Prosper the p2p lending company is getting tough on late borrowers.

The “New Agency Test” is taking an interesting turn… Prosper is going to sue.  I just received the following email from Prosper.

The purpose of this email is to inform you of your right to choose what action you would like to take with regard to the accounts of the legal collection test currently underway.

Of the original 74 loans in the legal test, 68 remain (6 loans have fallen out due to such things as curing or bankruptcy filings). In order to present the strongest case, our law firm believes that it is best for Prosper to be the official owner of the loan when suit is filed. As such, we have developed the following process to accomplish this:

You currently hold promissory notes on 6 loan(s) in the test group (loan numbers comprising the test group listed in Exhibit 1). As of January 15th, 2008, the total Gross Amount Due to you on these loans is $325.26. If the loans had been sold in the December debt sale, they would have brought you $33.11 in proceeds.

The total of the 68 loans has a gross amount due of $735,709.66 and would have sold for $73,506.03. Additional loans may be removed from the pool, for such reasons as curing or declaring bankruptcy prior to 1/23/08 – the projected pool creation date.

You may choose to accept the $33.11 (the “debt sale amount”) for your loans now or to receive a pro-rata share of the net recoveries of this legal test pool. The pro-rata share would be based on the gross amount due on your Notes divided by the gross amount due to all lenders who choose to be in the test, calculated as of January 23, 2008 (the “Pool Commencement Date”), i.e., the date after which lenders must respond to this notification indicate whether they wish to participate in the test on a pro-rata basis. Based on the gross amounts due as of $325.26 if all lenders chose to remain in the test, your share would be 4.4211%.

The above share percentage is based on the 68 loans currently identified. Loans could be removed from the pool (due to cure payments, bankruptcies, etc.) prior to the Pool Commencement Date, in which case your percentage may be higher or lower.

The costs that will need to be recovered are: the purchase price that Prosper pays for the loan portions of lenders who do not want to continue with the test, court and service of process costs and the attorney firm’s contingency fee (which is 24%).

If you choose to accept your pro-rata share of the net recoveries of the legal test pool, net recoveries (if any) will be credited to your account monthly, for as long as there are loans remaining in legal collection. Due to the unpredictability of litigation, we do not know how long the test will take before legal collection efforts and activities are concluded on all loans in the test; however, we estimate that the test could continue for up to 18 to 24 months.

Since this is a test, we have not yet designed the system to track these revenues within the normal statement process. As such, the loans will be defaulted at zero value and the accounting provided on a monthly basis in a supplementary statement.

Please reply to this email by placing an “X” in the box below that signifies your choice on or before Tuesday 01/22/08. If we do not receive your reply by that date, we will assume that you do NOT wish to participate in this test. As such, we will transfer $33.11 into your account.

If you choose to participate in the test, we will send you a statement confirming your pro-rata share once the responses are tallied and final loan composition is set.

IF YOU CHOOSE TO ACCEPT YOUR PRO-RATA SHARE OF THE NET RECOVERIES OF THE LEGAL TEST POOL, THERE IS NO GUARANTEE THAT YOU WILL RECEIVE AN AMOUNT EQUAL TO OR GREATER THAN THE DEBT SALE AMOUNT, AND THERE IS NO GUARANTEE THAT YOU WILL RECEIVE ANY AMOUNT AT ALL. This is because legal costs and fees are deducted from recoveries before amounts are distributed to lenders, and therefore if costs and fees exceed recoveries, there will be nothing left to distribute to the lenders. If costs and fees exceed recoveries, you will not, however, have to make any out-of-pocket payments to make up the difference.

This test is designed to determine whether the viable threat of legal consequences will improve the repayment statistics for Prosper loans. This test is an important step in creating that awareness of consequences. Please consider your choice carefully.

Prosper Marketplace, Inc.

Please reply to this email by placing an X in one of the following:

[ ] I do NOT wish to participate in this test. In exchange for a purchase price of $33.11, I assign all promissory notes currently held by me associated with the loans listed in Exhibit 1 to Prosper Marketplace, Inc.

[ ] I wish to participate in this test. In exchange for a pro-rata share of at least 4.4211% of the future net recoveries of this test, I assign all promissory notes currently held by me associated with the loans listed in Exhibit 1 to Prosper Marketplace, Inc.

You must reply to this email by on or before Tuesday 01/22/08. If we do not receive your reply by that date, we will assume that you do NOT wish to participate in this test. Thank you.

Exhibit One: Loans Currently In Legal Test Pool

LoanID	LoanID	LoanID	LoanId
848	3918	6127	7739
950	3992	6302	7779
1840	4001	6311	8068
1850	4371	6383	8167
1906	4389	6759	8204
1975	4539	6809	9392
1984	4620	6880	9471
2297	4720	7008	9544
2407	4764	7186	12474
2576	4875	7250	12577
2627	5092	7270	12748
2854	5350	7348	12876
2982	5370	7385	13632
3059	5420	7458	13650
3069	5555	7501	14577
3584	5923	7627	14865
3897	6069	7673	16136

Thank you,

Prosper Operations

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