Cantero v. Bank of Am., N.A. ( 2022 )

21-400-cv, 21-403-cv
Cantero v. Bank of Am., N.A.
United States Court of Appeals
for the Second Circuit
August Term 2021
Argued: March 31, 2022
Decided: September 15, 2022
Nos. 21-400, 21-403
ALEX CANTERO,
individually and on behalf of all others similarly situated,
Plaintiff-Appellee,
v.
BANK OF AMERICA, N.A.,
Defendant-Appellant.
SAUL R. HYMES, ILANA HARWAYNE-GIDANSKY,
on behalf of themselves and all others similarly situated,
Plaintiffs-Appellees,
v.
BANK OF AMERICA, N.A.,
Defendant-Appellant.
On Appeal from the United States District Court
for the Eastern District of New York
Before: LIVINGSTON, Chief Judge, and PARK and PÉREZ, Circuit Judges.
Plaintiffs in these two putative class actions took out home
mortgage loans from Bank of America, N.A. (“BOA”), one before and
the other after the effective date of certain provisions of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (“Dodd-
Frank”). The loan agreements, which were governed by the laws of
New York, required Plaintiffs to deposit money in escrow accounts
for property taxes and insurance payments for each mortgaged
property. When BOA paid no interest on the escrowed amounts,
Plaintiffs sued for breach of contract, claiming that they were entitled
to interest under New York General Obligations Law § 5-601, which
sets a minimum 2% interest rate on mortgage escrow accounts. BOA
moved to dismiss on the ground that GOL § 5-601 does not apply to
mortgage loans made by federally chartered banks because, as
applied to such banks, it is preempted by the National Bank Act of
1864 (“NBA”). The district court (Mauskopf, J.) disagreed and
denied the motion, but this was error. We hold that (1) New York’s
interest-on-escrow law is preempted by the NBA under the “ordinary
legal principles of pre-emption,” Barnett Bank of Marion Cnty., N.A. v.
Nelson, 517 U.S. 25, 37 (1996), and (2) the Dodd-Frank Act does not
change this analysis. GOL § 5-601 thus did not require BOA to pay
a minimum rate of interest, and Plaintiffs have alleged no facts
supporting a claim that interest is due. The district court’s order is
REVERSED and the cases are REMANDED for further proceedings
consistent with this opinion.
Judge Pérez concurs in a separate opinion.
MARK W. MOSIER, Covington & Burling LLP,
Washington, DC (Andrew Soukup, Laura Dolbow,
Covington & Burling LLP, Washington, DC; Thomas M.
Hefferon, Goodwin Procter LLP, Washington, DC, on the
brief), for Defendant-Appellant.
2
JONATHAN E. TAYLOR, Gupta Wessler PLLC,
Washington, DC (Matthew W.H. Wessler, Gupta
Wessler PLLC, Washington, DC; Jonathan M. Streisfeld,
Kopelowitz Ostrow Ferguson Weiselberg Gilbert, Ft.
Lauderdale, FL; Hassan Zavareei, Anna C. Haac, Tycko
& Zavareei LLP, Washington, DC; Todd S. Garber,
Finkelstein, Bankinship, Frei-Pearson & Garber, LLP,
White Plains, NY, on the brief), for Plaintiff-Appellee Alex
Cantero.
Mark C. Rifkin, Daniel W. Krasner, Wolf Haldenstein
Adler Freeman & Herz LLP, New York, NY, for Plaintiffs-
Appellees Saul R. Hymes and Ilana Harwayne-Gidansky.
Benjamin W. McDonough, Bao Nguyen, Gregory F.
Taylor, Peter C. Koch, Gabriel A. Hindin, Michael K.
Morelli, Office of the Comptroller of the Currency,
Washington, DC, for Amicus Curiae Office of the
Comptroller of the Currency in Support of Defendant-
Appellant.
H. Rodgin Cohen, Matthew A. Schwartz, Helen F.
Andrews, Sullivan & Cromwell LLP, New York, NY;
Gregg L. Rozansky, The Bank Policy Institute,
Washington, DC; Daryl Joseffer, Paul V. Lettow, U.S.
Chamber Litigation Center, Washington, DC; David
Pommerehn, Consumer Bankers Association,
Washington, DC; Thomas Pinder, The American Bankers
Association, Washington, DC, for Amici Curiae The Bank
Policy Institute, American Bankers Association, Consumer
Bankers Association, and Chamber of Commerce of the United
States of America in Support of Defendant-Appellant.
3
21-400-cv, 21-403-cv
Cantero v. Bank of Am., N.A.
PARK, Circuit Judge:
In February 1818, the Maryland General Assembly levied a tax
of $15,000 per year on “all Banks or Branches thereof, in the State of
Maryland, not chartered by the [state] Legislature.” McCulloch v.
Maryland, 17 U.S. (4 Wheat.) 316, 320 (1819). When the Second Bank
of the United States—a federally chartered, majority privately owned
bank—refused to pay, Maryland sued. Before the U.S. Supreme
Court, the state argued that its modest tax merely “submitted” the
bank “to the jurisdiction and laws of the State, in the same manner
with other corporations and other property” and that it could be
imposed “without ruining the institution, or destroying its national
uses.” Id. at 346. Chief Justice Marshall, writing for the Court,
famously rejected this line of reasoning:
We are not driven to the perplexing inquiry, so unfit for
the judicial department, what degree of taxation is the
legitimate use . . . .
That the power to tax involves the power to
destroy; that the power to destroy may defeat and render
useless the power to create; that there is a plain
repugnance in conferring on [state] government[s] a
power to control the constitutional measures of [the federal
government], are propositions not to be denied.
Id. at 430–31 (emphasis added).
The question in these appeals is whether a New York law
requiring mortgage lenders to pay a 2% minimum interest rate on
mortgage escrow accounts applies to banks chartered by the federal
government. As in McCulloch, Plaintiffs say that because the law
requires payment of only a “modest amount of interest,” Appellee’s
Br. at 35, 1 it may be applied, consistent with federal law, to national
banks. But unlike in McCulloch, both the state and federal
governments here have taken the position that New York’s law is
preempted. We agree. The minimum-interest requirement would
exert control over a banking power granted by the federal
government, so it would impermissibly interfere with national banks’
exercise of that power. We thus hold that the law is preempted by
the National Bank Act of 1864 (“NBA”), 12 U.S.C. § 21 et seq., and we
reverse the order of the district court concluding otherwise.
I. BACKGROUND
A. Statutory Framework
1. National Bank Act of 1864
The Civil War Congress enacted the NBA “to facilitate . . . a
national banking system.” Marquette Nat’l Bank of Minneapolis v. First
of Omaha Serv. Corp., 439 U.S. 299, 315 (1978) (cleaned up). A
replacement for the bank-chartering regime at issue in McCulloch, the
NBA enabled the federal government to issue bank charters and
thereby introduced a “dual banking system” that is “still in place
today.” Watters v. Wachovia Bank, N.A., 550 U.S. 1, 10, 15 n.7 (2007);
1
The parties submitted nearly identical briefing in these two
appeals. Unless otherwise noted, brief and appendix citations are to the
filings in the lead case, Cantero, 21-400.
5
see id. at 11; see also Kenneth E. Scott, The Dual Banking System: A Model
of Competition in Regulation, 30 Stan. L. Rev. 1, 3–8 (1977). Under this
system, “both federal and state governments are empowered to
charter banks and to regulate the banks holding their respective
charters.” Lacewell v. OCC, 999 F.3d 130, 135 (2d Cir. 2021). Banks
may seek a charter from either the state or federal government, and
both state and national banks are able to compete—under the
constraints of their respective regimes—for consumer business. Id.While state banks are organized under state law, “[n]ational
banks are instrumentalities of the Federal government, created for a
public purpose, and as such necessarily subject to the paramount
authority of the United States.” Davis v. Elmira Sav. Bank, 161 U.S.
275, 283 (1896). The NBA grants national banks broad powers,
functioning as “a complete system for the establishment and
government of national banks.” Cook Cnty. Nat’l Bank v. United
States, 107 U.S. 445, 448 (1883). These include certain enumerated
powers as well as “all such incidental powers as shall be necessary to
carry on the business of banking.” 12 U.S.C. § 24 (Seventh); see Starr
Int’l Co. v. Fed. Rsrv. Bank of N.Y., 742 F.3d 37, 41 n.4 (2d Cir. 2014)
(interpreting this grant as conferring the power to engage in
“activities convenient and useful in connection with the performance
of an express power” (cleaned up)).
One such enumerated power is the power to “make, arrange,
purchase or sell loans . . . secured by liens on interests in real estate.”
12 U.S.C. § 371(a). The district court recognized, and no party
disputes, that banks have the incidental “power to provide escrow
services” in connection with home mortgage loans. Hymes v. Bank of
Am., N.A., 408 F. Supp. 3d 171, 193 (E.D.N.Y. 2019). As the Office of
6
the Comptroller of the Currency (“OCC”) has explained, “tax and
insurance escrow accounts” affiliated with home mortgage loans are
“an integral part of or a logical outgrowth of the lending function.”
OCC Conditional Approval No. 276, 1998 WL 363812, at *9 (May 8,
1998). Lenders use these accounts to require customers to make
intermittent payments for property taxes and insurance premiums,
ensuring fulfilment of these obligations while “reliev[ing]
[mortgagors] of the tasks of paying such regular tax and insurance
obligations in a lump sum.” Id.
2. Other Federal Statutes
Among Congress’s regulations of national banks are three
statutory provisions discussed by the parties here. First, the Real
Estate Settlement Procedures Act of 1974 (“RESPA”), 12 U.S.C. § 2601et seq., limits the amount banks may require borrowers to deposit in
escrow accounts in connection with their home mortgages. Lenders
who establish escrow accounts for property tax and insurance
payments may not require borrowers to deposit more than is
“sufficient to pay such taxes, insurance premiums and other charges.”
12 U.S.C. § 2609(a)(1). This provision of RESPA does not mention a
rate of return on the balance, but rather caps the amount that may be
required to be contributed.
