In the first court decision addressing National Bank Act preemption since the Supreme Court clarified the standard in Cantero v. Bank of America, N.A., 144 S. Ct. 1290 (2024), the Ninth Circuit reaffirmed that the Act does not preempt a California state law requiring banks to pay interest on funds held in their customers’ escrow accounts.  See Kivett v. Flagstar Bank, FSB, 2024 WL 3901188 (9th Cir. Aug. 22, 2024).

In Kivett, Flagstar Bank appealed the district court’s ruling that Ninth Circuit precedent foreclosed any argument that the National Bank Act preempted a California state law requiring banks pay 2% interest to borrowers on money held in their escrow accounts.  The Ninth Circuit affirmed, and the defendant filed a petition for certiorari.  While the petition was pending, the Supreme Court decided Cantero v. Bank of America, N.A., 144 S. Ct. 1290 (2024), which provided guidance on the standard of preemption under the National Bank Act.  In the process, the Court subsequently vacated the judgment in Kivett and remanded the case for reconsideration in light of that guidance.

On remand, the Ninth Circuit determined that its previous reasoning was sound, writing that “the Supreme Court’s decision in Cantero suggests . . . [w]e properly applied the test for preemption from Barnett Bank of Marion Cnty., N.A. v. Nelson, 517 U.S. 25 (1996), in concluding that no legal authority established that [interest on escrow] laws significantly interfered with national bank powers, and that the text of Dodd–Frank also reflected Congress’s view that such laws do not.”  Kivett, 2024 WL 3901188 at *2.