The U.S. Supreme Court has decided to hear the Second Circuit case of Cantero et al. v. Bank of America, N.A., a crucial case that deals with the preemption of New York’s law requiring that interest be paid to consumers on mortgage escrow account funds by the National Bank Act (NBA). This was recently reported on
JD Supra.
This marks a crucial juncture in the legal landscape surrounding escrow accounts held by mortgagees, and will help resolve the split between the Second and Ninth Circuits on the contentious issue of NBA preemption of state-level “interest-on-escrow” laws.
As a basic primer, escrow accounts are often used to hold funds in relation to mortgage transactions, such as insurance and tax payments. Certain states, like New York, enforce legislation that requires these accounts to accrue interest, which should then be paid to the consumer.
The NBA, however, has a clause that essentially allows national banks to ignore state laws deemed restrictive. This has resulted in legal disagreements about whether the NBA’s provision overrules New York’s law on escrow account interest.
Decisions borne from the now pending Supreme Court case of Cantero et al. v. Bank of America, N.A. will highly likely generate precedents and influences on future similar cases. For both corporate law departments and legal practitioners, it is highly recommended to monitor the U.S. Supreme Court’s review of the case and any subsequent judgments to ensure compliance and conduct necessary adjustments in business practices.
While the conclusion of these disputes remain uncertain for now, one thing is clear: the Supreme Court’s ruling in the Cantero et al. v. Bank of America, N.A. case will hold critical ramifications for mortgage escrow practices as well as NBA preemption beyond the Second and Ninth Circuits.