Bloomberg Law

National banks will have to contend with more litigation to assess whether state consumer protection laws apply to them after a US Supreme Court unanimous decision on Thursday.

The high court’s ruling in Cantero v. Bank of America NA reignites a fight over bank regulation that dates back to the 19th century and featured prominently in the 2008 financial crisis: Did the 2010 Dodd-Frank Act narrow the National Bank Act’s power to override state laws?

In a decision authored by Justice Brett Kavanaugh, the Supreme Court found the US Court of Appeals for the Second Circuit didn’t properly review case law in determining that New York’s policy, which requires banks to pay interest on mortgage escrow accounts, is preempted by the National Bank Act.

Courts will now have to determine whether national banks are free to ignore state laws on a statute-by-statute basis, rather than quickly dispatching cases by declaring state laws are preempted.

The decision has implications for the Office of the Comptroller of the Currency, the federal regulator overseeing national banks. The OCC now will find it more difficult to declare whole categories of state laws preempted, said Todd Phillips, a professor at Georgia State University’s Robinson College of Business and a former attorney at the Federal Deposit Insurance Corp.

“This is going to be a big mess” for the OCC, Phillips said. “And it’s going to be a big mess for national banks. But it will be a benefit for consumer protection.”


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