As banks cut down on lending to consumers, the Securities and Exchange Commission on Friday approved an alternative.
Online lender Prosper, which was the country's biggest peer-to-peer loan Web site, said on Tuesday its site was once again open for nationwide loan auctions after a nine-month lending freeze pending SEC registration.
Borrowers from across the country and lenders in 14 states will have access to the site starting today.
Peer-to-peer lenders such as Prosper and its competitor, Lending Club, match lenders and borrowers through an online database. Borrowers register loan requests and post an interest rate. Lenders can agree to fund part or all of a loan.
Prosper uses an eBay-style auction to match borrowers with lenders, meaning borrowers post their maximum accepted interest rate and competing lenders can bid it down.
This is the first time the SEC has approved an Internet auction-based lender, the company said. That means investors can agree to fund a borrower without knowing what the final interest rate will be.
Prosper launched in February 2006. The SEC ordered it to stop making new loans in October, because federal law prohibits the sale or offer of securities without the company registering with the regulator.
Having the SEC as a regulator means Prosper will file quarterly and annual financial reports as well as listing and sales reports on borrowers and loans.
Lending Club's SEC registration was approved in the fall of 2008.
Prosper also added a "secondary market," where loan funders can auction off their investments, or "Prosper Notes," to other investors. Lending Club also allows investors to sell their loans.
Before its nine-month lending freeze began in October, Prosper had more than 800,000 members and had facilitated nearly $178 million in personal loans, the company said. In its filing with the SEC, it said it would offer $500 million in "Notes" to borrowers. Even having that as a goal would be a small percentage of the country's lending.
The Federal Reserve said that in May, the total amount of consumers' credit was $2.52 trillion. That was down at a yearly rate of 1.5 percent from April.
In resuming lending, Prosper has increased its minimum credit score requirement for would-be borrowers to 640, up from 520. It has also halved the minimum bid amount for lenders to $25.