In two decades of payday lending, Charles Hallinan survived repeated government efforts to crack down on his industry, making millions — one low-dollar, high-interest loan at a time.
But on Wednesday, he faces the biggest threat yet to his future and that of the multibillion-dollar industry he helped to create — a racketeering trial that could send him to prison and label the widely copied business practices he pioneered as violations of federal law.
Prosecutors describe Hallinan — a 76-year-old former investment banker, a Wharton grad and a Villanova resident — as a loan shark, and have charged him with violating laws more often associated with busting mobsters. They say he dodged each new law meant to stifle usurious loans by paying established banks and American Indian tribes to serve as fronts for his loan companies.
His myriad businesses — most based in Bala Cynwyd with names like “Tele-Ca$h,” “Instant Cash USA,” and “Your Fast Payday” — made more than $688 million between 2008 and 2013 while charging customers interest rates approaching 800 percent.
Hallinan maintains that he believed his lending practices to be legal. His lawyer and those for his longtime attorney, Wheeler K. Neff, who also is charged in the case, have accused the Justice Department of turning their clients into scapegoats.
“Payday lending, a legal practice, is not on trial — and the government should not be permitted to mislead the jury into thinking the question before them is whether payday lending has a [beneficial] impact on communities,” defense lawyer Edwin Jacobs and colleagues wrote in a court filing.
The trial, expected to last at least a month, could shape future Justice Department efforts to use racketeering laws to prosecute abusive lenders. Federal authorities have cited it as a tent-pole prosecution in their nationwide effort to crack down on the proliferation of abusive lenders despite efforts by Pennsylvania and other states to shut them down.
Hallinan entered the industry in the 1990s with $120 million after selling a landfill company, offering payday loans by phone and fax.
As states started to push back, Neff helped Hallinan adapt. In correspondence that prosecutors hope to use at trial, Neff urged clients to seek out opportunities in “usury friendly” states.
Hallinan developed a lucrative agreement starting in 1997 with County Bank of Delaware, a state in which payday lending remained unrestricted. Hallinan’s companies paid the bank to use its name on loans to borrowers in states with stiff usury laws.
“The bank’s role was effectively limited to having its name listed on the loan documents,” Assistant U.S. Attorneys Mark Dubnoff and James Petkun wrote in a memo outlining their case. Hallinan’s companies funded, serviced, and collected the loans themselves, the prosecutors said.
Federal regulators ordered County Bank to stop dealing with payday lenders in the mid-2000s. But that didn’t stop Hallinan, prosecutors say. He began contracting in 2003 with Indian tribes, which could claim sovereign immunity, protecting them from enforcement and lawsuits.
Much like his arrangement with County Bank, Hallinan paid tribes in Oklahoma, California, and Canada as much as $20,000 a month to use their names to issue loans across state lines.
Prosecutors say the tribes did little beyond housing computer servers that Hallinan sent to them to give their operations a sheen of legitimacy.
Still, Hallinan maintains that his own involvement was minimal. Testifying in a 2010 class action case in Indiana, he said that he sold the company at the heart of the suit to a man representing himself as the hereditary chief of the Mowachaht/Muchalaht First Nation in British Columbia.
But prosecutors now say that testimony was a lie. They allege that Hallinan and Neff paid the man to claim he was the company’s sole proprietor. The chief later asserted that he had next to no assets to pay a court judgment, prompting the case’s nearly 1,400 plaintiffs to settle their claims in 2014 for a total of $260,000.
That alleged swindle, prosecutors now say, helped Hallinan escape legal exposure that could have cost him up to $10 million.
Should he be convicted in the trial — on charges that also include conspiracy, money laundering, and fraud — his financial exposure could be far greater: Prosecutors are seeking more than $688 million in restitution.