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“The ability of national banks to conduct a multistate business subject to a single uniform set of federal laws, under the supervision of a single regulator, free from visitorial powers of various state authorities, is a major advantage of the national charter.”  John D. Hawk Jr., former Comptroller of the Currency (Feb. 12, 2002).[1] “When national banks are unable to operate under uniform, consistent and predictable standards, their business suffers and so does the safety and soundness of the national banking system.” Id. (January 7, 2004).[2]     

The scope of these protections has been called into question. After the Supreme Court’s decision in Cantero v. Bank of America, N. A., it was clear that the lower courts would reach differing conclusions on how to apply the standard for National Bank Act (NBA) preemption of state consumer financial laws.  At a minimum, the Supreme Court decisions held up by Cantero as the guiding precedent for preemption decisions leave many areas open to interpretation, and the Cantero Court’s final factor of “common sense” is decidedly subjective.  If the industry thought that post-Cantero preemption cases pending before the First, Second and Ninth Circuit Courts of Appeals would help to provide clarity on these questions, it will have to continue to wait.  The First Circuit’s recent decision in Conti v. Citizens Bank, N.A. inappropriately narrowed Supreme Court precedent in a way that creates bright line tests and that does not align with the common sense purpose of Congress in establishing a national banking regime.  And, the Ninth Circuit’s recent majority decision in Kivett v. Flagstar Bank does not help because it is uniquely limited by the majority’s belief that they are bound by precedent in that circuit, which leaves the Second Circuit unlikely to resolve this divide.   

These questions should not result in a weakening of preemption.  The need and the value of preemption under the NBA has not eroded.  Preemption is a “cornerstone of the dual banking system that is fundamental to the operation of the federal banking system.” OCC News Release 2025-52 and letter from Commissioner Hood (June 9, 2025) (rejecting the Conference of State Bank Supervisors’ invitation to the OCC to withdraw its preemption regulations). 

I. First Circuit’s Decision Contains Several Fatal Flaws

The First Circuit in Conti v. Citizens Bank has effectively converted the Supreme Court’s request for a “nuanced comparative analysis” into an insupportably narrow version of conflict preemption—one existing only in the face of an “express” or “clear” conflict between the state law and the text of federal law. See Case 1:21-cv-00296-SM-PAS (1st Cir., September 22, 2025).  The case involves an appeal from a pre-Cantero ruling of the United States District Court of Rhode Island holding that the NBA preempted Rhode Island’s interest-on-escrow (IOE) law. 

In the first decision from a federal circuit conducting the detailed case by case analysis called for by Cantero, the Conti Court limited the interpretation of Supreme Court precedent in a way that is inconsistent with the Supreme Court’s holdings.  The First Circuit limited the holdings of three of the four cases finding preemption to precedents involving an “express” or “clear” conflict between language of state and federal law:

• Conflict between an explicit power granted by a federal statute and a state law prohibition on that power: Barnett Bank of Marion County, N. A. v. Nelson, Florida Insurance Commissioner, et al., 517 U.S. 25 (1996);
• Conflict between permission granted by a federal regulation and a state law limitation: Fidelity Federal Savings & Loan Ass’n v. De la Cuesta, 458 U.S. 141 (1982); and
• Conflict between an implicit power to market federally authorized deposit accounts and a state law restriction on the use of terminology used by Congress in advertising: Franklin National Bank of Franklin Square v. New York, 347 U.S. 373 (1954).

Conflict preemption, however, is not solely limited to an express conflict between the language used by state and federal legislation.  “A holding of federal exclusion of state law is inescapable and requires no inquiry into congressional design where compliance with both federal and state regulations is a physical impossibility… [or] where the state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142–43 (1963).  In Barnett Bank, the Supreme Court explained that the NBA’s grants of authority, both enumerated and incidental, are “not normally limited by, but rather ordinarily pre-empt[], contrary state law.” 517 U.S. 25, 32 (1996). “Congress would not want States to forbid, or to impair significantly, the exercise of a power that Congress explicitly granted.” Id. at 33.  The “significant interference” test aligns to the broader view of preemption of state laws as an obstacle to the purpose of federal law. 

