Do Not Throw Away Your National Bank Charter Just Yet

• Published date: 15 October 2025
• Subject Matter: Finance and Banking, Real Estate and Construction, Charges, Mortgages, Indemnities, Financial Services, Real Estate
• Law Firm: Moore & Van Allen
• Author: Neil T. Bloomfield, John Stoker, John Lightbourne and Jules W. Carter

"The ability of national banks to conduct a multistate business subject to a single uniform set of federal laws, under the supervision of a single regulator, free from visitorial powers of various state authorities, is a major advantage of the national charter." John D. Hawk Jr., former Comptroller of the Currency (Feb. 12, 2002).¹ "When national banks are unable to operate under uniform, consistent and predictable standards, their business suffers and so does the safety and soundness of the national banking system." Id. (January 7, 2004).²

The scope of these protections has been called into question. After the Supreme Court's decision in Cantero v. Bank of America, N. A., it was clear that the lower courts would reach differing conclusions on how to apply the standard for National Bank Act (NBA) preemption of state consumer financial laws. At a minimum, the Supreme Court decisions held up by Cantero as the guiding precedent for preemption decisions leave many areas open to interpretation, and the Cantero Court's final factor of "common sense" is decidedly subjective. If the industry thought that post-Cantero preemption cases pending before the First, Second and Ninth Circuit Courts of Appeals would help to provide clarity on these questions, it will have to continue to wait. The First Circuit's recent decision in Conti v. Citizens Bank, N.A. inappropriately narrowed Supreme Court precedent in a way that creates bright line tests and that does not align with the common sense purpose of Congress in establishing a national banking regime. And, the Ninth Circuit's recent majority decision in Kivett v. Flagstar Bank does not help because it is uniquely limited by the majority's belief that they are bound by precedent in that circuit, which leaves the Second Circuit unlikely to resolve this divide.

These questions should not result in a weakening of preemption. The need and the value of preemption under the NBA has not eroded. Preemption is a "cornerstone of the dual banking system that is fundamental to the operation of the federal banking system." OCC News Release 2025-52 and letter from Commissioner Hood (June 9, 2025) (rejecting the Conference of State Bank Supervisors' invitation to the OCC to withdraw its preemption regulations).

I. First Circuit's Decision Contains Several Fatal Flaws

The First Circuit in Conti v. Citizens Bank has effectively converted the Supreme Court's request for a "nuanced comparative analysis" into an insupportably narrow version of conflict preemption'one existing only in the face of an "express" or "clear" conflict between the state law and the text of federal law. See Case 1:21-cv-00296-SM-PAS (1st Cir., September 22, 2025). The case involves an appeal from a pre-Cantero ruling of the United States District Court of Rhode Island holding that the NBA preempted Rhode Island's interest-on-escrow (IOE) law.

In the first decision from a federal circuit conducting the detailed case by case analysis called for by Cantero, the Conti Court limited the interpretation of Supreme Court precedent in a way that is inconsistent with the Supreme Court's holdings. The First Circuit limited the holdings of three of the four cases finding preemption to precedents involving an "express" or "clear" conflict between language of state and federal law:

• Conflict between an explicit power granted by a federal statute and a state law prohibition on that power: Barnett Bank of Marion County, N. A. v. Nelson, Florida Insurance Commissioner, et al., 517 U.S. 25 (1996);
• Conflict between permission granted by a federal regulation and a state law limitation: Fidelity Federal Savings & Loan Ass'n v. De la Cuesta, 458 U.S. 141 (1982); and
• Conflict between an implicit power to market federally authorized deposit accounts and a state law restriction on the use of terminology used by Congress in advertising: Franklin National Bank of Franklin Square v. New York, 347 U.S. 373 (1954).

Conflict preemption, however, is not solely limited to an express conflict between the language used by state and federal legislation. "A holding of federal exclusion of state law is inescapable and requires no inquiry into congressional design where compliance with both federal and state regulations is a physical impossibility... [or] where the state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-43 (1963). In Barnett Bank, the Supreme Court explained that the NBA's grants of authority, both enumerated and incidental, are "not normally limited by, but rather ordinarily pre-empt[], contrary state law." 517 U.S. 25, 32 (1996). "Congress would not want States to forbid, or to impair significantly, the exercise of a power that Congress explicitly granted." Id. at 33. The "significant interference" test aligns to the broader view of preemption of state laws as an obstacle to the purpose of federal law.

Even applying the Conti Court's limited approach to conflict preemption, IOE laws present a more direct conflict than Fidelity because Congress specifically provides in 12 U.S.C. ' 371 that a national bank may make real estate secured loans subject, specifically, to restrictions and requirements as the OCC may provide by regulation or order. In adopting those regulations, the OCC explicitly addressed state law requirements impacting escrow accounts in 12 C.F.R. ' 34.4 (a)(6), which states a national bank may "make real estate loans without regard to state law limitations concerning . . . [e]scrow accounts . . .." Although the weight afforded to the OCC's preemption regulations is currently a topic of debate, it has been the understanding of the industry and the OCC for over two decades that state interference with escrow accounts was in direct conflict with the OCC's regulations and Congress' mandate that the real estate lending authority of national banks was subject to the OCC's rulemaking authority. The conflict here is also more direct than the conflict in Franklin. The state law at issue in Franklin prohibited commercial banks "from using the word 'saving' or 'savings' in their advertising or business," Franklin National, 347 U.S. at 374. The Supreme Court viewed this as a conflict with the ability of national banks to receive savings deposits "without qualification or limitation" and possess "all such incidental powers as shall be necessary to carry on the business of banking[.]" Id. at 375-76. The Supreme Court found preemption because a restriction on the use of the word "savings" created a "clear conflict" between state and federal law. Id. at 378-79.

The restriction on the use of terms in advertising at issue in Franklin is less...