# Hymes v. Bank of America, N.A.

> District Court, E.D. New York · September 30, 2019

URL: https://www.frixlaw.com/law-library/cases/10303185

## Case

- **Court:** District Court, E.D. New York
- **Decided:** September 30, 2019
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
-----------------------------------------------------------------X
SAUL R. HYMES and ILLANA HARWAYNE-
GIDANSKY, on behalf of themselves and all others
similarly situated,
MEMORANDUM AND ORDER
Plaintiffs, 18-CV-2352 (RRM) (ARL)

- against -

BANK OF AMERICA, N.A., and Does 1 through 10,
inclusive,

Defendants.

-----------------------------------------------------------------X

ALEX CANTERO, individually and on behalf of all
others similarly situated,

Plaintiff, 18-CV-4157 (RRM) (ARL)

- against -

BANK OF AMERICA, N.A.,

Defendant.
------------------------------------------------------------------X
ROSLYNN R. MAUSKOPF, United States District Judge.

Plaintiffs Saul Hymes and Illana Harwayne-Gidansky (the “Hymes Plaintiffs”), and
plaintiff Alex Cantero (collectively with the Hymes Plaintiffs, “Plaintiffs”), bring this pair of
putative class actions against Bank of America, N.A. (“the Bank”), seeking to require the Bank
to pay interest, as required by New York General Obligation Law (“GOL”) § 5-601, on money
Plaintiffs have deposited into mortgage escrow accounts. Before the Court are the Bank’s nearly
identical motions to dismiss the complaints in each action for failure to state a claim pursuant to
Federal Rule of Civil Procedure (“Rule”) 12(b)(6). In each motion, the Bank principally argues
that the National Bank Act (“NBA”) preempts GOL § 5-601 and that Plaintiff’s claims for
breach of contract, unjust enrichment, and violation of state consumer protection law must
therefore be dismissed. The motions are consolidated for the purposes of this Memorandum and
Order.
For the reasons set forth below, the Court concludes the NBA does not preempt GOL § 5-
601. Accordingly, Plaintiffs’ complaints state valid claims for breach of contract. Plaintiffs’

claims for unjust enrichment and violation of New York General Business Law § 349 are
dismissed.
BACKGROUND
I. The NBA and Dodd–Frank
“In 1864, Congress enacted the NBA, establishing the system of national banking still in
place today.” Watters v. Wachovia Bank, N.A., 550 U.S. 1, 10–11 (2007) (citations omitted).
The NBA created the Office of the Comptroller of the Currency (“OCC”) to oversee nationally
chartered banks, and it vested those banks with certain enumerated powers. Since the early
twentieth century, this has included the power to “make, arrange, purchase or sell loans or

extensions of credit secured by liens on interests in real estate.” 12 U.S.C. § 371(a); accord 12
C.F.R. § 34.3(a).1 The NBA also vested national banks with “all such incidental powers as shall
be necessary to carry on the business of banking; by discounting and negotiating promissory
notes, drafts, bills of exchange, and other evidences of debt; . . . [and] by loaning money on
personal security.” 12 U.S.C. § 24 (Seventh). Pursuant to these powers, throughout the past
century, national banks have engaged in the business of making residential real estate loans
secured by mortgages.

1 The precursor to section 371, which authorized national banks to make limited-duration loans secured by farmland,
was enacted in 1913. See Pub. L. No. 63-43, § 24, 38 Stat. 251, 273 (1913). The statute evolved over the ensuing
years into its current, more comprehensive form.
While Congress delegated regulation of national banks to the OCC, it did not “wholly
withdraw” them “from the operation of State legislation.” First Nat’l Bank v. Kentucky, 76 U.S.
(9 Wall.) 353, 361 (1869). “It is often said that we have a ‘dual banking system’ of federal and
state regulation.” Wachovia Bank, N.A. v. Burke, 414 F.3d 305, 314 (2d Cir. 2005) (citations
omitted). In this system, and as will be discussed more fully below, national banks are subject to

state law, provided the state law does not “prevent or significantly interfere with the national
bank[s’] exercise of [their] powers.” Barnett Bank of Marion Cty., N.A. v. Nelson, 517 U.S. 25,
33 (1996). When state law does prevent or significantly interfere with banks’ exercise of their
powers, it is preempted by the NBA. Id.
II. Mortgage Escrow Accounts, RESPA, and GOL § 5-601
Since at least the middle of the twentieth century, mortgage lenders have required or
negotiated with borrowers to establish mortgage escrow accounts. See Gibson v. First Fed. Sav.
& Loan Ass’n of Detroit, 504 F.2d 826, 829 (1974) (describing regulation of mortgage escrow
accounts); cf. Edwin S. Mills, The Functioning and Regulation of Escrow Accounts, 5 HOUS.

