Individual lender members must be United States residents who are 18 years of age or older and have a valid Social Security Number. Lenders must also have a checking or savings bank account.

Individual lenders (a husband and wife may be counted as a single person) must meet suitability requirements established by their state or residence:

Requirements for Idaho, New Hampshire, Oregon and Virginia residents:
To purchase Notes, lender members located in Idaho, New Hampshire, Oregon and Virginia must satisfy minimum financial suitability standards and maximum investment limits. Specifically, lender members must either: (1) have an annual gross income of at least $70,000 and a net worth (exclusive of home, home furnishings and automobile) of at least $70,000; or (2) have a net worth (determined with the same exclusions) of at least $250,000. In addition, no lender member located in these states may purchase Notes in an amount in excess of 10% of the lender member's net worth, determined exclusive of home, home furnishings and automobile.

Requirements for California residents:
Lender members that are residents of California must meet certain suitability requirements. For individuals who purchase $2,500 or less of Notes in the past 12 months, your investment must not exceed 10 percent of your net worth. To purchase more than $2,500 of Notes, a California lender member's investment must not exceed 10 percent of his or her net worth, and either: (1) the lender member must have a minimum net worth of at least $85,000 and had minimum gross income of $85,000 during the last tax year and will have (based on a good faith estimate) minimum gross income of $85,000 during the current tax year; or (2) the lender member must have a minimum net worth, exclusive of homes, home furnishings and automobiles, of $200,000. Assets included in the computation of net worth shall be valued at not more than fair market value. For the purpose of this net worth requirement, both a husband and wife may be counted as a single individual

Institutional investors may also participate on Prosper's lending platform. There are no suitability requirements for institutions.

Please refer to the prospectus for additional information.

Prosper is currently available to lenders in the following states: California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Louisiana, Maine, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New York, Oregon, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wisconsin and Wyoming. Also, Prosper is always working to make lending on Prosper available in more states, so please check back.

You do not need to be licensed to be a lender on Prosper. Although you are referred to on the Prosper website as a "lender," you are not actually lending your money directly to Prosper borrowers, but are, instead, acting as an investor purchasing Notes issued by Prosper that are dependent for payment on payments we receive on the corresponding loan. Prosper uses the term "lender" instead of "investor" on Prosper's website for the sake of brevity and simplicity, and for the convenience of Prosper users who appropriately view Prosper as a marketplace for connecting individuals who wish to borrow money, with people who have money and the desire to have loans funded to other individuals. Your rights and obligations as a purchaser or prospective purchaser of Notes are set forth in the Lender Registration Agreement.

A borrower loan is a loan originated through Prosper that is made to a borrower by WebBank, a Utah-chartered industrial bank ("WebBank") from its own funds and then subsequently sold and assigned by WebBank to Prosper. All borrower loans are 3-year, fully amortized loans. For each loan, interest is accrued on the principal balance every day. Fees, interest, and principal are paid into each lender's Prosper account when the borrower makes a payment. Borrower payments are due once a month.

The interest rate calculation is:
Interest rate/ 365 = daily interest rate
Daily interest rate x principal balance = Daily interest amount

Prosper guarantees the repayment of borrower loans only in instances of verifiable identity theft of the borrower's identity. In the event of default because of identity theft, Prosper will cover the entire unpaid principal balance. Otherwise, the repayment of Prosper Notes is not guaranteed. Read the prospectus to learn more about the risks of Notes.

Prosper charges a 1% annual loan servicing fee. The annual servicing fee is accrued daily, and is based on the loan's outstanding principal balance.

In the event that a borrower loan becomes more than 1 month late, Prosper will assign a professional collection agency to attempt to collect the overdue amount. Each collection agency has its own fee structure, but will only collect a fee for their services if funds are recovered. Learn more about collection agencies and their specific fees.

View all fees

1. There is risk
   Loans are not guaranteed—some will default.
   Understanding Prosper Ratings, credit scores and other credit data can help you measure and avoid unwanted risk.
2. A diversified loan portfolio may enable you to spread your risk among many borrowers. Consider bidding in smaller amounts across many listings.
3. You can bid on listings one-by-one, or by portfolio plan
   You can view individual listings and click "bid now" one at a time, or, you can automate your bidding using portfolio plans.
   Portfolio plans bid automatically according to your listing and risk criteria.

