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STEVE INSKEEP, host:

On Fridays, we talk about your money. And today, we'll talk about the money you borrow. At last count, we've got a collective $3.5 trillion in consumer debt. But in theory, we could become a nation of moneylenders as Jessica Smith reports.

JESSICA SMITH: Welcome to the era of coffee shop money lending.

Unidentified Woman: (Unintelligible) cappuccino.

SMITH: In a cafe in Washington D.C., 31-year-old Kelly Ziomo(ph) stares at a laptop screen and browses a listing of people who want to borrow money. He's logged into his account at prosper.com. That's a person-to-person lending site.

Mr. KELLY ZIOMO: My search engine - I have three of them depending on how risky I feel that day - although I hadn't clicked on the 15 percent one.

SMITH: That means he'll only see people who are willing to pay him at least 15 percent interest. Ziomo joined Prosper because he wanted to see if he could earn a return that would cover his student loan. He did. He's now loaned out $24,000 of his savings to nearly 400 people. His average interest rate is 18 percent.

He clicks on another listing. This one is titled, Fashion Designer Needs to Pay Veterinary Bill.

Mr. ZIOMO: Ten thousand dollars, and she's willing to pay 29 percent. In the listing itself, we can see that she starts to ramble on about where she lives and she has a pet pig named Tilly(ph). She is a swine leader for her local forage group, so she's a well-rounded individual. She just needs money for the veterinary bill.

SMITH: The photos of the lender and her pet pig are cute, but Ziomo worries this fashion designer is overstretching herself by offering 29 percent than she could end up defaulting. So he skipped to the next listing.

Prosper.com and a smaller competitor called lendingclub.com are like eBays for money. They use the Internet to bring together buyers and sellers. In this case, it's lenders and borrowers. Prosper now has more than 450,000 members and it's not yet 2 years old. Lending Club started five months ago and has 20,000 members.

Another company called Lending Circle handles loans exclusively among family members and friends. It grew so fast that British financier Richard Branson bought it and a few weeks ago, he renamed it Virgin Money.

Prosper.com's co-founder Chris Larsen says he's surprised by how fast person-to-person lending is catching on.

Mr. CHRIS LARSEN (Co-Founder, Prosper.com): People get it. And I think that's what's really important that people understand, you know, how important money and finance is to how you succeed in America.

SMITH: While lenders join Prosper and Lending Club for the high interest, borrowers come to these sites because they're trying to pay down credit cards that charge even higher interest. People also come for small business loans. Thirty-four-year-old Ryan Oliver(ph) needed funding for his Miami sportswear startup. He said he didn't get much help from the banks.

Mr. RYAN OLIVER (User, Lendingclub.com): They didn't give me the time of day.

SMITH: At Lending Club, he borrowed $12,000 at 10 and a half percent interest. Yaron Brook is president of the Ayn Rand Institute, which promotes free market capitalism. He says these sites offer a solution.

Dr. YARON BROOK (President, Ayn Rand Institute): It's a market solution to get both of these players into the banking business, into the banking world, providing capital for some and providing an avenue for higher return for others.

(Soundbite of chattering)

SMITH: On Prosper and Lending Club, everyone uses anonymous screen names, though lenders can see credit scores and other personal financial information in order to judge who they're providing money to. Still, it's lender beware.

Mr. ZIOMO: I have had a few defaults. And, in fact, one of them was quite surprising. It was a day spa that needed money to expand. The person who is borrowing it has very good credit, and they actually didn't even make one payment.

SMITH: Kelly Ziomo says he lends out in such small amounts, he can swallow a few defaults. And right now, more than 90 percent of his loans are paying on time. So he says he'll continue browsing for borrowers.

For NPR News, I'm Jessica Smith.

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