National Bank Act preemption
Kivett v. Flagstar Bank
Date: Nov. 26, 2025
Issue: Whether the National Bank Act (NBA) preempts California’s interest-on-escrow (IOE) law, which requires national banks to pay interest on mortgage escrow accounts.
Case Summary: ABA filed a coalition amicus brief urging the Ninth Circuit to grant Flagstar Bank’s en banc petition to review a three-judge panel’s decision that ruled the National Bank Act (NBA) does not preempt California’s 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.”
Flagstar loaned $400,610 to William Kivett to finance a 2012 real estate purchase in California. Kivett filed a class action alleging Flagstar failed to pay interest on his mortgage escrow account. Flagstar contended, however, the NBA preempts state laws requiring national banks to pay interest on mortgage escrow accounts. A California federal district court ruled the NBA did not preempt California’s IOE law, and on May 17, 2022, a Ninth Circuit panel affirmed, citing its prior Lusnak decision that rejected the preemption challenge to California’s IOE law.
On May 30, 2024, the U.S. Supreme Court decided Cantero v. Bank of America, directing courts to practically assess how much a state regulation interferes with a national bank’s powers under Barnett Bank. Afterward, the Court granted Flagstar’s certiorari petition, vacated the Ninth Circuit’s ruling, and remanded the case. On remand, a unanimous Ninth Circuit panel initially reaffirmed the district court, ruling the NBA does not preempt California’s IOE law, citing Lusnak and concluding Cantero supported that analysis. On Dec. 24, 2024, the Ninth Circuit granted Flagstar’s petition for a rehearing and vacated its previous decision. ABA filed a coalition amicus brief supporting Flagstar, urging the panel to reverse the district court’s decision and rule that the NBA does preempt California’s IOE law.
On Oct. 2, 2025, a Ninth Circuit panel again concluded the NBA does not preempt California’s IOE law, relying on its prior Lusnak decision. Jay Bybee, writing for the majority, concluded Cantero is not “clearly irreconcilable” with Lusnak and thus does not preempt California’s IOE law. On November 17, 2025, Flagstar filed an en banc petition (full panel review), arguing a rehearing is warranted to bring the Ninth Circuit’s precedents in line with Cantero and clarify the Ninth Circuit’s clear irreconcilability standard.
In its most recent amicus brief supporting Flagstar, ABA argued an en banc rehearing is warranted in light of the exceptional importance of the issue. ABA explained that the case raises a fundamental question: whether states can impose pricing mandates on national banks and disrupt the uniform federal system Congress created. Mortgage escrow accounts highlight the risks because they protect lenders and homeowners. However, California’s IOE law increases the cost of offering these accounts and could force banks to raise rates, tighten credit, or restrict access. ABA also stressed that national banks rely on preemption to avoid conflicting state regulations and to operate under a consistent national framework. If the panel’s decision remains in place, states could adopt a patchwork of state laws dictating the pricing of national banks’ products, ABA warned.
ABA also argued an en banc rehearing is warranted because Lusnak cannot be squared with Cantero. ABA explained the panel failed to apply Cantero’s required comparative analysis, which instructs courts to assess how a state law interferes with national bank powers and to measure that interference against Supreme Court precedent. Instead, the panel defaulted to Lusnak’s outdated reasoning and ignored the analytical method the Supreme Court mandated. ABA noted that Lusnak wrongly relied on Section 1639d of the Truth in Lending Act, which does not apply to the mortgages at issue, and created its own preemption test rather than using the comparative framework Cantero requires. ABA emphasized that Cantero directs courts to compare the degree of interference to cases like Franklin and Fidelity, where the Court struck down far less burdensome state laws. For these reasons, ABA argued that proper application of Cantero compels the conclusion that California’s IOE law is preempted.
Bottom Line: ABA contended that rehearing en banc is essential to restore the uniformity the NBA guarantees and that the U.S. Supreme Court reaffirmed in Cantero.
Document: Opinion
