Online Lender Prosper to Halt Note Trading, Citing Low Volume

The online consumer lender Prosper Marketplace Inc. is shutting its loan trading platform this month, a move that will effectively close a key liquidity outlet for retail investors.

"Very few investors" were using the trading system, Prosper said in a letter to stakeholders last week. The firm instead is focusing on making and selling new loans, and on ensuring their quality, according to the letter. San Francisco-based Prosper will begin phasing out the system after Oct. 19, with the shutdown complete on Oct. 27, it said.

Without an outlet to trade the notes, investors may be forced to hold the loans through their maturities, typically three to five years. Sarah Cain, a company spokeswoman, said in an e-mail that Prosper will continue to explore alternative outlets. American Banker reported the closure on Monday.

Prosper helped pioneer peer-to-peer, or marketplace lending, initially matching borrowers with individuals who want to fund them. The industry boomed in recent years, but waned this year amid concern about rising loan defaults, prompting investors and banks to scrutinize their performance more carefully.

Some of these events directly affected Prosper, which slashed its workforce by 28 percent. It’s also considering new strategies to shore up demand for its loans.

“While we’ve decided to wind down this service, the decision in no way changes our commitment to the retail investor,” Cain said.

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