Cantero v. Bank of America, N. A.

Background

Alex Cantero and two other New York homeowners got mortgages from Bank of America, a federally chartered national bank. Their loan contracts required monthly deposits into bank-run escrow accounts to pay property taxes and insurance. New York law requires banks to pay at least two percent interest on such escrow balances. Bank of America did not pay interest, saying federal banking law preempted the New York rule. The homeowners sued in federal court. The trial court said the state law applied; the Second Circuit reversed, holding the state law was preempted. The Supreme Court agreed to review that question.

Reasoning

The Court focused on how to decide when a state rule that applies to national banks is displaced by federal law. It said Congress, in the Dodd‑Frank Act, rejected broad field preemption and directed courts to use the test from the earlier Barnett Bank case. Under Dodd‑Frank a state law is preempted only if it either discriminates against national banks or “prevents or significantly interferes” with a national bank’s federally authorized powers. Barnett Bank requires a practical, comparative inquiry using older precedents (for example, Franklin, Fidelity, and Anderson) to weigh how seriously a state rule interferes. The Court concluded the Second Circuit did not carry out that careful, precedent‑based comparison, and so vacated the appeals court’s decision and sent the case back for proper analysis.

Real world impact

The ruling does not decide whether New York’s interest-on-escrow law survives. It means lower courts must assess state banking rules case-by-case, comparing how much each rule interferes with a national bank’s federal powers. The outcome could affect many state consumer protections and how national banks operate escrow accounts, but the final result will depend on the remand proceedings.