Even applying the Conti Court’s limited approach to conflict preemption, IOE laws present a more direct conflict than Fidelity because Congress specifically provides in 12 U.S.C. § 371 that a national bank may make real estate secured loans subject, specifically, to restrictions and requirements as the OCC may provide by regulation or order.  In adopting those regulations, the OCC explicitly addressed state law requirements impacting escrow accounts in 12 C.F.R. § 34.4 (a)(6), which states a national bank may “make real estate loans without regard to state law limitations concerning . . . [e]scrow accounts . . ..”  Although the weight afforded to the OCC’s preemption regulations is currently a topic of debate, it has been the understanding of the industry and the OCC for over two decades that state interference with escrow accounts was in direct conflict with the OCC’s regulations and Congress’ mandate that the real estate lending authority of national banks was subject to the OCC’s rulemaking authority.  The conflict here is also more direct than the conflict in Franklin. The state law at issue in Franklin prohibited commercial banks “from using the word ‘saving’ or ‘savings’ in their advertising or business,” Franklin National, 347 U.S. at 374.  The Supreme Court viewed this as a conflict with the ability of national banks to receive savings deposits “without qualification or limitation” and possess “all such incidental powers as shall be necessary to carry on the business of banking[.]” Id. at 375–76.  The Supreme Court found preemption because a restriction on the use of the word “savings” created a “clear conflict” between state and federal law. Id. at 378–79.

The restriction on the use of terms in advertising at issue in Franklin is less of an interference than dictating how a national bank can charge for its products.  At oral argument before the Supreme Court in Cantero, Justice Kavanaugh inquired whether a state law requiring banks to pay out on an aggregate basis a large sum of money would not pose a more significant level of interference than a state law that restricted how a bank may describe its product.  The Conti Court avoids having to answer these arguments by concluding that all state laws and their cumulative effects restrict flexibility and efficiency and so the argument would lead to impermissible field preemption of all state consumer financial laws.  But the First Circuit’s question in Conti was not whether all state consumer financial laws are preempted (they aren’t) – just whether state IOE laws are.  The practical effects of the limitations on a bank’s flexibility may (or may not) be weighed differently in other areas of state consumer financial law. 

The Conti Court also fails to recognize that state IOE laws conflict with the federal regulatory scheme.  The federal government has created a federal scheme that “extensively regulates national banks’ operation of escrow accounts.” Cantero at 201–11.  In addition to the extensive regulation of escrow accounts at the federal level, Congress in one instance – the Truth in Lending Act (TILA) – agreed to permit state regulation of interest on some types of mortgage escrow accounts. 15 U.S.C. § 1639d(a), (g)(3).  Congress then declined to extend that permission on at least three occasions. See Government Accountability Office, Study of the Feasibility of Escrow Accounts on Residential Mortgages Becoming Interest Bearing (1973); H.R. 3542, 102d Cong. (1991); H.R. 27, 103d Cong. (1993). Congress also capped the amount of money banks can require to be held in escrow accounts.  12 U.S.C. § 2609(a)(1). If banks fail to pay expenses or refund leftover funds, Congress imposed damages and attorneys’ fees. Id. § 2605(f)-(g).  This legislative structure is enhanced by federal regulation such as the Consumer Financial Protection Bureau’s Regulation X, which extensively regulates the terms and conditions of mortgage escrow accounts but does not require interest on these accounts.  12 C.F.R. § 1024.17; 12 U.S.C. § 2609(d).

State legislatures should not be able to act where Congress has clearly expressed its legislative intent with respect to state IOE laws by having only authorized them in certain limited instances and by repeatedly declining to authorize them in others.  In addition, the Conti Court’s reasoning that the presence of the TILA exception should be interpreted somehow as evidence that these types of state laws are “generally consistent” with the federal regime is not consistent with commonly used principles of statutory construction and the usage of common sense that is required for preemption reviews under Cantero.

