The scope of national bank preemption is currently before the U.S. Supreme Court in Cantero v. Bank of America, N.A.  A New York statute requires the payment of interest on mortgage escrow accounts and the question before the Supreme Court is whether the National Bank Act (NBA) preempts application of the New York statute to national banks.  Reversing the district court, the Second Circuit ruled that the New York statute is preempted by the NBA.  The Second Circuit concluded that in determining the NBA’s preemptive scope, the relevant “question is not how much a state law impacts a national bank, but rather whether it purports to ‘control’ the exercise of its powers.”

Four former Comptrollers of the Currency are among the amici (OCC Amici) who recently filed an amicus brief with the Supreme Court in support of Bank of America.  The other OCC Amici include five former Acting Comptrollers and other former OCC senior leaders and legal staff members.  The OCC Amici state that their “collective decades of OCC experience spanned Administrations of both political parties.”  In their brief, the OCC Amici reject the narrow interpretation of NBA preemption advanced by the Justice Department in its amicus brief.

In its amicus brief, the Justice Department took issue with the OCC’s “different and broader view of NBA preemption.”  The Justice Department pointed to the language in 12 U.S.C. Sec. 25b (Dodd-Frank Section 1044) which provides that a state consumer financial law is preempted if “in accordance with the legal standard for preemption in the decision of the Supreme Court of the United States in Barnett Bank…, the State consumer financial law prevents or significantly interferes with the exercise by a national bank of its powers.” According to the Justice Department, this language requires a court to make a practical, case-by-case assessment of the degree to which a state law will impede the exercise of those powers.  The Justice Department argued that the Second Circuit’s conclusion that a state law is preempted if it attempts to “control” a national bank’s exercise of its powers “runs counter to  the ordinary meaning of the term ‘significantly interferes with;’ it is inconsistent with Congress’s evident expectation that preemption determinations will rest on practical degree-of-interference assessments; and it does not account for this Court’s many decisions holding that the NBA did not preempt various state laws regulating national banks’ banking activities.” 

As the OCC Amici note in their brief, the OCC filed an amicus brief in Cantero when it was before the Second Circuit in which the OCC argued that the New York law was preempted based on the Barnett Bank preemption standard.  They also note that “perhaps not surprisingly, no one from the OCC appears on the government’s brief—a conspicuous omission in light of longstanding practice.”  (Because it has no independent right to litigate in the Supreme Court, the OCC could not file its own amicus brief in the Supreme Court as of right and would have needed the Justice Department’s permission to do so.) 

According to the OCC Amici, the Justice Department “ask[s] this Court to break from the longstanding and consistent approach that the OCC has followed for decades [and] expressly ask[s] the Court to reach an outcome and adopt an analysis that the OCC rejected in the brief it filed below in this very case.”  They assert that [a]dopting that brand-new approach, and breaking with the longstanding view of the key agency that regulates in the interest of preserving the national banking system, would inject significant uncertainty into a major line of business for many national banks.”  In the OCC Amici’s view, “what is at stake is whether national banks will be able to understand with reasonable certainty what their regulatory obligations are.”

The OCC Amici make the following principal arguments in support of affirming the Second Circuit’s decision:

  • The OCC has consistently taken the position that under the Supreme Court’s cases culminating in Barnett Bank, state laws conflict with a federal power vested in national banks when they attempt to control or hinder the exercise of that power.  Based on that standard, the OCC has consistently taken the position that states cannot regulate national banks’ escrow accounts, including by requiring that national banks pay interest on those accounts.
  • The Justice Department’s parsing of the statutory preemption standard fails to treat Dodd-Frank as codifying the Supreme Court’s preemption cases and instead treats the statutory language as if it came without any past history or context.  The authors of Dodd-Frank’s preemption language expressly confirmed that the Barnett Bank standard was the traditional conflict standard as explained by the Supreme Court in its holding in Barnett Bank, for which the phrase “prevent or significantly interfere” was just a short-hand.
  • In its final post-Dodd-Frank rulemaking to implement Dodd-Frank’s reference to “the legal standard for preemption in the decision of the Supreme Court of the United States in Barnett Bank,”  the OCC concluded that under the Barnett Bank standard, state escrow laws would impermissibly interfere with national banks’ lending power.  Accordingly, the OCC retained the provision in its 2004 preemption regulations which provided that state escrow laws are preempted. 
  • The Justice Department’s conclusion that preemption analysis requires statute-by-statute and case-by-case fact finding leads to the type of disruptive uncertainty that the Dodd-Frank preemption provision sought to avoid.  The Justice Department’s conclusion rests on an incorrect inference from the Dodd-Frank provision (12 U.S.C. Sec. 25b(c)) that requires substantial evidence for preemption determinations.  That provision applies only to preemption determinations made by the OCC after Dodd-Frank’s adoption and the OCC’s preemption regulations, although revised after Dodd-Frank, pre-date Dodd-Frank.  Congress’s adoption of the Barnett Bank standard in Dodd-Frank confirms that Congress intended that courts would continue to resolve preemption questions on the face of the relevant statutes, as such questions were resolved in Barnett Bank.

A number of banking and business trade groups filed amicus briefs in support of Bank of America, including the American Bankers Association, the Consumer Bankers Association, the Mortgage Bankers Association, and the Chamber of Commerce of the United States of America.   All of the amicus briefs are available here.  Oral argument is scheduled for February 27, 2024.