Credit/Debt Recovery

Prosper.com shut down by the SEC

I've been blogging about Prosper.com since it first launched (here, here, here, and here are just a few posts). Prosper is a peer-to-peer lending site, where people with money to lend are matched up with potential borrowers. It seemed to be working (though not quite how its founders originally intended) and just as I predicted, a lot of amateur lenders learned how crucial credit scoring is after they found out what it was like to have borrowers default without warning.

Now comes news that the SEC is shutting the service down.

Part of their rationale was that there was no "regulatory scheme" to reduce risks to investors. (Prosper had argued that they weren't selling "investments" at all, but the SEC seems to have made up its mind on that point.) 

Prosper will probably be back after they register with the SEC and jump through the hoops. As soon as they are part of the SEC's "regulatory scheme" they'll be permitted to resume their operations.

Thank goodness for the SEC and its "regulatory schemes." Without them, investing might be risky. 

Identity Theft, Mitchell & Webb style

Nerve

Just read a NY Times story, "Downturn Drags More Consumers Into Bankruptcy" that closes with galling quote:

Ms. Warren, the Harvard law professor, said many borrowers had been left with the mistaken impression that they could no longer file. And, she argued, “the widespread perception that bankruptcy is not available to help families makes this economic crisis worse.”

That's Elizabeth Warren, complaining about a "widespread perception" that she is responsible for.

Because she was the face of the anti-bankruptcy reform crowd a few years ago, she's been the person the media has turned to for reliable one-sided analysis of bankruptcy ever since.

It was on her blog at Talking Points Memo where you could find cries that bankruptcy reform "prohibits ordinary ... families from restructuring and discharging their debts following medical emergencies and job losses." She argued that "lenders want the Federal government to intervene to force the debtor to pay, by passing a law prohibiting them from filing bankruptcy and discharging the debts."

In interview after interview, and in blog posts, she repeated the theme that the real thrust of bankruptcy reform would be to eliminate access to bankruptcy for middle and lower class families. Here is part of her summation of bankruptcy reform: 

• Make more hurdles and traps, with deadlines that a judge cannot waive even if someone has a heart attack or an ex-husband who won’t give up a copy of the tax returns, so that more people will get pushed out of bankruptcy with no discharge.

• Make it harder to repay debts in Chapter 13 by increasing the payments necessary to confirm in a repayment plan, so that more people will be pushed out of bankruptcy without ever getting a discharge of debt.

None of that has happened, by the way. The NY Times article I mention above is about how bankruptcy is on the rise. So BK reform did such a good job eliminating access to bankruptcy that more and more people are doing it. Despite Elizabeth Warren's best efforts to convince them that they'd be turned away at the courthouse door. 

And now she has the nerve to say that this misconception she created is making the crisis worse. She should be ashamed of herself.

Payday loans in Arizona: not for much longer

Arizona voters rejected Prop. 200, which would have allowed payday lenders to continue to charge more than 36% interest. Current AZ law grants an exception to payday lenders from the state's usury laws, but will expire in 2010. At that time, payday lenders will start shutting their doors. 

As we know, payday loans actually charge anywhere from 200-750% interest. Force them to only charge something less than 36%, and there's no way they can afford to stay in business. 

So the wolves and lambs have voted on dinner. If that's what the people of AZ want, that's what they're going to get. But they should understand that shutting down payday lenders is the same thing as denying credit to the poor. The voters have decided not to allow poor people to take advantage of short-term credit offered by payday lenders. That's the real story behind all this.

I remember having to take out payday loans in graduate school. I'm glad I don't have to consider them any more. But I'm fairly certain I wouldn't have made it through those years without fringe banking products like payday loans and check-cashing services. If I'd been evicted or had my power turned off, I would've been derailed in my college education. (That honestly wouldn't have been a setback, but most people consider college important.) 

For more info on this, including some good analysis of what the numbers mean, check out Warren Meyer's Coyote Blog.

The Straight Dope on signing your credit card

This Straight Dope column suggests that you should go ahead and sign the back of  your credit cards, and that putting "SEE ID" or leaving them blank isn't any safer.

Read their analysis, it's good. I will say, though, that I've never signed the back of a credit card I use. And as the SD column suggests, I do get hassled sometimes by merchants. Which is good. I like the hassle. I always appreciate it when they ask to see my ID and take the time to confirm I'm using my own credit card. 

In fact, I know people who, like me, are past victims of identity theft, and they get angry when a merchant doesn't ask to see ID. I'm not quite that sensitive about it, but I always notice when no one asks for ID. I reminds me how easy it is for identity thieves to get away with it.