To research the risk and returns for borrower loans, the marketplace performance page includes historical performance data from the Prosper marketplace. The estimated return numbers seen when bidding on borrower loans are based on this historical performance data from the Prosper marketplace.

You can transfer money to Prosper and it will be added to your Prosper account cash balance. When a payment comes in for one of your Notes, it's also added to your Prosper account cash balance.

You can manage the bank accounts available for transfers, including adding new ones, deleting old ones and managing multiple accounts on file. Before you can transfer funds between your bank account and Prosper, you must verify that you are the account holder.

To verify your first bank account, Prosper will make one deposit and one withdrawal to your bank account (both less than $1.00). These two transfers should arrive in your bank account within 2-4 business days. After the verification transfers have completed (look for an email from Prosper), you need to find the exact amounts of the transfers from your bank's website or by calling your bank. Enter these amounts on Prosper to verify your bank account.

To verify subsequent bank accounts, you will need to supply Prosper with a copy of a voided check for that account.

Once a bank account is verified, you can transfer money between it and your Prosper account cash balance. Transfer money now.

Unless you are eligible for instant funds transfers, it takes four business days to complete a normal funds transfer from your bank account to Prosper. Transfers are only processed on banking business days. A transfer is processed on the same day if the request is received before 3:00 PM Pacific time; otherwise it is processed on the following business day. A minimum of $25 is required for outbound transfers; however, once per month, you may transfer an amount less than $25.

Instant Transfers
When a transfer to Prosper meets certain requirements, funds are made available in a lender's Prosper account instantly, with no delay.

Requirements for instant transfer:

• Transfer amount must be between $500 and $20,000
• Sum of pending transfers cannot exceed $20,000
• Your active loan value must be greater than $0
• Your cash balance cannot be negative.

Bank transfers are done through an ACH (Automated Clearing House) transfer. ACH is a system of the U.S. Federal Reserve Bank that provides electronic funds transfer between banks. It is the same kind of fund transfer transaction that is used for direct deposit of paychecks, for example. Funds from ACH transfers may take two to four business days before they become available in the destination account.

You can only cancel a funds transfer which is not yet processing (that is, a status of "Scheduled"). Go to "My Account > Accounts", click on "View transfers", and then click "Cancel" next to the transfer that you want to cancel.

To add a new bank account, you will need to fax a copy of a check from your account to Prosper for verification. For security reasons, Prosper manually verifies and adds all additional bank accounts. Click "Add a bank account" to print a fax cover sheet for this purpose.

Prosper is not a bank, and does not take and hold deposits. Prosper does not pay interest on funds held in the Prosper account. All funds Prosper lenders place with Prosper to make bids on borrower listings are maintained in a pooled account at Wells Fargo Bank, N.A. titled in our name "for the benefit of" our lender members.

Funds in the FBO account will always be maintained at an FDIC member financial institution. Lender members have no direct relationship with Wells Fargo Bank, N.A. by virtue of participating on our platform as a borrower or lender member. We maintain and administer the FBO account. No Prosper monies are ever commingled with the assets of lender members in the FBO account.

The FBO account is FDIC-insured on a "pass through" basis to the individual lender members, subject to applicable limits. This means that each individual lender member's balance is protected by FDIC insurance, up to the aggregate amounts established by the FDIC. Other funds the lender member has on deposit with Wells Fargo Bank, N.A., for example, may count against the FDIC insurance limits.

A Direct P2P borrower listing is a request by a Prosper borrower for a borrower loan in a specified amount, at an interest rate equal to the maximum interest rate set forth in the listing. Lenders are given specific credit information about the borrower and loan details to make a bidding decision.

Prosper now offers an internet-based trading platform on which lender members may offer their Notes for sale or bid on and purchase Notes offered for sale. Learn more.

Historically, these criteria have a high impact on default rates, and may deserve extra attention when considering a listing:

Debt-to-income ratio
Automatic funding
Public records in last 10y
Loan amount
Now delinquent
Inquiries in last 6m

Learn more about the data in a listing.

The "enhanced" Prosper score estimates the probability of a borrower loan going "bad," where "bad" is the probability of going more than 60 days past due. The output to Prosper users is a score which ranges from 1 to 5, with 5 being the best, or lowest risk score and 1 being the worst or highest risk score. The new score is similar to the existing Prosper score, which is now called the "base" Prosper score. The enhanced score was built on a more recent population and thus reflects more recent trends, including the challenging economic environment. Both scores, along with the credit reporting agency score, should be used to make lending decisions.

