The US Court of Appeals for the Ninth Circuit’s recent decision in Lusnak v. Bank of America, N.A., 883 F.3d 1185 (9th Cir. 2018), holding that the National Bank Act (“NBA”) did not preempt a California law requiring banks to pay interest on certain funds held in escrow accounts for mortgage borrowers, has received considerable attention in the consumer finance industry. The decision has been criticized as misinterpreting the proper preemption standard and giving short shrift to regulations promulgated by the Office of the Comptroller of the Currency (“OCC”) interpreting the NBA, and Bank of America, the appellee in the case, is seeking rehearing en banc.

Bank of America’s bid for rehearing was significantly strengthened on Monday, when the OCC took the unusual step of filing an amicus curiae brief in support of the petition for rehearing. OCC’s brief argues that the court got the preemption issue in Lusnak wrong, for a number of reasons.

The Panel Applied the Incorrect Preemption Standard

To begin with, the agency explains, the court misunderstood the preemption standard announced by the Supreme Court in Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25 (1996). The Lusnak panel held that under Barnett, the NBA preempts a state law “only if it ‘prevents or significantly interferes with the exercise by the national bank of its powers,’” but the OCC points out that this was only one of several formulations of the preemption test that Barnett endorsed; the test also finds preemption when the state law “would seem to stan[d] as an obstacle to the accomplishment” of one of the purposes of the NBA. The OCC goes on to explain that even narrowly targeted state laws can be preempted under Barnett if they burden one of the powers granted to national banks by the NBA.

The Panel Improperly Flipped the Burden of Proof

The agency also argues that the Lusnak panel misunderstood the applicable burden of proof. Under Barnett, the OCC explains, the NBA is construed as “ordinarily pre-empting contrary state law.” But the Lusnak panel inverted the standard, requiring the bank to “affirmatively demonstrate that Congress intended to preclude states from enforcing their escrow interest laws.” The OCC argues that this inverted test replaces Barnett’s implied preemption standard “with a requirement that the bank show the equivalent of express preemption.”

The Panel Gave Insufficient Deference to OCC Regulations

The OCC next argues that the panel gave insufficient deference to the OCC’s regulations. The Lusnak panel gave the OCC regulations “little, if any, deference,” concluding that they would have been entitled to no more than persuasive “Skidmore deference” even before the passage of the Dodd-Frank Act and that in Dodd-Frank, Congress confirmed that the OCC’s regulations in this area should not receive much deference. The OCC argues that the panel erred by essentially disregarding the agency’s regulations without following the normal procedures for evaluating an agency regulation that purports to preempt state laws.

The California Law Is Preempted 

The OCC’s brief concludes that the district court’s holding in the case—that the NBA preempts California’s escrow statute as applied to national banks—was correct. The OCC endorses the district court’s holding that, as the OCC puts it, “the management of escrow accounts is a national bank power associated with the power to lend money secured by real estate.” And the agency argues that the interest requirement in California’s law significantly interferes with national banks’ exercise of that power because the law “would allow a state to (1) impose additional burdens on national bank lending activity, (2) add a fixed and inflexible  interest rate on national bank escrow account activity, and (3) subject national banks to potentially diverse and duplicative requirements across other states.”

The Panel Wrongly Believed That Dodd-Frank Changed the Law in This Area

Finally, the OCC brief argues that the Lusnak panel misunderstood the significance of Dodd-Frank to its analysis. The agency observes that the panel “repeatedly review[ed] the issues [in] the case through the lens of Dodd-Frank,” notwithstanding the facts that (1) the transactions at issue in the case all predated the effective date of Dodd-Frank and (2) Dodd-Frank preserved the previously applicable Barnett preemption standard. The decision’s reliance on Dodd-Frank, the OCC argues, “provides an additional reason why the Court should reconsider its opinion.”


The OCC’s filing makes clear that, notwithstanding the panel’s decision in Lusnak, the OCC continues to believe that escrow laws like California’s are preempted by the NBA with respect to national banks. Moreover, the OCC’s support of Bank of America’s petition for rehearing has further increased the chances that the court will grant the petition. Lending institutions and their counsel should pay close attention to further developments in this case.