Second, the Dodd-Frank Wall Street Reform and Consumer
Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010) (“Dodd-
Frank”), codified a standard for when “State consumer financial
laws” are preempted. Id. § 1044, 124 Stat. at 2015 (codified at 12
U.S.C. § 25b(b)(1)). Such laws are void if any of the following is true:
(A) application of a State consumer financial law would
have a discriminatory effect on national banks, in
7
comparison with the effect of the law on a bank chartered
by that State;
(B) in accordance with the legal standard for preemption
in the decision of the Supreme Court of the United States
in Barnett Bank of Marion County, N. A. v. Nelson,
Florida Insurance Commissioner, et al., 517 U.S. 25(1996), the State consumer financial law prevents or
significantly interferes with the exercise by the national bank
of its powers; and any preemption determination under
this subparagraph may be made by a court, or by
regulation or order of the Comptroller of the Currency
on a case-by-case basis, in accordance with applicable
law; or
(C) the State consumer financial law is preempted by a
provision of Federal law other than title 62 of the Revised
Statutes.
Id. (emphases added).
Third, Dodd-Frank amended the Truth in Lending Act
(“TILA”) to add 15 U.S.C. § 1639d, which includes language
implicating certain mortgage escrow accounts. See Dodd-Frank
§ 1461(a), 124 Stat. at 2178–81 (codified at 15 U.S.C. § 1639d). Section
1639d mandates the creation of escrow accounts for certain
mortgages, and it provides that for those mandatory escrow accounts,
“[i]f prescribed by applicable State or Federal law, each creditor shall
pay interest to the consumer on the amount held in any impound,
trust, or escrow account that is subject to this section in the manner as
prescribed by that applicable State or Federal law.” 15 U.S.C.
§ 1639d(g)(3).
8
3. N.Y. GOL § 5-601The state statute at issue in these appeals is New York General
Obligations Law (“GOL”) § 5-601, which provides that whenever a
“mortgage investing institution . . . maintains an escrow account
pursuant to any agreement executed in connection with a mortgage
on” certain real estate, the institution “shall . . . credit the [account]
with dividends or interest at a rate of not less than two per centum
per year . . . or a rate prescribed by the superintendent of financial
services.”
In 2018, the New York Department of Financial Services
changed the minimum rate under GOL § 5-601 for state-chartered
banks to “the lesser of two percent or the six-month yield on United
States Treasury securities.” Order Issued Under Section 12-a of the New
York Banking Law, N.Y. St. Dep’t Fin. Servs. 2 (Jan. 19, 2018),
https://www.dfs.ny.gov/system/files/documents/2020/03/wild_20180
119_mortgage-escrow_order.pdf (“2018 Order”). The state
explained that the change was aimed at creating “parity” between
state- and federal-chartered banks given that “national
banks . . . [were able] to establish such escrow accounts without
restriction as to the payment of interest.” Id. at 1. The 2018 Order
does not purport to apply to national banks.
B. Factual Allegations
Plaintiff Alex Cantero purchased a house in Queens Village,
New York, financed through a home mortgage loan from Bank of
America, N.A. (“BOA”), on or about August 3, 2010. Cantero First
9
Amended Complaint (“Cantero FAC”) ¶ 29. 2 Plaintiffs Saul Hymes
and Ilana Harwayne-Gidansky (the “Hymes Plaintiffs”) purchased a
single-family home in East Setauket, New York, also financed
through a BOA home mortgage loan, in May 2016. Hymes Compl.
¶ 13. Both mortgage loans required Plaintiffs to deposit money in
escrow for property taxes and insurance premiums, and BOA paid no
interest on either escrow balance. Cantero FAC ¶¶ 17, 19; Hymes
Compl. ¶¶ 13–14.
Cantero’s mortgage agreement states that it “shall be governed
by Federal law and the law of the jurisdiction in which the
[mortgaged property] is located,” Cantero FAC ¶ 32, and Cantero
alleges that BOA “systematically refuses to pay interest on funds held
in escrow,” id. ¶ 28. The Hymes Plaintiffs’ mortgage agreement
stipulates that it is “governed by federal law and the law of New York
State” and also that BOA “will not be required to pay . . . any interest
or earnings on the [e]scrow [f]unds unless . . . [a]pplicable [l]aw
requires [BOA] to pay interest” on the funds. Hymes Compl. ¶ 43.
All agree that the two relevant provisions of Dodd-Frank—the
codification of preemption standards and the TILA amendment—
took effect after Cantero’s mortgage was executed, but before the
Hymes Plaintiffs’ was. 3 Plaintiffs concede that Section 1639d (the
2 We draw these facts from Plaintiffs’ respective complaints, which
we take as true at the motion to dismiss stage. See Celestin v. Caribbean Air
Mail, Inc., 30 F.4th 133, 136 n.1 (2d Cir. 2022).
3
The preemption-codification provision took effect on July 21, 2011.
See Dodd-Frank § 1048, 124 Stat. at 2018 (effective on “designated transfer
date”); id. § 1062, 124 Stat. at 2039–40 (delegating to the Secretary of the
Treasury the power to set the designated transfer date); Designated
Transfer Date, 75 Fed. Reg. 57,252 (Sept. 20, 2010) (designating July 21,
10
TILA amendment) does not apply to the mortgages at issue here. See
Hymes, 408 F. Supp. 3d at 180 & n.5. And BOA does not dispute that
Plaintiffs’ mortgaged properties are the kind covered by GOL § 5-601
or that GOL § 5-601 is a “State consumer financial law” within the
meaning of Dodd-Frank.
C. Procedural History
Plaintiffs sued BOA for breach of contract, unjust enrichment,
and related claims in two putative class actions in the Eastern District
of New York. Their breach of contract claims, the only cause of
action at issue on appeal, 4 turns on whether BOA was required by
law to pay a minimum 2% interest rate to Plaintiffs. See Cantero
FAC ¶ 32; Hymes Compl. ¶ 43. BOA moved to dismiss on the
ground that GOL § 5-601 is preempted by the NBA.
The cases were decided together in a single order. The district
court proceeded through several steps to “divin[e] congressional
intent through regulations and statutory provisions.” Hymes, 408
F. Supp. 3d at 184. First, the court determined that RESPA—which
regulates the amount of money in, but not the interest rate accruing
to, escrow accounts—shares a “unity of purpose” with GOL § 5-601.
Id. at 185. That is relevant, the court reasoned, because Congress
“intended mortgage escrow accounts, even those administered by
2011). And Dodd-Frank provided that the TILA amendment would take
effect on the earlier of (a) the promulgation of an implementing rule or (b)
eighteen months after the designated transfer date, which would be January
21, 2013. See Dodd-Frank § 1400(c)(2)–(3), 124 Stat. at 2136.
4
Plaintiffs’ other claims were dismissed for reasons not relevant
here. See Hymes, 408 F. Supp. 3d at 199–201.
11
national banks, to be subject to some measure of consumer protection
regulation.” Id.
Second, the court turned to the TILA amendment, Section
1639d. “[A]lthough section 1639d(g)(3) does not govern the specific
loans at issue in this case,” the court said, “it is nonetheless significant,
for it evinces a clear congressional purpose to subject all mortgage
lenders to state escrow interest laws.” Id. at 189 (emphasis in
original). The section thus “giv[es] insight into Congress’s intent.”
Id. at 190. 5
Finally, the court considered the NBA itself. The court read
Barnett Bank, 517 U.S. 25, along with prior Supreme Court case law
interpreting the NBA’s preemptive force, to require a finding of no
preemption. It concluded that the “degree of interference” of GOL
§ 5-601 was “minimal” and was not a “practical abrogation of the
banking power at issue.” Hymes, 408 F. Supp. 3d at 195. It
acknowledged that a “state escrow interest law setting punitively
high rates could very well significantly interfere with national banks’
power to administer escrow accounts.” Id. at 196 (cleaned up). But
the court stated that a different statute, Dodd-Frank’s amendment to
the TILA, “evinces a policy judgment that there is little
incompatibility between requiring mortgage lenders to maintain
escrow accounts and requiring them to pay a reasonable rate of
interest on sums thereby received.” Id. The court said it would
“give effect to that judgment” by holding that GOL § 5-601 was not
preempted by the NBA, and that this holding would allow the court
5
The court also rejected BOA’s arguments related to the preemptive
effect of OCC regulations, a ground that we do not reach. See id. at 190–
93.
12
to read the NBA and Section 1639d “harmoniously.” Id. at 196, 198.
The court thus denied BOA’s motion to dismiss the breach of contract
claim.
The court closely tracked the reasoning of the Ninth Circuit in
a similar case involving a California interest-on-escrow law. See
Lusnak v. Bank of Am., N.A., 883 F.3d 1185 (9th Cir. 2018). In Lusnak,
the Ninth Circuit also relied on Section 1639d to conclude that
California’s law was not preempted (including even before Section
1639d was enacted). See id. at 1194–96. BOA, which was also the
defendant in Lusnak, does not try to distinguish that case and argues
instead that it was wrongly decided.
After the district court denied BOA’s motion to dismiss, BOA
moved to certify the preemption question for interlocutory appeal.
The district court agreed that there was “substantial ground for
difference of opinion” on the merits of its order and granted BOA’s
motion. Hymes v. Bank of Am., N.A., No. 18-cv-2352, 2020 WL
9174972, at *4–6 (E.D.N.Y. Sept. 29, 2020); see 28 U.S.C. § 1292(b). We
granted leave to appeal. Review of a district court’s denial of
dismissal for failure to state a claim, including based on preemption,
is de novo. Doe v. Hagenbeck, 870 F.3d 36, 41–42 (2d Cir. 2017).
II. DISCUSSION
The district court attempted to resolve this case by—in its own
words—“divining” the general legislative purpose of several
different statutes. Hymes, 408 F. Supp. 3d at 184. The court
determined that Congress subjected some types of loans to some
types of consumer-protection laws, so there was “little
incompatibility” between its objectives and enforcement of state-
interest-on-escrow laws, and thus GOL § 5-601 was not preempted.
13
Id. at 196. The court then applied its preemption determination—
based primarily on provisions of the Dodd-Frank Act that have no
retroactive effect—to Cantero’s mortgage, which predated Dodd-
Frank. Finally, when the court looked to the NBA, it relied on an
admittedly “limited sample of cases,” Hymes, 2020 WL 9174972, at *4,
even though Barnett Bank held that courts should apply long-
established “ordinary legal principles of pre-emption,” 517 U.S. at 37.
Although the district court correctly noted that in questions of
preemption, “the guiding principle is the intent of Congress,” Hymes,
408 F. Supp. 3d at 198, it erred by failing to employ the normal rules
of statutory interpretation. The district court should have read the
plain language of the relevant statutes and applied the legal rules that
those statutes have incorporated, rather than trying to extrapolate
Congress’s broader goals from various statutory provisions.