Learn more.

From the "Invest" tab, you can search for listings by keyword, Prosper Rating, and a few other parameters. If you want to set more specific search criteria, you can do an advanced search. Learn more about searching listings. When you have an advanced search customized to your preferences, you can save the search to use again later using the "Save this search" option. Once a search is saved, it will appear on your search and listing results pages.

Watch Lists

A watch list, or a list of your favorite listings, can help you keep track of listings without bidding on them. To watch a listing, just go to any listing page and click the Watch link. You can also share your watch list with the public: just click "Share your watch list" on your member page.

In a Direct P2P auction, lender members bid the amount they are willing to commit and the minimum yield percentage they are willing to receive, subject to a minimum yield percentage based on the Prosper Rating assigned to each listing. Bidding is now based on the yield percentage instead of the borrower's stated interest rate. The yield percentage on Direct P2P loans is equal to the Borrower's interest rate, minus Prosper's 1% servicing fee. Because servicing fees reduce the effective lender yield on Direct P2P loans below the interest rate the borrower pays, the yield percentage already factors in the effect that the servicing fees will have on the yield. Each borrower listing will show the maximum interest rate the borrower will accept. Bidding on the listing starts at the yield percentage that provides the maximum interest rate set by the borrower. The highest yield percentage that you may bid on a listing is the yield percentage that corresponds to the maximum interest rate set by the borrower. The lowest yield percentage that you may bid will be the minimum yield percentage set forth in the listing. The minimum yield percentage applicable to each listing is based on the Prosper Rating assigned to the listing and will be calculated by adding the national average certificate of deposit rate that matches the term of the borrower loan, as published by BankRate.com, to the minimum estimated loss rate associated with the Prosper Rating assigned to the listing, which estimated loss rate is based on the historical performance of similar Prosper loans.

When the total amount of all bids placed in the auction equals or exceeds the initial loan amount, further bids have to be placed at least 0.05% below the current winning yield percentage, bidding down the borrower's interest rate. In the event that two lenders bid the same yield percentage, the lender who bid earlier wins. The lenders that bid the lowest minimum yield percentage at the end of the auction are the winning bidders. The final yield percentage is the minimum yield percentage for which there is sufficient participation among bidders to accommodate the requested loan amount at the end of the auction period.

If any listing does not receive bids totaling 100% of the loan amount at the time the listing ends, your money will be immediately transferred back to your Prosper account.

After the Borrower's credit report has been pulled, a Prosper Rating is assigned to the borrower listing. The Borrower specifies the maximum interest rate they are willing to pay up to 35%. The minimum interest rate the borrower can choose varies by Prosper Rating. This is called the bid floor.

The bid floor ensures that lenders will receive a minimum yield percentage for a given Prosper Rating. Keep in mind that the bid floor is an absolute minimum; every lender should price for risk according to his/her own risk tolerance. For example, higher risk loans should be priced at higher interest rates.

Bid yield is the rate that investors bid down as the auction progresses. Prior to October 15, 2008 Prosper listings showed a bid rate instead of a bid yield. The difference between the two is that the bid rate is the interest rate paid by the borrower before lender servicing fees are taken into account. The bid yield is the rate after lender servicing fees have been subtracted. Prosper now only allows bidding based on yield. The borrower rate is displayed but not used for bidding.

The bid floor is the minimum yield a lender can bid on a listing. It's not possible to bid any lower. This also affects the minimum rate a borrower can possibly receive.

The bid floor for each listing is calculated by adding the national average 3yr CD rate to the minimum estimated loss rate assigned to each Prosper Rating. For AA listings, the midpoint of the Prosper Rating range (1.0%), not the minimum, is used to calculate the floor. For example, a B-rated listing with a minimum estimated loss rate of 4.0% is added to a national average CD rate of 2.27%*, resulting in a bid floor of 6.27%.

*The Bankrate.com 3 year CD rate in this example was obtained July 1, 2009. It is updated monthly.

There are two ways to place bids. You can search for listings and manually bid by clicking "Bid Now" from a listing page, or you can use portfolio plans to automate the process. Portfolio plans automatically bid on listings based on the loss rate or specific criteria you choose, subject to a minimum yield percentage that is based on the Prosper Rating assigned to each listing.

