Does the National Bank Act Preempt a State Law That Requires Banks to Pay Interest on Mortgage-Escrow Accounts?

CASE AT A GLANCE Alex Contero, Saul Hymes, and Ilana Harwayne-Gidansky, the plaintiffs in this case, have mortgages on their New York homes through Bank of America, a federally chartered bank. Like many mortgages, the plaintiffs' mortgages require them to deposit funds into escrow accounts to cover property taxes and home insurance. New York law requires banks to pay at least 2 percent annual interest on escrow-account balances, in order to prevent mortgage lenders from effectively obtaining an interest-free loan from borrowers. Bank of America did not pay, however, and the plaintiffs sued. In defense, Bank of America argued that New York's law was preempted by the National Bank Act.
Introduction Section 25b of the National Bank Act (NBA) preempts a state consumer financial law when the state law 'prevents or significantly interferes with the exercise by the national bank [...]