POL’Y DEBATE 203, 203 (1994) (“Escrow accounts are the stepchildren of the mortgage
business.”). A mortgage escrow account, sometimes called an impound account, is “a trust
account set up in a borrower’s name to ensure the timely payment of specified obligations
affiliated with a property.” H.R. Rep. No. 111-94, at 53 (2009). Borrowers pre-pay a set amount
into their accounts on a regular, often monthly, basis. Id. Lenders “then use these collected
sums to guarantee the timely payment of property tax bills and insurance premiums.” Id. By
guaranteeing timely payment, lenders protect themselves and the borrowers from tax liens and
property damage risk. Id. In turn, having mitigated these risks, lenders are able to offer loans to
borrowers at reduced interest rates. See Mills, supra, at 209. When the mortgage contract ends,
any money remaining in escrow is returned to the borrower.
For some mortgages, such as those with a low risk of default, these benefits may not
outweigh the countervailing costs. Mortgage escrow accounts cost money for lenders to create
and operate – an expense which may be borne by the lender or passed to the borrower. See, e.g.,

Escrow Requirements Under the Truth in Lending Act (Regulation Z), 78 Fed. Reg. 4726, 4746–
47 (Jan. 22, 2013). They also necessarily require that borrowers be parted from control of their
capital, and thus from the ability to use it, including to generate income. See id. During the
period between when monthly deposits are required and taxes and insurance premiums come
due, money belonging to the borrower simply accumulates in escrow. The lender may use this
money to generate interest and income for itself, but the borrower has no access to it. See id.;
Mills, supra, at 211.
By the 1970s, some lenders had begun to exploit this last feature of mortgage escrow
accounts by requiring borrowers to deposit vastly more money than their tax and insurance

liabilities demanded. See S. Rep. No. 93-866, 1974 U.S.C.C.A.N. 6546, 6548. These lenders
could then invest this money for their own benefit, effectively giving themselves an interest-free
loan for however long the mortgage escrow account remained in place.
In 1974, Congress and the State of New York responded with consumer protection
legislation aimed at curbing different aspects this practice. At the federal level, Congress
enacted the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2601 et seq., which
capped the amount lenders – including national banks – could require in escrow deposits for
federally insured, guaranteed, or owned mortgages. See Mills, supra, at 211–12. And Congress
delegated authority to implement RESPA to the Department of Housing and Urban Development
(“HUD”). See Pub. L. No. 93-533, § 3(6), 88 Stat. 1724, 1725 (1974). Under RESPA, lenders
can now demand only so much as necessary to guarantee the timely payment of taxes and
insurance premiums, and no more. See 12 U.S.C. § 2609.
At the state level, New York enacted GOL § 5-601, which required “mortgage investing
institutions,” including national banks, to pay interest to borrowers on the money in mortgage

escrow accounts, thereby passing along some (or all) of whatever interest or income they made.
See Flagg v. Yonkers Sav. & Loan Ass’n, FA, 396 F.3d 178, 181 (2d Cir. 2005) (first citing N.Y.
Gen. Oblig. Law § 5-601, then citing N.Y. Banking Law § 14-b(5)); see also 1974 N.Y. Laws
802–05. Specifically, New York General Obligations Law § 5-601 provides,
Any mortgage investing institution which maintains an escrow
account pursuant to any agreement executed in connection with a
mortgage on any one to six family residence occupied by the owner
. . . and located in this state shall, for each quarterly period in which
such escrow account is established, credit the same with dividends
or interest at a rate of not less than two per centum per year based
on the average of the sums so paid for the average length of time on
deposit or a rate prescribed by the superintendent of financial
services pursuant to section fourteen-b of the banking law and
pursuant to the terms and conditions set forth in that section
whichever is higher.

