Peer-to-peer lender Prosper.com has offered a seven-day auction for setting interest rates on loans since the company opened for business in 2006. On Monday, the company dropped the model, saying most lenders were no longer interested in bidding on new loans.

Prosper.com, the first U.S.-based social lender, says its in-house experts would pre-set the interest rates on loans, based on the risk of default by borrowers. The change brings the site in line with its rival Lending Club, which has always set interest rates.

Four years ago, Prosper.com let lenders bid on the interest rates of loans to pre-qualified borrowers. In 2009, the Securities and Exchange Commission required Prosper.com and Lending Club to register their businesses with the commission, which temporarily halted both companies from issuing new loans.

Prosper.com came out of the registration process giving lenders the option of skipping the auction and taking a pre-set interest rate.

In addition, the company set floors on auctioned interest rates, based on default risks. Since then, two thirds of lenders are taking the pre-set option, convincing Prosper.com to drop the auction model completely, Chris Larsen, chief executive and co-founder of Prosper.com, told InformationWeek.

"It made the process for borrowers and lenders too complicated," Larsen says. Lenders will still be able to bid on loans put up for sale by other lenders.

Prosper.com and Lending Club enable people to bypass traditional lenders, such as banks, by borrowing from people willing to pool their money in making loans. Both social lenders require potential borrowers to go through a pre-qualification process before their loan requests are approved. For example, Prosper.com requires a FICO score of at least 640 and Lending Club 660.

The majority of loans are to people trying to pay off credit-card debt with a lower interest rate. Nearly half of Prosper.com's borrowers and about two-thirds of Lending Club borrowers fall into that category.

Prosper.com says the number of people borrowing to eliminate credit-card debt on its site has fallen from 56% earlier this year. At the same time, the percentage of loans for home improvement and for starting or expanding businesses has risen from 10% to 11% and from 11% to 14%, respectively.

Prosper.com and Lending Club have benefited from banks' tightening of credit after Wall Street's collapse in late 2008 as a result of the subprime mortgage crisis. Loans offered to investors of the social lenders are unsecured, much like credit-card debt, so the risk of losing an investment through default is higher than if a borrower secured the loan with their home, for example, as collateral.