During the end of 2006 and the beginning of 2007, there was a brand new crazy hitting the world of personal finance. Consumers would lend money to one-another and completely bypass the financial system. Lenders would get a great interest rate on the money they put out and borrowers who might not otherwise be able to qualify for a loan through traditional means would be able to get a loan. The service was an entirely new take on consumer credit. Unfortunately, because of low loan performance legal issues with the Securities & Exchange commission, it seems that Prosper.com has lost a lot of its prosperity.
For a while, Prosper.com was quite the buzz in the personal finance community on the internet. Many investors thought they were being financially savvy and would make a better interest rate by investing money into Prosper loans. As it turns out, Prosper.com loans performed much more poorly than investors had hoped. It turned out that 18.5% of all loans made between February of 2006 and June 2008 had some form of delinquency. There was also a 35% delinquency rate for loans made between February 2007 and June 2008. Who would have thought that consumers that couldn’t get a loan at a bank might not pay off their loans?
The knockout hit when the Securities & Exchange Commission filed a cease and desist order on Prosper.com for being in violation of the Securities Act of 1933. The SEC contended that the loans Prosper.com were making are considered securities, and since the securities were not properly registered, they were in violation of Federal Law. Eventually, the government reached a $1 million settlement with Prosper.com.
Under the terms of the settlement, Prosper.com agreed not to sell any securities in any state until it becomes compliant with that state’s securities registration laws. They also agreed to pay a $1 million fine to the various states. In doing so, the government agreed to stop the investigation the sale of all unregistered securities before November 24th, 2008 made by Prosper.com
Prosper.com is currently not allowing new loans to be made. They have a statement on their website that they are starting the registration process with all appropriate securities authorities. The statement also says that they cannot make new loans, expand existing commitments from borrowers or even post loans on their website until the registration process is complete.
Whether or not Prosper.com will ever make a comeback and be the revolution in consumer borrowing that it had intended to be remains to be seen. For now, Prosper.com isn’t even accepting press inquiries. They state that the process can take several months (it’s already been four), so we’ll see what happens.
Related Content:
- Quick Prosper.com Update Adventures in Money Making is thinking of entering the lending game on Prosper.com. I have been a big proponent of it since it started. I've made about 5% of my small initial investment in the...
- Peer to Peer Lending Companies: The Best Unsecured Loan Lenders Borrowing money for just about any reason has gotten more difficult since the recession. You now need a larger down payment to buy a home, a better credit score to get a loan, and banks...
- Why Prosper.com is a great 3 year Rate Ladder. OK so first of all... Everyone has heard of a a CD Ladder, right? This is where you buy your CDs so that expire at intervals. This ensures an average interest rate and continually available...
- Money Walks Lists RateLadder.com as an Interesting Prosper.com Blog I was looking into my Google Analytics statistics from 1/9/2007. (I made it to the 3rd page of Reddit and stayed most of the day with my story Using Prosper.com for Your Emergency Fund -...
- Prosper.com Lender Game — Pensioner Initial Update -- 7.08% to 25.23% Pensioner is what he wants to be, it is not what he is. He has the largest dollar amount portfolio in Prosper with a current account value of well over 800K. He is an auditor and accountant...
13 users resposed " What Happened to Prosper.com? "
March 24 2009
I have a few Prosper loans currently loaned out, and was wondering what was going on, but the amounts were so low that I hadn’t looked into it yet. Kind of sad that what started as a promising proposal seems to have fizzled out.
March 24 2009
Good point. Excatly the same thing happend in Denmark. People were giving out loans, but somehow the money seemed to vanish into thin air. The service was shut down by the goverment. I actually liked the idea, but obviously there is a need for some kind of credit approval, before you lend someone your money. Without this, the entire thing seem more like gambling, with pretty bad odds.
March 24 2009
I was one of the first users on Prosper. Kind of sad to see them closed to lenders. Still hope they come back.
In the meantime, I’m having a good time investing in peer lending via Lending Club. They reopened last year after about 6 months of talking to the SEC. Their loans are doing much better, with somewhere around 4-5% defaults.
Also, there is a new company that came up with a “mutual fund” approach called Pertuity direct. Have not tried it, but it looks interesting.
If all that fails to get your attention, there is always kiva.org
March 25 2009
I like the idea of Kiva. Helping people in developing countries with loans, is a good idea. However, I do still consider this to be a risky business. You give a loan to a person, mainly based on the information from a user profile.
March 25 2009
I knew the peer-to-peer lending industry would fall apart. Yet, several of the top personal finance bloggers couldn’t talk about peer-to-peer lending enough.
The idea was as good as the sub-prime lending idea. Borrowing money to people that should borrow money.
March 25 2009
Too bad Prosper messed it up. But Peer-to-peer lending is far from falling apart. It’s definitely getting some attention from regulators, and few companies are offering a product that makes sense, like Lending Club. I got a loan and then became a lender. Loving my 8-9% returns.
March 25 2009
Curt, I don’t think the industry is falling apart. However, it needs to mature and has a long way to go before it becomes a reliable investment opportunity.
March 25 2009
@Jakob – FairRates was the company that was shut down in Denmark. Their team was subsequently acquired by IOU Central, who has stated an intention to launch a site in the US.
In my opinion, Prosper is not dead (yet) – according to their filings with the SEC, they are following Lending Club’s lead and getting registered. It took Lending Club about 6 months, and will probably take about the same amount of time for Prosper.
March 25 2009
It’ll be interesting to see when a company dose a mutual fund approach. It seems to be too much of a hassle to go out and cherry-pick loans. I’d rather see a fund-type thing that I can invest in. That way, I could see some track-record of performance and use that to better compare it to other investments.
March 29 2009
Pertuity Direct has a mutual fund-like approach. They’re very new (<3 months old), so you won’t get much in the way of track record, but you can effectively hand them their money and they’ll take care of the rest.
March 31 2009
Thanks for the info!
July 27 2009
[...] provide evidence that the loan is having the desired impact. Therefore, if you choose to seek a debt consolidation loan from a peer lending service, prepare for lenders to have a little more insight into your family’s daily life than you would [...]
Recent Comments