Supreme Court addresses National Bank Act preemption

The Supreme Court today issued a unanimous decision on an issue concerning the scope of preemption under the National Bank Act. In this case, a borrower sued Bank of America for failing to pay interest on his mortgage escrow account, as required by New York law. The bank argued that the National Bank Act preempts the state law, and the Court of Appeals for the Second Circuit agreed, adopting a broad standard under which all state laws that “exert control” over a national bank’s exercise of a federal banking power are preempted, regardless of whether the state law has a significant effect on the bank’s exercise of that power. The plaintiff filed a petition for certiorari, and the Supreme Court granted review.

In its opinion today, the Court held that the Second Circuit had not applied the standard set forth in the Dodd-Frank Act, which requires a practical assessment of the nature and degree of the interference caused by a state law. The Court vacated the court of appeals’ decision and remanded the case for consideration under the proper standard. The opinion is here.

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