Cantero v. Bank of America
The Facts
New York enacted a law requiring mortgage lenders, including national banks, to pay at least two percent interest on escrow accounts. Bank of America argued the requirement was preempted by the National Bank Act. The Second Circuit applied a standard from a 2011 OCC regulation implementing Dodd-Frank rather than the standard from the Supreme Court's 1996 decision in Barnett Bank.
The Application
Applied to New York's escrow interest requirement, the Barnett Bank standard asks whether mandatory interest payments on mortgage escrow accounts significantly interfere with national banks' core powers: not whether a regulatory agency deems the requirement compatible with federal banking law. The escrow interest obligation does not prevent Bank of America from operating its fundamental business or taking actions necessary to implement national banking powers; rather, it imposes a financial cost on a particular service. Under Barnett Bank, such a requirement survives preemption scrutiny unless it substantially obstructs the bank's ability to exercise its chartered powers, making the case turn on whether marginal profitability reductions from interest obligations rise to the level of 'significant interference.' The Court's application of this demanding standard preserved New York's authority to require the payment while requiring lower courts to determine on remand whether the specific financial burden meets the threshold for preemption.
The Conclusion
**Cantero v. Bank of America clarified the preemption framework applicable to national banks, requiring lower courts to apply the Barnett Bank significant-interference standard on remand.** The ruling preserved state authority to regulate banking-adjacent activities unless those regulations meaningfully obstruct national bank powers, and has implications for the scope of state consumer protection laws applied to federally chartered banks.
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Case Analysis
Overview
New York law required banks to pay interest on mortgage escrow accounts; Bank of America argued the National Bank Act preempted the state requirement. The Supreme Court held 9-0 that courts must apply the preemption standard from Barnett Bank v. Nelson, requiring a significant interference with national bank powers, rather than the more permissive Dodd-Frank regulatory standard.
Facts
New York enacted a law requiring mortgage lenders, including national banks, to pay at least two percent interest on escrow accounts. Bank of America argued the requirement was preempted by the National Bank Act. The Second Circuit applied a standard from a 2011 OCC regulation implementing Dodd-Frank rather than the standard from the Supreme Court's 1996 decision in Barnett Bank.
Issue
Whether a state law requiring national banks to pay interest on mortgage escrow accounts is preempted by the National Bank Act under the standard articulated in Barnett Bank v. Nelson, or under an alternative standard from a federal regulation implementing the Dodd-Frank Act.
Rule
Under Barnett Bank, a state law is preempted if it prevents or significantly interferes with a national bank's exercise of its powers. Courts must apply this judicially established standard when determining whether state law is preempted by the National Bank Act. A more permissive regulatory standard does not supplant the Barnett Bank test without clear congressional direction.
Analysis
Applied to New York's escrow interest requirement, the Barnett Bank standard asks whether mandatory interest payments on mortgage escrow accounts significantly interfere with national banks' core powers. Not whether a regulatory agency deems the requirement compatible with federal banking law. The escrow interest obligation does not prevent Bank of America from operating its fundamental business or taking actions necessary to implement national banking powers; rather, it imposes a financial cost on a particular service. Under Barnett Bank, such a requirement survives preemption scrutiny unless it substantially obstructs the bank's ability to exercise its chartered powers, making the case turn on whether marginal profitability reductions from interest obligations rise to the level of "significant interference." The Court's application of this demanding standard preserved New York's authority to require the payment while requiring lower courts to determine on remand whether the specific financial burden meets the threshold for preemption.
Conclusion
**Cantero v. Bank of America clarified the preemption framework applicable to national banks, requiring lower courts to apply the Barnett Bank significant-interference standard on remand.** The ruling preserved state authority to regulate banking-adjacent activities unless those regulations meaningfully obstruct national bank powers, and has implications for the scope of state consumer protection laws applied to federally chartered banks.
Notes
OT2023. Added via SCOTUS bulk import 2026-05-14
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