National Bank Act preemption
Conti v. Citizens Bank N.A.
Date: Sept. 22, 2025
Issue: Whether the National Bank Act (NBA) preempts Rhode Island’s interest on escrow (IOE) law.
Case Summary: A unanimous First Circuit panel ruled Citizens Bank did not adequately allege the National Bank Act preempts Rhode Island’s interest-on-escrow (IOE) law.
Section 1044 of the Dodd-Frank Act codified the NBA preemption standard from the Supreme Court’s decision in Barnett Bank of Marion County N.A. v. Nelson, 517 U.S. 25 (1996), ruling the NBA preempts state law if it “prevents or significantly interferes with the exercise of a national bank’s power.”
Under Rhode Island’s IOE law, banks must pay interest on amounts customers deposit into mortgage escrow accounts. Conti and a class of borrowers (plaintiffs) sued Citizens Bank, alleging it breached its mortgage agreement by failing to pay the required interest. Citizens Bank moved to dismiss, arguing the NBA preempts plaintiffs’ claims because it need not pay interest on mortgage escrow accounts under the NBA.
In September 2022, Judge Mary S. McElroy of the U.S. District Court for Rhode Island dismissed plaintiffs’ lawsuit, holding that the NBA preempted the IOE law. The court relied on the Second Circuit’s decision in Cantero, which found New York’s IOE law preempted because it controlled national banks’ exercise of their powers.
While Conti’s appeal was pending, the Supreme Court granted certiorari in Cantero, prompting the First Circuit to stay the case. On May 30, 2024, the Supreme Court vacated the Second Circuit’s ruling, explaining the Dodd-Frank Act expressly incorporated the preemption standard from Barnett Bank. That standard, according to the Court, did not permit “bright line” rules, but requires courts to engage in a “practical assessment of the nature and degree of the interference caused by a state law” and conduct a “nuanced comparative analysis,” looking at Barnett Bank and the decisions cited in that opinion (chart below).
After Cantero, ABA filed a coalition amicus brief urging the First Circuit to affirm that the NBA preempts Rhode Island’s IOE law. ABA argued mortgage escrow accounts are critical tools in the U.S. banking system, and Rhode Island’s pricing scheme significantly interferes with the exercise of national bank powers. ABA emphasized that the interference in Rhode Island’s IOE law is far more significant than the advertising ban in the Franklin decision, because pricing interferes with bank operations more than advertising.
The First Circuit panel vacated the district court’s decision, noting it did not apply the preemption analysis clarified by Cantero. The panel explained that courts must conduct a “practical assessment of the nature and degree of the interference” caused by a state law by performing a “nuanced comparative analysis” of Supreme Court preemption precedents, rather than categorically preempting any state law that regulates national banks.
After concluding that the district court failed to conduct the practical assessment required by Cantero, the panel found no express conflict between the NBA and the IOE law. The panel weighed this case against three decisions where the Supreme Court found the state law preempted (Barnett Bank, Fidelity Federal Savings and Loan Association v. De la Cuesta, and Franklin National Bank v. New York), two cases where the Court found the state law was not preempted (McClellan v. Chipman and National Bank v. Commonwealth), and two decisions involving seemingly similar state banking laws where the Court reached opposite preemption conclusions (Anderson National Bank v. Luckett and First National Bank of San Jose v. California).
The panel held that McClellan, Commonwealth, Barnett Bank, and Fidelity were inapposite. While McClellan and Commonwealth established that national banks could be subject to generally applicable state laws, the panel determined Rhode Island’s IOE law is a banking-specific measure directly regulating bank accounts by dictating required interest on escrow accounts. For that reason, the panel decided McClellan and Commonwealth offered little guidance on whether Rhode Island’s IOE law should be preempted. Distinguishing Barnett Bank and Fidelity, the court explained nothing in the NBA expressly prohibits state interest-on-escrow laws, and nothing in the NBA expressly reserves for national banks the option to decide whether to pay interest on escrow accounts. Because Citizens identified no express conflicts with the NBA, the panel determined that Barnett Bank and Fidelity were not useful in determining whether the Rhode Island IOE law is preempted.
Next, the panel examined First National Bank of San Jose, Anderson, and Franklin, noting that the Supreme Court found preemption in those cases only when unusual state laws or significant interference with bank powers existed. Unlike those precedents, Citizens failed to show that Rhode Island’s IOE law created a conflict with federal law or imposed meaningful burdens. The panel also rejected Citizens’ argument that any state law dictating the terms of a banking product must be preempted, describing that position as inconsistent with Supreme Court precedent and Dodd-Frank. Accordingly, the panel concluded that Citizens had not shown its case resembled the circumstances in which the Court had previously held state banking laws preempted.
The panel also rejected Citizens’ arguments for categorical preemption under the “patchwork” theory, noting that Congress had not expressed any intent to preempt state laws like the Rhode Island one at issue. The panel concluded Citizens had not met its burden to show Rhode Island’s IOE law was preempted and remanded the case for further proceedings consistent with the Supreme Court’s ruling.
Bottom Line: Conti is the first federal circuit court to apply the new Cantero framework. The full Ninth Circuit panel will decide whether California’s IOE law is preempted in Flagstar, and the Second Circuit will decide whether New York’s IOE law is preempted post remand in Cantero.
Document: Opinion
