A federal jury weighing the racketeering conspiracy case against Main Line payday lending pioneer Charles Hallinan concluded its first full day of deliberations Wednesday without reaching a verdict.
The panel of nine women and three men spent more than five hours cloistered behind closed doors in Philadelphia's federal courthouse, debating a decision that could label business practices Hallinan originated and spread widely throughout the multibillion-dollar short-term lending industry as violations of federal law. Jurors are expected to resume deliberations next week.
In their final pitch to jurors Tuesday, prosecutors described the 76-year-old Villanova resident and Wharton grad as a loanshark who made millions preying on the financial desperation of low-income borrowers — one low-dollar, high-interest loan at a time.
When states tried to crack down on his industry, Assistant U.S. Attorney Mark Dubnoff said, Hallinan dodged their efforts by paying established banks and American Indian tribes to serve as fronts for his loan companies.
But defense lawyers scoffed at that depiction, referring to the government's case against Hallinan and his longtime lawyer and co-defendant Wheeler K. Neff as absurd.
In his own final remarks, Neff's lawyer, Christopher Warren, deployed one derogatory adjective after another to disparage prosecutors, their arguments in court, and their witnesses. At various points, he referred to all three as "asinine," "a bunch of crap," "an insult to [jurors'] intelligence," and "a pile of bovine excrement."
"We acted in good faith every step of the way and tried as hard as a lawyer and a businessman can try to comply with the law," Hallinan's lawyer Edwin Jacobs said. "Even if we got it wrong, we're still entitled to a verdict of not guilty."
Despite that strong language, lawyers on both sides appeared to be in agreement on one point – at least in front of the jury. Both insisted during closing remarks that Hallinan and Neff, 69, of Wilmington, should not be treated as a referendum on the morality of the entire payday lending industry.
And yet, from the rhetoric used by both sides throughout 27 days of testimony, one could be forgiven for thinking otherwise.
The industry has come under increasing scrutiny in recent years for the high rates of interest it charges borrowers unable to secure more traditional lines of credit. And addressing the jury Monday, Dubnoff made frequent references to Hallinan as a "predatory lender" whose companies made more than $480 million between 2007 and 2013 charging annual interest rates well in excess of Pennsylvania's 6-percent rate cap for unlicensed lenders.
"Seven hundred eighty percent," Dubnoff told jurors. "That's the approximate interest rate that Charles Hallinan's payday loan companies charged their customers. … That fact is undisputed. It's also a crime."
The defense delivered a rousing endorsement of payday lending writ large.
"Mr. Dubnoff calls it predatory lending; a guy who needs $300 fast to get to work probably thinks it's a good thing," Warren said. "You get these payday loans unsecured [online], and you don't even have to leave your bedroom."
Still, U.S. District Judge Eduardo Robreno has urged the jurors to decide this case on the facts specifically pertaining to Hallinan and Neff.
Both men stand accused of conspiring to break state usury laws by entering into sham agreements, first with a Delaware bank in the late 1990s and later with Native American tribes that Hallinan and Neff maintain had sovereign immunity from state laws limiting interest rates on short-term loans.
Hallinan's relationships with such partners — known within the industry as the "rent-a-bank" and "rent-a-tribe" strategies – have been widely copied by other lenders.
Prosecutors also contend that when a 2010 class-action lawsuit filed in Indiana against one of Hallinan's companies threatened a hefty legal judgment, Neff and Hallinan defrauded the court and the case's plaintiffs by allegedly paying the hereditary chief of a Canadian tribe to claim he was the businesses' sole proprietor.
By hiding Hallinan's involvement, prosecutors allege, he and Neff managed to convince a court that the company had almost no assets, prompting a settlement of only $260,000 – far less than the $8 million to $10 million financial exposure that Neff predicted Hallinan could face should his assets be targeted in the case.