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Nearly a year ago I did a post about Prosper where I proclaimed the greatness of the concept and was really excited about the company.

Today I received an email marking the one year anniversary of the company. After reading the email I must say that my fears did hold true. In my original post I had asked one of the founders, John Witchel, if the company what measures they were going to take to ensure the site was not overrun with requests from people with poor credit. To which Mr. Witchel responded saying that every lender has their own tolerance of risk and how that wouldn’t be a problem and so on so forth. However, in today’s email Prosper announced that borrowers with a “credit score below 520, and borrowers with an NC (No Credit) rating, will no longer be able to borrow on Prosper given their low appeal to lenders relative to the costs and resources required to process their listings.” To this I ask with tounge in cheek, “What happened John?”

In addition to excluding the really bad credit loans, they go on to say “Not surprisingly, it costs more to list and service loans from borrowers with lower credit grades. To better align our fees with these costs, we are raising the closing fee for E and HR borrowers and the servicing fee for lenders on loans made to B, C, D, E and HR borrowers.” Thus everyone with a credit score below 720 will have to pay more. This change here brings back bad memories of the predatory lending practices I saw when I used to work in the mortgage industry.

I’m sure these changes will help get rid of a large percentage of the loans listed on Prosper making it easier for lenders to find loans suitable to their tastes. And I’m sure it will lower load on their servers and decrease bandwidth usage. But, in the end, seems the the old saying about banks applies here as well; in order to borrow money you have to first prove you don’t need it.