A businessman from Pennsylvania who was thought of as a pioneer in payday loans was indicted last week for engaging in racketeering. This indictment was part of a wider federal crackdown on abusive lending schemes.

The media reported that Charles Hallinan’s payday lending operations produced more than $600 million in profits from 2008-13. The indictment was filed in federal court last week alleging that Hallinan conspired to violate federal racketeering laws.

The federal indictment also included Wheeler Neff, who is a lawyer from Delaware, whose clients included Hallinan.

The indictment alleges that Hallinan and Neff conspired to defraud more than 1200 people.
The racketeering charges came as the US is trying to crack down on what it considers abusive practices by some payday lenders. A payday lender provides a small amount of credit that the borrower agrees to pay back quickly, such as when they get their next paycheck.

The payday lenders say they provide a needed service for consumers who need quick cash, but critics accuse them of encouraging borrowers to run up high debt loads with high interest rates. Fourteen states currently prohibit payday loans.

Last February, federal prosecutors charged Scott Tucker, a race car driver who ran a $2 billion payday lending operation that had more than four million customers. He has pleaded not guilty; he used to work with Hallinan.

The federal indictment stated that Hallinan owned, operated and financed at least 12 payday lending companies from 1997 until 2013. The companies would issue loans with rates as high as 700%.
Federal prosecutors claim that Hallinan tried to evade state laws that make such loans criminal activity. He would allegedly pay three native tribes to pretend that they were the lenders, so they could claim sovereign immunity.

Both men also have been charged for helping another payday lender to evade anti-usury laws by entering into fake contracts with a Native American tribe that were designed to give the impression that the tribe was the actual lender.

If he is convicted on all charges, Hallinan could get at least 12 years in prison, three years of probation, and fines.

Feds Relying on Racketeering Laws to Bust Up Payday Lenders

Regulators in some states have been unable to stop payday lenders, so federal prosecutors now are using racketeering laws that originally were intended to prosecute members of the Mafia. The racketeering laws were set up in 1970 and give the feds more time to go after criminals and set tougher prison terms and fines.

However, Hallinan is mounting a defense using Edwin Jacobs, who is a lawyer famous for helping mob figures beat racketeering charges. Jacobs has represented Mafia boss Joseph Ligambi in a loan sharking case, and Ligambi ended up walking free in 2015.

Hallinan’s defense team has said that the feds’ case against their client is incorrect and predicted that it will not be successful.

They stated that the charges of the federal government are an unfair assault on payday lending, which is still legal in the majority of states. They added that their client is being indicted mostly because some in government circles do not like payday lending.

However, the US Justice Department has made going after payday lenders a top priority in the last few years as the industry has gotten more popular and widespread.

How the Indictment Process Works At the Federal Level

In the above case, a federal grand jury most likely met for the past few months and investigated the suspected criminal activity of the payday lenders. The federal prosecutor on the case must have believed that Hallinan could be guilty of a felony that is punishable by more than a year in prison. At that point, he had to get the permission of the grand jury to continue to the case.

Then, the grand jury would investigate the suspected criminal activity by hearing testimony from witnesses and reviewing any documented evidence. For the case to proceed to an indictment, the grand jury has to find that there is probable cause to charge Hallinan with a crime. This means that the evidence shows that it is reasonable to charge Hallinan with a crime.

Racketeering Laws

Racketeering laws came into effect under the Racketeer Influenced and Corrupt Organizations Act, or RICO. RICO laws define many criminal activities based upon the company or organization status as one that gets its income from committing criminal offenses. It is illegal for people or companies to acquire, establish or operate any organization that derives its income from illegal activities.