In this article
The bar exam is a challenging test that requires a thorough understanding of various legal principles and their applications. Staying current with recent court cases can be crucial for success, as new rulings can impact what may be tested. One recent case that has gained attention is Cantero v. Bank of America (BOA). As you prepare for the bar exam, it’s important to consider whether this case might appear and how it could be tested.
In this article, we will:
- Introduce the Cantero v. BOA Case: We’ll provide a concise overview of the case, focusing on the key facts, legal issues, and the court’s decision.
- Identify Key Takeaways: We’ll highlight the essential concepts from the case that are most relevant for bar exam takers.
- Discuss the Relevance to the Bar Exam: We’ll explain how these concepts might be tested on the bar exam.
- Provide Practice Questions: We’ll present practice questions to help you apply these concepts effectively.
By the end of this article, you’ll have a clear understanding of Cantero v. BOA, its relevance to the bar exam, and strategies to prepare for potential questions related to this case.
Overview of Cantero v. BOA
Background
Banks in the United States can be state-chartered or federally chartered, affecting their activities, restrictions, primary regulators, and applicable rules. In this case, the petitioners had obtained mortgages from Bank of America (BOA), a federally chartered national bank subject to the National Bank Act. As part of these mortgage agreements, the borrowers were required to make monthly deposits into escrow accounts. New York state law mandated that banks pay interest on these escrow accounts, but BOA argued that this law was preempted by the National Bank Act, which did not require them to do so.
Procedural History
The borrowers brought class action suits, and the District Court held that the National Bank Act did not preempt the NY requirement. However, the Second Circuit reversed this decision, holding that the law was preempted because it exerted control over national banks’ creation and funding of escrow accounts.
Holding
On May 30, 2024, the Supreme Court of the United States (SCOTUS) vacated and remanded the Second Circuit’s decision, instructing the court to conduct a preemption analysis consistent with the appropriate standard.
Analysis
Following the 2008 financial crisis, Congress passed the Dodd-Frank Act, which provided clear guidelines for analyzing federal preemption of state laws regulating national banks. Field preemption occurs when federal law is so comprehensive that it occupies an entire regulatory field, leaving no room for state or local laws to operate within that domain. This means that federal law not only conflicts with state law but also supersedes it by comprehensively covering the subject area. The Dodd Frank Act does not explicitly provide for field preemption. Instead, it specifies that a state law is preempted by the National Bank Act only if it (i) discriminates against national banks compared to state banks or (ii) prevents or significantly interferes with the exercise of national bank powers, as determined by the legal standard in the Court’s decision in Barnett Bank.
In this case, the law applied to both state and nationally chartered banks, so there was no discrimination against national banks. Therefore, the analysis turns to whether the state law significantly interfered with national bank operations. The court provided several examples to illustrate what constitutes significant interference:
- Barnett Bank: A Florida statute prohibited national banks from selling insurance in certain towns. The court held that the Florida law was preempted because national banks had the power to sell insurance.
- Franklin Nat’l Bank: A New York statute prohibited most banks from using the word “savings” in their advertising. This was preempted because national banks have the power to receive savings deposits.
- Anderson National Bank: A state law requiring banks to turn over abandoned deposits to the state was not preempted because it did not interfere with national banks’ ability to collect deposits.
By understanding these examples, we can better grasp how the court analyzes preemption and the potential impact of Cantero v. BOA on national banking operations.
Key Legal Principles from Cantero v. BOA
In understanding Cantero v. BOA, it’s crucial to grasp the following legal principles: the Supremacy Clause, preemption, and conflicts between federal and state laws.
The Supremacy Clause
The Supremacy Clause in the U.S. Constitution establishes federal laws and the Constitution as the supreme law of the land. This means that when federal and state laws directly conflict, federal law prevails. The Supremacy Clause is the basis for the doctrine of preemption.
Preemption
Preemption occurs when federal law overrides or takes precedence over state law. This can happen in several situations:
- Actual Conflict: This occurs when compliance with both state and federal law is impossible due to a direct conflict. For example, if a federal law requires banks to allow certain transactions, but a state law prohibits those same transactions, banks cannot comply with both laws simultaneously, resulting in federal preemption.
- Obstructive State Law: This happens when a state law impedes the accomplishment of a federal objective. For instance, if federal law promotes the free sale of insurance by national banks, but a state law prohibits national banks from selling insurance in certain areas, the state law obstructs the federal objective and is preempted.
- Comprehensive Federal Regulation: When Congress has extensively regulated a particular area, leaving no room for state regulation. For example, the Immigration and Nationality Act (INA) provides a comprehensive framework for regulating immigration and naturalization. Because the INA encompasses the entire field of immigration regulation, states are generally preempted from enacting their own laws or regulations that would affect immigration processes or enforcement.
Conflicts Between Federal and State Laws
When there is a direct conflict between state and federal law, the federal law prevails. This principle ensures that federal objectives are not hindered by state laws. The courts often need to determine whether a state law significantly interferes with federal law or national bank operations, as seen in Cantero v. BOA.
