Charlie Hallinan may not be a name that is familiar to many people, but almost everybody has heard of the business model he helped perfect. Hallinan is the man behind the rapid national expansion of the payday loan market. While Hallinan is not the only payday loan master out there, he was one of the first, and likely ran the largest operation in the nation for many years.
Now 75 years old, Hallinan is facing racketeering charges that stem from his many years trying to stay one step ahead of state and national lending laws. One of his partners has already pleaded guilty and faces a lengthy prison term once he is sentenced.
According to Bloomberg, Hallinan started his lending business after selling a landfill company for nearly $120 million. He quickly put his knowledge of investment banking and degree from the University of Pennsylvania’s Wharton School to use, as he investigated the payday loan business that in some states, like Alabama, have more payday loan stores than McDonalds. Throughout the 1990s, he improved upon the model and sought to get around restrictions in states that did not allow the predatory lending practice by offering the loans over the telephone.
Hallinan created an arrangement with County Bank. The bank would do the actual lending on paper while he ran the business. People would fax him their pay stubs, cash would be deposited into their accounts, and when a paycheck was deposited the loaned amount plus a hefty fee would be withdrawn. The fees were often $20 and up per hundred dollars loaned.
With the advent of the Internet, the payday loan business expanded exponentially. Bloomberg estimates that upwards of $16 billion a year is being earned by the lenders, many of whom don’t pay taxes or abide by state laws since they are based offshore or tied in with Native American tribes.
Finance expert Ryan Mack says that the payday loan business is especially bad for African Americans, noting that the African American community is three times as likely to use non-traditional lenders such as payday loans. For many poor, working class, black families, these are the only type of loans for which they qualify. The problem is that the exorbitant interest makes it impossible to get ahead and the loans continue to perpetuate the poverty cycle.
This is part of the reason that President Obama has called for more restrictions on the payday loan business. It is also the reason that prosecutors are going after those who run the loan businesses with racketeering charges normally reserved for Mafia bosses and loan sharks.
Despite the charges against him, Hallinan denies being involved in payday lending anymore. He says that he is currently providing loans to small businesses, which is an unregulated market. Not surprisingly, the loan interest for these loans is nearly the same as the payday loans he once offered.