We reverse and hold as follows: First, the NBA preempts GOL
§ 5-601 under the “ordinary legal principles of pre-emption.”
Barnett Bank, 517 U.S. at 37. That resolves Cantero. Second, Dodd-
Frank, to the extent it is relevant, merely codified those rules. And
that resolves Hymes.
A. Ordinary Preemption Rules
1. Doctrinal Framework
The Supremacy Clause provides: “[T]he Laws of the United
States” made “in Pursuance” of the Constitution “shall be the
supreme Law of the Land . . . [the] Laws of any State to the Contrary
notwithstanding.” U.S. Const. art. VI, cl. 2. Preemption doctrine
concerns the question whether, as a matter of statutory interpretation,
Congress has enacted a valid law to which a given state rule is “to the
14
Contrary.” See Barnett Bank, 517 U.S. at 30 (“Did Congress, in
enacting the Federal Statute, intend to exercise its constitutionally
delegated authority to set aside the laws of a State?”).
Under “ordinary legal principles of pre-emption,” we ask
whether the federal and state provisions are in “irreconcilable
conflict.” Id. at 31, 37 (citation omitted). “If there be no conflict, the
[NBA and a state law] can coexist, and be harmoniously enforced, but,
if the conflict arises, the law of [the state] is from the nature of things
inoperative and void as against the dominant authority of the Federal
statute.” Davis, 161 U.S. at 283; see also Easton v. Iowa, 188 U.S. 220,
232 (1903) (“[I]t is not our province to vindicate the policy of the
[NBA], but to declare that it cannot be overridden by the policy of the
State.”); Caleb Nelson, Preemption, 86 Va. L. Rev. 225, 266–72 (2000)
(discussing McCulloch’s preemption analysis).
While the principles to be applied are ordinary, the NBA’s
preemptive force is not. The statute speaks in special terms that
often trigger conflicts: When the NBA grants “powers,” “both
enumerated and incidental,” those powers are “not normally limited
by, but rather ordinarily pre-empt[], contrary state law.” Barnett
Bank, 517 U.S. at 32. In other words, Congress’s grant of authority to
a national bank under the NBA “does not condition federal
permission upon that of the State.” Id. at 35. Moreover, the
presumption against preemption “disappears” in the NBA context.
Wachovia Bank, N.A. v. Burke, 414 F.3d 305, 314 (2d Cir. 2005) (citation
omitted); see also Watters, 550 U.S. at 11 (“[F]ederal control shields
national banking from unduly burdensome and duplicative state
regulation.”).
To be sure, national banks are routinely “subject to state laws
15
of general application in their daily business.” Watters, 550 U.S. at
11. And those laws have full force “to the extent [they] do not
conflict with the letter or the general purposes of the NBA.” Id.; see
also Nat’l Bank v. Commonwealth, 76 U.S. (9 Wall.) 353, 362 (1869) (“All
their contracts are governed and construed by State laws. Their
acquisition and transfer of property, their right to collect their debts,
and their liability to be sued for debts, are all based on State law.”);
see also Atherton v. FDIC, 519 U.S. 213, 223 (1997) (“To point to a federal
charter by itself shows no conflict . . . .”).
2. Scope of NBA Preemption
In Barnett Bank, the Court explained that Congress did not
“deprive States of the power to regulate national banks,
where . . . doing so does not prevent or significantly interfere with the
national bank’s exercise of its powers.” 517 U.S. at 33. The district
court read “significantly interfere” to mean “practical[ly] abrogat[e],”
and it looked to the “impact” and “degree of interference” to
determine whether the state law at issue was preempted. Hymes, 408
F. Supp. 3d at 194–95. Plaintiffs similarly argue that state laws are
preempted by the NBA only if they “prevent the exercise of a national
bank’s power [or] come close to doing so.” Appellee’s Br. at 29.
And to make that determination, Plaintiffs urge us to look to the
“degree of interference,” which they claim is “minimal” here because
the law requires payment of only a “modest amount of interest.” Id.
at 34–35 (citation omitted).
We reject this approach. Barnett Bank did not announce a new
rule, but merely applied the “ordinary legal principles of pre-
emption” to the state law at issue. 517 U.S. at 37. Granted, after
two centuries of applying those rules to the national-bank context, the
16
Supreme Court has used various formulations to describe when states
impermissibly regulate national banks. See, e.g., Watters, 550 U.S. at
13 (“curtail or hinder a national bank’s efficient exercise of [a]
power”); First Nat’l Bank in St. Louis v. Missouri, 263 U.S. 640, 659
(1924) (“frustrate the purpose for which the bank was created”);
McClellan v. Chipman, 164 U.S. 347, 357 (1896) (“impair their efficiency
to discharge the duties imposed upon them by the law of the United
States”). But in an unbroken line of case law since McCulloch, the
Court has made clear that the question is not how much a state law
impacts a national bank, but rather whether it purports to “control”
the exercise of its powers. McCulloch, 17 U.S. at 431; see also United
States v. Washington, 142 S. Ct. 1976, 1984 (2022) (reading McCulloch as
a “prohibit[ion] [on] States from interfering with or controlling the
operations of the Federal Government”); Farmers’ & Mechs.’ Nat’l Bank
v. Dearing, 91 U.S. 29, 34 (1875) (“States can exercise no control over
[national banks], nor in any wise affect their operation, except in so
far as Congress may see proper to permit.”); Watters, 550 U.S. at 11(same); Easton, 188 U.S. at 230 (“[It] must be obvious that [national
banks’] operations cannot be limited or controlled by state
legislation . . . .”); id. at 238 (“Congress, having power to create a
system of national banks, . . . has the sole power to regulate and
control the exercise of their operations . . . .”). Control is not a
question of the “degree” of the state law’s effects on national banks,
but rather of the kind of intrusion on the banking powers granted by
the federal government. McCulloch, 17 U.S. at 430–31.
In other words, state laws with large impacts on a bank’s
revenue, business decisions, or bottom line may not be preempted,
while regulations with modest impacts may be void. It is the nature
of an invasion into a national bank’s operations—not the magnitude
17
of its effects—that determines whether a state law purports to exercise
control over a federally granted banking power and is thus
preempted. Plaintiffs’ contrary view would be inconsistent with
Supreme Court precedent and binding principles of preemption, and
it would also lead to untenable doctrinal implications.
a. Supreme Court Precedent and Background Principles
The Supreme Court has held that ordinary conflict preemption
doctrine applies to NBA preemption cases. See supra at 17.
Whether a state law is preempted is thus a question about the scope
of the NBA—specifically, the extent to which it “set[s] aside the laws
of a State.” Barnett Bank, 517 U.S. at 30. And “the sound
construction of the” NBA, like that of the national-banking scheme
preceding it, is “that it exempts the trade of the [banks] . . . from the
control of the States.” Osborn v. Bank of the U.S., 22 U.S. (9 Wheat.)
738, 866 (1824). 6
To determine whether the NBA conflicts with a state law, we
ask whether enforcement of the law at issue would exert control over
a banking power—and thus, if taken to its extreme, threaten to
“destroy” the grant made by the federal government. McCulloch, 17
U.S. at 431. We do not endeavor to assess whether the degree of the
6 The Court has expressly stated on multiple occasions that the NBA
“rests on the same principle as the act creating the [S]econd [B]ank of the
United States” and that “[t]he reasoning of . . . [McCulloch] and [Osborn]”
applies with full force. Farmers’ & Mechs.’ Nat’l Bank, 91 U.S. at 33; see also
Easton, 188 U.S. at 229 (“The principles enunciated in [McCulloch] and in
[Osborn], though expressed in respect to banks incorporated directly by acts
of Congress, are yet applicable to the later and present system of national
banks.”).
18
state law’s impact on national banks would be sufficient to
undermine that power. See id.The Court has articulated this principle in several different
ways. For example, it has held impermissible state laws that control
a national bank’s exercise of certain powers while at the same time
endorsing the legality of other laws that could have an identical
practical effect on the bank’s profitability. Most famously, in
McCulloch, the Court noted that while Maryland could not tax the
“operations of the bank,” it could tax—without qualification as to
how high the rate—the “real property of the bank” as well as “the
interest which the citizens of Maryland may hold in [the] institution.”
17 U.S. at 436; see also Nat’l Bank, 76 U.S. at 359 (distinguishing taxes
“upon the shares of the stock of the bank” from taxes “upon the
capital of the bank”). A state law with substantial consequences for
banks may be valid under the NBA even while far less impactful state
laws are void. See Nat’l Bank, 76 U.S. at 362 (“[A] Federal
officer . . . may be exempted from any personal service which
interferes with the discharge of his official duties . . . [but] is liable to
punishment for crime, though that punishment be imprisonment or
death. So of the banks.”).
The Court has also explained that state laws exercising control
over national banks—even if their own practical effect may be
minimal—are invalid if, when aggregated with similar laws of other
states, they would threaten to undermine a federal banking power.
In First National Bank of San Jose v. California, 262 U.S. 366 (1923), the
Court held that a California law escheating deposits in national banks
that were dormant for 20 years was preempted. Despite the lengthy
period before a seizure could be effected, the Court explained that
19
“[i]f California may thus interfere other States may do likewise; and,
instead of twenty years, varying limitations may be prescribed—three
years, perhaps, or five, or ten, or fifteen. We cannot conclude that
Congress intended to permit such results.” Id. at 370. And in
McCulloch, the Court was “not driven to the perplexing
inquiry . . . what degree” of taxation would be “legitimate” rather
than an “abuse” on the part of the state. 17 U.S. at 430. These cases
make clear that the question is not whether a law’s “degree of
interference is minimal,” Hymes, 408 F. Supp. 3d at 195, or “punitively
high,” id. (quoting Lusnak, 883 F.3d at 1195 n.7). Instead, we ask
whether the kind of interference at issue could, taken as a whole,
“destroy” the federal government’s grant of a banking power.
McCulloch, 17 U.S. at 431.
