I think overall it's reasonable for Prosper (and Lending Club, which is doing something similar) to charge much higher fees than originally expected. It's become clear they have to do a lot more work than we and they had thought to have a viable business. Because of the potential for fraud, each borrower has to be individually screened and have information verified at the front end, lenders need a lot more guidance and hand-holding about the appropriate price to pay, and collection expenses are much more than previously thought. All this costs and has to be paid for somehow.
It would better align with lenders' real interests if the interest spread were raised so that Prosper and Lending club collect only if the borrower pays. Collecting fees up front increases the temptation to allow junk through. It also reduces borrower demand. But increasing the fees borrowers pay makes it appear to lenders that prices are being held constant and hence avoids reducing lender demand -- at least lenders who haven't actually thought the implications of the fee-shifting through. It's something of a paradox that increasing lender fees rather than borrower fees would be better for lenders in the long run, and most lenders wouldn't get this.
Of course there's never been a problem with borrower demand -- just demand by the sort of borrower who's actually willing and able to repay.