Attorney General Bonta Celebrates SCOTUS Decision Rejecting Sweeping Anti-Consumer Standard

OAKLAND — California Attorney General Rob Bonta issued a statement today after the U.S. Supreme Court overturned a Second Circuit Court of Appeals decision in Cantero v. Bank of America. The Supreme Court found that the lower court failed to apply the proper standard for evaluating whether a New York state law that requires mortgage lenders to pay a 2% minimum interest rate on funds held in mortgage escrow accounts is preempted by the National Bank Act as applied to national banks. The decision allows states to enforce state consumer financial protection laws against both state and national banks so long as the state law does not prevent or significantly interfere with the exercise of power by national banks.

“The 2008 financial crisis absolutely blindsided families and homeowners who thought they were in a safe and stable place. Today, the Supreme Court has rejected a sweeping rule that would have hindered the ability of states to protect consumers from financial exploitation and abusive lending,” said Attorney General Bonta. “I celebrate today’s news and remain committed to guarding and enforcing essential consumer protection laws, today and every day.”

The U.S. Supreme Court observed that the Court of Appeals’ categorical test was improper and contrary to the Dodd-Frank Act, and would preempt virtually all state laws that regulate national banks. Because the Court of Appeals in Cantero failed to evaluate the New York law under the proper standard, the Supreme Court remanded to the lower courts to evaluate whether New York’s law is preempted by federal law.

Like the New York law at issue in Cantero v. Bank of America, California law requires financial institutions, including banks, to pay at least 2% annual interest on funds deposited in mortgage escrow accounts. Funds in an escrow account can be used by lenders to ensure timely payment of property taxes and insurance. These state minimum escrow interest laws are a simple and important consumer protection. Before the escrow interest laws were enacted, some lenders would collect significantly more in escrow than was needed to timely pay taxes and insurance, and would not pay any interest to the borrower, giving the lender essentially an interest-free loan at the borrower’s expense. The minimum escrow interest laws help ensure that borrowers are treated fairly, and reduce the incentive for lenders to collect excessive funds in escrow. At least 13 other states have similar laws in place to protect consumers.

In December 2023, Attorney General Bonta joined a bipartisan multistate coalition of attorneys general in submitting an amicus brief to the U.S. Supreme Court defending states’ rights to enforce state consumer financial protection in this case.

A copy of the amicus brief previously filed by Attorney General Bonta in this case is available here. A copy of the U.S. Supreme Court’s decision is available here.