Federal preemption of state banking laws is the rule that when a state law and a federal banking law conflict, the federal law controls. For nationally chartered banks, this means a state cannot block a power Congress has granted them, cannot supervise them the way it supervises state-chartered banks, and in many cases cannot impose banking-specific requirements on how they lend, take deposits, or price credit. But preemption is not a blanket exemption. State laws of general application still bind national banks, state attorneys general can still sue them, and states can still tax them within limits.
Why the Question Comes Up at All
The United States runs two parallel banking systems. A bank can organize under a state charter, supervised primarily by that state’s banking department, or under a federal charter issued by the Office of the Comptroller of the Currency. Both types of banks compete for the same customers and often operate across state lines. That overlap creates constant friction when a national bank does business in a state that has its own ideas about how banking should work.
The Constitution resolves the friction through Article VI, Clause 2, which declares federal law “the supreme law of the land” and binds every state judge “anything in the Constitution or laws of any State to the contrary notwithstanding.”1Legal Information Institute. U.S. Constitution – Article VI A state legislature cannot pass a law that stops a national bank from exercising a power Congress gave it. The hard work is drawing the line between a state law that conflicts with federal banking authority and one that merely coexists alongside it.
The Governing Test: Barnett Bank and Dodd-Frank
The controlling case is Barnett Bank of Marion County, N.A. v. Nelson (1996). Barnett wanted to sell insurance, something federal law permitted. Florida had a statute prohibiting banks from doing so. The Supreme Court struck down the Florida law, holding that a state law is preempted when it “prevents or significantly interferes” with a national bank’s exercise of its federally authorized powers.2Legal Information Institute. Barnett Bank of Marion County, N. A. v. Nelson, Florida Ins. Commr
That phrase works as a sliding scale. A state law that flatly bans something a national bank is authorized to do is clearly preempted. A state law that adds modest procedural requirements without undermining the bank’s core operations may survive. The trouble sits in the middle, where a state regulation makes a federally authorized activity more expensive or more cumbersome without outright banning it.
In 2010, Congress wrote the Barnett Bank standard into federal statute through Section 1044 of the Dodd-Frank Act, codified at 12 U.S.C. § 25b. Under that provision, a state consumer financial law can be preempted only through one of three pathways:
- Discriminatory effect: the state law treats national banks worse than state-chartered banks.
- Significant interference: the state law prevents or significantly interferes with the national bank’s exercise of its powers, judged under Barnett Bank.
- Other federal law: a separate federal statute independently preempts the state law.
The word “only” at the start of that list matters. Before Dodd-Frank, the OCC issued sweeping regulations declaring entire fields of state law inapplicable. Now, when the OCC preempts a state consumer protection law under the significant-interference pathway, it must build a record with “substantial evidence” supporting the specific finding.3Office of the Law Revision Counsel. 12 USC 25b – State Law Preemption Standards for National Banks and Subsidiaries Clarified The OCC reads that requirement in line with the Administrative Procedure Act, meaning a reviewing court can overturn a preemption determination that lacks adequate support.4Office of the Comptroller of the Currency. Interpretive Letter 1173 The OCC also must publish and update at least quarterly a list of preemption determinations in effect.5Federal Register. Preemption Determination: State Interest-on-Escrow Laws
What Cantero Changed in 2024
The Supreme Court’s unanimous decision in Cantero v. Bank of America is the most consequential preemption ruling since Barnett Bank itself. The case involved New York’s requirement that banks pay interest on mortgage escrow accounts. The Second Circuit had applied a broad, categorical test that would have preempted almost any state law touching national bank activity. The Supreme Court rejected that approach.
Instead, the Court held that judges must conduct a “practical assessment of the nature and degree of the interference caused by a state law,” comparing the state law to the Court’s prior precedents on both sides of the preemption line.6Supreme Court of the United States. Cantero v. Bank of America, N. A. If the interference resembles laws the Court has struck down, the state law is preempted. If it resembles laws the Court has upheld, it survives. Blanket claims of preemption or non-preemption are both out of favor. Preemption questions now require case-specific, comparative analysis.
Where Preemption Bites Hardest
Interest Rate Exportation
The most commercially significant preemption in banking involves interest rates. Under 12 U.S.C. § 85, a national bank may charge interest at the rate allowed by the state where it is located.7Office of the Law Revision Counsel. 12 USC 85 – Rate of Interest on Loans, Discounts and Purchases The Supreme Court confirmed in Marquette National Bank v. First of Omaha Service Corp. (1978) that “located” means where the bank keeps its principal office, and that the bank can charge that home-state rate to borrowers anywhere in the country.8Justia Law. Marquette Nat. Bank v. First of Omaha Svc. Corp., 439 U.S. 299 (1978)
This is why so many credit card issuers are headquartered in states like South Dakota and Delaware, which impose no usury caps. A bank chartered in South Dakota can issue cards to New Yorkers at rates that would violate New York’s usury laws, and New York cannot do anything about it.
