Supreme Court Unanimously Rejects Competing Bright Line Standards for National Bank Act Preemption, Remands for “Nuanced Comparative Analysis”

The Supreme Court’s recent decision in Cantero clarified that in determining whether a non-discriminatory state law “significantly interfere[s] with [a] national bank’s exercise of its powers,” such that the law would be preempted by the National Bank Act (NBA), requires a court to conduct a “nuanced comparative analysis,” including “a practical assessment of the nature and degree of the interference caused by [the] state law.”

The underlying case challenged the Second Circuit’s review of New York’s interest-on-escrow law.  In a unanimous decision, authored by Justice Kavanaugh, the Court rejected both the Second Circuit’s distillation of a “categorical test that would preempt virtually all state laws that regulate national banks,” and also the Petitioners’ preferred analysis that “would preempt virtually no non-discriminatory state laws that apply to both state and national banks.” 

Petitioners (the plaintiffs in the underlying case) are New York-based mortgage borrowers, who received home mortgages from a large national bank.  They argue that they should have been receiving a minimum of 2% interest on their mortgage escrow accounts, under New York General Obligations Law §5-601.  Respondent (the defendant below), took the position that, as a national bank, it was not subject to that requirement, and moved to dismiss the claims on that basis.  The key point of contention was the effect of the Dodd Frank Act’s amendments to NBA preemption.  The motion to dismiss was denied by the district court, but the Second Circuit reversed, finding preemption because the law in question “would exert control over” the power of a national bank to “create and fund escrow accounts.”  The Supreme Court granted cert and has now vacated and remanded for the Second Circuit to conduct the required analysis in light of this decision.