When bidding, you should bid the minimum yield percentage you are willing to accept for the Note. The highest yield percentage that you may bid on a listing is the yield percentage that corresponds to the maximum interest rate set by the borrower. The lowest yield percentage that you may bid will be the minimum yield percentage set forth in the listing. The minimum yield percentage applicable to each listing is based on the Prosper Rating assigned to the listing and will be calculated by adding the national average certificate of deposit rate that matches the term of the borrower loan, as published by BankRate.com, to the minimum estimated loss rate associated with the Prosper Rating assigned to the listing, which estimated loss rate is based on the historical performance of similar Prosper loans. Prosper provides a projection of estimated return at the time you bid or create a portfolio plan based on the estimated loss of that listing. A diversified loan portfolio may enable you to spread your risk among many borrowers. Consider bidding on smaller loans across many listings.

Actually, the funds are never withdrawn from your Prosper account. However, they are set aside, or put in a holding tank of sorts, while the listings you are bidding on are active. If you won all of your bids, then all funds would need to be paid as soon as those listings closed.

There are a few occasions when your placed bid will be released and made available again for bidding:

• If you are outbid.
• If the listing ends with insufficient funding (i.e. not enough bids were placed).
• If the borrower or Prosper cancels the listing early.

If you were outbid, it means that other lenders bid at a lower yield percentage. Other lenders' interest rates and yield percentages are not displayed, so even though it might look like they are bidding at the same rate you bid, that is not necessarily the case. This hidden bid auction style guarantees the best rates for everyone involved.

Because there are cases where lenders with lower yield percentages are preventing other lenders from participating fully in a loan, we allow lenders to be "partial winners" in a listing. This means that only a portion of the lender's bid was used. Lenders with "partially winning" bids can place new bids on the same listing.

No, you cannot cancel or withdraw bids.

Automatic funding is an option for borrowers applying for a borrower loan who want their money quickly and would be satisfied by a specified interest rate, rather than a potentially lower interest rate that could result if the listing were subject to continued bidding.

In the case of automatic funding, as soon a borrower's requested loan amount is met by enough bidders, their listing will close and loan proceeds will be transferred into the borrower's bank account. Since the borrower didn't keep the listing posted long enough for bidders to bid the interest rate down further, the interest rate on immediate funding listings may be higher than other similar listings.

Each listing will be assigned a proprietary credit rating by Prosper, referred to as the Prosper Rating. The Prosper Rating indicates the listing's riskiness, and corresponds to an estimated average annualized loss rate range. This rating system allows Prosper to maintain consistency when assigning a rating to the borrower.

Learn more about Prosper Ratings.

Portfolio plans are automated bidding tools that allow you to place bids efficiently using criteria you set, without having to look through every listing or worry about listing end dates. You specify the amount of money and minimum yield percentage to bid on listings that meet your criteria, such as Prosper Rating, number of current delinquencies, or other listing features. Prosper offers several plans as models (including Balanced, Moderate, and Aggressive) with pre-filled criteria that will help get you started. You can modify the plan models, or create your own portfolio plan from scratch. Add a portfolio plan now.

You can change your portfolio plan settings at any time from the Portfolio Plans page in Investing. If you would like to temporarily stop your plans from bidding, click "Pause" next to the portfolio plan that you want to stop bidding. Keep in mind that previously placed bids will remain active until matched or the termination of the borrower's listing, whichever occurs first.

As soon as a Prosper borrower listing ends with bids totaling 100% of the requested loan amount, it goes to Prosper's Trust and Safety team for pre-funding review. During this time, the status of the listing is shown as "pending review". Prosper's pre-funding review can take up to (but not more than) seven business days.

If the borrower does not pass pre-funding review, the borrower listing is cancelled and funds committed to the listing are immediately available to you for further bidding.

Yes, to have your plan reinvest your monthly payments, specify a total amount to bid that is larger than the total you currently have in your Prosper account. As funds accumulate in your Prosper account, the portfolio plan will use those funds to place more bids.

For all borrower loans, Prosper obtains each Prosper borrower's Social Security number, driver's license number, and bank account information in an effort to verify the borrower's identity against data from credit reporting agencies and other identity and anti-fraud verification databases.

