The latest decision in the closely watched Cantero v. Bank of America case related to preemption of New York escrow rules supports the institution, but it's unlikely to be the final say.

The ruling on remand in the U.S. Court of Appeals for the Second Circuit found that preemption should prevail because state laws do "prevent or significantly interfere" with national bank powers based on an examination of precedents.  

It's an outcome that supports the position industry groups like the Mortgage Bankers Association have taken in a past amicus brief, which is that preemption should be upheld because, without it, national banks would be subject to a "patchwork" of state laws.

State advocates maintain that the ruling is in "direct conflict" with other recent decisions involving similar cases in the First and Ninth Circuit courts. Those decisions upheld the rules of other jurisdictions with interest-on-escrow requirements. 

"We are disappointed in the Second Circuit decision, which is inconsistent," Brandon Millhorn, CEO and president of the Conference of State Bank Supervisors, asserted in a press release issued Wednesday.

There are roughly a dozen states with requirements around paying consumers interest on mortgage escrow accounts.

Judges' conflicting views

The Second Circuit ruling, which was delivered in response to Supreme Court directives to reexamine the case with a "nuanced analysis" of precedents, came with a 2-1 split between judges.

Precedents the majority cited to support their opinion included a ruling in Franklin National Bank of Franklin Square v. New York. A decision in that case supported preemption of a prohibition against using the word "savings" in advertising, finding it interfered with banking powers.

Another precedent the majority opinion cited was Fidelity Federal Savings and Loan Association  v. de la Cuesta. In that case, among reasons preemption was upheld for state laws limiting due-on-sale clauses were federal regulations specifically allowing these.

Judges also considered the Office of the Comptroller of the Currency's stance on national bank preemption and additional legal precedents. The OCC had previously filed an amicus brief on behalf of Bank of America in Cantero.

The majority opinion referenced a December 2025 OCC proposal aimed at codifying national banks' "power to establish and maintain escrow accounts." In it, the OCC aims to clarify that "terms and conditions of escrow accounts" are "business decisions to be made by each bank."

The dissent argued that the majority and the OCC failed to provide sufficient specifics around why escrow laws, in particular, impeded national banks.

The majority opinion "ignores the nature of federal banking power at issue and recharacterizes the relevant power as broadly as possible to manufacture a direct conflict with interest-on-escrow laws," Judge Myrna Perez argued.

Potential next steps

The split decision and the contrast with some other rulings in cases that may be deemed similar could increase the chance that the selective Supreme Court grants "certiorari" if asked to review the case again, particularly if it considers its instructions ignored.

The Second Circuit also might be open to rehearing the case "en banc" with a full panel if requested given the split.

One of the parties, most likely the plaintiff in this instance, would have to ask for the en banc hearing from the Second Circuit or the Supreme Court's review within certain deadlines for the case to proceed along either of these paths.