Professor Levitin goes into some detail in evaluating the caselaw concerning federal pre-emption, including looking at the payday lender "charter-rental" cases, which essentially conclude that the mere fact that a loan was issued on national bank letterhead does not mean there is federal pre-emption. If the debtor can show that the loan was in substance a loan from a non-exempt payday lender, the debtor may be able to invoke state-law protections.
In a subsequent blog post, Professor Levitin states more explicitly than in the article that he believes that in light of the securitization phenomenon, debtors should be able to raise a state-law usury defense against collection actions seeking to recover credit-card or other debt that has been securitized. (Further discussed on Naked Capitalism) This is a potentially very interesting argument for consumer law attorneys to pursue.
If published opinions are any gauge, debtors have had little luck raising securitization-related defenses to debt-collection lawsuits. Many of the worst opinions have come in cases where pro se defendants attempted to pursue the defense, and all the negative opinions address efforts to raise securitization in an effort to show a lack of standing to sue or to argue that the trust must be joined to the lawsuit as the "real party in interest." See, e.g., http://www.creditinfocenter.com/forums/there-lawyer-house/308095-yet-another-case-securitization-defense-failure.html.
These arguments are problematic insofar as the securitization transaction documents themselves generally provide some language to the effect that at charge-off securitized receivables revert back to the originator. Sometimes the transaction documents clearly state that only receivables and not underlying contracts or accounts are assigned or transferred, adding further confusion. In light of these transaction characteristics, courts have generally had little difficulty brushing off assertions that the trust is the only proper plaintiff, and hold that the originator can sue as the actual counterparty and as the party presently entitled to payment.
Indeed, Professor Levitin's discussion of the issue also seems to overlook these characteristics, as Professor Levitin appears to assume that the trusts are going around suing people and so that there should be a clear-cut issue presented of whether the trust succeeds to its sponsor's federal pre-emption (as he persuasively argues it does not). But it is always the national bank or FDIC-insured originator actually filing lawsuits to collect these debts. This makes it more difficult than would otherwise be the case to raise even a usury defense. However, unlike previous attempts to invoke standing as an issue where securitized debt is concerned, state courts have long held with respect to usury that attempts to "launder" usury will not be tolerated, and state courts will look behind the form of a transaction that has been contrived to create a non-usurious appearance that deviates from a usurious economic substance. For example, courts have often deemed otherwise exempt transactions, such as installment sales or leases, to be truly loans where the documentation of the transaction as not a loan was essentially a legal fiction. Similarly, courts have treated exempt parties (corporations) as covered parties where the use of the exempt party was a subterfuge, as when the real recipient of the loan was a person and the insertion of a corporation into the transaction was for the sole purpose of evading the usury laws. A similar argument can be made that where the credit-card loan transaction economically consists of a state-law trust obtaining money from public investors and passing it (perhaps through another trust and then) to the consumer while the originator stands in the background and performs contractual "servicing" duties in return for a fee, the fact that on paper the loans are from a national bank should not matter.