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May 21, 2007 8:18 pm US/Pacific
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Web Site Connects Borrowers, Lenders
by Jeanette Pavini
SAN FRANCISCO (CBS 5) ―
Consumers in the United States carry a lot of debt -- more than $2 trillion. A lot of that is credit card debt. A Bay Area company says it has a better way to borrow and its Web site is being called the eBay of money.
Remember the small-town bank in the movie, "It's a Wonderful Life"? Many say it doesn't look like the big banks most of us do business with.
"In some way, Prosper is a step back to the way things used to work," said CEO Chris Larsen.
His company, Prosper.com, is a platform where individuals make loans to other individuals through Internet auctions.
"The borrowers drive the listing on Prosper. They choose the amount, the maximum rate they're willing to pay before the auction starts. They also set the time limit for the auction," said Larsen.
Scott Daniel borrowed $2,500 for his computer repair business.
"It was very easy, just simply filling out a form on the Internet," Daniel said.
Lenders bid for the chance to lend money, with interest rates that depend on the borrower's credit score.
"Supposedly right now I'm getting a 17 percent return on my money," lender Noah Kagan said. "I wasn't too nervous, for $2,000 or $2,500 I put in, if I lose it, I lose it."
That's because there's no guarantee the loan will be repaid, although Prosper says the default rate is low.
"What we do is try to give the exact same consequences to borrowers that are delinquent or defaulting as they would have with the credit card companies or the banks," Larsen said.
"I believe there is some opportunism, it looks like to me, on both sides," William Wolverton of the San Francisco Federal Credit Union told us.
Regulators won't allow Wolverton's credit union to charge more than 18 percent interest, but "I see on a regular basis these online options are charging anywhere up to 30 percent."
But Daniel says he appreciates the personal touch.
"It feels more like a human enterprise, like real people, instead of some monolithic corporate entity," he said.
(© MMVII, CBS Broadcasting Inc. All Rights Reserved.)