Developments In National Bank Act (NBA) Preemption: Illinois' Interchange Fee Prohibition Act Is Held Preempted By The NBA; Ninth Circuit To Reconsider NBA Preemption Of California's Interest On Escrow Law

• Published date: 20 February 2025
• Subject Matter: Finance and Banking, Consumer Protection, Criminal Law, Financial Services, White Collar Crime, Anti-Corruption & Fraud, Dodd-Frank, Consumer Protection Act
• Law Firm: Moore & Van Allen
• Author: John Stoker and John Lightbourne

For followers of developments related to National Bank Act (NBA) preemption and the United States Supreme Court's related decision in Cantero v. Bank of America, N.A., 602 U.S. 205 (2024), the waning days of 2024 proved noteworthy. On December 20, 2024, the U.S. District Court for the Northern District of Illinois (the "District Court") applied Cantero's principles for evaluating claims of NBA preemption of state law and granted a preliminary injunction from enforcement of Illinois's Interchange Fee Prohibition Act (the "IFPA" or, the "Act") against national banks and federal savings associations. Illinois Bankers Association et. al. v. Raoul, No. 24 C 7307, 202 WL 5186840 (N.D. Ill., Dec. 20, 2024). Only a few days later, the Ninth Circuit Court of Appeals (the "Ninth Circuit") withdrew its August 2024 decision that had affirmed its 2022 decision that the NBA did not preempt California's interest on escrow (IOE) law, indicating it would schedule oral arguments and requesting supplemental briefing by the parties to address whether the IOE law was preempted "under the standard and methodology" announced in Cantero. Kivett v. Flagstar Bank, FSB, No. 21-15667, 2024 WL 5206133 (9^th Cir. Dec. 24, 2024). These developments gave us the first reasoned lower court opinion applying Cantero and set the stage for potentially three circuit courts (the First, Second and Ninth) to explicitly address and apply Cantero in 2025.

Background: Cantero v. Bank of America

In Cantero, the United States Supreme Court, for the first time, evaluated application of the standard established by the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act (the "Dodd-Frank Act") for the NBA's preemption of state consumer financial laws. The Dodd-Frank Act codified the NBA preemption standard articulated by the Supreme Court in Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25 (1996), which provided that state laws that "prevent or significantly interfere" with the exercise of a national bank's powers are preempted by the NBA. While the standard itself may have been clearly articulated, the proper application of that standard had become less clear, as evidenced by the Ninth Circuit and the Second Circuit Court of Appeals (the "Second Circuit") each reaching different preemption conclusions following their purported application of the Barnett Bank standard to state IOE laws in California and New York, respectively. The Supreme Court took up the issue in Cantero, not reaching a decision on the specific merits of NBA preemption of a New York IOE law found by the Second Circuit to have been preempted but holding that there are no bright line tests for NBA preemption. The Supreme Court directed lower courts to conduct a nuanced analysis of Barnett Bank's prevents or significantly interferes standard by evaluating "the text and structure of the laws, comparison to other precedents, and common sense", and ultimately remanded both the Second and Ninth Circuits' decisions for reconsideration.

Why this matters

The recent rulings in IBA v. Raoul and Kivett, discussed in more detail below, are consequential preemption decisions for the banking industry. Prior to IBA v. Raoul, there has not been a reasoned lower court opinion explicitly applying the standards set forth in Cantero. When the OCC filed its amicus brief in IBA v. Raoul, we saw how the agency was applying Cantero, with many viewing the OCC's brief as supporting the view that Cantero may not be the sea change that some commentators have claimed. However, we had not seen any instance of a lower court applying Cantero, except for the Ninth Circuit's brief decision in August 2024, which merely affirmed its view that its 2022 decision in Kivett was consistent with the analysis called for under Cantero. The Ninth Circuit's order signals it is prepared to provide a more detailed preemption analysis in line with that called for by Cantero, compared to the brief analysis it afforded the NBA preemption arguments in the withdrawn August 2024 decision. Depending on the Ninth Circuit's conclusions following rehearing and those of other Federal Circuit Courts following Cantero, including the Second Circuit's reconsideration of the New York IOE law at issue in Cantero and the First Circuit's consideration of Rhode Island's IOE law discussed below, preemption may be back on the Supreme Court's docket doorstep more quickly than many imagined.

The Illinois Interchange Fee Prohibition Act

The IFPA, scheduled to take effect July 1, 2025, prohibits (i)...