No Categorical NBA Preemption: First Circuit Requires Nuanced, Evidence‑Based Showing of “Significant Interference” for State Escrow‑Interest Laws

Introduction

In Conti v. Citizens Bank, N.A. (1st Cir. Sept. 22, 2025), the First Circuit vacated a Rule 12(b)(6) dismissal of a putative class action alleging that Citizens Bank failed to pay interest on mortgage-escrow accounts as required by Rhode Island General Laws § 19‑9‑2(a). The national bank defended on the ground that the National Bank Act (NBA) preempts the Rhode Island statute. While the case was on appeal, the Supreme Court decided Cantero v. Bank of America, N.A., 602 U.S. 205 (2024), which clarified the NBA preemption standard for “state consumer financial laws” codified in the Dodd‑Frank Act, 12 U.S.C. § 25b.

The First Circuit held that the district court, which ruled pre‑Cantero, applied the wrong test. Applying Cantero’s framework itself, the court rejected categorical preemption theories based on “limits” on bank powers, “flexibility/efficiency,” and “patchwork” arguments, and concluded that Citizens had not carried its burden to show that the Rhode Island escrow‑interest law is preempted. The court vacated and remanded for further proceedings.

Parties and posture:

Plaintiff: John Conti, Rhode Island borrower with a 2011 Citizens mortgage requiring escrow for taxes and insurance; the mortgage said no interest would be paid on escrow funds.
Defendant: Citizens Bank, N.A., a national bank chartered under the NBA.
Claims: Breach of contract and unjust enrichment on behalf of a putative multistate class (with an alternative Rhode Island‑only class), premised on R.I. Gen. Laws § 19‑9‑2(a).
District court: Dismissed on NBA preemption grounds.
First Circuit: Vacates and remands after Cantero.

Summary of the Opinion

The district court’s preemption analysis—which treated any state “limit” on bank powers as “significant interference”—conflicts with Cantero’s requirement for a practical, nuanced comparative analysis of precedent and is therefore erroneous.
SPGGC, LLC v. Ayotte, 488 F.3d 525 (1st Cir. 2007), on which the district court relied, is abrogated to the extent its methodology diverges from Cantero (no practical assessment; no comparative analysis of Barnett Bank and its core precedents).
Applying Cantero, Citizens did not meet its burden to show that Rhode Island’s escrow‑interest statute is preempted by the NBA:
- No express conflict: Unlike Barnett Bank and Fidelity Federal, no federal statute or regulation expressly authorizes banks to refuse to pay escrow interest or grants unfettered discretion that the state law withdraws.
- No persuasive “intent‑by‑silence” or OCC‑exclusivity theory: Dodd‑Frank’s § 25b rejects field preemption and presumes state law applies unless it discriminates or prevents/significantly interferes; OCC inaction does not imply preemption.
- No showing of “significant interference”: Citizens offered no concrete, practical evidence of material impairment comparable to the classic preemption cases. The bank’s “flexibility/efficiency” and “patchwork” arguments would amount to field preemption, which Congress disavowed.
Result: Judgment vacated; case remanded. The unjust enrichment claim (raised alternatively) and class issues were not addressed below and remain for the district court.

Analysis

Precedents Cited and How They Inform the Outcome

Cantero instructs courts to conduct a “nuanced comparative analysis” of Barnett Bank and six core Supreme Court decisions to assess whether a state law prevents or “significantly interferes” with national bank powers (12 U.S.C. § 25b(b)(1)(B)).

Preemption found (significant interference)

Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25 (1996): Florida barred certain banks from selling insurance; federal law expressly allowed national banks to sell insurance. Direct conflict—state law preempted.
Fidelity Federal S&L v. De la Cuesta, 458 U.S. 141 (1982): Federal regulation permitted due‑on‑sale clauses “at [the lender’s] option.” California’s restriction undermined that option—obstacle/conflict preemption.
Franklin Nat’l Bank v. New York, 347 U.S. 373 (1954): New York forbade national banks from using the word “savings.” Federal banking statutes contemplated “savings” deposits; the law impaired the incidental power to advertise and created a clear conflict, with practical competitive harms.
First Nat’l Bank of San Jose v. California, 262 U.S. 366 (1923): California’s “unusual” escheat statute allowed seizure of dormant deposits without proof of abandonment, risking “confiscation” that would deter deposits—materially impairing core deposit‑taking.