For example, in Franklin National Bank of Franklin Square v. New
York, 347 U.S. 373 (1954), the Court held that a New York law barring
national banks from using the word “savings” in advertising was
preempted. The New York Court of Appeals had reasoned that the
law was not preempted because it had no “seriously harmful effects”
on the banks, which could easily adapt by using synonyms like
“special interest account,” “thrift account,” and “compound interest
account.” People v. Franklin Nat’l Bank of Franklin Square, 113 N.E.2d
796, 799 (N.Y. 1953). The Supreme Court reversed. It concluded
that the law was preempted because “the incidental powers granted
to national banks” included “the use of advertising in any branch of
their authorized business.” Franklin Nat’l Bank, 347 U.S. at 377. It
found “no indication that Congress intended to make this phase of
national banking subject to local restrictions.” Id. at 378. The
20
Supreme Court did not even address the magnitude of the impact of
the law in concluding that New York’s law was preempted.
Plaintiffs’ reliance on Anderson National Bank v. Luckett, 321 U.S.
233 (1944), is misplaced. There, the Court held that a Kentucky
escheat law for abandoned bank deposits was not preempted. But
that law did not purport to regulate any bank power—it merely
changed which parties could make a claim on a bank account as a
background rule of property law. See id. at 249 (“A demand for
payment of an account by one entitled to make the demand does not
infringe or interfere with any authorized function of [a] bank.”). The
Anderson Court distinguished First National Bank of San Jose, the
dormant-deposits case, by holding that there is a difference in kind
between deposits that are merely deemed dormant (no matter how
long) and those that are declared abandoned. See id. at 250. Laws
escheating the latter were fine while those seizing the former were
not, the Court explained, because for abandoned deposits, “[s]o long
as . . . the power [was] exercised only to demand payment of the
accounts in the same way and to the same extent that the [original]
depositors could,” it could “perceive no danger of unlimited control by
the state over the operations of national banking institutions.” Id. at
249 (emphasis added). With respect to dormant deposits, in
contrast, the Court could draw no line on how many years of
dormancy would render a state seizure permissible—“three years
perhaps, or five, or ten, or fifteen”—and so such laws “would be
incompatible with the statutory purposes of establishing a system of
national banks acting as federal instrumentalities.” Id. at 251(citation omitted).
b. Doctrinal Implications
21
It bears noting that Plaintiffs’ position would undermine the
NBA’s rationales as articulated by the Supreme Court. The Court
has warned that “federal control shields national banking from
unduly burdensome and duplicative state regulation.” Watters, 550
U.S. at 11. Indeed, Plaintiffs identify thirteen states with some kind
of interest-on-escrow laws. 7 Those are in addition to RESPA, which
imposes its own federal regulation on mortgage-escrow accounts.
See 12 U.S.C. § 2609(a). It would undermine the NBA to subject
national banks to a death-by-a-thousand-cuts regime of mortgage-
escrow regulation. See Easton, 188 U.S. at 229 (“[The NBA] has in
view the erection of a system extending throughout the country, and
independent, so far as powers conferred are concerned, of state
legislation which, if permitted to be applicable, might impose
limitations and restrictions as various and as numerous as the
States.”); Talbott v. Bd. of Comm’rs, 139 U.S. 438, 443 (1891) (“[T]he
character of the system implies[] an intent to create a national banking
system co-extensive with the territorial limits of the United States, and
with uniform operation within those limits . . . .”).
Plaintiffs’ rule could also be overinclusive, deeming state laws
having nothing to do with banking powers to be preempted by the
NBA. As Plaintiffs argue, general “criminal, contract, or property
laws . . . can have [more] significant consequences for the risk,
7
See Cantero FAC ¶ 79 (citing N.Y. Gen. Oblig. Law § 5-601; Conn.
Gen. Stat. § 49-2a; Iowa Code § 524.905(2); Me. Rev. Stat. Ann. tit. 33, § 504;
Md. Code Ann. Com. Law § 12-109; Mass. Gen. Laws ch. 183, § 61; Minn.
Stat. Ann. § 47.20, subdiv. 9; N.H. Rev. Stat. Ann. § 384:16-a et seq. (amended
requirement now at N.H. Stat. Rev. Ann. § 383-B:3-303(a)(7)(E)); Or. Rev.
Stat. §§ 86.205, 86.245; 19 R.I. Gen. Laws § 19-9-2; Utah Code Ann. § 7-17-1et seq.; Vt. Stat. Ann. tit. 8, § 10404; Wis. Stat. § 138.052).
22
pricing, and structure of a loan transaction” than laws controlling a
banking power. Appellee’s Br. at 22 (cleaned up). But that does
not mean that such laws are preempted by the NBA merely because
their impact on national banks is severe. See Watters, 550 U.S. at 11;
Nat’l Bank, 76 U.S. at 362. Only laws purporting to control a national
bank’s exercise of its power are the kind of “possible unfriendly State
legislation” covered by the NBA’s preemptive force. Tiffany v. Nat’l
Bank of Mo., 85 U.S. (18 Wall.) 409, 412 (1873). 8
3. Application
In light of the foregoing, we conclude that GOL § 5-601 is
preempted. The banking power at issue here is the power to create
and fund escrow accounts. Like the regulation in Franklin National,
GOL § 5-601 would target, curtail, and hinder a power granted to
national banks by the federal government. By requiring a bank to
pay its customers in order to exercise a banking power granted by the
federal government, the law would exert control over banks’ exercise
of that power. And if taken to a greater degree, state authority to set
minimum interest rates could infringe on national banks’ power to
8
Moreover, to implement Plaintiffs’ rule, courts would become
entangled in questions they are poorly suited to answer. If an interest rate
of 2% were not significant interference, what rate would be sufficiently
high? Cf. First Nat’l Bank of San Jose, 262 U.S. at 370; see also Brief of the
Bank Policy Institute et al. as Amici Curiae at 17. The district court’s order
here is a case in point. If we were to consider the magnitude of the
minimum rate New York has prescribed, we could not endorse the district
court’s unexplained conclusion that this rate was “modest.” Hymes, 408
F. Supp. 3d at 185. Plaintiffs have not pleaded facts showing that 2% is in
fact a “modest” rate of interest in this context, and indeed, Plaintiffs have
offered no response to BOA’s contention that this rate is far higher than the
prevailing interest rates for the time period at issue.
23
use mortgage escrow accounts altogether. The issue is not whether
this particular rate of 2% is so high that it undermines the use of such
accounts, or even if it substantially impacts national banks’
competitiveness. The power to set minimum rates is the “power to
control,” and the power to control is the “power to destroy.”
McCulloch, 17 U.S. at 431.
This conclusion is consistent with prior statements of the chief
banking regulators of New York and of the United States. In 2004,
the OCC promulgated an administrative rule purporting to preempt
state interest-on-escrow laws. See Bank Activities and Operations;
Real Estate Lending and Appraisals, 69 Fed. Reg. 1904, 1917 (Jan. 13,
2004) (codified at 12 C.F.R. § 34.4); see also Office of Thrift Supervision
Integration; Dodd-Frank Act Implementation, 76 Fed. Reg. 43,549,
43,557 (July 21, 2011) (maintaining the rule after Dodd-Frank). We
agree with the OCC that the district court “recognized [Barnett Bank’s]
different linguistic formulations” only to “fashion[] [them] into what
is for all practical purposes a new heightened standard.” Brief of the
OCC as Amicus Curiae at 7 (cleaned up). We also agree that laws
like GOL § 5-601 would disrupt “fundamental and substantial
elements of the business of national banks.” Office of Thrift
Supervision Integration; Dodd-Frank Act Implementation, 76 Fed.
Reg. at 43,557.
Similarly, we are mindful of New York’s 2018 Order, in which
state regulators also agreed that GOL § 5-601 is preempted.
Beginning in 2018, New York began to exempt state-chartered banks
from the 2% interest requirement and instead require them to pay
only the lesser of 2% and the six-month yield on U.S. treasuries.
New York’s chief financial regulator justified the change by stating
24
that GOL § 5-601 did not apply to national banks and so the change
would help state banks remain competitive. If Plaintiffs’ view were
to prevail, this would have the odd consequence of making the 2018
Order illegal: State banks could avail themselves of a lower minimum
interest rate than national banks could. See 12 U.S.C. § 25b(b)(1)(A)
(establishing that state consumer financial laws are preempted if their
“application . . . would have a discriminatory effect on national
banks, in comparison with the effect of the law on a bank chartered
by that State”).
We conclude that, under ordinary preemption rules, GOL § 5-
601 is preempted. Thus, no interest is due to Plaintiffs under
“federal law and the law of New York State,” Hymes Compl. ¶ 43;
accord Cantero FAC ¶ 32, and “the contract[s] [do] not commit [BOA]
to pay interest to [Plaintiffs] on [these] mortgage escrow account[s],”
Flagg v. Yonkers Sav. & Loan Ass’n, FA, 396 F.3d 178, 186 (2d Cir. 2005).
This resolves Cantero; Plaintiff there failed to state a claim for breach
of contract.
B. Dodd-Frank Act
The mortgage loan in Hymes was executed after the effective
date of certain provisions of the Dodd-Frank Act. All parties seem
to agree that these provisions had no effect on the NBA’s preemption
standards, and so do we. But despite this concession, both sets of
Plaintiffs nevertheless raise arguments based on Dodd-Frank. We
conclude that all are meritless.
1. Preemption Standard
Dodd-Frank provides that “State consumer financial laws” are
preempted in three circumstances: (A) if they have a “discriminatory
25
effect on national banks” as opposed to state-chartered banks; (B) if
“in accordance with the legal standard for preemption in the decision
of the Supreme Court of the United States in [Barnett Bank],” the law
“prevents or significantly interferes with the exercise by the national
bank of its powers”; or (C) if the law “is preempted by a provision of
Federal law other than title 62 of the Revised Statutes.” 12 U.S.C.
§ 25b(b)(1). At issue is whether GOL § 5-601 is preempted under
subparagraph (B). 9 First, we conclude that subparagraph (B) did
nothing more than codify the ordinary rules of preemption. Second,
we reject Plaintiffs’ arguments based on this statutory language.
a. Codification of the Ordinary Rules
Subparagraph (B) expressly codifies “the legal standard for
preemption” in Barnett Bank. 12 U.S.C. § 25b(b)(1)(B). Congress
thus expressly instructed us to do what we would have done anyway:
Apply the “ordinary legal principles of pre-emption” that the Court
has interpreted and applied before and since Barnett Bank. 517 U.S.
at 37. Any ambiguity as to this point is removed by Congress’s
choice to cite Barnett Bank directly. Thus, subparagraph (B) did not
change the preexisting legal standard, but rather explicitly codified it.