The borrower credit data that appears in borrower listings is taken directly from the borrower's credit report, without any review or verification by Prosper. The borrower's income, employment and occupation are self-reported. The borrower's debt to income ratio (DTI) is derived from the borrower's self-reported monthly income and the borrower's monthly non-housing debt burden from his or her credit report. Prosper verifies the borrower's income or employment in some (but not all) instances. Prosper does not verify any statements by Borrowers as to how loan proceeds are to be used and does not confirm after loan funding how loan proceeds were used. Although borrowers may provide proof of homeownership to establish homeownership status, in most instances homeownership status is derived from the borrower's credit report; if the report reflects an active mortgage loan, the borrower is presumed to be a homeowner. In connection with Prosper's identity and anti-fraud verification of borrowers, Prosper verifies the borrower's bank account to determine that the borrower is the holder of record of the account.

Prosper has the right to verify at any time the accuracy of all statements and information provided by borrowers, lenders and group leaders in connection with borrower listings, bids and loans at any time. If Prosper is unable to verify material information, Prosper may cancel a borrower listing or a borrower loan, even if the borrower listing is 100% funded with bids.

In instances where Prosper undertakes to verify the income, employment and occupation or other information provided by borrowers in borrower listings, the verification is normally done at the pre-funding stage, after the listing has already been created and bidding has ended. In such cases, the results of Prosper's verification are not reflected in the listings themselves.

In connection with Prosper's identity and anti-fraud verification of Prosper borrowers, Prosper verifies the deposit account from which the borrower will make payments, to determine that the borrower is the holder of record of the account.

Prosper reserves the right to buy back Notes at any time. If Prosper buys back a Note, the outstanding principal balance will be returned to you and the Note will be marked as "repurchased".

Prosper typically repurchases Notes in accordance with Prosper's 100% Identity Theft Guarantee, under which Prosper has agreed to repurchase Notes from lenders if the loan corresponding to that Note is found to involve verifiable identity theft of the named borrower's identity. Prosper may, in our discretion, require proof of the identity theft or fraud, such as a copy of the police report filed by the person whose identity was wrongfully used to obtain the corresponding borrower loan. Prosper is committed to providing a safe and secure marketplace, and works with law enforcement authorities to prosecute to the fullest extent perpetrators of identity theft.

When a borrower makes a payment on a loan, after a short delay for processing, your portion of the payment will be added to your available cash balance in your Prosper account. You can use the funds to make more bids or transfer them to your bank account as you wish. Because different loans have different payment due dates, most lenders with multiple notes see a trickle of small payments added to their account throughout the month.

Go to "My Account > Lending > Notes" and enter a date range to display Notes purchased between those dates. Click on the note ID to view more details including the payment history. Monthly payments are due each month on the same day of the month as the origination date.

Yes, using the Trading Platform.

Borrowers have the option to pay all or part of the outstanding principal balance of a borrower loan in advance of the due date at any time. There is no penalty to borrowers for doing this. Partial prepayments will not change the monthly payment amount, but may shorten the loan term, resulting in the lender receiving less interest overall.

Borrower payments are requested from the borrower's bank account on the day they are due, and because Prosper, like most banks, electronically transfers money through a secure network called the Automated Clearing House (ACH) system, the entire process takes four business days.

On the note detail page for the borrower's loan, you will see the payment status as "Processing" during these 4 days. Once the payment has cleared, the payment status will change to "Paid".

When a borrower makes any payment on a borrower loan, the breakdown of that payment is available in the "Payment history" table on the "Loan detail" page:

• Date: The date that the borrower's payment was withdrawn from their bank account.
• Payment number: An internal accounting number that can be used to identify each payment uniquely. If a payment is later disputed, the dispute line item will contain the same payment number.
• Amount paid: Your pro-rated share of the gross payment made by the borrower. NSF fees: If the borrower owes Prosper any fees for failed payments (typically due to NSF, or non-sufficient funds), these will be subtracted from the gross payment amount.
• Amount received: The gross amount received by the lender, which excludes NSF fees.
• Late fees: If the borrower has any accrued, unpaid late charges, these are paid to the lender.
• Interest: If the borrower has any accrued interest since the last payment, this is paid to the lender. See more on interest accrual below.
• Principal: Any remaining funds received are allocated to principal.
• Service fees: If any lender servicing fees have accrued, these will be charged to the lender as an expense.
• Collection fees: If the loan had been assigned to a collection agency, collection agency fees will be charged to the lender as an expense.

