National Banks Not Required to Comply with a New York State Law

A federal appeals court has ruled that national banks are not required to comply with a New York State law requiring mortgage lenders to pay a two per cent minimum annual interest rate on mortgage escrow accounts established for owner-occupied, one-to-six family residences.  The decision by the United States Court of Appeals for the Second Circuit in Cantero v. Bank of America, N.A., held that the New York law is preempted by the National Bank Act of 1864, which among other things grants national banks the power to establish and fund escrow accounts.  While the decision expressly applies only to national banks, it provides a strong basis for arguing that preemption would also apply to other federally-chartered financial institutions.  However, the Court’s ruling directly conflicts with a 2019 decision by a federal appeals court in California which reached the opposite conclusion, making the issue ripe for potential review and resolution by the Supreme Court should a further appeal be made