The Cantero Opinion: The Supreme Court Leaves National Bank Preemption in Limbo

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On May 30, the Supreme Court issued its opinion in Cantero v. Bank of America, reversing and remanding the case to the Second Circuit. Rather than articulating a bright line test for preemption, the Supreme Court instructed the circuit court to conduct a “nuanced analysis” to determine whether the National Bank Act preempts a New York state law that requires the payment of 2% interest on mortgage escrow accounts. Per the Supreme Court, the Second Circuit must apply the preemption standard described in the Dodd-Frank Act, which provides that a state consumer financial law is preempted “only if” it discriminates against national banks in comparison with state banks; is preempted by another Federal law; or “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, N.A. v. Nelson. See 12 U.S.C. § 25b(b)(1).

We open today’s podcast episode, which repurposes a recent webinar roundtable covering the Cantero decision, with a new preface by moderator Alan Kaplinsky, Senior Counsel in Ballard Spahr’s Consumer Financial Services Group. This preface provides an update on an important post-Cantero development: a Ninth Circuit opinion issued on August 23 in another preemption case, Kivett v. Flagstar Bank. Alan explains why the Ninth Circuit’s new opinion in Kivett applies a standard that is totally inconsistent with the instructions provided by the Supreme Court in Cantero.

Today’s episode then proceeds with a discussion featuring Alan Kaplinsky, Ballard Spahr Partner Joseph Schuster, and four attorneys who each filed an amicus brief in Cantero. These experts share their reactions and explore potential next steps and possible outcomes as the Second Circuit and other courts proceed with efforts to comply with the Supreme Court’s Cantero mandate.

We first review of Cantero’s procedural history, followed by an overview of the Supreme Court’s unanimous Cantero opinion, including an in-depth discussion of the Court’s reasoning and its reliance on Barnett Bank and other precedent.

We then focus on two other preemption cases pending in the Ninth Circuit (Kivett v. Flagstar Bank) and the First Circuit (Conti v. Citizens Bank), respectively, and the anticipated effects of Cantero on the outcome in these cases.

Our roundtable panel then explores the overarching question of what will happen now in the three circuit courts that must conduct a “nuanced analysis” to determine whether the respective state laws at issue “prevent or significantly interfere” with the exercise of national bank powers. The speakers share differing views as to what these courts might do, and whether or not, and to what extent, courts must engage in analysis of the facts of each specific case in order to determine the nature and degree of the interference.

We also consider the effect of the Cantero opinion on the preemption regulations of the Office of the Comptroller of the Currency (OCC), with the speakers explaining their divergent opinions as to the risks now posed to these regulations given the Cantero Court’s interpretation of Dodd-Frank, as well as the demise of Chevron deference. 

It is essential that national banks remain focused on these issues and the evolving circuit court outcomes in the coming months in order to determine to what extent they might or might not remain insulated from the 50-state patchwork of consumer financial laws previously considered preempted. We conclude with some practical thoughts and actionable pointers about steps national banks should take now in light of Cantero, including ways to develop an understanding of the state laws that exist in this space, their possible applicability to national bank products, whether or not they “significantly interfere” with national bank powers, and what compliance efforts might be advisable.

A transcript of the recording will be available soon. 

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