Prosper Marketplace was the first peer-to-peer lending institution to gain any serious traction in the United States. During its first couple of years before the SEC cracked down on the company for selling unregistered securities, it was a financial experiment of sort. Nothing like it had really been tried online before and no one was entirely sure how well it would perform. As with any new financial product, there were a few hiccups along the way.
There are many instances of lenders that have shared their Prosper.com horror stories online, sharing how they have barely broke even with Prosper and others have shared how they have even lost money using the service. The default rates were certainly far higher than the company expected and as a result many investors had a sour taste in their mouth about the company. Some investors even went to the point of creating a class-action lawsuit and suing Prosper Marketplace for selling unregistered securities hoping to get some of their lot investments back.
There are not as many horror stories on the borrower side of Prosper Marketplace. Prosper doesn’t have much in the way of collections practices, so borrowers have either paid on time and gotten their loan taken care of or haven’t seen much in the way of consequences for not repaying their loans. The company’s collections practices have been so minimal that I wasn’t until the end of 2009 before they had filed any lawsuits against borrowers that had not repaid their loans. Many of the cases were dismissed and very few judgments were actually obtained.
Much of the criticism and stories that surround Prosper are on the investor side. Prosper Marketplace simply has had much higher default rates than they would have liked or originally guessed. As a result, there are now former investors on Prosper sharing their stories by means of blogs and forums warning people away from the company.
Whether or not you should listen to them is up to you. Once Prosper Marketplace registered with the SEC, it appears that they have cleaned up their act a bit. There are now higher requirements for borrowers and investors have become a bit more sober about the rates they are offering to borrowers. Prosper Marketplace still hasn’t done much in the way of collections, but they are slowly but surely making improvements. Investors that start funding peer-to-peer loans now will almost certainly fair better than the ones that joined Prosper when the company first began in its operations.
