Prosper.com Stops Lending to High Risk Borrowers

Prosper.com, a San Francisco-based peer to peer lending company, is no longer offering loans to high-risk borrowers.

The change, viewed by many as an attempt to reduce default rates, comes as the company also eliminated its auction model. Prosper.com’s risk management team now sets interest rates on loans made through the service. Investors can choose to fund part of a loan based on the interest rates set by Prosper.com

“While many lenders enjoyed the auction system conceptually, we heard consistent feedback that in practice, auctions made the deployment of funds more time consuming with little gain in lender returns,” said CEO Chris Larsen.

The decision to eliminate high-risk borrows has reduced the number of loan listings on its website. The San Francisco Business Journal noted that there have been under fifty loan listings on the site at a time since the decision to drop high-risk borrowers was made.

Prosper.com had previously been loans to high-risk borrowers who had been paying interest rates as high as 30%. However, excessive losses from high-risk borrowers discouraged many investors from participating in the platform. Prosper.com’s data says that high-risk loan losses exceeded 15%.

About Prosper.com

Prosper Marketplace Inc. is the world’s largest peer-to-peer lending marketplace with over one million members and more than $211 million in funded loans.

Prosper allows people to invest in each other in a way that is financially and socially rewarding. Borrowers list loan requests between $2,000 and $25,000. Individual and institutional investors invest in minimum increments of $25 on loan listings they select. In addition to credit scores, ratings and histories, investors can consider borrowers’ personal loan descriptions, endorsements from friends, and community affiliations. Once the auction ends, Prosper handles the funding and servicing of the loan on behalf of the matched borrowers and investors.

Prosper was co-founded by Chris Larsen, co-founder of E-LOAN. Prosper has raised $57.7 million in venture capital and is backed by financial and technology luminaries including, Jim Breyer of Accel Partners; Bob Kagle of Benchmark Capital; CompuCredit; Omidyar Network; Capital One Co-founder Nigel Morris of QED Investors; Court Coursey of TomorrowVentures; and Larry Cheng of Volition Capital.