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America’s Largest P2P Lending Market, Prosper.com, Gets Hammered Out By U.S. Regulators

Prosper.com is or at least was America’s largest P2P lending marketplace. It was created to make consumer lending more financially and socially rewarding. No banks, no worries, high rates of return for everyone. Sounds simple enough.

The way Prosper works is intuitive to people who have used an online auction. Instead of listing and bidding on items, people list and bid on loans using Prosper’s online auction platform.

  • Launched 2006
  • America’s largest people-to-people lending marketplace
  • Over 830,000 members
  • Over $178,000,000 in loans funded on Prosper

People who register as Prosper lenders set the minimum interest rate they are willing to earn and bid in increments of $50 to $25,000 on loan listings they select. In addition to criteria commonly used by institutional lenders, such as credit scores and histories, Prosper lenders can consider borrowers’ personal stories, endorsements from friends, and group affiliations.

Borrowers create loan listings for up to $25,000 and set the maximum rate they are willing to pay a lender. Then the auction begins as Prosper lenders can bid down the interest rate. Once the auction ends, Prosper takes the bids with the lowest rates and combines them into one simple loan to the borrower. Prosper handles all on-going loan administration tasks including loan repayment and collections on behalf of the matched borrower and lenders.

SEC Cease-and-desist Order

SEC Cease-and-desist Order

Since 2006 the Prosper Marketplace tried to function like PayPal in their ability to handle financial transactions without a bank. The concept of lending P2P, while still new, is very exciting and Proper did a very good job as the pioneer in their field. However, investigating borrowers and collecting from deadbeats seems to be too much of a task for anyone to handle these days.

As one forum poster framed the situation, “Privacy/harassment laws + telling 50 pissed people the identity of a single mom late on her payments + Google + lawyer = you tell me how this story ends.”

Enterprising business person’s may consider tapping into the Prosper networks’s almost 1 million users for a new offshore version of the project with appropriate upgrades.

Perhaps they should have chosen Panama as their home base?