Conti’s reasoning effectively inverts Dodd-Frank’s reservation of room for state consumer financial laws if they are non-discriminatory and do not significantly interfere with a national bank’s powers into authorization for states to regulate all aspects of their powers unless a federal law expressly tells them that they cannot.  Conti seeks to qualify this extreme result by including the need to still consider the practical effects of the state law, but then so narrows and characterizes the holdings of other precedent such that they would only become “relevant” to a preemption analysis if customers would flee or the national bank’s ability to compete were crippled.  The Conti Court also declines to recognize the practical considerations resulting from state authority to direct pricing over escrow accounts due to concerns that it is compelled by Dodd-Frank to find most state laws not preempted.  This is not what Dodd-Frank and the test called for by Cantero requires.  It is instead the First Circuit’s creation of a form of a bright line test resulting in the preemption of almost no state laws, which is an outcome expressly rejected by Cantero.

The Conti Court’s decision is also out of line with the three cases referenced by Cantero where the Supreme Court has not found preemption:

• A case involving abandoned funds escheating to the state - Anderson National Bank v. Luckett, 321 U. S. 233 (“demand payment of the accounts in the same way and to the same extent that the depositors could” after the depositors abandoned the account.)
• A case involving a state tax law that applied to all shareholders of bank stocks - National Bank v. Commonwealth, 9 Wall. 353 (1870) (the Kentucky tax “in no manner hinder[ed]” the national bank’s banking operations, and produced “no greater interference with the functions of the bank than any other” law governing businesses); and
• A case involving a generally applicable contract law that was applied to national banks - McClellan v. Chipman, 164 U. S. 347 (1896) (not preempting as long as the state laws did not “in any way impai[r] the efficiency of national banks or frustrat[e] the purpose for which they were created.”)

None of these involve a state dictating the terms a national bank can offer to its customers and instead focus on the fact that the state law did not “in any way” impair the efficiency of national banks or “hinder” their operations. 

The Conti Court’s rejection of the argument that a patchwork of inconsistent laws can cause significant interference in some respects also ignores the nuanced analysis required by Cantero.  The Court notes there are 12 states that have their own statutes dictating terms for interest on escrow accounts but does nothing to consider the burden of complying with those laws.  These laws are not uniform, and if applicable, they reduce the efficiency of a national charter.  They vary in terms of computational metrics and affected property.  In San Jose, the Supreme Court recognized the potential varying requirements—not the actual variation we have here—is “incompatible with the purpose” of the national-banking system dictating preemption.  San Jose, 262 U.S. at 370.  The variation here, which goes to both rates and applicable property, is also more complex than the Supreme Court addressed in San Jose, where the Court noted “[i]f California may thus interfere other states may do likewise, and, instead of 20 years, varying limitations may be prescribed—3 years, perhaps, or 5, or 10, or 15.” Id.

II. The Ninth Circuit Ties Itself in Knots to Avoid a Decision

The majority in the Ninth Circuit decision in Kivett concluded that a California IOE law was not preempted because the court is bound by its earlier decision in Lusnak v. Bank of America, N.A., 883 F.3d 1185 (9^th Cir. 2018).  The Ninth Circuit concluded in Lusnak that the California IOE law did not prevent or significantly interfere with a national bank’s power. Lusnak, 883 F.3d at 1188.  In Kivett, the court determined that it remained bound by Lusnak because it could not meet the “high standard” for reversal requiring a finding that Lusnak was “clearly irreconcilable either with the reasoning or the result” of Cantero.  See Miller v. Gammie See Kivett, at 13. (citing Miller v. Gammie, 335 F.3d at 899–90 and Rodriquez v. AT&T Mobility Servs. LLC, 728 F.3d 975, 979 (9^th Cir. 2013)).  The court reached this conclusion in Kivett because it interpreted Cantero as overruling a categorical test that was not used by the court in Lusnak. 

