In its 2024 decision Cantero v. Bank v. America, N.A., the Supreme Court established the approach courts must follow in determining whether a state consumer financial law prevents or significantly interferes with the exercise of a national bank’s powers and is, therefore, preempted by the National Bank Act. In doing so, the Supreme Court reversed a ruling from the Second Circuit Court of Appeals that had established a standard that it described as “a categorical test that would preempt virtually all state laws that regulate national banks.” The certainty and clarity set forth in the Second Circuit’s approach was largely supported by the banking industry, as one of the primary value drivers of holding a national bank charter has been to preempt entire categories of state laws and, therefore, to make compliance on a multistate basis more streamlined. Yet, the Supreme Court’s approach in Cantero requires a far more nuanced analysis on a case-by-case basis to determine whether a state law at issue prevents or significantly interferes with the exercise of national bank powers.
While the Cantero decision struck a significant blow to the benefit of a national bank charter in theory, a September 22, 2025, decision from the First Circuit Court of Appeals illustrated the diminished value of a national bank charter (at least as to preemption of state consumer finance laws) in actual practice. In Conti v. Citizens Bank, N.A., the First Circuit examined whether the National Bank Act overrides Rhode Island’s law that requires banks to pay interest on escrow funds and, in finding that no preemption existed in this instance, demonstrated why the banking industry has been concerned about the standard set forth in Cantero.
Background and Decision in Conti v. Citizens Bank, N.A.
John Conti, representing a putative class of Citizens Bank customers, alleged that Citizens violated Rhode Island law by failing to pay interest on mortgage-escrow accounts. Citizens argued that the National Bank Act preempts the state law, and the district court agreed, dismissing the case. Conti appealed, and while the appeal was pending, the Supreme Court decided Cantero.
The First Circuit stayed Conti’s appeal until the Supreme Court decided Cantero, which rejected a broad approach to preemption and forced courts to carefully compare whether a state law actually interferes with federal banking powers. Post-Cantero, the First Circuit applied this standard and ultimately reversed the district court’s dismissal, holding that the district court did not apply the correct test as clarified in Cantero. In doing so, the First Circuit stressed that deciding preemption under the National Bank Act means looking at how much a state law actually interferes with the exercise of a national bank’s exercise of its powers, not simply assuming all state banking rules are preempted.
Most illustrative of the direction of jurisprudence in this area, the First Circuit analyzed whether Rhode Island’s interest-on-escrow law posed an express conflict with the National Bank Act. The First Circuit ruled that Rhode Island’s law is a generally applicable statute regulating bank products, rather than discriminating against national banking institutions. Relying on McClellan v. Chipman and National Bank v. Commonwealth, the court reaffirmed that national banks may be subject to generally applicable state laws. The court distinguished Conti from cases like Barnett Bank of Marion County N.A. v. Nelson, where federal law expressly granted banks powers that state laws tried to limit or prohibit. The First Circuit noted the National Bank Act does not expressly prohibit Rhode Island’s interest-on-escrow laws or reserve for national banks the exclusive authority to decide whether to pay interest on escrow accounts. The court observed that Supreme Court precedent limits preemption to situations where state law significantly interferes with bank powers. In Conti, the First Circuit found no such interference and concluded that the requirement to pay interest on escrow accounts did not impose a significant burden on Citizens. The court noted that interest-on-escrow laws are not uncommon, citing 12 other states with similar requirements — which Citizens itself acknowledged — and pointed to the Truth in Lending Act’s mandate to comply with state interest-on-escrow laws for certain mortgages. Finally, the First Circuit rejected Citizens’ broad preemption argument that any state law dictating the terms of banking products would create a problematic “patchwork” of regulations eroding federal banking powers, citing the clear language of Dodd-Frank and its preemption jurisprudence and noting that Congress could have expanded preemption under 12 U.S.C. § 25b if it intended such a broad approach.
Implications for Banking Regulation
The First Circuit’s decision shows that federal preemption under the National Bank Act is limited, especially when it comes to state consumer financial laws. By requiring a careful examination of whether a state law actually interferes, this decision supports states’ ability to regulate banking practices, as long as these laws do not significantly impede federal banking powers.
The First Circuit’s decision also highlights the significance and impact of the Supreme Court’s Cantero ruling, which altered the way courts view the preemption landscape by rejecting broad interpretations of federal banking power. While Cantero illustrated to industry observers the potential limitations of NBA preemption on state consumer finance laws, Conti demonstrates how — in actual practice — courts will be conducting this analysis going forward on a case-by-case basis. And, if Conti is illustrative of what is to come in the future for the banking industry, the compliance challenges and litigation risk posed by this case-by-case analysis will be immense.
As alluded to at the outset here, the value of a national bank charter in establishing some degree of certainty over which consumer finance laws will apply to a national bank is now severely diminished — and some industry commentators have argued that this value may no longer exist at all. At a more granular level, a national bank will need to guess as to whether the case-by-case analysis for any given state consumer finance law will fall in favor of federal preemption or against it. The most risk averse compliance professionals are likely to conclude that the value of complying with the entirety of state laws (as if a bank was a state-chartered institution) is greater than the cost of doing so. Similarly, the litigation risk associated with guessing as to which state laws might not apply to a national bank could become equally prohibitive.
All of this uncertainty leads to some very difficult questions as to the remaining value of a national bank charter, at least as to the preemptive benefits purportedly gained by possessing one. If Conti is truly illustrative of the future for national banks, especially if upcoming decisions in the remanded Cantero case in the Second Circuit and in a similar case in the interest on escrow case in the Ninth Circuit follow suit, these questions will become more prevalent in the very near future.
