The lawyer behind some of the nation’s top payday lenders was sentenced to eight years in federal prison Friday after more than a decade spent enabling men who prosecutors say preyed on the financially desperate to fuel a multibillion-dollar industry.
Wheeler K. Neff, 69, of Wilmington, Del., devised the legal framework behind business tactics that enabled his clients to dodge government regulatory efforts for years. He forged relationships with American Indian tribes that many payday lenders used to hide their involvement in issuing low-dollar, high-interest loans outlawed in many states.
But flanked in a Philadelphia courtroom Friday by a cadre of family members, neighbors, country club friends, and fellow church congregants, Neff insisted that he’d believed at the time that everything he was doing was legal.
“I now realize how people can be crushed under the weight of payday loans,” he told U.S. District Judge Eduardo Robreno. “However, it was never my intention to harm anyone.”
Yet Robreno balked at defense efforts to cast Neff as a man who merely followed the orders of his chief client and codefendant, Main Line payday lender Charles M. Hallinan.
The judge described deals that Neff and Hallinan struck with their Native American partners as “unlawful, a sham, and a fraud.”
“A businessman can have a great deal of skill in completing a deal, but ultimately it is the lawyer that needs to implement it,” Robreno said. “Without Mr. Neff, [these deals] would not have gone through. … There was a monumental failure in this case.”
In addition to the prison term, Robreno ordered Neff to pay $50,000 in fines, forfeit more than $350,000, and serve three years’ probation after his release from prison.
The sentence was one of the stiffest so far for a lawyer in the series of cases that the Justice Department recently has pursued against some of the payday lending industry’s biggest names.
Neff’s punishment also could presage what Hallinan, one of the industry’s pioneers, should expect when he faces his own sentencing in July. Prosecutors are expected to ask Robreno to put the 77-year-old behind bars for what would amount to the rest of his life and strip him of more than $450 million in assets.
Both Neff and Hallinan were convicted in November on counts including fraud and racketeering — a charge originally created to crack down on Mafia loansharks.
Prosecutors have argued that there is little difference between the exorbitant fees charged by money-lending mobsters and the annual interest rates approaching 800 percent that were standard on the loans Hallinan’s companies offered over the internet.
The sums Neff helped his clients collect, said U.S. Attorney William M. McSwain in a statement Friday, “would make Tony Soprano blush.”
“We see few cases in which a defendant has victimized so many that the number of those impacted is too high to count,” McSwain said.
More than 12 states, including Pennsylvania, effectively prohibit traditional payday loans through criminal usury laws and statutes that cap annual interest rates, yet the industry remains robust. Still, roughly 2.5 million American households take out payday loans each year, fueling profits of more than $40 billion industry-wide, according to government statistics.
Payday lenders say they have helped thousands of cash-strapped consumers, many of whom do not qualify for more traditional lines of credit – a line echoed in Friday’s hearing by Neff’s lawyer, Adam Cogan.
But Assistant U.S. Attorney Mark Dubnoff, who prosecuted the case with cocounsel James Petkun, scoffed at that notion.
“Oh, [the borrowers] got what they needed?” he shot back. “That’s like a heroin dealer’s defense. … You can’t help out heroin addicts by giving them heroin, just like you can’t help out a person who needs money by giving them a usurious loan.”
Neff began working for payday lenders like Hallinan after decades of practicing banking law, first as a regulatory lawyer for the Delaware Attorney General’s Office in the late ’70s and later as a vice president of Beneficial Bank.
Testifying at his trial last year, Neff said Hallinan first approached him about a possible relationship with Indian tribes as government efforts to crack down on predatory lending continued to cause headaches for the industry.
Together, they forged the first of what would be many relationships with tribes across the country, reasoning that through the federally recognized groups — which hold sovereign immunity to set their own regulations on reservation lands — they could continue to operate nationwide.
But those partnerships were ultimately hollow. The tribes did little more than collect payoffs as high as $20,000 a month from Hallinan’s companies for the use of their names, while Hallinan continued to issue and service nearly all of the loans from his offices in Bala Cynwyd.
The strategy helped to generate more than $490 million in collections for Hallinan’s companies and was so widely emulated within his industry that it earned its own nickname – “rent-a-tribe.”
When plaintiffs’ lawyers and regulators began to investigate these arrangements, Hallinan and Neff engaged in legal gymnastics to hide their own involvement. In a 2010 class-action case in Indiana, the pair managed to persuade opposing lawyers that Hallinan had sold the company at the heart of that suit to a man named Randall Ginger, a self-proclaimed hereditary chieftain of a Canadian tribe.
Ginger later asserted that he had almost no assets to pay a court judgment, prompting the case’s plaintiffs to settle their claims in 2014 for a total of $260,000.
From 2008 to 2013, Hallinan was paying Ginger tens of thousands of dollars to claim the company as his own – a small price to pay compared to the potential legal exposure of up to $10 million that Neff believed Hallinan could face.
“Lawyers are supposed to advise their clients how to follow laws,” Dubnoff said. “Wheeler Neff advised his clients how to evade laws.”
But with his future and reputation on the line, Neff sought Friday to have his role viewed through a different lens.
“Neff realized that Hallinan needed guidance, and he thought he was the attorney that could steer him away from trouble,” said Cogan, Neff’s lawyer. “He was wrong. Was that a moral failing? Perhaps. But it was not one born out of malice or an intent to deceive.”