Banking and Finance Law Daily Wrap Up, PREEMPTION—U.S.: Citizens Bank seeks Supreme Court review of mortgage escrow preemption issue, (Feb 25, 2026)

By Shashi Kant, BALLB, LL.M.

The petition asks the high court to decide whether the National Bank Act preempts Rhode Island law requiring interest on mortgage escrow accounts.

Citizens Bank, N.A. has filed a petition for a writ of certiorari asking the U.S. Supreme Court to decide whether the National Bank Act preempts Rhode Island Gen. Laws § 19-9-2(a), a statute requiring lenders to pay interest on residential mortgage escrow accounts. The petition follows a decision by the U.S. Court of Appeals for the First Circuit remanding the case to the district court for further proceedings on the preemption issue (Citizens Bank, N.A. v. John Conti, No. 25-1004 (U.S. Feb. 19, 2026)).

Background. The dispute arises from a putative class action brought by borrower John Conti, who alleged that Citizens Bank violated Rhode Island law by failing to pay interest on funds held in escrow in connection with residential mortgage loans. Rhode Island’s statute provides that mortgagees must pay interest on escrow balances at a specified rate. Citizens Bank, a national bank chartered under the National Bank Act, argued that the state statute is preempted because it interferes with national banks’ federally authorized powers, including the power to set terms and pricing for mortgage loans. The district court dismissed Conti’s complaint on National Bank Act preemption grounds. On appeal, the First Circuit addressed the preemption framework and remanded the matter for further analysis under the standard articulated in 12 U.S.C. § 25b and relevant Supreme Court precedent (see Banking and Finance Law Daily , Sept. 23, 2025). The First Circuit held that the district court had not adequately applied the governing preemption test and directed further proceedings consistent with the proper legal standard.

National Bank Act authority and preemption arguments.According to the petition, the National Bank Act authorizes national banks to exercise “all such incidental powers as shall be necessary to carry on the business of banking,” including real estate lending. The bank contends that federal law and regulations issued by the Office of the Comptroller of the Currency grant national banks authority to establish the terms of mortgage products, including escrow requirements and related pricing decisions. The petition asserts that Rhode Island’s interest-on-escrow mandate operates as a price control by requiring banks to pay additional compensation tied to mortgage servicing and escrow administration. Citizens Bank argues that the requirement interferes with national banks’ exercise of federally granted powers by restricting flexibility in determining loan terms and overall pricing. Under 12 U.S.C. § 25b, state consumer financial laws are preempted if they prevent or significantly interfere with the exercise of a national bank’s powers. Citizens Bank argues that Rhode Island’s statute meets that standard because it compels payment of interest in connection with mortgage escrow accounts and therefore alters the economic terms of lending products.

Alleged conflict among lower courts. In its petition, Citizens Bank argues that the First Circuit’s decision reflects uncertainty and inconsistency in how lower courts apply National Bank Act preemption principles to state interest-on-escrow statutes. The bank asserts that courts have reached differing conclusions regarding whether such statutes significantly interfere with national banks’ powers. According to the petition, some courts have held that state escrow-interest laws are preempted because they affect loan pricing and impose additional financial obligations on national banks, while others have upheld similar statutes.

National significance. Citizens Bank further asserts that the question presented is recurring and important for the national banking system. The petition states that many states have enacted interest-on-escrow laws and that national banks operate across state lines. According to the bank, allowing states to impose differing escrow-interest requirements would subject national banks to a patchwork of state-specific pricing mandates, contrary to the purpose of the National Bank Act in promoting uniform national banking standards. The petition contends that Supreme Court review is warranted to provide guidance on how the Barnett Bank significant-interference test, as incorporated into § 25b, applies to state laws that affect pricing components of mortgage loans, including escrow arrangements. Citizens Bank asks the Court to grant certiorari and to hold that the National Bank Act preempts state interest-on-escrow statutes that purport to dictate how national banks structure and price mortgage-loan products. As of the filing of the petition, the Supreme Court has not acted on the request.

Attorneys: Lisa S. Blatt (Williams & Connolly LLP) for Citizens Bank, N.A.

Companies: Citizens Bank, N.A.

MainStory: TopStory BankingOperations GCNNews InterestUsury MaineNews MassachusettsNews Mortgages NewHampshireNews NewYorkNews Preemption PuertoRicoNews RhodeIslandNews StateBankingLaws