Express preemption occurs when federal law explicitly states that it overrides state law. Implied preemption happens when federal law, while not explicitly stating it, implies dominance through comprehensive regulation or conflicts that make compliance with both laws impossible.
In Cantero v. BOA, the Supreme Court’s decision to vacate and remand for a proper preemption analysis underscores the importance of following the legal standard set in previous cases, such as Barnett Bank. The key question is whether the New York law significantly interfered with national bank operations under the National Bank Act.
By understanding these principles, you can better analyze potential questions related to federal preemption and conflicts between state and federal laws.
Does the Bar Exam Test This?
For states that administer the MBE, these legal concepts are indeed tested as part of the Constitutional Law questions. Specifically, 50% of the Con Law MBE questions come from three categories: 1) The nature of judicial review, 2) The separation of powers, and 3) The relationship between the nation and the states in a federal system. Under the third category, the NCBE clearly identifies “supremacy and preemption” as a sub-topic that is tested. Therefore, understanding this area is crucial.
We’ve received many questions about whether Cantero v. BOA changes existing standards or differs from previous cases. This case does not introduce a new standard but rather reaffirms the approach and appropriate test to apply in this context. It provides useful examples to help solidify how these legal concepts are applied in practice, which aids us in recognizing similar issues on the exam.
Regarding essay questions, the relevance of Cantero will vary by jurisdiction. For states that include the MEE, this topic could certainly appear in a Constitutional Law essay, as it is specifically mentioned in the NCBE’s subject matter outline on the MEE. This could also be something that appears on a Florida bar exam essay, since they have tested this area (i.e., Supremacy Clause) in the past.
Practice Questions
To help you better understand and apply the legal principles discussed in this article, we’ve prepared three practice questions for you. Grab a piece of paper and try to answer these questions on your own before checking the provided answers. This exercise will help reinforce your knowledge and prepare you for similar scenarios on the bar exam.
Scenario 1: Non-Discriminatory State Law
Under the National Bank Act, a federally chartered bank can offer various types of deposit accounts. State A passes a statute requiring all banks operating within the state to provide quarterly reports to state regulators detailing the terms and conditions of all deposit accounts offered. The statute applies equally to state-chartered and nationally chartered banks.
Question: Does the State A statute preempt the National Bank Act?
Scenario 2: Obstructive State Law
Under the National Bank Act, a federally chartered bank can make loans. State B passes a statute that requires all banks to adhere to strict interest rate caps that are significantly lower than the rates permitted under federal law. This statute specifically impacts nationally chartered banks’ ability to compete effectively within the state.
Question: Is the State B statute preempted by the National Bank Act?
Scenario 3: Direct Conflict
Under the National Bank Act, federally chartered banks can engage in the sale of insurance products. State C passes a law prohibiting all banks from selling insurance within its borders, citing consumer protection concerns.
Question: Does the State C law preempt the National Bank Act?
Practice Question Answers
Scenario 1 – Analysis: Non-Discriminatory State Law
The State A statute is not discriminatory as it applies to both state-chartered and nationally chartered banks equally. The statute does not significantly interfere with the national banks’ ability to operate but instead imposes a reporting requirement. The analysis would involve determining whether this requirement significantly interferes with the national bank’s powers under federal law. Given that it is a general regulation that applies equally, it is less likely to be preempted unless it can be shown to significantly burden national banks in a way inconsistent with federal objectives.
Scenario 2 – Analysis: Obstructive State Law
The State B statute likely constitutes an obstructive state law because it imposes an interest rate cap that significantly interferes with the national banks’ ability to exercise their lending powers as granted by federal law. This restriction prevents national banks from operating on a level playing field, thereby impeding the federal objective of enabling national banks to function uniformly across different states. Therefore, this statute would likely be preempted under the National Bank Act.
Scenario 3 – Analysis: Direct Conflict
The sale of insurance by national banks is explicitly permitted under the National Bank Act. State C’s law directly conflicts with the federal authorization allowing national banks to sell insurance. Since the state law prohibits an activity that federal law expressly allows, compliance with both laws is impossible. Therefore, the state law is preempted due to a direct conflict with federal law.
Conclusion
In conclusion, the case of Cantero v. BOA highlights the crucial concepts of federal preemption and the conflicts between state and federal laws. While this case involves national banks, the underlying principles are broadly applicable across various areas of law.
Understanding how preemption operates—whether through direct conflicts, obstructive state laws, or comprehensive federal regulation—is essential for tackling legal questions in any context. These concepts are foundational for analyzing and resolving disputes where federal and state laws intersect. By mastering these principles, you’ll be well-prepared to apply them in diverse scenarios on the bar exam and in your legal practice, regardless of the specific area of law involved.
Additional Resources
Check out our Con Law Guide and Maps in the Bookstore.
In That Case: Cantero v. Bank of America – Wilmer Cutler Pickering Hale and Dorr LLP
Financial Regulatory Roundup: July 2024 – Haynes and Boone LLP
It Depends: Scouring Precedent to Analyze National Bank Act Preemption – Venable LLP
National Bank Preemption of State Law Following Cantero – Troutman Pepper
Exploring the UBE Exam: An Introductory Overview
Why Conventional Bar Review Programs Don’t Work