For the first time in its reply brief, BOA argues that GOL § 5-601 is
9
preempted under subparagraph (C) because 12 U.S.C. § 371 is “a provision
of Federal law other than title 62 of the Revised Statutes.” 12 U.S.C.
§ 25b(b)(1)(C); see OCC Chief Counsel’s Interpretation: 12 U.S.C. § 25b, Off.
Comptroller Currency 2 n.7 (Dec. 18, 2020), https://www.occ.gov/news-
issuances/news-releases/2020/nr-occ-2020-176a.pdf. See generally 12
U.S.C. § 25b (referring four times to “title 62 of the Revised Statutes or
section 371 of this title” and referring five times to only “title 62 of the
Revised Statutes”). This argument is forfeited, and we do not address it.
See JLM Couture, Inc. v. Gutman, 24 F.4th 785, 801 n.19 (2d Cir. 2022).
26
In applying this subparagraph of Dodd-Frank, we thus continue to
refer to the longstanding preemption test articulated in cases going
back to McCulloch.
b. Plaintiffs’ Arguments
Plaintiffs agree that Dodd-Frank codified Barnett Bank, but they
nonetheless suggest that we should look to various features of other
portions of the text of Dodd-Frank. This kind of reverse-
engineering, however, makes little sense when Congress has codified
a preexisting, judicially articulated rule. Congress codified this rule,
so we can simply apply the test we have always used.
In any event, the text of the statute leads to the same result.
Plaintiffs urge a close textual analysis of the phrase “significantly
interferes”—language from Dodd-Frank parroting the Court’s
opinion in Barnett Bank. See 12 U.S.C. § 25b(b)(1)(B); Barnett Bank,
517 U.S. at 33. But when Congress “ha[s] before it the meaning” a
case gave “to the words it selected . . . we give the language
found . . . the meaning ascribed [to] it” by that case. Slack v.
McDaniel, 529 U.S. 473, 483 (2000). In turn, Plaintiffs’ focus on the
words “significantly interferes” in isolation is misguided because
“the language of an opinion is not always to be parsed as though we
were dealing with [the] language of a statute.” Brown v. Davenport,
142 S. Ct. 1510, 1528 (2022) (alteration in original) (quoting Reiter v.
Sonotone Corp., 442 U.S. 330, 341 (1979)). Barnett Bank was explicit
that it was applying the “ordinary legal principles of pre-emption,”
not announcing a new standard. 517 U.S. at 37.
Even under Plaintiffs’ interpretive approach, however, their
arguments are unpersuasive. Plaintiffs assume that “significantly”
must mean of high “degree.” Appellee’s Br. at 34 (citation omitted).
27
But although “significant” can mean “[f]airly large in amount or
quantity,” it can also mean “important” or “meaningful”—as in,
interference is significant if it is important in relation to the banking
power at issue. Significant, American Heritage Dictionary of the
English Language (4th ed. 2000); accord Significant, American Heritage
Dictionary of the English Language (5th ed. 2011). We agree with
the OCC that this language is best interpreted, in light of ordinary
preemption rules, as referring to laws that “meaningfully interfere
with fundamental and substantial elements of the business of national
banks and with their responsibilities to manage that business and
those risks.” Office of Thrift Supervision Integration; Dodd-Frank
Act Implementation, 76 Fed. Reg. at 43,557 (emphasis added).
Plaintiffs’ invocation of noscitur a sociis fares no better. See
Yates v. United States, 574 U.S. 528, 543 (2015) (plurality opinion)
(explaining that noscitur is the principle that “a word is known by the
company it keeps”). Plaintiffs say that because “significantly
interferes” is next to “prevents,” it must mean “nearly prevent[s].”
Appellee’s Br. at 31. But if “significantly interferes” must be
interpreted in conjunction with “prevents,” it could just as easily
mean that the state is similarly usurping control over federally
granted powers to a federally created entity—not that the regulation
is intrusive in degree or that it practically abrogates the power. 10
10Applying the ordinary rules of preemption does not mean that all
“State consumer financial laws” are preempted or that Congress has
“occup[ied] the field.” 12 U.S.C. § 25b(b)(1), (4). To the contrary, states
are generally free to impose restrictions on the transactions engaged in by
national banks, in common with those of other corporations doing business
within the state. See, e.g., Nat’l Bank, 76 U.S. at 362. It is only when state
28
2. Truth in Lending Act Amendment
The district court, following the Ninth Circuit in Lusnak, 883
F.3d at 1194–96, relied primarily on a statutory provision that has no
relevance to this case. Dodd-Frank’s amendment to the TILA
required that for certain mortgage loans, lenders had to establish an
escrow account. For these mortgages, “[i]f prescribed by applicable
State or Federal law, each creditor shall pay interest to the consumer
on the amount held in any impound, trust, or escrow account that is
subject to this section in the manner as prescribed by that applicable
State or Federal law.” 15 U.S.C. § 1639d(g)(3).
All agree that Section 1639d does not apply to Cantero’s and
the Hymes Plaintiffs’ mortgage loans. 11 But the district court, like the
Ninth Circuit in Lusnak, concluded that the TILA amendments
somehow reflected Congress’s judgment that all escrow accounts,
before and after Dodd-Frank, must be subject to such state laws.
That is incorrect.
First, the court improperly reasoned that Congress’s decision to
subject some escrow accounts to state interest-on-escrow laws
“evince[d] a clear congressional purpose to subject all mortgage
lenders to state escrow interest laws.” Hymes, 408 F. Supp. 3d at 189
laws control the exercise of powers granted to national banks that those
laws conflict with the NBA.
11
BOA contends that Section 1639d does not even subject covered
mortgages to state interest-on-escrow laws, arguing instead that for a state
law to be “applicable,” it must already be not preempted. Appellant’s Br.
at 52. Like the concurrence, we read language saying that national banks
are subject to state law “to mean what [it] say[s].” Barnett Bank, 517 U.S.
at 34; Concurrence at 10. But we need not settle this question because
Section 1639d has no relevance to this appeal.
29
(emphasis in original); see also Lusnak, 883 F.3d at 1196 (suggesting
that Section 1639d reflects a more general judgment against
preemption because it shows “Congress’s view that creditors . . . can
comply with state escrow interest laws without any significant
interference with their banking powers”). The court correctly noted
that preemption analysis is a question of congressional intent. But
to assess congressional intent in the preemption context, we employ
the ordinary rules of statutory interpretation. The district court’s
approach—to note certain exceptions granted by Congress, to infer
from those a broader “intent” of Congress, and then to extrapolate
further exceptions from there—is not an appropriate means of
determining a statute’s legal effect. See Holy Trinity Church v. United
States, 143 U.S. 457 (1892) (applying similar reasoning); United States
v. Lucero, 989 F.3d 1088, 1098 n.8 (9th Cir. 2021) (remarking that Holy
Trinity Church’s approach has “long been disfavored”). To the
contrary, the enumeration of only some exceptions typically implies
the exclusion of others. See Stow Mfg. Co. v. Comm’r, 190 F.2d 723,
726 (2d Cir. 1951) (L. Hand, J.) (“That choice must have been
deliberate: expressio unius, exclusio alterius.”). Here, it is much
more “harmonious[]” to read the NBA together with Dodd-Frank as
a decision by Congress to carve out an exception from its general rule,
rather than expressly imposing a burden on some mortgage loans in
order to impliedly impose a burden on all of them. Hymes, 408
F. Supp. 3d at 198. 12 “Congress wrote the statute it wrote—meaning,
12
For the same reasons, the district court’s reliance on RESPA was
misplaced. The fact that one purpose of RESPA is to protect mortgagors
does not mean RESPA does so at all costs, endorsing all possible consumer-
protection laws. Rather, Congress chose the approach in RESPA—i.e., a
cap on the amount that could be required to be put in escrow—instead of
30
a statute going so far and no further.” Michigan v. Bay Mills Indian
Cmty., 572 U.S. 782, 794 (2014) (cleaned up).
On this same point, Plaintiffs point to Dodd-Frank’s legislative
history. Although such consultation is unnecessary where the
statutory language is clear, see Milner v. Dep’t of the Navy, 562 U.S. 562,
574 (2011) (“Legislative history, for those who take it into account, is
meant to clear up ambiguity, not create it.”), the legislative history
here categorically contradicts Plaintiffs’ view. The sponsors of
Dodd-Frank noted that the new mandate to establish escrow accounts
for certain mortgages was targeted at subprime borrowers in the
wake of the 2008 Financial Crisis. See H.R. Rep. No. 111-94, at 49
(2009) (authored by Rep. Frank) (“Regarding the escrow
provisions . . . [the bill] requires all subprime borrowers to have
requiring a floor on the rate of interest such proceeds can accrue. As we
have explained:
RESPA is meant to regulate the amount of money that a
borrower is required to deposit in escrow by tying that
amount to the costs the escrow fund is meant to secure.
RESPA is not, however, designed to reduce the dollar costs of
taxes, fees, and insurance premiums. RESPA can, and does,
accomplish its task by setting rules on required escrow
contributions. That this system may, in the end, be more
expensive to borrowers than, say, keeping their money in
interest-bearing accounts to pay their own bills, does not
violate RESPA’s stated goal of “reduc[ing] the amounts home
buyers are required to place in escrow accounts.” 12 U.S.C.
§ 2601(b)(3).
Flagg, 396 F.3d at 185. RESPA of course shares a partial “unity of purpose”
with all mortgage-escrow regulations, but that does not mean that RESPA
imposes all of them on national banks. Hymes, 408 F. Supp. 3d at 185.
31
accounts established in conjunction with their mortgages to provide
protection against tax liens and the forced placement of insurance,
among other things.”); id. at 53 (“[S]ubprime borrowers, even though
they are more likely to need budgeting assistance given their weaker
credit histories, are less likely than prime borrowers to have
escrows.”). Having required a certain class of borrowers to open
mortgage escrow accounts, it makes sense that Congress also allowed
for interest-on-escrow balances to ensure that they would be
adequately compensated. It does not make sense to read this
provision as effecting a sub silentio sea change.