N.Y. Gen. Oblig. Law § 5-601. Over the next two decades, approximately a dozen states enacted
similar laws. See 1973 Conn. Acts 1373–74 Reg. Sess; 1991 Me. Laws 187; Mills, supra, at
214.2
III. OCC Involvement
At no point during this period did the OCC seek to impose escrow-account regulations on
national banks over and above what HUD required. Through a series of informal agency actions,

2 As detailed in Cantero’s amended complaint, thirteen states now have escrow interest laws. (Cantero Am. Compl.
at ¶ 79); see also infra note 10.
it merely asserted that the NBA authorized national banks to offer escrow services, subject to
RESPA and HUD regulations. See OCC Corporate Decision No. 99-06, 1999 WL 74103, at *2
(Jan. 29, 1999) (concluding that, under 12 U.S.C. § 24 (Seventh), “national banks are authorized
to provide real estate closing and escrow services to their loan or title policy customers as
activities that are part of or incidental to the business of banking” (citations omitted)); OCC

Conditional Approval No. 276, 1998 WL 363812, at *9 (characterizing mortgage escrow
accounts as “an integral part of or a logical outgrowth of the lending function” and “part of and
incidental to the Bank[s’] lending and servicing function”).
In 2004, however, the OCC’s approach changed. Responding to “increasing efforts by
states and localities to apply state and local laws to bank activities,” the agency published a final
rule “clarifying the applicability of state law to national banks’ operations,” and identifying
“types of state laws that are preempted, as well as the types of state laws that generally are not
preempted, with respect to national banks’ lending, deposit-taking, and other operations.” Bank
Activities and Operations; Real Estate Lending and Appraisals, 69 Fed. Reg. 1904, 1904, 1908

(Jan. 13, 2004). The rule amended the OCC’s real estate lending preemption regulations,
codified at 12 C.F.R. § 34.4, by more than doubling the list of categories of state law preempted
by the NBA. Compare Real Estate Lending and Appraisals, 69 Fed. Reg. at 1917, with 12
C.F.R. § 34.4(a) (2003). Ostensibly applying the Supreme Court’s decision in Barnett Bank, the
rule provided,
(a) Except where made applicable by Federal law, state laws that
obstruct, impair, or condition a national bank’s ability to fully
exercise its Federally authorized real estate lending powers do
not apply to national banks. Specifically, a national bank may
make real estate loans under 12 U.S.C. 371 and § 34.3, without
regard to state law limitations concerning:
. . .
(6) Escrow accounts, impound accounts, and similar
accounts; . . . .

Real Estate Lending and Appraisals, 69 Fed. Reg. at 1917.
The OCC did not offer any basis for the inclusion of escrow accounts, in particular, on
the list. It did not state, for example, that it had consulted with HUD, or that it had determined
state regulation regarding escrow accounts, in particular, had encroached too far on the federal
domain.3 Instead, it offered several general defenses of the revised list as a whole. It asserted
that the list “reflects our experience with types of state laws that can materially affect and
confine—and thus are inconsistent with—the exercise of national banks’ real estate lending
powers.” Id. at 1911. It emphasized in general terms the paramount importance of “enable[ing]
national banks to operate to the full extent of their powers under Federal law . . . .” Id. at 1908.
And it claimed that preemption of some state consumer protection laws was acceptable given the
“scant” evidence that national banks – as opposed to the “subprime mortgage and finance
companies that dominate mortgage lending” – engaged in predatory lending practices. Id. at
1913–14 & n.73. For the next six years, this regulation remained unchanged.
IV. Dodd–Frank
Between 2007 and 2008, the national housing market collapsed, precipitating the worst
financial crisis since the Great Depression. See generally FIN. CRISIS INQUIRY COMM’N, supra.
In 2010, in an effort to prevent a future collapse, Congress enacted the Dodd–Frank Wall Street
Reform and Consumer Protection Act (“Dodd–Frank”), Pub. L. No. 111-203, 124 Stat. 1376–

2223 (2010). See S. Rep. No. 111-76, at 2 (2010). Three parts of the Act are relevant to this
case. First, Dodd–Frank concentrated rulemaking authority over consumer-protection laws in

3 The notice of proposed rulemaking included no more detail on these questions than did the final rule. See Real
Estate Lending and Appraisals, 68 Fed. Reg. 46,119, 46,119–32 (Aug. 5, 2003).
the newly created Bureau of Consumer Financial Protection (“CFPB”). Thus, the responsibility
for promulgating regulations under RESPA – previously the work of HUD – was transferred to
the CFPB. See Dodd–Frank tit. X, 124 Stat. at 1955–2113.
Second, in an effort to “stop[] or mitigat[e] a number of abusive and deceptive practices
related to escrow accounts, mortgage servicing, and appraisal practices,” H.R. Rep. No. 111-94,

