Homeowners argue for interest on escrow accounts held by national banks

By Ronald Mann

Since the Civil War, the U.S. banking industry has been divided between state banks, chartered and regulated by state authorities, and national banks, chartered and regulated by federal authorities. In the modern era, the Comptroller of the Currency, an officer in the Department of the Treasury, supervises and regulates national banks. Tuesday’s Cantero v. Bank of America presents a classic preemption dispute, this time under the National Bank Act.

Through the years, the Supreme Court has faced many cases in which state statutes have limited the activities of national banks, and it has held that the National Bank Act preempted many, though certainly not all, of those local enactments. In 2010, the Dodd-Frank Act included some provisions that “clarified” the preemption standard from the Supreme Court’s cases. Of relevance to this dispute, the provision calls for preemption whenever the state law “prevents or significantly interferes with the exercise by the national bank of its powers.”

The dispute before the justices involves mortgage escrow accounts, which lenders often hold to pay taxes and insurance premiums on the properties for which they hold mortgages. Often, especially at the national level, the banks are not permitted to invest the funds in those accounts; rarely if ever have banks voluntarily paid interest on them. Over the last several decades, though, states have enacted legislation obligating mortgage lenders to pay interest on those accounts. Currently, about a dozen states have such a statute, including the New York statute Bank of America challenges here.

Read Full Article Here…(scotusblog.com)

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