Second, Cantero’s mortgage predated the TILA amendments,
so the district court erred by looking to those amendments to
determine the correct preemption standard in Cantero. “[T]he views
of a subsequent Congress form a hazardous basis for inferring the
intent of an earlier one.” CPSC v. GTE Sylvania, Inc., 447 U.S. 102,
117 (1980) (citation omitted). That is, the court erred by relying on
what it thought Congress’s intent was in 2010 to ascertain the legal
force of the National Bank Act of 1864. The district court correctly
acknowledged that Dodd-Frank did not change the preemption rules
applicable here, but the next step should have been to look to those
preemption rules—not to other contemporaneous provisions enacted
by Dodd-Frank. By interpreting Dodd-Frank to determine the scope
of preexisting preemption rules, the district court relied on the
unstated assumption that Dodd-Frank advanced precisely the same
purposes as the preemption standards that it left undisturbed. See
Hymes, 408 F. Supp. 3d at 196 (seeking to “give effect to” Congress’s
latest “policy judgment”); see also Lusnak, 883 F.3d at 1197 (stating that
the preemption test was the same before and after Dodd-Frank after
having already used Dodd-Frank to determine whether the test was
32
met). But this assumption was in error. If anything, Congress’s
decision to carve out certain mortgages and to require banks to pay
state-mandated interest on their associated escrow accounts would
seem to reflect its understanding that such interest payments were not
previously required. See Stone v. INS, 514 U.S. 386, 397 (1995)
(“When Congress acts to amend a statute, we presume it intends its
amendment to have real and substantial effect. . . . The reasonable
construction is that the amendment was enacted as an exception, not
just to state an already existing rule.”).
In short, Dodd-Frank does not change the analysis applicable
to this case, so the Hymes Plaintiffs have also failed to state a claim for
breach of contract.
III. CONCLUSION
When the NBA grants powers “both enumerated and
incidental” to national banks, it displaces all state laws that purport
to “control” banks’ exercise of those powers. Watters, 550 U.S. at 11–
12 (citation omitted). Although New York officials have said that
the state’s interest-on-escrow statute is one such preempted law,
Plaintiffs contend otherwise. Their argument is that because the
law’s minimum interest rate is not very high, applying it to mortgage
loans from institutions like BOA would not undermine the national
uses to which Congress has put national banks. But in neither the
NBA nor in Dodd-Frank did Congress direct us to answer a question
“so unfit for the judicial department.” McCulloch, 17 U.S. at 430. 13
BOA also argues that an OCC regulation promulgated under the
13
NBA, 12 C.F.R. § 34.4, preempts GOL § 5-601. But “we hold that the NBA
itself—independent of [the] OCC’s regulation—preempts the application”
33
The order of the district court is reversed, and the cases are
remanded for further proceedings consistent with this opinion.
of GOL § 5-601 to national banks, so we do not reach that question.
Watters, 550 U.S. at 21 n.13.
34
21-400-cv, 21-403-cv
Cantero v. Bank of Am., N.A.
1 PÉREZ, Circuit Judge, concurring:
2 I join in full this Court’s well-reasoned opinion and agree that to resolve
3 these appeals we must apply the “ordinary” principles of conflict preemption and
4 statutory interpretation. Maj. Op. at 15, 29–31. In accordance with binding
5 precedent, this Court correctly holds that the New York law at issue is preempted
6 by the National Bank Act (“NBA”) because it significantly interferes with
7 incidental national bank powers. See Franklin Nat’l Bank of Franklin Square v. New
8 York, 347 U.S. 373, 376, 378–79 (1954) (construing national banks’ enumerated
9 power to “receive deposits” broadly to include the incidental power to advertise
10 such services).
11 I write separately, however, to address two points on why this Court’s
12 opinion leaves ample room for state regulation of national banks. First, states
13 continue to have certain longstanding powers to regulate national banks
14 consistent with the articulation of preemption doctrine in this case. This is because
15 the opinion is rooted in the Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S.
16 25 (1996) (“Barnett Bank”) preemption standard, which only preempts state laws
17 that directly conflict with enumerated or incidental national bank powers
18 conferred by Congress. Id. at 32–34, 37. The standard is a narrow question of law
1
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Cantero v. Bank of Am., N.A.
1 and preserves states’ vital role in regulating national banks short of laws, like the
2 New York law challenged here, that seek to “control” or otherwise prevent or
3 significantly interfere with national bank powers. Watters v. Wachovia Bank, N.A.,
4 550 U.S. 1, 11–12 (2007) (citation omitted).
5 Second, Congress has subjected national banks to state interest-on-escrow
6 laws when financing certain mortgage loans that are, unlike Plaintiffs’, covered by
7 the Dodd-Frank Wall Street Reform and Consumer Protection Act’s (“Dodd-
8 Frank”) amendments to the Truth in Lending Act (“TILA”). 1 The majority has
9 declined to reach this issue in these appeals, Maj. Op. at 29 n.11, but the plain text
10 of the relevant statute compels the conclusion that Congress did intend to subject
11 national banks to these state laws when financing certain mortgage loans covered
1 Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, §
1461, 124 Stat. 1376, 2178–81 (2010) (codified at 15 U.S.C. § 1639d).
2
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Cantero v. Bank of Am., N.A.
1 by those amendments (“covered mortgage loan”). 2 Id. at 28–33. Any argument to
2 the contrary 3 is foreclosed by this Court’s reasoning.
3 I.
4 Because this Court’s opinion is rooted in ordinary conflict preemption
5 principles in Barnett Bank, Maj. Op. at 15, it is consistent with longstanding case
6 law that supports “the vital role that state legislation plays in the dual banking
7 system.” Watters, 550 U.S. at 25 (Stevens, J., dissenting). As this Court notes, these
8 principles tell us that national banks, like any other corporation, are generally
9 subject to the laws of the states in their business and affairs. Maj. Op. at 28 n.10.
10 For over a century and a half, the Supreme Court has recognized this vital
11 role states play in regulating federally chartered banks. See Watters, 550 U.S. at 11
2 To elaborate, a “covered mortgage loan,” for the purposes of this opinion, is a loan
made by a creditor that must include, in connection with its consummation, certain escrow
requirements under 15 U.S.C. § 1639d—including the requirement to pay interest if prescribed
by applicable state or federal law. Id. § 1639d(b), (g). Subsection (b) of that section sets forth the
circumstances when a mortgage loan agreement must comply with these escrow requirements.
Id. § 1639d(b), (g). Under that subsection, a covered mortgage loan includes a loan that is: (1)
required to provide escrow services under “Federal or State law”; (2) “made, guaranteed, or
insured by a State or Federal governmental lending or insuring agency”; (3) made with an
original principal obligation amount that meets certain statutory formula based on the size of
that amount, the “size of the property,” and the “average prime offer rate”; or (4) required to
provide escrow services “pursuant to regulation.” Id. § 1639d(b)(1)–(4).
3 In these appeals, Bank of America, N.A. (“BOA”) urged us to go further, arguing that
Congress did not intend to subject national banks to state interest-on-escrow requirements
under any circumstances. See Appellant’s Br. at 52; see also Lusnak v. Bank of Am., N.A., 883 F.3d
1185, 1191 (9th Cir. 2018) (noting BOA’s assertion of the same argument).
3
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Cantero v. Bank of Am., N.A.
1 (“Federally chartered banks are subject to state laws of general application in their
2 daily business . . . .”); Cal. Fed. Sav. & Loan Ass’n v. Guerra, 479 U.S. 272 (1987)
3 (applying state employment discrimination law to federally chartered savings and
4 loan association); Wichita Royalty Co. v. City Nat’l Bank of Wichita Falls, 306 U.S. 1035 (1939) (applying state law tort claim by depositor against directors of a national
6 bank); Davis v. Elmira Sav. Bank, 161 U.S. 275, 290 (1896) (“Nothing, of course, in
7 this opinion is intended to deny the operation of general and undiscriminating
8 state laws on the contracts of national banks . . . .”); Waite v. Dowley, 94 U.S. 527,
9 533–34 (1876) (upholding state law requiring all banks, including national banks,
10 to submit lists of shareholders as “not in conflict with any provision of the
11 [NBA]”); see also Atherton v. FDIC, 519 U.S. 213, 223 (1997) (collecting cases in
12 various contexts in which state law applied to federally chartered banks).
13 There is, of course, preemption of state laws that “infringe the national
14 banking laws or impose an undue burden on the performance of the banks’
15 functions.” See Anderson Nat’l Bank v. Luckett, 321 U.S. 233, 248 (1944) (collecting
16 cases); see also Farmers’ & Mechanics’ Nat’l Bank v. Dearing, 91 U.S. 29, 34 (1875)
17 (“States can exercise no control over [national banks], nor in any wise affect their
18 operation, except in so far as Congress may see proper to permit.”); see also Nat’l
4
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Cantero v. Bank of Am., N.A.
1 Bank v. Commonwealth, 76 U.S. (9 Wall.) 353, 362 (1869) (“It is only when the State
2 law incapacitates the banks from discharging their duties to the government that
3 it becomes unconstitutional.”). The Supreme Court in Barnett Bank distilled this
4 century-and-a-half of case law into an “ordinary legal principle[]” holding that
5 states have “the power to regulate national banks” where “doing so does not
6 prevent or significantly interfere with the national bank’s exercise of its powers.”
7 517 U.S. at 33–34, 37.
8 The essential inquiry is one of conflict preemption which, in these appeals,
9 requires an assessment of whether “[the state’s] law stand[s] as an obstacle to the
10 accomplishment and execution of the full purpose and objectives of Congress.” Id.11 at 31 (alteration and internal quotation marks omitted) (quoting Hines v.
12 Davidowitz, 312 U.S. 52, 67 (1941)). We are to ask the narrow question of whether
13 the state law directly conflicts with a national bank’s exercise of an enumerated or
14 incidental power conferred by Congress. See, e.g., Franklin Nat’l Bank, 347 U.S. at15 377–78 (discussing incidental powers). If “the federal and state statutes are
16 incompatible . . . the policy of the State must yield.” Id. at 374.
17 This standard requires a finding of preemption in these appeals. As this
18 Court notes, national banks have the incidental power to provide escrow services.
5
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Cantero v. Bank of Am., N.A.
1 Maj. Op. at 23–24. This power is derived from national banks’ enumerated power
2 to engage in real estate lending. 12 U.S.C. § 371 (real estate powers); id. § 24
3 (Seventh) (incidental powers). Escrow services are incidental thereto because they
4 are “convenient and useful in connection with the performance of” that power.