Funds from incoming payments are applied in this order of priority:

1. Fees
   1. Failed payment fees (to Prosper)
   2. Late fees (to lenders)
2. Interest
3. Principal

It is possible that a borrower who has made a loan payment in the past can have his or her bank cancel and request a refund on that payment. This is referred to as a chargeback, and will appear on your note payment history table as "Charged back". This is most common with borrowers who use the bank draft method of payment, where paper checks are printed and the check bouncing process is much longer. Prosper handles chargebacks according to our borrower chargeback policy.

If the borrower is more than 15 days late on a borrower loan, the borrower will be charged a late fee. The late fee is divided up pro-rata among the borrower's lenders. If the borrower loan is one month past due, it is turned over to a collection agency to pursue collection from the borrower. If the collection agency cannot collect payment from the borrower after 3 months, the borrower loan will be charged-off. Charge-offs are eligible for sale to a debt buyer. The borrower will not be able to borrow ever again from Prosper, and since we report delinquencies to credit reporting agencies, the charge-off will adversely affect their credit report.

Under no circumstances should you attempt collection on a late payment yourself. You should not contact delinquent borrowers directly. Prosper has a detailed delinquency schedule for borrowers, and any additional contact you have with a borrower may expose you to civil or criminal penalties for unlicensed debt collection. The language and tone you use when collecting a debt matter are important in the eyes of the law so what you might consider reasonable may in fact be illegal. If you were to accidently break the law you'd be putting yourself, your fellow lenders, and Prosper at risk of litigation.

If the borrower loan underlying one of your Notes becomes delinquent, Prosper will use a collection agency to help attempt to recover unpaid balances.

Because one collection agency will have responsibility for collection, all of the lenders on a delinquent borrower loan will pay that agency's fees out of any amounts collected. If no amount is collected, lenders do not pay collection fees. Collection agencies charge a percentage of any recovered funds as the service fee for their efforts. This percentage varies by collection agency, but is typically between 15 and 30% of the funds recovered.

View the collection agencies.

A borrower loan is charged-off when it reaches 121 days past due. This means the borrower has fallen four months behind in payment. When a borrower loan is charged-off:

• The borrower loan's entire balance is accelerated, meaning it is collectible in full as of the charge-off date.
• From the borrower's perspective, interest continues to accrue on the principal balance as before charge-off. There are no changes to the interest rate or the way interest is accrued. Late fees are no longer charged.
• From the lender's perspective, the loan's principal balance is labeled the "Charge-off balance".

Charge-offs will remain in collections until some action is taken to end the loan. Possible loan-ending activities include payment in full, discharged bankruptcy, and sale to a debt buyer. Prosper can also end a loan with "No value", meaning all efforts to collect on the loan, including debt sale, have been exhausted and the loan is deemed to have no value.

Payments made by the borrower post-charge-off are considered "recoveries", and pay down the loan's balance, but the loan stays charged-off. Depending on whether the loan is in collections with Prosper or an outside charge-off collection agency, recoveries may be subject to collection fees. Once charged-off, the borrower no longer has the opportunity to bring the loan current, only to pay it in full.

Prosper may, in our sole discretion attempt to sell a borrower loan to a third party debt buyer at any time. Because debt buyers buy many past-due loans at once, loans might not be sold immediately after charge-off, or may not sell at all, due to market conditions. The loan will remain with a collection agency, which will continue collection efforts until the loan is actually sold to a debt buyer. If a loan is sold in a debt sale, the entire loan sale price will be allocated to lenders. Each lender will receive their pro-rata share of the loan sale proceeds.

See the outcome of past debt sales.

Please note: Prosper does not provide tax advice. The following provides an overview of Prosper's tax reporting methodology for the benefit of lenders. Each taxpayer's situation is unique; please consult your tax advisor for more information.

Your income from loan interest is taxable income. Each tax year that you earn $10 or more in interest or borrower fees, Prosper will send you a Consolidated Form 1099 summarizing your taxable interest income or taxable fees, and will report this 1099 information to the IRS. (In some cases, amounts less than $10 may be reported to state tax authorities based on individual state requirements.)

