GW Law Faculty Publications & Other Works

Document Type

Article

Publication Date

2024

Status

Accepted

Abstract

In Cantero v. Bank of America, N.A., 602 U.S. 205 (2024), the Supreme Court vacated and remanded a decision of the Second Circuit Court of Appeals. Bank of America argued that the National Bank Act preempts New York General Obligation Law (NYGOL) § 5-601, thereby exempting the bank from any duty to comply with § 5-601. The Second Circuit agreed with Bank of America’s preemption claim.

NYGOL § 5-601 requires national banks and other mortgage lenders operating in New York to pay at least 2% annual interest on funds deposited by borrowers in mortgage escrow accounts. The Second Circuit held that the National Bank Act preempted § 5-601 because it “would exert control over a banking power granted by the federal government, so it would impermissibly interfere with national banks’ exercise of that power.”

The Supreme Court vacated and remanded the Second Circuit’s decision because it did not conform to “the controlling legal standard” for determining whether state consumer financial laws are preempted with respect to national banks. The Supreme Court held that the “controlling legal standard” for deciding cases like Cantero is the “prevents or significantly interferes” preemption standard established by the Supreme Court in Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25 (1996), and codified by Congress in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

The Supreme Court explained in Cantero that the Second Circuit should apply Barnett Bank’s “prevents or significantly interferes” standard by making “a practical assessment of the nature and degree of the interference” caused by § 5-601 with a national bank’s “exercise of its powers.” In addition, the Second Circuit should conduct a “nuanced comparative analysis” of the impact of § 5-601 on national banks consistent with the Supreme Court’s evaluations of state laws that were preempted, or not preempted, in Barnett Bank and six other Supreme Court decisions identified in Cantero.

Part I of this article discusses NYGOL § 5-601’s relatively minor impact on national banks. Parts II through IV review the Supreme Court’s analysis of the economic, financial, and competitive effects of the state laws that were challenged in Barnett Bank and six other Supreme Court decisions identified in Cantero. As shown in Part V, § 5-601’s interference with national bank powers is far less significant than the interference caused by the state laws that were challenged in those seven cases. Accordingly, the Second Circuit should hold that the National Bank Act does not preempt § 5-601 because the New York statute does not prevent or significantly interfere with the exercise of national bank powers.

As explained in Part VI, the Second Circuit should also reject two additional preemption arguments that Bank of America might advance on remand. As discussed in Part VII, the First Circuit should reject a similar preemption challenge to Rhode Island’s interest-on-escrow law, and the Ninth Circuit correctly decided to dismiss a preemption challenge to California’s interest-on-escrow statute.

GW Paper Series

2025-01

Download

Included in

Law Commons

Share

COinS