5 Starr Int'l Co. v. Fed. Rsrv. Bank of N.Y., 742 F.3d 37, 41 n.4 (2d Cir. 2014) (alterations
6 and internal quotation marks omitted) (quoting Sec. Indus. Ass'n v. Clarke, 885 F.2d
7 1034, 1044, 1049 (2d Cir. 1989)); see also BRUCE E. FOOTE, CONG. RSCH. SERV., 98-979,
8 MORTGAGE ESCROW ACCOUNTS: AN ANALYSIS OF THE ISSUES 1 (1998) (discussing
9 the widespread use of escrow accounts in mortgage lending). The state law before
10 us conflicts because it directly conditions the exercise of this power on the payment
11 of interest to the accountholder, Maj. Op. at 23–24, a conclusion New York State’s
12 financial regulator has apparently conceded, id. at 9, 24 (citing a 2018 order of the
13 New York State Department of Financial Services).
14 Of course, this conclusion does not imply that every state law that impacts
15 national banks’ business interests is preempted. As this Court observes, such a
16 course would have “untenable doctrinal implications,” as many permissible state
17 regulations on national banks impose “severe” impacts on such interests. Id. at 18,
18 23; see, e.g., First Nat’l Bank in St. Louis v. Missouri, 263 U.S. 640, 659 (1924) (state
6
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Cantero v. Bank of Am., N.A.
1 statute “prohibiting [bank] branches, does not . . . interfere with the discharge of
2 [national bank] duties” because no federal statute authorized national bank
3 branches); see also McClellan v. Chipman, 164 U.S. 347, 361 (1896) (permitting state
4 to enforce its prohibition on certain real estate transfers by insolvent transferees
5 against a nationally chartered bank); Madden v. Midland Funding, LLC, 786 F.3d 246,
6 251 (2d Cir. 2015) (observing that state usury law at issue “might decrease the
7 amount a national bank could charge for its consumer debt in certain states . . .
8 [but] such an effect would not ‘significantly interfere’ with the exercise of a
9 national bank power”); Austin v. Altman, 332 F.2d 273, 276 (2d Cir. 1964)
10 (explaining that a case involving state claims by shareholders of national bank
11 against bank directors for various alleged improprieties was not “a federal matter
12 merely because the bank is chartered under federal law”).
13 Because the state law at issue here conditions the exercise of an incidental
14 power on the payment of monies to escrow accountholders—it is preempted. This
15 conclusion nonetheless preserves states’ vital role in our dual-banking system
16 because the analysis asks whether the state law interferes with a congressionally
17 granted national bank power.
7
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Cantero v. Bank of Am., N.A.
1 II.
2 Congress, however, has expressed its judgment that national banks must
3 comply with state interest-on-escrow laws when financing certain mortgage loans
4 that are, unlike Plaintiffs’, covered by Dodd-Frank’s amendments to TILA. Supra
5 at 2 n.2. In these appeals, Bank of America, N.A. (“BOA”) argued that Congress
6 intended to exempt national banks from compliance with these state laws even
7 when financing covered mortgage loans. Appellant’s Br. at 52. This argument is
8 contradicted by the text, foreclosed by this Court’s reasoning, and would frustrate
9 Congress’s goals in addressing the subprime mortgage crisis.
10 To infer congressional intent “we employ the ordinary rules of statutory
11 interpretation,” Maj. Op. at 29–30, which tell us that “the best evidence of
12 Congress’s intent is the statutory text,” Nat’l Fed’n of Indep. Bus. V. Sebelius, 567 U.S.
13 519, 544 (2012). We first “determine whether the [statutory] language at issue has
14 a plain and unambiguous meaning.” Robinson v. Shell Oil Co., 519 U.S. 337, 340
15 (1997). If the statutory language is unambiguous, and the statutory scheme is
16 coherent and consistent, the “inquiry must cease.” Id. (citation omitted); see also
17 English v. Gen. Elec. Co., 496 U.S. 72, 78–79 (1990) (“[W]hen Congress has made its
18 intent known through explicit statutory language, the courts’ task is an easy one.”).
8
21-400-cv, 21-403-cv
Cantero v. Bank of Am., N.A.
1 The plain text of Dodd-Frank’s amendments to the NBA and TILA reveal an
2 intent to subject national banks to state interest-on-escrow laws when exercising
3 real estate lending powers. With respect to the NBA amendments, this Court
4 concludes that the text is best understood as Congress’s “instruct[ion]” to “[a]pply
5 the ‘ordinary legal principles of pre-emption’” as articulated in Barnett Bank. Maj.
6 Op. at 26 (quoting 517 U.S. at 37). With that unambiguous instruction, there was
7 no need to “extrapolate Congress’s broader goals” from amendments to TILA that
8 did not apply to Plaintiffs’ mortgage loans. Id. at 14. But this Court’s analysis
9 leads to another conclusion: these amendments reveal a congressional intent to
10 require national banks to comply with state interest-on-escrow laws when
11 financing covered mortgage loans. See supra at 2 n.2. The plain text requires
12 “creditor[s],” without limitation for national banks, to pay interest on an escrow
13 account “[i]f prescribed by applicable State or Federal law.” 15 U.S.C. §
14 1639d(g)(3).
15 Dodd-Frank’s dual instructions to apply Barnett Bank and comply with state
16 interest-on-escrow laws are wholly consistent. In Barnett Bank, the Supreme Court
17 tells us to infer a preemptive intent when the plain text of a statute “explicitly
18 grants a national bank an authorization, permission, or power” with “no
9
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Cantero v. Bank of Am., N.A.
1 ‘indication’ that Congress intended to subject that power to [state] restriction.”
2 Barnett Bank, 517 U.S. at 34–35. But the Supreme Court also noted we do not infer
3 preemptive intent when Congress provides an “explicit statement that the exercise
4 of [national bank] power is subject to state law.” Id. (collecting examples of such
5 explicit statements); Franklin Nat’l Bank, 347 U.S. at 378 n.7 (same). In such
6 circumstance, we are compelled to interpret the provision “to mean what [it]
7 say[s].” See Barnett Bank, 517 U.S. at 33; see also Maj. Op. at 29 n.11. Congress made
8 such an “explicit statement” by instructing national banks to comply with state
9 interest-on-escrow laws when financing covered mortgage loans.
10 A.
11 Dodd-Frank’s requirement to comply with state interest-on-escrow laws is
12 codified at 15 U.S.C. § 1639d (“Section 1639d”). That section requires a “creditor”
13 “in connection with the consummation of a consumer credit transaction secured
14 by a first lien on the principal dwelling of the consumer” to establish an escrow
15 account for the payment of taxes and insurance for covered mortgage loans. See
16 15 U.S.C. § 1639d(a)–(b); see also supra at 2 n.2. The term “creditor” is defined
17 broadly to include, as relevant here, an “organization” that “both (1) regularly
18 extends [credit], whether in connection with loans, sales of property or services, or
10
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Cantero v. Bank of Am., N.A.
1 otherwise, consumer credit . . . and (2) is the [organization] to whom the debt
2 arising from the consumer credit transaction is initially payable.” Id. § 1602(e), (g).
3 Under Section 1639d(g)(3), entitled “[a]pplicability of payment of interest,” for all
4 escrow accounts required under Section 1639d(a)–(b), creditors are required to pay
5 interest on monies deposited therein “[i]f prescribed by applicable State or Federal
6 law . . . in the manner as prescribed by that applicable State or Federal law.” Id. §
7 1639d(g)(3).
8 Section 1639d(g)(3)’s interest requirements apply to national banks. The
9 relevant definition for “creditor” is broad. Id. § 1602(g). It includes national banks
10 when exercising real estate lending powers, see 12 U.S.C. § 371(a), a fact that even
11 BOA does not dispute. For such creditors, the provision uses the mandatory “shall
12 pay interest” when “prescribed by applicable State or Federal law” without any
13 express exception for national banks. 4 15 U.S.C. § 1639d(g)(3). The provision
14 could therefore be summarized as follows: when applicable state law requires a
4 It is notable that Congress, in enacting TILA’s amendments, knew how to expressly limit
the application of its new provisions vis-à-vis existing federal laws. See, e.g., Dodd-Frank tit. XIV,
§ 1415, 124 Stat. at 2153 (providing that, unless otherwise provided therein, no provision in 15
U.S.C. §§ 1639b, 1639c (as amended) “shall be construed as superseding, repealing, or affecting
any duty, right, obligation, privilege, or remedy of any person under any other provision . . . of
Federal or State law”). Congress imposed no similar limitation on Section 1639d’s application.
See generally 15 U.S.C. § 1602 (providing relevant definitions and rules of construction); see also
Dodd-Frank § 1461(a), 124 Stat. at 2178–81.
11
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Cantero v. Bank of Am., N.A.
1 national bank to pay interest on an escrow account, it must do so in accordance
2 with that law.
3 The ordinary meaning of the term “applicable,” as applied to “State or
4 Federal law,” supports this conclusion. Id. Interpreting a different statute, the
5 Supreme Court defined the term as follows:
6 “Applicable” means “capable of being applied: having relevance” or
7 “fit, suitable, or right to be applied: appropriate.” WEBSTER’S THIRD
8 NEW INTERNATIONAL DICTIONARY 105 (2002). See also NEW OXFORD
9 AMERICAN DICTIONARY 74 (2d ed. 2005) (“relevant or appropriate”); 1
10 OXFORD ENGLISH DICTIONARY 575 (2d ed. 1989) (“[c]apable of being
11 applied” or “[f]it or suitable for its purpose, appropriate”).
12
13 Ransom v. FIA Card Servs., N.A., 562 U.S. 61, 69 (2011) (alterations in original); accord
14 Lusnak v. Bank of Am., N.A., 883 F.3d 1185, 1195 (9th Cir. 2018) (interpreting Section
15 1639d).
16 Defining “applicable” as “relevant” or “having relevance,” see Hymes v. Bank
17 of Am., N.A., 408 F. Supp. 3d 171, 187 (E.D.N.Y. 2019) (applying this definition), is
18 consistent with “the neighboring words with which it is associated,” United States
19 v. Williams, 553 U.S. 285, 294 (2008); ANTONIN SCALIA & BRYAN A. GARNER,
20 READING LAW: THE INTERPRETATION OF LEGAL TEXTS 70 (2012) (noting “[o]ne
21 should assume the contextually appropriate ordinary meaning unless there is
12
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Cantero v. Bank of Am., N.A.
