Cantero v. Bank of America, N. A.

Background

A national bank, Bank of America, made home mortgage loans to three New York homeowners who had to deposit monthly into bank-controlled escrow accounts. New York law requires banks to pay at least two percent interest on such escrow balances. Bank of America did not pay that interest and told the borrowers the National Bank Act preempted the New York rule. The Federal District Court sided with the borrowers, but the Second Circuit reversed, holding the state law was preempted. The Supreme Court agreed to review the question.

Reasoning

The main question was whether New York’s interest-on-escrow law is preempted as applied to national banks. The Court explained that Congress, in Dodd‑Frank, said a state law is preempted only if it discriminates against national banks or it prevents or significantly interferes with a national bank’s powers, and that interference must be judged “in accordance with” this Court’s Barnett Bank decision. The opinion surveyed Barnett Bank and earlier cases (for example, Franklin, Fidelity/De la Cuesta, Anderson) to show when state rules cross from permissible regulation to preemption. The Court found the Second Circuit had used a categorical rule instead of the nuanced comparative analysis Dodd‑Frank and Barnett require, so the appeals court’s judgment could not stand.

Real world impact

The ruling sends the cases back so a lower court must apply the Dodd‑Frank/Barnett standard carefully. The outcome could determine whether national banks operating in New York must pay interest on mortgage escrow accounts, but this opinion does not decide the final merits and the issue remains open on remand.