Supreme Court Seeks Government’s View on National Bank Act Preemption in Escrow Interest Rate Cases

Recently, the U.S. Supreme Court invited the U.S. Solicitor General to file a brief expressing the government’s views on whether the National Bank Act (NBA) preempts state law requiring interest payments on mortgage escrow accounts.  Currently, the U.S. Courts of Appeals for the Second and Ninth Circuits are split regarding this question.

The Second Circuit held that the NBA preempts a New York law that requires “mortgage investing institutions” that maintain escrow accounts to pay interest at a specified rate.  The Second Circuit reasoned that because the NBA preempts any state law that “would exert control over a banking power granted by the federal government” the New York law was preempted because “[b]y requiring a bank to pay its customers [] to exercise [its banking power, the law would [permit states to] exert control over banks’ exercise of that power.” 

Conversely, the Ninth Circuit held that the NBA did not preempt a California law that requires financial institutions to pay interest at a specified rate on escrow accounts associated with certain mortgage loans, concluding this law did not “prevent or significantly interfere with the exercise of a national bank’s powers.” 

The U.S. Supreme Court has yet to grant or deny certiorari in this case.