We’ve just discovered a PDF (below) stating that Prosper.com is to be shutdown by the SEC (Securities and Exchange Commission).
It seems the shutdown is based on the amount of reliance both the lender and borrower have on the site. Since the lender does not know who the borrower it leaves the lender vulnerable and unable “to pursue his or her rights as a noteholder” if the borrower fails to meet the agreed payment terms. In addition, the document states that for the loan agreement to continue it would require Prosper.com to still exist and operate which in this climate, is no guarantee.
The SEC sum up in the final paragraph by stating
They lack the requisite experience to run a loan auction or to create and service a loan package. Rather, the Prosper lenders rely on Prosper’s continued operation of the platform in order to transact and to recoup any gain on their investments.
In other words, Prosper.com simply do not having the backing, preparation nor experience to ensure transactions are handled legally, appropriately and securely.
Although the reasons provided seem to be in the best interest of all parties involved, particularly the lender, this is clearly awful news for the startup. With rulings such as this, it will definitely have an impact on the number of startups forming in this niche which is sad from an innovation point of view. Whether this will also have an impact on other lending startups such as Zopa we’ll have to see.
Read next: Standing in the Slush, Part Two