No preemption found (no significant interference)

McClellan v. Chipman, 164 U.S. 347 (1896): A general state contract rule applied nondiscriminatorily; national banks are ordinarily subject to general state law absent frustration of federal purposes.
Nat’l Bank v. Commonwealth, 76 U.S. (9 Wall.) 353 (1869): State tax on shareholders collected via banks did not incapacitate banks or unduly burden federal functions; routine compliance akin to other general legal obligations.
Anderson Nat’l Bank v. Luckett, 321 U.S. 233 (1944): Kentucky escheat law required proof of abandonment and was “as old as the common law itself”—a routine duty to pay deposits to the state standing in the depositor’s shoes; no material impairment.

The Court’s Legal Reasoning

1) The governing standard after Cantero and § 25b

Dodd‑Frank’s § 25b defines state consumer financial laws and preempts them “only if” they discriminate against national banks or “prevent or significantly interfere” with their exercise of powers, applying Barnett Bank’s standard. Cantero rejects categorical preemption: courts must assess the “nature and degree” of interference, compare to the classic precedents, and use text, structure, context, and common sense.

2) Why the district court’s test (and SPGGC’s approach) is wrong

The district court equated any “limit” on bank powers with “significant interference.” Cantero forecloses that shortcut. SPGGC, which predated Dodd‑Frank and Cantero and did not perform the comparative/practical analysis, cannot control where inconsistent with Cantero’s methodology.

3) No express conflict with federal law

Unlike Barnett Bank and Fidelity, there is no statute or regulation granting national banks a discretionary right to refuse escrow interest that Rhode Island’s law withdraws. Citizens pointed to no federal text suggesting Congress intended to preempt interest‑on‑escrow mandates.

4) Congressional silence and OCC inaction do not imply preemption

The bank’s “intent‑by‑silence” theory would invert § 25b’s presumption that state law applies absent discrimination or significant interference. The court rejected OCC‑exclusivity and inferences from OCC inaction; Dodd‑Frank prescribes specific procedures and criteria for OCC preemption, and Congress disclaimed field preemption (§ 25b(b)(4)).

5) Practical effects and consistency with the federal scheme

Cantero emphasizes practical consequences. Citizens offered no concrete showing that paying escrow interest materially impairs mortgage lending or the use of escrow accounts. By contrast:

Multiple states (at least twelve) have escrow‑interest laws—suggesting the obligation is not “unusual” in the Franklin/First Nat’l Bank of San Jose sense.
Congress, in TILA § 1639d, affirmatively requires compliance with state/federal escrow‑interest rules for certain mortgage categories, supporting the view that such laws are compatible with the federal banking scheme (even though the parties agreed § 1639d does not control this loan).
RESPA regulates escrows but does not forbid states from imposing greater consumer protections.

6) Why the bank’s “flexibility/efficiency” and “patchwork” theories fail

The bank argued that any state term dictating a banking product that reduces “flexibility” or “efficiency” is preempted. The court rejected this as tantamount to field preemption—virtually all banking‑specific state laws impose some compliance cost. Cantero demands an assessment of degree, not labels.

The “patchwork” argument—relying on Watters and a passage in First Nat’l Bank of San Jose—also falters after Dodd‑Frank. Congress anticipated that national banks would face a measure of state‑law variation and expressly rejected field preemption. Recent Supreme Court preemption cases do not rely on the patchwork rationale, and Cantero’s comparative framework does not treat patchwork alone as “significant interference.”

