Prosper is increasing the rates that it charges to borrowers in an effort to stimulate investor demand.
Rates are rising by 0.29% on average across the entire Prosper loan book. The shifts in rate are more pronounced for riskier loans. The biggest change has been applied to the platform's D loans, for which rates are rising by 1.42% to 23.00%. Prosper’s AA, A and B loan rates are not changing. The complete breakdown is available below.
This is the second time that Prosper has raised rates this year. The platform’s Chief Risk Officer Brad Pennington published a post on the company’s website yesterday, explaining the rationale behind these moves. Increasing returns for investors stands out as the primary impetus for the latest rate rise. Pennington wrote: “We believe that these proactive changes are necessary for us to continue providing a compelling fixed-income product relative to the many alternatives available to our investor community". The Wall Street Journal reported in late March that a Prosper loans-backed bond offering had received a “cold reception” with investors, who had demanded yields as much as 5 percentage points higher than had been attached to a similar deal in late 2015.
The rate rises have also come in anticipation of a rate hike from the Fed next month. Pennington said that the actions demonstrate the company’s “commitment to operating a marketplace that balances the economic incentives for both our borrower and investor communities.”
Rate rises have lately been pointed to as evidence of turmoil within the marketplace lending sector, but that’s not necessarily fair. One might argue that such actions are simply prudent pricing moves. However, set against a backdrop of cooling investor demand and the complications that have been created by the recent dismissal of Lending Club CEO Renaud Laplanche, some will inevitably point to the raising of rates as a sign of desperation.