I know that many people have been anxiously waiting for an update on the debt sale. We’ve been working very hard toward finding a more favorable bid, as well as considering alternatives, but we’ve met with some severe obstacles.
Once bids with unacceptable contract conditions were eliminated the highest bid we received was only 1.5 cents on the dollar. To put this in context, “Out of Statute” paper - consumer debt that is time-barred by the statute of limitations, where the debt holder has not received a payment in 3 to 15 years - gets prices in the range of 0.5 to 0.75 cents.
The problem is that there is so much credit card paper available in the market, that no one is interested in a “novel” asset such as Prosper loans. More than one bidder had told me that in this market, they’re only spending their money on consumer debt paper they’ve had experience with.
We believe the prudent course of business is to not sell at this time. Instead, we are going to consider the loans as charged off, and keep them and continue to try to collect them as charged off debts. You will continue to own the loans as we apply post charge off collection techniques to these accounts. We recognize that this is different than our normal process, but firmly believe that it will result in a higher return for our lenders.
One of the key arguments for selling bad debt quickly and without applying “post charge off” collection techniques, is that it reduces the value of accounts that don’t respond. However, given the very low price we’re currently faced with, that’s not really a concern.
Several people have expressed concern regarding how 121+ dpd loans are reported. We are working to create a new loan status of “charged off”. Loans in this status will not have their balance “zeroed” out (so that they can still accrue interest), but they will not be eligible to revert to a “current” or “delinquent” status even if a payment is received.
—
Doug Fuller is the Vice President of Operations at Prosper.
