Supreme Court Grants Review on National Bank Act Preemption Case

On October 13, 2023, the U.S. Supreme Court granted a consumer’s petition for certiorari to review a Second Circuit decision holding that the National Bank Act (NBA) preempts a New York law requiring lenders to pay interest on mortgage escrow accounts.  That decision represents a split from the Ninth Circuit, which previously held that a similar law in California was not preempted.

A federal statute may preempt state law either by explicit preemption language or by implicit preemptive intent.  A state banking law may be preempted by implicit preemptive intent if the state law would prevent or significantly interfere with a bank’s exercise of a power explicitly granted to it by Congress.  Under the NBA, Congress granted banks the power to create and fund escrow accounts.

In its ruling issued last year, the Second Circuit held that New York’s law requiring banks to effectively pay interest on escrow accounts amounted to an effort to control their power to create and fund those accounts.  In 2018, the Ninth Circuit held that California’s escrow interest law was not preempted because of language in Dodd-Frank that required banks to pay interest on escrow account balances pursuant to applicable state law.  While the Supreme Court had declined to review that Ninth Circuit ruling, any decision that it issues will likely address the circuit split on this issue.

WBK’s previous coverage of the Second Circuit decision can be found here, and it’s coverage of the Ninth Circuit decision can be found here and here.