Cantero v. Bank of America, N. A.

The Supreme Court unanimously threw out a lower court ruling that favored Bank of America. The Court held that judges must use a specific legal test to see if state laws 'prevent or significantly interfere' with a national bank's powers. Because the lower court used a shortcut instead of this detailed analysis, the case was sent back for a new review.

This decision affects whether homeowners get paid interest on money held in escrow (accounts used to pay property taxes and insurance). If New York's law is eventually upheld, national banks would have to follow state rules that protect consumers' money. This impacts millions of mortgage holders who currently might not receive interest on those funds.

The U.S. uses a dual banking system where both federal and state governments regulate banks. Under the Dodd-Frank Act of 2010, Congress clarified that federal law does not automatically cancel out all state consumer protections. This case clarifies how courts must balance federal bank authority with a state's right to protect its residents.

The Court ruled 9-0 to vacate the lower court's decision. Justice Brett Kavanaugh wrote the opinion for a unanimous Court, joined by Chief Justice Roberts and Justices Thomas, Alito, Sotomayor, Kagan, Gorsuch, Barrett, and Jackson.

“The Dodd-Frank Act, passed by Congress in 2010, establishes the controlling legal standard for determining when a state consumer financial law, like New York's interest-on-escrow law, is preempted with respect to national banks.”

The Supreme Court rejected a broad rule that would have shielded national banks from almost all state regulations.

The case returns to the Second Circuit Court of Appeals for a more detailed review. That court must now perform a 'practical assessment' to see if New York's interest requirement actually interferes too much with bank operations. Other states with similar laws will be watching this analysis closely.

Cantero sued because Bank of America refused to pay interest on his mortgage escrow account. He argued a New York law required the payment, while the bank claimed federal law excused them.

It makes it harder for national banks to ignore state consumer protection laws. Customers may eventually see more interest payments if courts find these state laws do not significantly interfere with banking.

Courts must use the 'Barnett Bank' standard. This requires a nuanced analysis to see if a state law prevents or significantly interferes with a national bank's federal powers.

The case goes back to the lower appeals court. That court must re-examine the New York law using the specific interference test the Supreme Court demanded.

The ruling shows the Court is following the Dodd-Frank Act's limits on federal preemption (when federal law overrides state law). It emphasizes that federal protection for banks is not absolute.