For six months, Prosper froze its activities. Borrowers still had to keep paying back their debts, but no new loan bids were allowed. And today, Prosper is back! So what happened there? Here’s a brief explanation from someone who has a 5-cent-worth knowledge on loans:
When the Lending Club finished registering with the HEC, it was able to open up their pool of lenders in 15 states. Prosper was under a “cease & desist” order from the SEC for selling unregistered securities, so they replicated the Lending Club’s move. Today Prosper relaunches, but only residents of California can lend money on Prosper (which gives a clear advantage to the Lending Club in this competition). Even worse, according to this source, Prosper “flipped the bird” at the SEC by relaunching today.
So where is this fugitive going? As a come-back stunt, Prosper is launching a grass-root campaign on fixthecreditcrisis.org, requesting visitors to send a letter to their state’s government, and request an authorization for Prosper to operate in their states. What is so unique about Prosper that you don’t find in the competition, and that would push some people to want Prosper more than its competition? Currently, Lending Club and Pertuity Direct are the only two p2p lending platforms available to most investors throughout the United States. Prosper’s model is different because, among other things, loan rates are determined by an auction among lenders. This auction system is what makes Prosper unique and unwanted by established credit institutions. Applying a bidding system on loan rates will attract borrowers and threaten banks’ hold on this activity.
There is an obvious war going on in the p2p lending field, one that extends to areas beyond my comprehension. I think launching back today was a nice way to get a little attention for this week’s Finovate 09 event… What do you think?