First Circuit Decision Raises the Bar for National Bank Act Preemption

Covington reports that the First Circuit’s decision in Conti v. Citizens Bank, N.A., marks the first appellate application of the Supreme Court’s 2024 ruling in Cantero v. Bank of America, which clarified the test for preemption under the National Bank Act.

In Conti, the court rejected Citizens Bank’s argument that Rhode Island’s law requiring lenders to pay interest on mortgage escrow accounts was preempted by federal law. It required a heightened evidentiary threshold for banks seeking early dismissal on preemption grounds.

Historically, several national banks have argued that state laws requiring escrow interest payments infringe upon federally granted banking powers.

The Supreme Court’s Cantero decision established that preemption analysis requires a “nuanced comparative assessment” of interference by reference to earlier National Bank Act precedents. This case-by-case approach replaced broader assertions of categorical preemption, leaving lower courts to determine what constitutes “significant interference” in practice.

Applying that framework, the First Circuit held that Citizens Bank failed to demonstrate that Rhode Island’s interest-on-escrow statute conflicted with federal banking powers or the overall federal scheme.

The court noted that Congress itself had mandated compliance with certain state escrow-interest laws, indicating coexistence between federal and state regulation. The panel dismissed arguments that a patchwork of differing state laws justified preemption, describing that theory as unpersuasive.

Legal teams should be aware that the Conti ruling signals greater difficulty asserting preemption at the pleading stage for national banks. Courts may require concrete evidence of actual interference rather than abstract policy concerns. The decision’s comparative approach may narrow the usefulness of prior Supreme Court preemption cases that lack a direct factual parallel.

For lenders, Conti underscores the need for a more robust factual record before advancing preemption defenses.