Prosper

US P2P Lending Regulation Might Ease

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The House of Representatives yesterday passed a bill that will move regulation of p2p lending services from the SEC to the newly created Consumer Financial Protection Agency (CFPA) in Spring 2010, provided the Senate and President Obama approve the new legislation.

Oversight by the SEC meant that Prosper, Lending Club and other p2p lending companies in the US had to go through an arduous registration process in the past, which forced them to close for new business for several months. Zopa even decided to exit the US market.

Prosper CEO Chris Larsen welcomed this development, saying: “In terms of how the Bill relates to peer-to-peer lending, we’ve always believed that the industry should be regulated as a bank-like sector by a strong, holistic regulator focused on providing robust protections for both lenders and borrowers…”.

P2P Lending Company Prosper.com has High Q3 Loss

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Prosper Marketplace, Inc. the company running the p2p lending site Prosper.com had a net loss of 2,238,138 US$ in the third quarter of 2009. Furthermore Prosper’s cash reserve is low. As of September 30th, 2009 Prosper had 2,079,624 US$ cash and cash equivalents left from an initial VC funding of 40 million US$. Even accounting for the recent 1 million US$ investment of a banker, at the current burn rate Prosper will need new funding soon.

However the timing and circumstances make chances for a new VC round look less than ideal.
Prosper reopened the site for new loans after completing the SEC registration process in July 2009, but still struggles to reach growth rates the marketplace had in 2007 and 2008.

Continue reading →

Banker Invests 1 Million US$ VC Money into Prosper

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Nigel Morris, co-founder of Capital One, has invested 1 million US$ into Prosper.com via his venture capital company QED Investors.

The investment comes in form of a convertible promissory note for the amount of 1 million US$, which is due in one year and carries an interest rate of 15%. QED Investors may elect to convert the note into shares of Prosper’s preferred stock.

VC funding for Prosper now totals 41 million US$. Nigel Morris joins Prosper’s board of directors.

(via TechCrunch.com, sources press release & other)

Prosper’s Legal Collection Test Result Fail Expectations

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Prosper has published a review of the results of a legal collection test. In November 2007, Prosper had selected 74 loans with an outstanding principal balance of approx. 704,000 US$ to conduct a test for a legal collection strategy instead of including them in a debt sale (which at that time was the usual Prosper procedure for bad debt).

The cases were handed over to the law firm Hunt & Henriques.

Since then there was none or little official communication about the progress. Relying on other sources, P2P-Banking.com reported last year that several of lawsuits in these cases were lost.

The new blog post by Prosper describes in detail which steps were undertaken and what results the measures yielded. The only step that can be counted as somewhat successful was the pre-legal phase of letters threatening lawsuits which recovered about 40,000 US$ payments. 66 accounts then went into the legal process.

Surprisingly 16 cases (24%) had to be closed because the debtor moved out of state (3) or Prosper was unable to obtain service.
On a sidenote: Interested parties have raised the questions why Prosper did not apply to the court to allow service by publication, which seem to legal and often used in California as P2P-Banking.com was told. In this case, after other measures failed the plaintiff runs an classified ad in a newspaper. It does not matter if the defendant actually sees this newspaper ad.

The remaining 50 cases further dwindled when Prosper deducted cases with bankruptcies and lowered credit scores which it deemed not worthwhile. Continue reading →

Working Paper of the Federal Reserve Bank San Francisco on P2P Lending

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The Federal Reserve Bank of San Francisco has just published a 19 page working paper by Ian J. Galloway on “Peer-to-Peer Lending and Community Development Finance“. It examines Kiva, Zopa, Prosper, MicroPlace and Lending Club.

Quote from the conclusion of the article:

While online platforms may never replace conventional lending institutions, such as banks, it is important that the community development finance industry be aware of this emerging technology. Moreover, P2P finance platforms will continue to evolve—allowing for third-party issued loan sales, for example—which may fundamentally alter the way credit is allocated in the future. In either case, the potential community development finance implications are too significant to ignore.