The Valid-When-Made Question
Rate exportation gets complicated when a national bank originates a loan and then sells it to a non-bank. In Madden v. Midland Funding (2015), the Second Circuit held that a non-bank debt buyer could not shelter behind the National Bank Act’s preemption of state usury laws, reasoning that applying state rate caps to the buyer would not significantly interfere with the originating bank’s powers.9Justia Law. Madden v. Midland Funding, LLC, No. 14-2131 (2d Cir. 2015) The OCC responded with a final rule providing that interest permissible under Section 85 “shall not be affected by the sale, assignment, or other transfer of the loan,” codifying the “valid when made” doctrine. Whether that rule fully resolves the issue is still contested, since Madden was a judicial holding and the OCC rule is administrative.
Categories of Displaced State Rules
Interest rates get the most attention, but preemption reaches further. The OCC’s regulations identify specific categories of state lending laws that national banks can disregard when making non-real-estate loans, including licensing and registration; state rules on repayment schedules, amortization, and when a loan can be called due; state mandates on escrow and impound accounts; state restrictions on collateral insurance; state-specific disclosure and advertising content; and state rules governing credit reports.10eCFR. 12 CFR 7.4008 – Non-Real Estate Lending Similar categories cover deposit-taking, including state rules on dormant accounts, checking-account disclosures, and funds-availability schedules.11eCFR. Subpart D – Preemption of State Law The practical effect is that a national bank operating in dozens of states can use one set of loan documents and a uniform servicing process rather than customizing for each jurisdiction.
State Laws That Still Apply
Preemption is not a general immunity. National banks remain subject to state laws of general application that do not target banking specifically:
- Contract and property law governs the formation of agreements, deed recording, title transfers, and mortgage foreclosure procedures.
- State tort law applies when a bank employee causes harm on the job, just as it would to any employer.
- A national charter does not immunize anyone from state fraud, embezzlement, or other criminal statutes.
- Debt collection and foreclosure procedures generally follow the rules of the state where the borrower or property is located.
The common thread is that these laws apply to all businesses. A state foreclosure statute does not single out national banks or interfere with their lending power; it sets the procedure any creditor must follow to seize collateral.
Taxation
States can tax national banks, but with limits. Under 12 U.S.C. § 548, a national bank is treated for tax purposes as if it were organized under the laws of the state where its principal office sits.12Office of the Law Revision Counsel. 12 USC 548 – State Taxation Ordinary corporate income and franchise taxes are allowed. Discriminatory taxes that would not apply to state-chartered competitors are not.
Unclaimed Property
State abandoned-property and escheatment laws sit in an odd spot. The OCC’s deposit-taking preemption regulation lists dormant accounts among the state laws national banks can disregard, but the same regulation carves out an exception: state laws that simply require a bank to pay deposits to the people entitled to them under state law are not preempted. The Supreme Court upheld that type of state law in Anderson National Bank v. Luckett (1944), and the OCC regulation preserves that holding.11eCFR. Subpart D – Preemption of State Law National banks routinely comply with state escheatment deadlines and reporting.
Who Can Examine or Sue a National Bank
One of the sharpest lines in banking preemption is over who supervises. Under 12 U.S.C. § 484, a national bank is not subject to any visitorial powers except those authorized by federal law or vested in the courts.13Office of the Law Revision Counsel. 12 USC 484 – Visitorial Powers “Visitorial powers” covers examining a bank, inspecting its books, and supervising its compliance with applicable laws. The OCC holds that authority exclusively. A state banking commissioner cannot walk into a national bank and demand to see its loan files.14eCFR. 12 CFR 7.4000 – Visitorial Powers With Respect to National Banks One narrow statutory exception: state auditors may review a national bank’s records to check compliance with state unclaimed-property laws, but only upon reasonable cause and with reasonable notice.
State Attorneys General
The exclusive-visitation rule does not leave states powerless. In Cuomo v. Clearing House Association (2009), the Supreme Court distinguished supervising a bank from suing one. A state attorney general filing a lawsuit in court to enforce state fair-lending laws is acting as a law enforcer, not a bank supervisor, and nothing in the National Bank Act blocks that.15Legal Information Institute. Cuomo v. Clearing House Association, L. L. C. The AG must use normal judicial procedures: filing a complaint, surviving a motion to dismiss, and following discovery rules. An AG cannot issue an executive subpoena for a national bank’s internal records the way a state examiner might demand them from a state-chartered bank. Dodd-Frank later codified this at 12 U.S.C. § 25b(i), expressly preserving state AG enforcement authority against national banks.
A Different Rule for Federal Savings Associations
Everything above applies to national banks chartered under the National Bank Act. Federal savings associations (formerly federal thrifts) operate under the Home Owners’ Loan Act and face a broader preemption. Under HOLA, the federal regulator has “occupied the entire field of lending regulation” for federal savings associations, so state lending laws are preempted as a category rather than case by case.16GovInfo. 12 CFR 560.2 – Preemption of State Law The preempted list is wide: licensing, loan-to-value ratios, all terms of credit, loan fees, escrow, servicing, and disclosures. The OCC now supervises both national banks and federal savings associations, which produces an asymmetry: two institution types under one regulator with meaningfully different preemption standards. If you are looking up the rule for a specific bank, the charter type matters before anything else.