Delaware lawyer indicted in Native American payday loan scheme

A prominent Wilmington lawyer has been indicted in a massive payday loan scheme that charged more than 700% interest on loans claiming the lenders were Native American tribes exempt from the law, prosecutors said.

Pennsylvania federal officials claim Wilmington resident Wheeler K. Neff, 67, and Pennsylvania resident Charles M. Hallinan, 75, conspired to violate the Racketeering Influenced and Corrupted Organizations Act, or RICO , using the “rent-a-tribe” model to avoid consumer protection laws that set caps on loan interest rates in Pennsylvania and other states, an indictment said unsealed Thursday .

They’ve done it on a loop through Native American tribes as a supposed lender so they can claim tribal immunity from state regulations and hijack class actions, according to the indictment.

Hallinan, a well-known name in the payday loan industry, operated under a series of business names which included Easy Cash, My Payday Advance, and Instant Cash USA. Its companies generated $ 688 million in revenue between 2008 and 2013, according to the indictment.

Neff was legal counsel to the Hallinan companies. He has been a lawyer in Delaware since 1974 and specializes in corporate law and banking law.

Neff pleaded not guilty Thursday in Philadelphia and was released on $ 250,000 bail. His Philadelphia attorney, Christopher D. Warren, issued a statement saying that Neff “looks forward to defending the legal validity” of the tribal lending model.

Neff did not return a reporter’s phone call to his home in Alapocas. The house is one of a long list of assets the government is trying to seize in the deal.

Warren told the News Journal that Neff continues to practice law and has an office in Wilmington.

Neff also has a son who attended Wilmington Friends School and is now a male model best known for his previous work as the face of a Calvin Klein perfume.

The family appears to be closely linked to the school, and in 2014 the school announced the new Neff Gym named after former administrator Bill Neff, according to its website.

Warren wrote in a lengthy statement that Neff has a “clean record with the Delaware Bar” and that they are both “very surprised” that federal prosecutors are attacking the tribal lending model.

“This misguided attempt by the federal government to suddenly criminalize one of the many programs that have been running for ten years or more is unprecedented,” he wrote. “The government’s accusations constitute an unwarranted attack on a popular legal lending program for the sole reason that it is now viewed as politically incorrect in some government circles.”

Hallinan also appeared briefly in court Thursday and was released on $ 500,000 bail. His lawyers declined to comment on the case.

Wheeler K. Neff leaves the Philadelphia Federal Building on Thursday, April 7, 2016. Neff is charged in a federal racketeering indictment with participating in a payday loan program that charged up to 700% interest on short term loans.  (AP Photo / Matt Rourke)

Hallinan’s companies billed clients around $ 30 for every $ 100 borrowed, but compounded the interest and fees over time until clients were billed over $ 700 for the original loan of 100. $, according to the indictment.

In Pennsylvania, the law generally caps interest at 6% on personal loans, although banks can charge up to 24% interest on loans under $ 25,000, federal officials said.

They said Hallinan, from Villanova, paid a tribal chief in British Columbia $ 10,000 a month to claim he owned the payday loan business and, in a class action lawsuit in 2010, to say he had no assets in order to get the nearly 1,400 people to settle the lawsuit on pennies on the dollar.

“In reality, Indian tribes had very little connection to the day-to-day operations of payday lending operations,” the indictment says. “Typically, the tribes did not provide the money advanced for payday loans, service the loans, collect the loans, or incur no losses if borrowers defaulted. “

The indictment accuses Neff of drafting a series of “fictitious contracts” designed to allow Hallinan’s companies to facilitate the schemes.

Warren defended the way Neff handled contracts and said he “fully adheres to the Delaware Bar of Delaware canons of ethics in providing standard legal advice to his client.”

The two are also accused of leading at least one other payday lender into a similar tribal settlement, according to the indictment. And Hallinan’s companies have taken control of various aspects of the payday lending business, owning companies that have also generated leads and performed credit checks, authorities said.

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Warren defended the practice of tribal loan programs, saying they offer “convenient and immediate short-term credit in the form of $ 200 to $ 300 loans to millions of moderate-income people, employing borrowers to help them. to cope with their occasional financial deficits or their emergencies “.

“Such loans are extremely popular with the millions of borrowers who use these products responsibly,” he wrote.

Warren said it is federal law established that Native American tribes are co-equal sovereigns with U.S. states and are immune from state loan and license requirements.

A similar indictment targeting the practice was filed against another individual in the Southern District of New York this week, Warren said.

A similar case occurred in Delaware in March. Vice Chancellor J. Travis Laster said it was “unreasonable” that a former housekeeper at the DuPont hotel was charged $ 1,820 for a $ 200 loan she took out in 2013 for pay for food and rent. He ordered the company to reimburse her.

After the General Assembly imposed limits on payday loans in 2013, the lender, National Financial LLC, recast its payday loans into installment loans designed to remain unpaid for seven to 12 months, the judge noted.

“The payday loan law only applied to loans designed to be in arrears for sixty days or less, so in making this change, National circumvented the law,” Laster wrote in a 72-page decision.

The 2013 law did not cap payday loan interest rates, but instead targeted frequent renewals, which often leave borrowers trapped in a cycle of debt. The law limits borrowers to no more than five payday loans of $ 1,000 or less in a 12-month period, and lenders to no more than four renewals of an existing payday loan.

In the most recent indictment, Hallinan and Neff were charged with two counts of conspiring to violate the Racketeering Influenced and Corrupted Organizations Act.

A third accused, Canadian citizen Randall Ginger, 66, has been charged with one count of conspiracy to commit mail fraud, wire fraud and money laundering, as well as two counts of mail fraud and three counts electronic fraud.

Hallinan and Ginger have also been charged with nine counts of international money laundering.

If convicted, Hallinan faces sentencing guidelines of at least 12 years in prison. Neff and Ginger face sentences of at least 8 years in prison.

Lawrence Hamermesh, professor of corporate governance at Delaware Law School, said it can always be “surprising” when a lawyer is charged.

“They have character and fitness barriers [they have to pass]”, he said.” Some lawyers get lost sometimes. “

The Associated Press contributed to this report.

Contact Jessica Masulli Reyes at (302) 324-2777, [email protected] or Twitter @JessicaMasulli.

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