First Circuit Rules National Bank Act Does Not Preempt Rhode Island State Law

WE WILL BE RELEASING A SPECIAL PODCAST SHOW ABOUT THIS CASE AND ITS ENORMOUS IMPLICATIONS ON THIS COMING WEDNESDAY, OCTOBER 1.

On September 22, 2025, a panel of the First Circuit Court of Appeals issued a significant opinion in Conti v. Citizens Bank, N.A., holding unanimously that the National Bank Act does not preempt a Rhode Island statute requiring mortgage lenders to pay interest on mortgage escrow accounts.

This decision is one of the first major applications of the U.S. Supreme Court's 2024 Cantero v. Bank of America opinion (though lower courts have been applying Cantero) and could have far-reaching consequences for national banks that have historically relied on the OCC's preemption regulations to avoid complying with certain state consumer financial protection laws.

Holding: The First Circuit vacated the district court's dismissal of the plaintiff's claims, ruling that the Rhode Island statute regarding interest on escrow accounts is not preempted by the National Bank Act, and remanded the case for further proceedings consistent with the opinion.

Rationale: The court conducted the "nuanced comparative analysis" required by Cantero and determined that paying interest on escrow accounts does not significantly interfere with national banks' powers to make real estate loans or maintain escrow accounts. (The Cantero opinion instructed the court of appeals, in reaching its conclusion as to whether preemption applies or does not apply, to compare the Conti case to a litany of Supreme Court cases holding that the National Bank Act preempts state law and does not preempt state law.) The court also based its opinion on a provision of the Dodd-Frank Act which reaffirmed the "significant impairment" test of the Supreme Court Barnett Bank opinion.

Scope: This decision is binding precedent in the First Circuit (covering Rhode Island, Massachusetts, New Hampshire, and Puerto Rico) and persuasive authority elsewhere.

This opinion continues the trend with respect to National Bank Act preemption litigation. Although Conti deals narrowly with interest-on-escrow statutes, its reasoning suggests that national banks may be required to comply with a wide range of state consumer financial laws—unless there is an express statutory or regulatory preemption or an express conflict with federal law.

The Conti opinion means that national banks might be expected to follow the same state law requirements that currently apply to state-chartered banks, including: state interest-on-escrow laws, state-specific notice and disclosure obligations, and other consumer protection statutes regulating terms and conditions of credit products.

In light of this decision, national banks should immediately assess which state laws they may now need to comply with and update their compliance programs accordingly.

Since the Cantero opinion was rendered, our consumer financial services group at Ballard Spahr has been helping several national banks prepare for this exact scenario—identifying relevant state laws, performing multi-state surveys, and designing compliance strategies. This ruling underscores the urgency of those efforts.

Case Overview and Analysis:

Rhode Island General Laws § 19-9-2(a) requires banks operating in the state to pay interest on mortgage escrow accounts. John Conti, a Citizens Bank borrower, brought a putative class action lawsuit alleging that Citizens failed to pay such interest. The district court dismissed his case, finding the Rhode Island law preempted by the National Bank Act.

While Conti's appeal was pending, the Supreme Court decided Cantero, which clarified that preemption determinations must be based on a practical assessment of whether a state law "prevents or significantly interferes with" a national bank's powers, comparing the degree of interference to the body of precedent discussed in Barnett Bank v. Nelson and other cases dealing with National Bank Act preemption cited by the Supreme Court in Cantero.

The First Circuit held that the district court applied an overly broad preemption standard and failed to conduct the required nuanced analysis. After reviewing the relevant Supreme Court precedents, the court found no express conflict between the Rhode Island statute and federal law.

The First Circuit believed that the statute was not so unusual or burdensome as to deter customers or significantly impair bank operations.

Additionally, the court believed that Congress's decision in the Truth in Lending Act to require compliance with state interest-on-escrow laws for certain mortgages suggested that such laws are not inherently inconsistent with federal banking law.

The court also rejected the arguments that congressional silence, OCC inaction, or the risk of a "patchwork" of state laws should create a presumption of preemption, emphasizing that Dodd-Frank codified a limited preemption regime and explicitly disavowed field preemption.

The court vacated the district court's judgment and remanded the case for further proceedings, allowing Conti's claims to proceed.

The bank may decide to seek a rehearing en banc before of all of the active judges of the First Circuit or file a petition for a writ of certiorari in the Supreme Court. We implore the OCC to submit an amicus brief in connection with such further proceedings supporting the bank's position.

Because of the heavy reliance by national banks on the OCC's preemption regulations, we hope that the courts will apply the Conti opinion prospectively to transactions that occur some time after the opinion becomes final in order to give national banks a reasonable period of time to revise their documents, policies, and procedures to comply with non-preempted state law.

Looking ahead, two similar cases involving state interest-on-escrow laws are currently pending before the Second and Ninth Circuits. If those courts follow the First Circuit, the result may be a de facto nationwide requirement for national banks to reassess the state laws with which they comply.

We anticipate increased litigation and regulatory scrutiny in this area and are advising our national bank clients to act proactively. Now is the time to review your product terms and compliance framework to ensure they reflect evolving state law requirements.

We also note that while consumer groups may view the decision as a victory, the requirement for national banks to pay interest on mortgage loan escrow accounts may result in such banks increasing the interest rates and/or fees that they charge on mortgage loans.

One final positive note: The Conti opinion does not apply to state laws that regulate the payment of interest (as defined under OCC regulations) on loans. Under binding Supreme Court precedent, Marquette National Bank v. First of Omaha Service Corp., Section 85 of the National Bank Act authorizes a national bank to charge interest at the rate permitted by the law of the state where such bank is located.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.