On May 30, 2024, the U.S. Supreme Court held in a unanimous decision that the preemption standard codified in section 1044 (12 U.S.C. § 25b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA) requires courts to conduct a “nuanced comparative analysis,” consistent with the analysis performed in Barnett Bank of Marion County, N.A. v. Nelson to determine whether a state law’s interference with national bank powers is preempted by the National Bank Act (NBA).[1] The Supreme Court, finding that the Second Circuit failed to perform the type of comparative analysis required under Barnett Bank, vacated and remanded the judgment of the Second Circuit. The Supreme Court declined to address the specific question raised in Cantero v. Bank of America, N.A., which was whether a New York statute that required a minimum 2 percent interest to be paid on mortgage escrow accounts is preempted by the NBA.[2] 

Section 1044 of the DFA provides that a state consumer financial law is preempted if “in accordance with the legal standard for preemption in the [Barnett Bank] decision . . . the State consumer financial law prevents or significantly interferes with the exercise by the national bank of its powers[.]”[3] In Barnett Bank, the Supreme Court held that the NBA preempts a state law if the state law “prevents or significantly interferes with the exercise of a national bank’s power.”

In Cantero, the Supreme Court noted that Barnett Bank did not draw a bright line for evaluating preemption issues raised under the NBA, and that Congress effectively instructed courts to analyze federal preemption questions in a manner consistent with the analysis performed by the Supreme Court in Barnett Bank.[4] That is, under the Barnett Bank standard, a court must make a “practical assessment of the nature and degree of the interference caused by a state law.” 

The Supreme Court identified the following cases that courts should consider when engaging in a preemption analysis under the Barnett Bank standard:

• Cases where the court found state law significantly interfered with the exercise of national bank powers and thus was preempted:
  • Franklin National Bank of Franklin Square v. New York (state law that prohibited most banks from using the word “saving” or “savings” in their advertising or accounts was preempted because it interfered with the national bank’s statutory power to “receive savings deposits”).[5] In Cantero, the Supreme Court cites Franklin National as the “paradigmatic example of significant interference identified by Barnett Bank”; and
  • Fidelity Federal Savings & Loan Association v. De la Cuesta (state law that limited federal savings and loan association’s right to include due-on-sale clauses in its contracts was preempted because it limited the savings and loans association’s ability to exercise a due-on-sale clause solely at its option (as allowed under federal law)).[6]  
• Cases where state law was found to not be preempted:
  • Anderson National Bank v. Luckett (Kentucky law that required banks to turn over abandoned deposits to the state was not preempted because it did “not infringe or interfere with any authorized function of the bank[]”);[7]
  • National Bank v. Commonwealth (Kentucky law that taxed the shareholders of all banks on their shares of bank stock was not preempted because it “in no manner hinder[ed] national banks’ operations, and produced “no greater interference with the functions of the bank than any other” law governing business);[8] and
  • McClellan v. Chipman (generally applicable Massachusetts contract law was not preempted because it did not “in any way impai[r] the efficiency of national banks or frustrat[e] the purpose for which they were created”).[9]

Key Takeaways

As a practical matter, national banks will need to take a position on whether a particular state law is preempted by the NBA.[10] By rejecting a bright-line rule and affirming the application of the Barnett Bank standard, the case-by-case analysis required by the opinion increases litigation risk for national banks as it relates to the application of state law. In addition, the task of taking a position that a state law is preempted by the NBA could become increasingly difficult if a patchwork of irreconcilable NBA preemption jurisprudence follows in the wake of the Cantero decision. 

[1] Cantero v. Bank of America, N.A., 602 U.S. ___ (2024).

[2] The Second Circuit concluded that the New York statute was preempted because “[b]y requiring a bank to pay its customers in order to exercise a banking power granted by the federal government, the law would exert controls over banks’ exercise of that power.” 

[3] In addition to the preemption standard under Barnett Bank for state law that “prevents or significantly interferes with the exercise of a national bank’s power[,]” the DFA provides that a state consumer financial law is also preempted if its application would have a discriminatory effect on national banks. See 12 U.S.C. § 24b(b)(1)(A).

[4] In addition, the Supreme Court noted that the DFA ruled out field preemption. See 12 U.S.C. § 24b(b)(4).

[5] 347 U.S. 373 (1954). 

[6] 458 U.S. 141 (1982).

[7] 321 U.S. 233 (1944).

[8] 9 Wall. 353 (1870).

[9] 164 U.S. 347 (1896).

[10] Moreover, the Supreme Court missed an opportunity to weigh in on the legal effect of the preemption regulations of the Office of the Comptroller of the Currency (OCC), which were adopted after the DFA. Rather, the Supreme Court states in footnote 4 of the Cantero opinion that the Second Circuit may address, as appropriate, the “significance here (if any) of the preemption rules of the [OCC.]”  

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