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Prosper.com back in business — again

In the June 2008 issue of Sound Mind Investing, we reported on the burgeoning "peer-to-peer" (P2P) lending industry.

P2P lending brings together the ideas of social networking and micro-credit, matching people who have money to lend with people searching for a loan. P2P eliminates the middleman — the banking industry — by allowing loans to be made directly from one person to another.

A few months later, most P2P lending came to an abrupt halt when the Securities and Exchange Commission stepped in. The Commission said that if P2P lenders wanted to stay in business, they would need to go through the SEC's registration process.

In October, P2P-industry leader Prosper.com entered a "quiet period," allowing no new loans until the SEC process was complete. Prosper briefly relaunched in late April under an intra-state exemption from the California Department of Corporations, then went quiet again after the SEC said the exemption wasn't sufficient.

Now the SEC registration process is complete and Prosper is up and running again, notes the WSJ's "The Wallet" blog.

The completion of the SEC registration process "means loans that are now purchased on Prosper are technically registered securities which means they can be resold in the secondary market," said Chris Larsen, chief executive and co-founder of Prosper.

As part of the registration process, the SEC approved Prosper’s auction-based platform, which works like an eBay-style marketplace for would-be borrowers and lenders. It’s the first time that regulators have approved a pricing mechanism where the final price of a security isn’t secured in advance. By contrast, other peer-to-peer players offer lenders a range of fixed rates....

Like more traditional lenders, Prosper has tightened up on borrowers. As part of its re-launch, Prosper raised the minimum credit score requirements for borrowers to 640 from 520 and introduced a new rating system that takes into account the loan performance of 29,000 Prosper loans as well as credit score data.

"The Wallet" also reports that two other P2P lenders, Lending Club and Pertuity Direct, are now registered with the SEC. U.K.-based Zopa Ltd., however, decided to exit the U.S. market.

This WSJ graphic offers a quick overview of the major P2P lending sites.

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