Jessica Masulli Reyes

The News Journal

A prominent Wilmington lawyer has been indicted in a massive payday loan scheme that charged over 700 percent interest on loans by pretending the lenders were Native American tribes exempt from the law, according to prosecutors.

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

They did this by looping in American Indian tribes as the supposed lender so they could claim tribal immunity from state regulations and deflect class-action lawsuits, the indictment claims.

Hallinan, a well-known name in the payday lending industry, operated under a string of business names that included Easy Cash, My Payday Advance and Instant Cash USA. His businesses generated $688 million in revenue between 2008 and 2013, the indictment says.

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

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

Neff did not return a reporter's phone call to his Alapocas home. The home is part of a lengthy list of assets the government is attempting to seize as part of the case.

Warren told The News Journal that Neff is continuing 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 prior work as the face of a Calvin Klein fragrance.

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

Warren wrote in a lengthy statement that Neff has a "spotless record with the Delaware Bar" and that they are both "very surprised" that federal prosecutors would attack the tribal lending model.

"This ill-advised attempt by the Federal government to suddenly criminalize one such program among the many that have been operating up to ten or more years is unprecedented," he wrote. "The government's charges are an unwarranted assault on a popular legal lending program for no other reason than it is now deemed politically incorrect in some government circles."

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

Hallinan's companies charged customers about $30 for every $100 they borrowed, but they compounded the interest and fees over time until customers were charged more than $700 for the original $100 loan, the indictment said.

In Pennsylvania, the law typically caps interest at 6 percent on personal loans, though banks can charge up to 24 percent interest on loans below $25,000, federal authorities said.

They said Hallinan, of Villanova, paid a tribal leader in British Columbia $10,000 a month to pretend that he owned the payday lending enterprise and, amid a 2010 class-action lawsuit, to say it had no assets in order to get the nearly 1,400 people to settle the lawsuit on pennies on the dollar.

“In reality, the Indian tribes had very little connection to the day-to-day operations of the payday lending operations,” the indictment said. “Typically the tribes did not provide the money advanced for the payday loans, service the loans, collect on the loans, or incur any losses if the borrowers defaulted.”

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

Warren defended the way Neff handled the contracts and said he "fully adhered to the Delaware Canons of Ethics of the Delaware Bar by providing standard legal advice to his client.

The two are also accused of steering at least one other payday lender into a similar tribal agreement, the indictment said. And Hallinan's companies took control of various aspects of the payday lending business, owning firms that also generated leads and performed credit checks, authorities said.

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Warren defended the practice of tribal lending programs, saying they provide "convenient, immediate short term credit in the form of $200 - $300 loans to millions of moderate income, employed borrowers to help them meet their occasional financial short-falls or emergencies."

"Such loans are enormously popular with the millions of borrowers who use such products responsibility," he wrote.

Warren said it is settled federal law that Native American tribes are co-equal sovereigns with U.S. states and are immune from state lending and licensing 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 arose in Delaware in March. Vice Chancellor J. Travis Laster said it was "unconscionable" that a former Hotel DuPont housekeeper was charged $1,820 for a $200 loan she took out in 2013 to pay for food and rent. He ordered the company to repay her.

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

“The Payday Loan Law only applied to loans designed to be outstanding for sixty days or less, so by making this change, National sidestepped the law,” Laster wrote in a 72-page ruling.

The 2013 law did not cap interest rates for payday loans, but instead targeted frequent rollovers, 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 rollovers of an existing payday loan.

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

A third defendant, Canadian citizen Randall Ginger, 66, was 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 of wire fraud.

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

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

Lawrence Hamermesh, a professor of corporate governance at Delaware Law School, said it can always be "surprising" when an attorney is indicted.

"They have character and fitness hurdles [they have to pass]," he said. "Some lawyers sometimes go astray."

The Associated Press contributed to this report.

Contact Jessica Masulli Reyes at (302) 324-2777, jmreyes@delawareonline.com or Twitter @JessicaMasulli.