| 14 July 2009

One of the leading Peer-to-Peer lending networks, Prosper was all but shut down by the SEC last October. Since then CEO Chris Larsen (a co-founder of e-Loan) fought hard and won approval from the California Department of Corporations in April and today announces it has finally received approval from the SEC to again open its virtual doors.

At issue was the SEC’s gripe that lenders should be considered investors, and thus the whole process should be regulated. So now they’re ready to launch auctions in 14 states, with more to follow.

It appears the biggest changes have to do with, no surprise, rating and qualifying. To help solve for these issues Prosper developed a new rating system. According to their news release, “Prosper believes the new Prosper Rating system, combined with the new minimum 640 credit score requirement and enhanced auction model, will make analyzing risk simpler and more robust than ever.”

In the primary market, Prosper is the originator and servicer with their own platform. Investors can use the Folio Investing platform for the secondary market.

Wondering what investors can expect? According to Prosper, “A review of historical returns since inception based on the improved risk rating and credit segmentation system determined Prosper lenders' return on investment ranges from 7.19% for loans with a AA Prosper Rating to 4.59% for loans with an E Prosper Rating.”

Ah, but then there’s the risk. The whole process is so new it’s hard to figure out whether any of this is really appropriate for your average investor, not used to managing such unknowns. But it’s good to hear that the SEC is watching over the process (you would think).