The Kivett majority did not independently apply Cantero to the facts of this case. Instead, the majority acknowledges that if it were not bound by Lusnak it might conclude that the California law caused significant interference:

As in Franklin National, we recognize that national banks possess “all such incidental powers as shall be necessary to carry on the business of banking,” and that should include the power to create escrow accounts. 347 U.S. at 376. The interest-on-escrow accounts raises the cost to national banks to use escrow accounts and may discourage them from issuing and servicing loans. That certainly “interferes” with the banks’ unfettered exercise of their statutory powers, and a court might reasonably determine that it “significantly interferes” and, for that reason, is preempted under Barnett Bank.

Kivett, at 17 (concluding that neither line of Supreme Court cases compels a preemption determination).

III. The Dissent in the Ninth Circuit Understands the Significance of the Interference

The dissent by Judge Nelson is the only place in which a judge from the Ninth Circuit attempts to apply the Cantero standard.  Judge Nelson quickly moves past the majority’s restrictions by concluding that Lusnak is clearly irreconcilable because it did not apply the comparative analysis required by Cantero.  Kivett, at 19.

Judge Nelson concludes the California IOE law is “‘more akin’ to the interference stemming

from state laws the Court has already deemed preempted.” Kivett, at 20. The dissent notes that the NBA explicitly gives national banks the power to “make, arrange, purchase or sell loans or extensions of credit secured by liens on interests in real estate”.  Kivett, at 23 (citing 12 U.S.C. § 371(a); see also 12 C.F.R. § 34.3(a). Escrow accounts are an important tool that is incident to that authority.  Kivett, at 24 (citing Cantero, 602 U.S. at 210–11). 

The federal statute that regulates mortgage escrow accounts—the Real Estate Settlement Procedures Act (RESPA)—does not require national banks to pay interest on escrow funds, and Congress has rejected instituting such a requirement three times. See Kivett, at 24 (citing H.R. 27, 103d Cong. (1993); H.R. 3542, 102d Cong. (1991); Gov’t Accountability Off., Study of the Feasibility of Escrow Accounts on Residential Mortgages Becoming Interest Bearing (1973)).  The one exception is in TILA, which requires interest for certain mortgages.  Id. (citing ee 15 U.S.C. § 1639d(a)–(b)).  The logical conclusion here is where Congress wanted to permit states to regulate IOE, it did.  The opposite interpretation would make the TILA carveout unnecessary. 

IV. What is Next?

The Second Circuit is the last of three circuit courts to decide this issue after the Supreme Court, and based on its original decision, in which it took an expansive view of preemption, it is likely that the Second Circuit reaches the opposite conclusion of the First and Ninth Circuits because it previously rejected logic similar to that used by the Conti Court (whose reasoning is similar to the Ninth Circuit’s reasoning in Lusnak).  In addition, the banks may appeal the decisions in Conti and Kivett.

An ultimate unfavorable decision for national banks on IOE laws does not necessarily signal an elimination of preemption for other areas of state legislation.  Both the First and Ninth Circuits used the fact that Congress had explicitly permitted state IOE laws for certain accounts under TILA to support their decisions.  Kivett at 15 (quoting from Lusnak at 1196 “Congress’s view that creditors … can comply with state escrow interest laws without any significant interference with their banking powers.”; Conti at 31 (citing TILA’s authorization of state IOE laws for some accounts as evidence these state laws are generally consistent with the federal-banking scheme) (both citing 15 U.S.C. § 1639d(g)(3)).  They appear to have found this fact persuasive as to Congress’ view of significant interference in all contexts.  Other areas where Congress has not expressly required banks to look to applicable state law would not be able to support their argument with this rationale.

[1] Available at https://www.occ.treas.gov/news-issuances/news-releases/2002/nr-occ-2002-10.html.

[2] Available at https://www.occ.gov/news-issuances/news-releases/2004/nr-occ-2004-3.html.