Regardless of whether or not the interest income or fees are greater than $10, these amounts are reportable on your annual tax return. Prosper reports interest income on a cash basis, not on an accrual basis. This is required by the Internal Revenue Service.

For purposes of interest income reporting, Prosper reports as an intermediary, known as a "nominee recipient" under IRC sec. 6049. Nominee recipients are responsible for reporting via forms 1099 proceeds which are ultimately disbursed to recipients. This is the same method of reporting used by stock brokerages.

Although the matter is not free from doubt, we intend to treat the Notes issued in 2009 or later as our debt instruments that have original issue discount ("OID") for U.S. federal income tax purposes. Where required, we intend to file information returns with the IRS in accordance with such treatment unless there is a change or clarification in the law, by regulation or otherwise, that would require a different characterization of the Notes. There are no statutory provisions, regulations, published rulings, or judicial decisions that directly address the characterization of the Notes or instruments similar to the Notes for U.S. federal income tax purposes.

You should be aware, however, that the U.S. Internal Revenue Service ("IRS") is not bound by our characterization of the Notes and the IRS or a court may take a different position with respect to the Notes' proper characterization.

See Questions Related to OID Tax Reporting below.

Prosper provides a year-end lender statement to all active lenders, and may provide a Consolidated Form 1099 to lenders and tax authorities, depending on the lender's activity during the calendar year. If you are subject to 1099 tax reporting, your tax forms will be available on the "My Account > History > Statements" page by January 31 of the year following the calendar year in question.

If you would like to receive a paper copy of your tax forms, please contact customer support.

1099-INT
You will receive a form 1099-INT in each tax year that you earn $10 or more in interest on Notes purchased prior to 2009, unless you live in a state for which there is an applicable reporting exception (see below).

1099-MISC
You will receive a form 1099-MISC in each tax year that you receive $600 or more in borrower late fees or referral awards, unless you live in a state for which there is an applicable reporting exception (see below).

1099-OID
You will receive a form 1099-OID in each tax year that you have $10 or more in OID imputed interest on Notes originated in 2009 or later, unless you live in a state for which there is an applicable reporting exception (see below). This form details income reported on notes that are subject to OID tax reporting. See Questions Related to OID Tax Reporting below.

1099-B
You will receive a form 1099-B if you have sold notes, either on the trading platform or in a debt sale, or if you purchased a Note that was repurchased by Prosper. This form details each sale or repurchase transaction of this type.

The following states have exceptions for reporting thresholds, as outlined in the following table:

Charge-offs and gross proceeds from any bad debt sale to a third party will be reported to lenders in a year-end lender statement, and debt sales will be filed on tax form 1099-B. Using the loan principal balance before sale and the sale amount, lenders can calculate their net amount of loss for the year. Lenders are encouraged to consult their tax advisor to determine their tax basis on loans sold to debt buyers.

Delinquent (late) loans which have not yet been sold to a debt buyer will have no impact upon taxes until further action on these loans takes place.

If a borrower's loan is more than 1 month late, any Prosper member with a lender role and money in his or her Prosper account can make what is called a "community payment". A community payment is a simple act of goodwill, in which the payer can pay as little as $25 and as much as the full payment due towards the late payment due. The payer is not buying the loan, or diluting the ownership of the loan in any way: there is no possibility or expectation of repayment with a community payment.

Please be aware that if payments are made on a member's loan by another party and the member does not repay the other party, the loan payment may be deemed to be a gift for state and federal gift tax purposes and/or be deemed to be taxable income to the member for state and federal income and other tax purposes depending on the relationship of the parties (e.g., family, business, etc.) and the purpose or purposes of the loan payment. In those situations, the parties may be required to file notices or tax returns with tax agencies. Each of those situations may be unique and complex and, accordingly, Prosper cannot provide guidance or prepare any notices or tax returns for the parties. In those situations, we recommend that the parties consult with their professional tax advisors for guidance.

No. When you joined Prosper and agreed to the Prosper lender agreement, you agreed that your earnings and losses from your activity on Prosper would be assigned to your Social Security number (SSN). Prosper is required by the IRS to report in this manner.

You should consult your tax advisor to determine the methodology behind adjusting your 1099 to reflect a non-calendar tax reporting. Prosper is required by the IRS to report on a calendar year basis.

Please note: Prosper does not provide tax advice. Each taxpayer's situation is unique; please consult your tax advisor for more information.