Dodd–Frank amended the Truth in Lending Act (“TILA”), 15 U.S.C. § 1601 et seq., by enacting
15 U.S.C. § 1639d. Section 1639d requires “creditors,” including national banks, to maintain
mortgage escrow accounts on behalf of borrowers with federally guaranteed or insured loans
(and other loans not relevant here) for a period of at least five years. See id. § 1639d(a)–(b);
H.R. Rep. No. 111-94, at 49.4 For all accounts thus mandated, section 1639d regulates the

4 In full, subsections (a) and (b) read:
(a) In general
Except as provided in subsection (b), (c), (d), or (e), a creditor, in connection with the consummation of a
consumer credit transaction secured by a first lien on the principal dwelling of the consumer, other than a
consumer credit transaction under an open end credit plan or a reverse mortgage, shall establish, before the
consummation of such transaction, an escrow or impound account for the payment of taxes and hazard
insurance, and, if applicable, flood insurance, mortgage insurance, ground rents, and any other required
periodic payments or premiums with respect to the property or the loan terms, as provided in, and in
accordance with, this section.
(b) When required
No impound, trust, or other type of account for the payment of property taxes, insurance premiums, or other
purposes relating to the property may be required as a condition of a real property sale contract or a loan
secured by a first deed of trust or mortgage on the principal dwelling of the consumer, other than a
consumer credit transaction under an open end credit plan or a reverse mortgage, except when--
(1) any such impound, trust, or other type of escrow or impound account for such purposes is
required by Federal or State law;
(2) a loan is made, guaranteed, or insured by a State or Federal governmental lending or insuring
agency;
(3) the transaction is secured by a first mortgage or lien on the consumer's principal dwelling
having an original principal obligation amount that--
(A) does not exceed the amount of the maximum limitation on the original principal
obligation of mortgage in effect for a residence of the applicable size, as of the date such
interest rate set, pursuant to the sixth sentence of section 1454(a)(2) of title 12, and the
payment of interest thereon, providing, “If prescribed by applicable State or Federal law, each
creditor shall pay interest to the consumer on the amount held in any impound, trust, or escrow
account that is subject to this section in the manner as prescribed by that applicable State or
Federal law.” Id. § 1639d(g)(3).
Section 1639d became effective on January 21, 2013. See Lusnak v. Bank of America,

N.A., 883 F.3d 1185, 1197 (9th Cir. 2018). The next day, on January 22, 2013, the CFPB
promulgated a final rule implementing its provisions. See Escrow Requirements Under the Truth
in Lending Act, 78 Fed. Reg. at 4726. In the accompanying notice of rulemaking, the agency
plainly acknowledged that 1639d(g)(3) makes state escrow interest laws like GOL § 5-601
applicable to lenders. See id. at 4744–47 (“Depending on the State, the creditor might not have
to pay interest on the money in the escrow account.”). It did not, however, consider or address
1639d(g)(3)’s applicability to national banks, in particular. Nor did it discuss what preemptive
significance, if any, that provision might have.
Third, in Title X, Dodd–Frank cabined the OCC’s authority to wield the NBA to preempt

state consumer protection laws. As relevant, it accomplished this in several ways. First, it
clarified the preemption standard to be applied to such laws, providing that they
are preempted, only if— . . . in accordance with the legal standard
for preemption in [Barnett Bank], the State consumer financial law
prevents or significantly interferes with the exercise by the national
bank of its powers . . . .

annual percentage rate will exceed the average prime offer rate as defined in section
1639c of this title by 1.5 or more percentage points; or
(B) exceeds the amount of the maximum limitation on the original principal obligation of
mortgage in effect for a residence of the applicable size, as of the date such interest rate
set, pursuant to the sixth sentence of section 1454(a)(2) of title 12, and the annual
percentage rate will exceed the average prime offer rate as defined in section 1639c of
this title by 2.5 or more percentage points; or
(4) so required pursuant to regulation.
12 U.S.C. § 25b(b)(1). Second, it imposed limitations on when and to what extent the OCC
could make preemption determinations. It required future “determination[s] . . . concerning the
impact of a particular State consumer financial law” to be made “case-by-case” and in
“consult[ation] with the [CFPB].” Id. § 25b(b)(3). Third, it made clear that only Skidmore
deference applies to the OCC’s preemption determinations. Specifically, it mandated that courts

reviewing those determinations not give them any heightened deference, but instead assess them
“depending upon the thoroughness evident in the consideration of the agency, the validity of the
reasoning of the agency, the consistency with other valid determinations made by the agency,
and other factors which the court finds persuasive and relevant to its decision.” Id. §
25b(b)(5)(A).
V. The OCC’s Subsequent Regulations
In 2011, acknowledging that Dodd–Frank’s preemption provisions “may have been
intended to change the OCC’s approach,” the OCC revisited its 2004 preemption regulations.
See Dodd–Frank Act Implementation, 76 Fed. Reg. 43,549, 43,556 (July 21, 2011). Upon

