Comments on: Transparency and authenticity have been lacking in consumer credit

By: Nicole

Nicole — Fri, 19 Sep 2008 17:50:54 +0000

Clarity and transparency breed more informed and thereby more loyal customers. This, in turn, drives repayment performance and ultimately defaults. Take a look at the iAdvance product from MetaBank (myiadvance.com). The product’s Simple, Sensible Credit tagline speaks to this theme. No complicated fee structures or sin fees that breed skepticism in borrowers.

The product was built around concepts Meta details in this article, appearing in Paybefore.com:

http://metacash.com/Main.aspx?MenuName=Home.Press_Room.6_16_2008

To learn more: Listen to this recorded webinar conducted by the CFSI where Meta management expounds on “Simple, Sensible Credit.”

http://www.cfsinnovation.com/webinar-detail.php?article_id=330409

By: Dan Dickinson

Dan Dickinson — Fri, 19 Sep 2008 16:22:28 +0000

Social lending (or any other system) *could* be a social good — or, more accurately, prevent a social evil — if it removed from a decision any factor which tends to be discriminated against. If the lender can’t see anything about the borrower (name, race, age, location, gender, religion, height, color preferences, mac vs. PC, etc.) except their financial data, and the borrower is equally in the dark, then the decision is made purely on numbers. You then remove racism, ageism, xenophobia, operating system allegiance and all other ugliness from the system. Just like a double-blind experiment.

That won’t happen, of course. But some idealistic chap probably thought it could when P2P Lending first fired up.

By: Colin

Colin — Fri, 19 Sep 2008 03:04:30 +0000

I have to back Ron on that last point. When social lending/ p2p lending began there was an altruistic flavour to the early commentary in the 2005/6 time frame that was pure dream. I believe social lending will bring benefits, but the early association with micro lending in India and Bangladesh was fiction that nonetheless took the focus off track. The benefits will become evident as true social lending develops within the scope of regulation. The key will be those that can push the envelope within the regulatory framework.

By: Ron Shevlin

Ron Shevlin — Thu, 18 Sep 2008 21:46:33 +0000

@Rob I’m really not trying to insinuate that the fact that African Americans receive less funding is the fault of p2p lending. I think you hit the nail on the head when you raise the point about this possibly being a deeper social problem. There are some comments I’d like to make about this, but I won’t, because of the possibility that someone will twist my comments and accuse me of being politically incorrect, or even worse, racist.

I want to reiterate that my criticism of Prosper is strictly, and narrowly, concerned with the marketing-related comments the firm makes (ie., contributing to the social good) — and not the lending practices of the people who utilize the site.

By: Rob

Rob — Thu, 18 Sep 2008 20:42:51 +0000

@Ron: Your article was interesting, but I am not fully convinced that African American’s receiving less funding on their loans is P2P lending’s fault. From the article (and assuming that the underlying study is accurate) I took away that African American loans received less funding, but that they also had a higher default rate. Could this be a deeper social problem that has nothing to do with P2P lending, per se? How would you modify the idea of social lending to compensate for this?

By: Ron Shevlin

Ron Shevlin — Thu, 18 Sep 2008 20:06:01 +0000

@Rob It would appear to me that if Prosper is any indication, then p2p lending will end up increasing choices to the select segment of borrowers who already have the most choices.

I guess you can still consider that a “social good” — just not a very widespread social good.

By: Rob

Rob — Thu, 18 Sep 2008 18:55:09 +0000

Opps. Your site removed my mock-html sarcasm tags in the first paragraph, around:

“But don’t worry, all we need is more regulation. Let’s assign the government more powers, it’s not like they’re in bed with the large corporations or anything.”

By: Rob

Rob — Thu, 18 Sep 2008 18:52:51 +0000

The important “social good” I see coming from P2P lending is that it will create choice in a market that is desperately in need of some innovation. To me, whether social lending in Canada is a good or bad idea, the market should ultimately decide. Unfortunately, right now, the government is deciding in the favor of the banks by suppressing the idea altogether… But don’t worry, all we need is more regulation. Let’s assign the government more powers, it’s not like they’re in bed with the large corporations or anything. Capitalism has taken on such a negative connotation these days… the real problem is large corporations teaming up with government to actually prevent competition.

As a potential lender, I can tell you that my loans will not be any form of social service or handout; people do not have the *right* to borrow my money; however, should an individual have a history of responsible borrowing, it is very likely that there is some interest rate that will justify the risk of lending to them. We form a contract. I really, truly fail to see how years worth of regulatory discussion is needed to make this simple premise a reality.

By: Colin

Colin — Thu, 18 Sep 2008 13:22:31 +0000

@Ron .. Aha … if that last comment is the point then we are in agreement. There is (yet) no holy grail for dealing with people who have bad credit. Bad credit by definition means that the borrower does not pay his loans back, and thats a hard record to deal with. On the other hand those with no credit record who are new to borrowing are a different story, and there are creative ways to help them.

P2P lending, at least the Canadian version that we are promoting is designed for good quality borrowers seeking a better alternative.

By: Ron Shevlin

Ron Shevlin — Thu, 18 Sep 2008 13:07:50 +0000

Oh Colin, please: ” peer-to-peer lending market actually treats the races more equally than would be expected in a market with accurate statistical discrimination”

“More equally” is like admitting you beat your wife, but not as badly as the guy next door.

You’re free, of course, to interpret my comments as “attacking the premise of social lending”, but I didn’t really think that’s what I was doing.

I was attacking what I believe to be the false claim that p2p lending is some kind of “social good”. The data from the Prosper study suggests that it’s mostly well-to-do people lending to other well-to-do people. And there’s nothing wrong with that. At all.

But there’s an often explicit, and sometimes implicit, claim that p2p lending is benefiting people who can’t get loans from the “big bad banks.” The Prosper study refutes those claims.