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.
Here is an open letter from Prosper's CEO Chris Larsen about the new launch and an appeal to regulators to allow lenders to lend from all fifty states:
We are pleased to announce that Prosper is now open for business once again after a six month hiatus. At this time we are launching to borrowers nationwide and to individual and institutional lenders in California. We hope to be fully national soon.
First we would like to thank the Prosper community for your incredible patience and support. We’re especially thankful to the overwhelming number of lenders who have kept their funds in their Prosper trust accounts, eagerly awaiting our re-launch.
We also want to thank Governor Schwarzenegger’s team, particularly Preston DuFauchard of the Department of Corporations, for embracing peer-to-peer lending as a promising new technology and alternative credit system for getting credit flowing to consumers and small businesses at the very time they need it most. California regulators have always been known as innovation leaders and they just proved it again.
We remain hopeful that the SEC, which until now has effectively hamstrung the growth of the peer-to-peer and micro-lending industries in the U.S. will start applying the same common sense approach as California’s regulators. California has recognized that Internet auctions, just like the Google IPO, are the most efficient means of price discovery; that loan level transparency is better than the opaque loan pooling that brought the financial system to its knees; and that requiring regulatory filings every other day of web site transactions that are already visible in real time, is redundant and cost prohibitive.
We want our users to know that while we have been in a quiet period, we have been innovating. Most significantly, we are launching our Open Market initiative, which for the first time will allow other financial institutions, such as auto lenders, small business lenders and community development lenders, to place their already funded loans on our site for auction. This is both exciting news for lenders on Prosper as well as a much needed solution to the credit crisis.
As we all know, America is in the midst of the greatest financial meltdown since the Great Depression. Creditworthy consumers and small businesses can’t get loans. The government is scrambling to get money on the street by pumping hundreds of billions into our banking system. Yet, the banks are still pulling back and consumer loan securitizations, which make up nearly half of the lending market, are still frozen. We all know the causes of the crisis - lack of transparency, over-complexity and reliance on single points of failure.
The crisis is painful but is also a once in a lifetime opportunity to rewire finance in a way that is fundamentally more transparent, more participatory and more durable.
Prosper and our Open Market initiatives were built on these fundamental values.
Prosper’s Open market model could be the securitization market of the future. Rather than pooling loans, using rating agencies, and creating artificial tranches that are too complex, and opaque, Prosper now allows each loan to be sold separately, priced by the originator and auctioned in a fair and transparent Dutch auction. It uniquely provides a direct line of sight from the money invested to the loan itself.
In addition, Open Market brings the same social lending possibilities to securitization that we have always seen in the Prosper Loans Marketplace. For example, auto loans listed on the Open Market will show in which auto plant and city the car was made. That way fellow Americans who put a value on American jobs might make loans to cars made in Ohio, for example, at a better rate than loans to cars made in Germany. This could never be done with traditional securitizations because investors never had that level of transparency.
Obviously some areas of our financial system need more regulation and more limitations on what can be done. Understandably many in Washington now equate innovation with the toxic Wall Street concoctions like the Credit Default Swaps or CDO-squared monsters that nearly wrecked our economy. While these exotic instruments need to be reigned in, a sweeping ban on all innovation would be a grave error with lasting negative consequences. What we need is a common sense approach to innovation that is judged on its merits. For instance, shouldn’t innovations that result in more transparency, fairness and accessibility be embraced?
We can draw a parallel to how America is dealing with the on-going energy crisis. We know that we can’t depend solely on an oil based economy. The solution is not to just “drill baby, drill”, but to concurrently develop new energy systems that are cleaner, more sustainable, and fundamentally more diverse and durable. The same idea should apply to fixing our financial meltdown. If all we do is clean up the toxic mess while propping up the too-big-to-fail institutions, we will be engaging in a “drill baby, drill” mentality and will have missed a tremendous opportunity to rewire our financial system. As in the energy crisis, we need to encourage new alternative sources of credit by embracing innovation and entrepreneurs. This is at the heart of what makes the American economy continue to thrive.
But we need the help of our political and regulatory leaders. That’s why we are so grateful for California’s leadership in embracing peer-to-peer lending. And it’s why we’re asking for your help in encouraging other regulators and leaders across the country to take a similar view.
You can help us get this message to Washington and other leaders. We invite you to call or email your State’s elected officials using the tools we’ve provided for you at FixTheCreditCrisis.org. By reaching out directly to your state’s elected officials, we’ll ensure that our collective voices are heard.
Update: Prosper closes again after less than two weeks