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Prosper Marketplace (Prosper.com) is a peer-to-peer lending service that allows individuals to make loans to one another using their website. Lenders can opt to partially fund loans at specific interest rates and borrowers can get unsecured personal loans at rates better than they would normally be able to from a traditional bank. Although the service that Prosper Marketplace is offering is innovative, there are certainly things that they could do better to improve their service.

A common Prosper.com complaint among its lenders is its collections practices. Many lenders have criticized the company for doing almost nothing to collect from borrowers in default and to prevent delinquencies. The company recently decided to take legal action against a number of its borrowers that had not repaid their loans, but that legal test did not do much to quiet the company’s critics.

Prosper.com’s primary competitor, Lending Club, has had a plan to prevent loan defaults since it began. Lending Club uses a combination of emails, skip-tracing, and phone calls to remind borrowers of their obligations to repay their loans. As a result, Lending Club’s default rates are much lower than that of Prosper’s.

Another complaint made about Prosper is its portrayal of investor returns. The company advertises between 7% and 13% rates of returns on borrowers money, but many of Prosper’s earliest lenders have reported that they have either barely broke even or have even lost money because of high default rates. Prosper’s investors have fared a bit better since the company re-launched after registering with the SEC, but most investors on Prosper’s service do not do as well as Prosper advertises that most investors will.

Investors have also criticized the company for making it difficult to fund loans, leaving a lot of investor’s money idle. With Prosper, investors have to bid on a reverse Dutch auction and offer to partially fund loans at a specific rate. Investors’ funds are tied up while the bid is in place, and the time that investors have to wait to see if their bid was accepted, their money is idle earning no interest. As a result, a lot of peer-to-peer lenders money is tied up in their lending account while waiting for their bids to process, lowering their overall rate of return.

Prosper could improve this by offering to put investors funds in a money market account earning some interest rate while the money is sitting idle in their account or is in the funding process.

Many users of Prosper Marketplace’s service have strong opinions about the company. Some early investors have a sour taste from their poor investment performance, but others are still excited about Prosper Marketplace and its primary competitor, Lending Club.