I thought this as well, but on LendingClub.
Out of all of my notes that have defaulted, they all seem to share the same pattern:
They make about 4 perfectly on-time payments then never make another payment again.
I believe the loans were taken out by real people, but I feel like they were people who knew that they were ultimately going to file for bankruptcy anyway, so they figured they might as well grab some quick cash before doing so. This is just my guess. It just seems too odd that all of my defaulted notes look pretty much the same. Maybe the 4 on-time payments were done to avoid any claims of fraudulent intent?
My fear was that there was some Reddit thread or something which was instructing people on how to do this.
They could have done the same thing with a credit card, but with LendingClub, you end up with actual cash, and I bet it's easier to get a loan funded on LendingClub than it is to apply for a credit card of the same amount.
[EDIT]: To add, apparently, if someone obtains a loan immediately before filing for bankruptcy, the creditor can move to basically have the loan un-wipable if they can prove that the loan was taken after the person already knew they were going to file for bankruptcy. However, I doubt LendingClub goes through this trouble for each note, which could make the platform more attractive for this type of fraud.
The 4 on-time payments make it look like you tried to pay the loan back but just couldn't afford it.
If no payments were made at all, it would be easier to prove that there was intentional fraud. If such is proven, it may be impossible to wipe the loan during bankruptcy.
How? Seems less efficient to me.
In any case, I thought one of the advantages (perhaps the biggest advantage) of borrowing through these companies is that they have less stringent standards than banks and credit cards.
Traditional credit card lending standards are adopted because the issuer is the lender, and directly bears the default risk. On a peer-to-peer service, the money being lent is Other People's Money, and Other People bear the default risk. The incentive, then, is to leave it to those Other People to set lending standards that will protect their money.
There are obviously alternatives such as debit cards and credit unions, but those will not come with the same benefits as the cards from national issuers.
I don't think being blacklisted from Prosper or LendingClub for IIB will serve as much of a deterrent.
I could be completely wrong about this.