‘Godfather of Payday Lending’ Convicted on RICO Charges

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Payday lending is controversial. People in favor of it claim it’s an important way for people who don’t qualify for traditional loans to get the cash they need, when they need it. Those against it claim it’s usurious and predatory, taking advantage of the most financially vulnerable among us.

 On November 26, a federal jury came down with a decision aligning with those against the practice. They convicted Charles M. Hallinan, who basically created the strategies that have been adopted by payday lenders across the U.S., on 17 counts of racketeering and conspiracy charges, including fraud and international money laundering.

Convicted with him was Wheeler K. Neff, Hallinan’s co-defendant and longtime lawyer. Prosecutors accused him of helping to come up with the faulty legal framework Hallinan used to justify his evasion of state regulations.

“Mr. Hallinan has managed to evade justice for more than a decade,” Assistant U.S. Attorney Mark Dubnoff said in court. “It’s time for [him] to start paying the price.”

Hallinan and Neff will remain under house arrest until their sentencing hearings in April.

Hallinan isn’t the first payday lender convicted of racketeering conspiracy. High-profile payday lenders including Richard Mosley Sr. and professional race car driver Scott Tucker have also been found guilty of RICO charges. Government attorneys said there’s little difference between the fees charged by mobster “loan sharks” and those charged by payday lenders. Payday loan interest rates can reach as high as 800 percent per year.

More than a dozen states prohibit payday loans through the use of criminal usury laws and statutes that cap annual interest rates. But Halliinan was able to evade those statutes and laws by working with a bank in Delaware, a state where payday lending is unrestricted.

According to Philly.com, Hallinan’s companies paid the bank to use its name on loan issued over the internet. He did so under a legal theory that since County Bank was federally licensed, it could charge Delaware interest rates in other states, including those where statutes prevent usurious interest rates. 

Once that arrangement with the Delaware bank was ended through a lawsuit brought by then-New York Attorney General Eliot Spitzer, Hallinan then formed similar arrangements with Native American tribes, whose sovereign immunity and ability to set their own regulations on reservation lands would, in theory, allow them to continue to operate nationwide and skirt state usury laws. That particular swindle also ended with a lawsuit.

Ultimately, it looks like Hallinan finally got his just desserts.