It Depends: Scouring Precedent to Analyze National Bank Act Preemption

5 min

The issue before the Supreme Court in Cantero v. Bank of America was straightforward: does the National Bank Act preempt a New York state law requiring all banks, including national banks, to pay interest on certain mortgage escrow accounts? The Court's unanimous answer: it depends.

The upshot of the Court's opinion is that national banks (and courts) in considering whether state law applies to their activities need to apply the analysis in Barnett Bank of Marion County, N.A. v. Nelson, Florida Insurance Commissioner et al. ("Barnett Bank"), which Congress adopted in the Dodd-Frank Act. The Supreme Court explained that this standard chosen by Congress falls short of field preemption. That means that national banks will need to weed through holdings in Barnett Bank's line to understand the extent to which state laws may be in conflict.


When Congress passed the Dodd-Frank Act in 2010, Congress included language establishing the controlling legal standard for when a "state consumer financial law" is preempted with respect to national banks. The Dodd-Frank Act ruled out field preemption, and instead, provided that the National Bank Act preempts a state law "only if" the state law (i) discriminates against national banks as compared to state banks or (ii) "prevents or significantly interferes with the exercise by the national bank of its powers" as determined "in accordance with the legal standard for preemption in the decision of the Supreme Court of the United States in [Barnett Bank]."

Barnett Bank and the Preemption Standard

The first prong of the Dodd-Frank test concerning a law discriminating against national banks as compared to state banks was not at issue in Cantero v. Bank of America. Instead, the Court analyzed the second prong concerning laws preventing or significantly interfering with the exercise of national banks of its powers as determined by the legal standard set forth in Barnett Bank.

The issue for the Court, and now for national banks, is Barnett did not establish a clear line to demarcate when a state law "significantly interfere[s] with the national bank's exercise of its powers." Instead, as the Court noted, "A court applying that Barnett Bank standard must make a practical assessment of the nature and degree of interferences caused by a state law." If state law prevents or significantly interferes with the bank's exercise of its powers, the law is preempted. If the state law does not prevent or significantly interfere with the national bank's exercise of its powers, the law is not preempted.

So, What's the Standard?

Here's where the homework begins. To arrive at the appropriate analysis, the Court directs us all to read the cases where it has discussed the issue of whether a state law significantly interfered with a bank's exercise of its powers. The Court provides a survey in the opinion, including:

  • Advertising. Franklin National Bank of Franklin Square v. New York, 347 U.S. 373 (1954), where the court found that a New York law prohibiting most banks from using the word "saving" or "savings" in their advertising was preempted because it interfered with the national bank's statutory power to receive savings deposits. Although the law did not bar national banks from receiving savings deposits or advertising that fact, the Court determined the New York law significantly interfered with the bank's power because the banks could not advertise effectively using commonly understood descriptions that Congress specifically selected to describe their activities.
  • Contracts. Fidelity Federal Savings & Loan Association v. De la Cuesta, 458 U.S. 141 (1982), where the Court found a California law limited savings and loan associations from exercising its power of optionality to include due-on-sale clauses in their contracts. The California law attempted to restrict this right to situations where the savings and loan association could show that enforcing the due-on-sale clause was reasonably necessary. The Court found that California law interfered with the flexibility given to the savings and loan association by federal law.

In contrast, some of the cases where the Court found the National Bank Act to not preempt state law are:

  • Abandoned Deposits. Anderson National Bank v. Luckett, 321 U.S. 233 (1944), where the Court found that a Kentucky law requiring banks to turn over abandoned deposits to the state was not preempted because the Kentucky law merely allowed Kentucky to demand payment of the accounts in the same way and to the same extent as depositors could. The law required the bank to provide proof that the account was abandoned. The Court deemed this law did not infringe the national banking laws or impose an undue burden on the performance of bank functions.
  • Contracts. McClellan v. Chipman, 164 U.S. 347 (1896), where the Court found that a generally applicable contract law, which could be said to act as a restraint upon the power of a national bank within Massachusetts to make certain contracts, was not preempted. Specifically, the Court noted that such state laws could apply to national banks 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."

Ultimately, if the state law is like one found by the Court to be preempted, then the state law is preempted; otherwise, it is not preempted. Put simply, it depends. This kind of factual analysis— while not unsurmountable—nevertheless may be more detailed and require more time than is customary for some national banks, federal thrifts, and federal branches and agencies of non-U.S. banks.

What Comes Next?

As discussed, this case is going to have significant impact for entities governed by the National Bank Act that rely on its preemption of state laws. Such entities will likely need to more closely examine the laws of all fifty-states to determine whether preemption is afforded under the Barnett Bank analysis and their precise compliance obligations.