As reported by Ronald Mann on SCOTUSblog, an escalating legal dispute named Cantero v. Bank of America unravels the complex dynamics of the American banking system. Essentially, the case pertains to the legality of national banks refusing to pay interest on escrow accounts, which have traditionally been viewed as a secure method for bank customers to allocate funds for taxes and insurance payments on properties mortgaged under these banks.
This uniquely American dichotomy, divided between state-chartered banks regulated by state authorities and national banks overseen by federal authorities such as the Department of the Treasury and the Comptroller of the Currency, has come to a head with this contention. A dozen or so states have enacted legislations compelling mortgage lenders to pay interest on escrow accounts, a statute that Bank of America currently disputes in New York.
The history of this regulatory landscape has been shaped by numerous preemption disputes, wherein state statutes that put limits on the activities of national banks have been contested under the National Bank Act. Primarily, the National Bank Act has held preeminence, effectively preempting many but not all of such contentious local enactments.
Furthermore, the Dodd-Frank Act of 2010 introduced some so-called “clarifications” in respect to this preemption standard, stipulating that preemption will be enacted whenever a state law “prevents or significantly interferes with the exercise by the national bank of its powers”.
In this current issue, the Comptroller of the Currency maintains a firm stance on National Bank Act preemption over such state statutes concerning escrow accounts. This view has been clearly communicated through regulatory measures executed both prior and post the Dodd-Frank Act. In the lower courts for this particular case, the Comptroller participated as an amicus, echoing these sentiments. The court of appeals concurred, declaring the New York law preempted due to its significant interference in the bank’s ability to manage escrow accounts.
However, Alex Cantero contends that the decision of the court of appeals along with the declared position of the Comptroller overlook the precise language of Dodd-Frank. According to Cantero, state laws should only be preempted if they “significantly” impede the bank’s activities, arguing that requiring “significant interference” effectively rejects the Comptroller’s consistent preference of a standard that is overprotective of national banks.
As familiar debates regarding preemption and interference resurface, the potential outcomes of this case may once again significantly influence the legal interpretations of both state and federal authority within the national banking industry. For a full breakdown of this unfolding legal dispute, Ronald Mann’s detailed analysis can be found here.