1 reason to think otherwise”). “Applicable” appears ten times in Section 1639d and
2 each use suggests Congress did not intend a specialized meaning beyond simply
3 “relevant.” See, e.g., 15 U.S.C. § 1639d(a) (requiring creditors to maintain escrow
4 accounts “for the payment of taxes and hazard insurance, and, if applicable, flood
5 insurance, mortgage insurance, ground rents, and any other required periodic
6 payments or premiums” (emphasis added)); see also id. § 1639d(j)(2)(A) (requiring
7 lenders to send notice to consumers who waive “escrow services” and include
8 “[i]nformation concerning any applicable fees or costs associated with . . . [the]
9 account” (emphasis added)). 5
10 There is no reason to construe “applicable,” as BOA argues, to exempt all
11 state interest-on-escrow laws as applied to national banks. Appellant’s Br. at 50
12 (arguing such laws are “preempted” and therefore not “able to be applied”). This
13 proposed interpretation asks too much of the text. The section speaks to
5 The use of “applicable” elsewhere in the section does not change the analysis. Id. §
1639d(b)(3)(A) (requiring escrow services for certain mortgage loans “having an original
principal obligation amount that . . . does not exceed the amount of the maximum limitation on
the original principal obligation of mortgage in effect for a residence of the applicable size”
(emphasis added)); id. § 1639d(b)(3)(B) (identical usage); id. § 1639d(g)(2)(C) (providing that
escrow accounts “shall be administered in accordance with . . . the law of the State, if applicable,
where the real property securing the consumer credit transaction is located” (emphasis added));
id. § 1639d(h)(3) (requiring disclosure of “estimated taxes and hazard insurance, including flood
insurance, if applicable” (emphasis added)); id. § 1639d(h)(4)–(5) (identical usages).
13
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Cantero v. Bank of Am., N.A.
1 “applicable State or Federal law,” and Congress would not express an intent to
2 exempt preempted laws in a term applying equally to federal law. Id. § 1639d(g)(3)
3 (emphasis added). Moreover, Congress’s use of a “broad rule” without any
4 express exception is not an invitation to ignore plain text. Bostock v. Clayton County,
5 140 S. Ct. 1731, 1747 (2020) (“[W]hen Congress chooses not to include any
6 exceptions to a broad rule, courts apply the broad rule.”); see also Jama v. Immigr.
7 & Customs Enf’t, 543 U.S. 335, 341 (2005) (noting courts “do not lightly assume that
8 Congress has omitted from its adopted text requirements that it nonetheless
9 intends to apply”). As this Court counsels, we do not apply “unstated” purposes
10 in Dodd-Frank to construe the scope of NBA preemption. Maj. Op. at 32. As did
11 Plaintiffs’, BOA’s argument fails to rebut the presumption that “Congress wrote
12 the statute it wrote—meaning, a statute going so far and no further.” Michigan v.
13 Bay Mills Indian Cmty., 572 U.S. 782, 794 (2014) (internal quotation marks omitted). 6
6 BOA’s reliance on Fid. Fed. Sav. & Loan Ass’n v. de la Cuesta is also misplaced.
Appellant’s Br. at 50–51 (quoting 458 U.S. 141, 157 n.12 (1982)). In de la Cuesta, the Supreme
Court held that a California legal doctrine relating to real estate transactions was preempted by
federal regulations and that the parties were bound by these regulations pursuant to a provision
specifying that a deed of trust “shall be governed by the law of the jurisdiction in which the
Property is located.” 458 U.S. at 148 (quoting the deed of trust). The Supreme Court construed
the term “law of the jurisdiction” to include federal law because “the Constitution, laws, and
treaties of the United States are as much a part of the law of every State as its own local laws
and Constitution.” Id. at 157 & n.12 (quoting Hauenstein v. Lynham, 100 U.S. 483, 490 (1880)).
Here, there is no authority that would require us to construe “applicable” to have anything to
do with preemption.
14
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Cantero v. Bank of Am., N.A.
1 The fact that Congress chose to require national banks to comply with
2 certain state laws via TILA—and not the NBA—does not change the analysis.
3 Congress’s decision to place Section 1639d in TILA is logical, given that the section
4 applies to a broad category of creditors, not just national banks, and relates to the
5 terms of residential mortgage loans. See 15 U.S.C. § 1601 (congressional findings).
6 Moreover, while the “location” or “manner” of codification is “probative” of
7 congressional intent, Smith v. Doe, 538 U.S. 84, 94 (2003), such indicia do not require
8 us to ignore plain text, see, e.g., Bass v. Stolper, Koritzinsky, Brewster & Neider, S.C.,
9 111 F.3d 1322, 1328 (7th Cir. 1997) (declining to consider Congress’s method of
10 amending a statute when “not faced with statutory ambiguity”). 7
11 B.
12 Construing Section 1639d to contain an implied exemption for national
13 banks would undermine Congress’s goals in addressing a “financial crisis that
7 BOA’s argument that Congress did not intend to make national banks comply with
state interest-on-escrow laws because it did not follow its “usual approach” and amend the
NBA is also unpersuasive given the plain text. Appellant’s Br. at 47–48. Again, the location of
an enactment is one of a number of features that is probative of congressional intent, but it is
not “dispositive” of the issue. See Smith, 538 U.S. at 94. Moreover, BOA’s reliance on Barnett
Bank for this argument is unavailing, as the Supreme Court did not purport to hold that
Congress must amend a “federal banking statute” to make “the exercise of [national bank]
power . . . subject to state law.” 517 U.S. at 34. Rather, Barnett Bank reaffirmed that the question
of preemption “is basically one of congressional intent.” Id. at 30. Courts must discern that
intent from plain text.
15
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Cantero v. Bank of Am., N.A.
1 nearly crippled the U.S. economy.” S. Rep. No. 111-176, at 2 (2010) (authored by
2 Sen. Dodd). That crisis traced its origins to a downturn in the housing market due
3 to “a raft of unsound lending practices . . . ultimately le[a]d[ing] to the failure of a
4 number of companies heavily involved in making or investing in subprime loans.”
5 Id. at 40. Congress knew that national banks were among the entities responsible.
6 See H. Rep. No. 111-94, at 51 (2009) (authored by Rep. Frank) (noting that
7 approximately less than one-quarter of “[s]ubprime lenders” were “regulated by
8 Federal financial regulators such as banks, thrifts, and credit unions”).
9 Some of the deceptive practices that led to the crisis were addressed through
10 Dodd-Frank’s amendments to TILA. Id. at 49 (noting Congress sought to
11 “mitigat[e] . . . deceptive practices related to escrow accounts, mortgage servicing,
12 and appraisal practices”). Certain lending practices, in Congress’s view, were
13 causing subprime borrowers to voluntarily waive escrow services leading to a
14 disproportionately low adoption rate. Id. at 53 (noting “approximately 50 percent
15 of all first lien subprime mortgages had escrows, compared to 71 percent of prime
16 loans”). Congress was concerned about the systemic risk this posed to the
17 financial system. Escrow accounts are essential for payment of “property taxes,
18 hazard insurance, and certain other periodic expenses related to the property or
16
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Cantero v. Bank of Am., N.A.
1 the contract.” Id. Without such services, borrowers may “underestimate the
2 monthly payment actually needed to own a home” and be at risk of “tax liens and
3 property losses.” Id. at 53–54. With respect to subprime borrowers, these risks
4 were amplified due to their poor financial circumstances:
5 In general, subprime mortgages are loans that have more costly
6 terms and conditions than “prime” mortgages (e.g., they may have
7 higher interest rates, additional fees, prepayment penalties, or other
8 features). Many subprime loans were made to borrowers who, due
9 to weakened credit histories, pose higher credit risks. These
10 borrowers may have lower credit scores than prime borrowers or
11 higher debt to income ratios on their properties.
12 Id. at 51.
13 Congress addressed these risks through Section 1639d’s escrow provisions,
14 which require lenders to maintain escrow accounts on behalf of certain borrowers
15 considered to be “subprime.” See id. at 49 (“[T]he escrow provisions . . . require[]
16 all subprime borrowers to have accounts established in conjunction with their
17 mortgages . . . .”); see also id. at 53 (noting that “subprime borrowers” need escrow
18 accounts for “budgeting assistance given their weaker credit histories”).
19 It would strain credulity to believe Congress intended to exempt national
20 banks from any of its escrow requirements. It is obvious that Congress was aware
21 national banks had a hand in causing the crisis. Id. at 51. While it is true that most
17
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Cantero v. Bank of Am., N.A.
1 subprime loans originated from “mortgage brokers and lenders with no Federal
2 supervision,” id., these entities were not solely to blame, see FIN. CRISIS INQUIRY
3 COMM’N, THE FINANCIAL CRISIS INQUIRY REPORT 22 (2011) (noting that in 2008 BOA
4 acquired Countrywide Financial Corporation, one of the largest subprime
5 lenders); see also NAT’L CONSUMER L. CTR., PREEMPTION AND REGULATORY REFORM:
6 RESTORE THE STATES’ TRADITIONAL ROLE AS “FIRST RESPONDER” 11 (2009)
7 (“Mortgage lending by national banks, federal thrifts, and their operating
8 subsidiaries made up 31.5% . . . of the most dangerous, subprime loans during the
9 peak year of 2006.”). An exemption for national banks from Section 1639d(g)(3)’s
10 requirements would frustrate Congress’s goal to address a problem which
11 confronted our nation.
12 III.
13 Congress undoubtedly has the power to regulate national banks to the
14 exclusion of states—but has thus far declined to do so. As a result, regulation of
15 national banks has been a matter of both federal and state concern since the
16 passage of the first National Bank Act in 1863. See Watters, 550 U.S. at 10–11; see
17 also Nat’l State Bank, Elizabeth, N. J. v. Long, 630 F.2d 981, 985–86 (3d Cir. 1980)
18 (tracing the NBA’s history). While state law “must usually govern the activities of
18
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Cantero v. Bank of Am., N.A.
1 both national and state banks,” Watters, 550 U.S. at 25 (Stevens, J., dissenting), the
2 New York law at issue is preempted because it seeks to control the exercise
3 national bank powers conferred by Congress. But that law, as applied to national
4 banks, is not preempted under all circumstances. Congress, through Dodd-Frank,
5 has directed national banks, to comply with state interest-on-escrow laws when
6 financing mortgage loans that are, unlike Plaintiffs’, covered by that act. A
7 conclusion made inevitable in light of the text and Congress’s goals in dealing with
8 the subprime mortgage crisis—a crisis national banks helped create.
9 Based on the foregoing, I respectfully concur.
19