Prosper groups can add an extra level of risk management to the equation. Active group leaders go the extra mile in verifying information for members of their group. Borrowers join groups to gain the credibility of the group increasing the odds that they will get their loans funded.
Group leaders gather information on the borrowers such as pay stubs, tax information, and anything else (except a credit report) that they feel necessary. The credit information is already pulled by Prosper. Many group leaders talk to borrowers on the phone to get a better feel for the person. If the borrower passes all the tests, the group leader accepts the borrower in the group and puts his stamp of approval on the loan listing.
Some group leaders are more picky than others. Some aren't picky at all. Group leaders get a cut of any loans that are funded so some group leaders take anyone that wants in the group and do little, if anything, to vet them.
Some group leaders have excellent track records and you know that funding a loan for one of their members has a high likelihood of being repaid. Many group leaders fund their members because they have worked to verify that the person is probably going to pay the loan back.
I've considered creating a group myself for people who are trying to get out of debt but I don't know if I have the time to go through the verification process with borrowers. I'm still trying to decide if it would be worth it.
More on this tomorrow.