts in seven states have recognized me as an expert at consumer debt litigation. At Credigy, if a case got really nasty, I would go testify live. I refuse to lose.
Q: Really? What’s your win/lose record?
A: In my last 18 months at Credigy, I testified live at 42 trials. My record was 41-1. By the way, I fired the law firm where we lost.
Q: What’s the toughest aspect of this type of lawsuit?
A: By and large, judges are comfortable if you can show them a signature on a piece of paper. The vast majority of judges grew up long before the internet and the passage of the “e-signature” bill during the Clinton administration. Sometimes you’ve got to spend a lot of time educating them.
Q: How do you do this?
A: I have been qualified as an “expert witness” in seven states on the subject of the electronic records of consumer lending transactions. There was a judge in Texas that had me on the stand for more than three hours – the majority of the time, the judge was quizzing me. Other than I missed the last flight home, I thought it was time well spent – he never questioned any of our requests for default judgment after that.
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