Impact

Immediate consequences

The Rhode Island action proceeds beyond the pleadings; the unjust enrichment claim and class certification issues return to the district court.
Within the First Circuit, defendants cannot obtain dismissal of similar escrow‑interest suits on NBA preemption by invoking categorical “limits,” “flexibility,” or “patchwork” theories.

Broader doctrinal effects

Cantero’s “nuanced comparative analysis” is now firmly embedded in First Circuit NBA preemption law. Earlier circuit decisions that bypassed that analysis (like SPGGC) have diminished force.
Preemption defenses will require evidence of concrete, material impairment akin to Franklin or First Nat’l Bank of San Jose (e.g., unusual constraints that create real deterrence or conflict with the structure of federal banking law), not merely that a state law specifies product terms.
Patchwork and “intent‑by‑silence” arguments are weak post‑Dodd‑Frank. The default is coexistence unless the state law discriminates or significantly interferes.
Interest‑on‑escrow requirements in other states are more likely to survive preemption challenges absent an express federal conflict or a well‑substantiated showing of significant interference.
The opinion leaves open the potential relevance of specific OCC preemption rules if properly briefed, but cautions that Dodd‑Frank imposes procedural and substantive constraints on OCC preemption.

Practical guidance

For banks: Evaluate escrow‑interest obligations jurisdiction by jurisdiction; compliance strategies may be more prudent than preemption defenses unless you can demonstrate concrete, substantial interference under Cantero’s comparative framework.
For consumer plaintiffs: Frame state escrow‑interest mandates as consistent with longstanding banking practices and federal schemes; highlight the absence of federal text conferring a contrary discretion and the practicality/ordinariness of paying interest on held consumer funds.
For regulators: When promulgating or enforcing state banking‑specific consumer protections, ensure nondiscrimination and document the practical coherence with federal banking objectives.

Complex Concepts Simplified

National Bank Act (NBA): The federal statute governing national banks. It grants enumerated powers (e.g., to lend) and “incidental” powers necessary to conduct banking.
Incidental powers: Activities “convenient or useful” to carrying out enumerated powers (e.g., escrow accounts used to protect collateral on mortgage loans).
Dodd‑Frank § 25b: Codifies NBA preemption for state consumer financial laws. Such laws are preempted only if they discriminate against national banks or prevent/significantly interfere with bank powers (Barnett Bank standard). Congress rejects field preemption.
State consumer financial law: A state law that directly and specifically regulates the manner, content, or terms/conditions of consumer financial transactions or related accounts.
Significant interference: Not a label; a real, practical impediment assessed by comparing to Supreme Court precedents and considering text, structure, context, and common sense.
Express conflict vs. obstacle/conflict preemption: Express conflict occurs when federal law permits what state law forbids (Barnett Bank) or reserves unfettered discretion that a state restricts (Fidelity). Obstacle preemption occurs when a state law frustrates federal purposes.
Field preemption: When federal law occupies an entire area, leaving no room for states. Dodd‑Frank disclaims this for banking; generally applicable state laws and many banking‑specific consumer laws still apply.
Escrow account: Funds borrowers pay into monthly to cover property taxes and insurance; lenders hold and disburse the funds to protect collateral and ensure obligations are met.

Conclusion

Conti cements Cantero’s recalibration of NBA preemption within the First Circuit. The court rejects categorical theories that would preempt most banking‑specific state consumer laws and instead demands a rigorous, precedent‑grounded, practical assessment of whether a state law truly causes “significant interference” with national bank powers. With no express federal conflict, no OCC‑based basis for preemption, and no evidence of unusual, material impairment, the Rhode Island escrow‑interest statute survives at the pleading stage.

The key takeaway is twofold: first, the burden of proving NBA preemption lies with the bank, and it now requires a concrete showing rooted in the Supreme Court’s canonical cases; second, state consumer financial protections—like escrow‑interest mandates—will often coexist with federal banking law unless they resemble the rare, unusual, and practically impairing laws condemned in Franklin or First Nat’l Bank of San Jose. The decision’s disciplined adherence to § 25b and Cantero will shape preemption litigation across consumer banking products well beyond escrow accounts.