Please contact customer support if you have a question on any of the values which are reported on the Prosper-generated tax forms or end-of-year statement.

You will generally be required to accrue OID in income as ordinary interest income for U.S. federal income tax purposes, regardless of your regular method of tax accounting. If you hold a Note that has a maturity date of more than one year, you will be required to accrue OID income as ordinary interest income under a "constant yield method." Under this treatment, if a payment on a Note is not made in accordance with the payment schedule for the corresponding loan (for example, because of a late payment on the corresponding loan), you will be required to include an amount of OID in taxable income as interest even if you have not received the actual payment from the corresponding loan.

If a borrower makes all payments based on the loan payment schedule, the amount of income reported under OID income reporting will be equal to the amount of interest received by the Note holder.

In general, late payments and early payments on loans will result in OID income being greater than the interest paid to lenders on the loan. However, depending on the timing of late or early payments, whether or not the borrowers makes payments to become current if they have been late, and whether partial pre-payments occurred between the last scheduled payment for the tax reporting period and the end of the tax reporting period, it is possible that interest received by lenders could exceed reported OID income.

If a lender holds a Note to maturity, the amount of OID income reported for a given Note will equal the interest received by the lender over the life of the Note. Because OID reports income assuming all payments are made as scheduled, interest received can be greater or less than the OID reported in any given tax period. However, if OID income is greater than interest received in a given tax period it will be lower than interest received in a subsequent period and vice versa. Typically, the difference between OID income and interest received will be equalized in the final tax reporting period that the Note is outstanding.

When a loan pays in full during the tax reporting year that it was acquired, OID income will equal the interest received by the Note holder. If the loan pays in full in a subsequent reporting year, either due to maturity or prepayment, OID income for that reporting year will be adjusted such that the OID income equals the interest received on the Note over the Note's life. If in prior periods OID was greater than interest paid, OID income will be less than interest received in the current period, and it is possible for OID income to be negative for the final period.

Negative OID values will be reported in Box 3 of Form 1099-OID, labeled "early withdrawal penalty." Prosper has not assessed any penalty and this amount will be treated as a reduction in ordinary income.

There are no Notes subject to OID tax reporting that have associated loans that charged-off as of 12/31/2009, the end of the most recent tax reporting period.

The impact of a loan charging-off on the associated Note will be the same as if the Note was paid in full. OID income in the tax period in which the underlying loan charges-off will be calculated such that the interest received and the OID income are equivalent over the life of the loan.

OID income is reported net of servicing fees.

It is possible for the OID income on a Note to be negative due to over reporting of OID in prior periods. Negative OID values are reported in Box 3 of Form 1099-OID, and must be labeled “early withdrawal penalty”. Prosper has not assessed any penalty and this amount should reduce ordinary income for tax purposes.

Notes acquired on the Trading Platform that were originally issued in 2009 or later are subject to OID tax reporting during the period they are held. Similar to Notes acquired directly from Prosper, OID income will be reported based on the projected interest payment schedule at the time of acquisition. Scheduled interest payments will be calculated using a “constant yield method”, where the yield is the yield to maturity calculated at the time the Note was acquired. Unless a Note is acquired for its book value (par), interest reported on a Note acquired on the Trading Platform will be greater than or less than the amount of interest paid by the borrower on the underlying loan.

Like Notes acquired directly from Prosper, OID income reported over the life of a Note acquired on the Trading Platform will equal interest received over the life of the Note. The interest received will be calculated using the “constant yield method” based on the actual cash flows on the Note. This yield may differ significantly from the stated yield at the time the Note was acquired (the impact of pre-payment in full or charge-off of the underlying loan can have a substantial impact on the final yield of Notes acquired on the Trading Platform at substantial premiums or discounts).

If a Note acquired on the Trading Platform is resold, OID income will be calculated based on the payments projected at the time the Note was acquired.

Proceeds from sales of Notes on the Trading Platform will be reported by FolioFN in a separate 1099B, available through Prosper’s website. Additional information that may be necessary to complete your taxes for Trading Platform transactions (such as the book value of the Note at the time of sale) is available on your end-of-year lender statement.

Please note: Prosper does not provide tax advice. Each taxpayer's situation is unique; please consult your tax advisor for more information.

Please contact customer support if you have a question on any of the values which are reported on the Prosper-generated tax forms or end-of-year statement.