review, the agency rearranged some wording, but it declined to alter its extensive list of
preempted state laws, asserting that its decision to include these items was fully consistent with
the “preemption standard of the Barnett decision.” Id. As revised, the regulation now provides,
(a) A national bank may make real estate loans . . . without
regard to state law limitations concerning:
. . .
(6) Escrow accounts, impound accounts, and similar
accounts; . . . .
(b) State laws on the following subjects are not inconsistent with
the real estate lending powers of national banks and apply to
national banks to the extent consistent with [Barnett Bank]:
. . .
(9) Any other law . . . that is made applicable by Federal
law.
12 C.F.R. § 34.4 (2019).
Because these changes did not alter the list, the OCC believed it was not bound by Dodd–
Frank’s case-by-case requirement to justify its decision with respect to each category of state law
on the list. Dodd–Frank Act Implementation, 76 Fed. Reg. at 43,557. As such, it did not consult
with CFPB regarding the continued validity of the escrow account preemption regulation. And

although the OCC offered justifications for some other items on the list, it once again declined to
specifically explain or defend the escrow account regulation. Id.
VI. Plaintiffs’ Mortgages
Plaintiffs in these actions have two types of mortgage escrow accounts with Bank of
America, neither of which is mandatory pursuant to section 1639d.5 In 2010 – over two years
before section 1639d’s effective date – Cantero purchased a home in Queens Village, New York.
(Cantero Am. Compl. (18-CV-4157, Doc. No. 6) at ¶ 29.) In connection with the purchase, he
entered into a mortgage agreement with the Bank which required him to make monthly payments
into a mortgage escrow account maintained by the Bank. (Id. at ¶¶ 18, 30.) The agreement

provided “that the instrument ‘shall be governed by Federal law and the law of jurisdiction in
which the Property is located.’” (Id. at ¶¶ 31–32.) Cantero’s mortgage loan is insured by the
FHA. (Dec. 21, 2018 Letter (18-CV-4157, Doc. No. 27) at 1.)
In 2016, the Hymes Plaintiffs purchased a single-family home in East Setauket, New
York. (Hymes Compl. (18-CV-2352, Doc. No. 1) at ¶ 13.) Like Cantero, they entered into a
mortgage agreement with the Bank which required them to open an escrow account. (Id. at ¶¶ 8,
13.) And like Cantero, their agreement provided that it would be “governed by federal law and

5 In their motion papers, both sets of plaintiffs concede this point. (See Hymes Opp’n (18-CV-2352, Doc. No 22) at
30; Cantero Opp’n (18-CV-4157, Doc. No. 22) at 24–27.)
the law of New York State.” (Id. at ¶ 43.) In addition, the agreement stated that the Bank would
“not be required to pay . . . any interest or earnings on the Escrow Funds unless . . . Applicable
Law requires” otherwise, and it defined “Applicable Law” as “federal law and the law of New
York State.” (Id.) Although the Hymes Plaintiffs’ mortgage post-dates section 1639d’s effective
date, it is not insured by a state or federal agency, and it does not otherwise fall into one of the

categories of loans for which section 1639d mandates escrow accounts.6
Plaintiffs allege that, although they have continued to make monthly payments into their
escrow accounts, the Bank has not paid them any interest as required by both GOL § 5-601 and,
by extension, their mortgage agreements. (Hymes Compl. at ¶ 14; Cantero Am. Compl. at ¶ 19.)
They further allege that, at the time they entered into their agreements, they reasonably believed
they would be paid interest, and that the Bank has known all along of its legal obligations but
nonetheless has elected to not pay. (Hymes Compl. at ¶¶ 19, 33–36; Cantero Am. Compl. at ¶¶
27–28, 58–63.)
On behalf of themselves and a putative class of similarly situated individuals, Plaintiffs

assert claims for breach of contract, unjust enrichment, violation of New York General Business
Law (“GBL”) § 349, and violation of GOL § 5-601. (Hymes Compl. at ¶¶ 33–52; Cantero Am.
Compl. at 49–92.)7 They seek compensatory and punitive damages and injunctive and
declaratory relief. (Hymes Compl. at 16; Cantero Am. Compl. at 15–16.)

6 Counsel for the Hymes Plaintiffs conceded this at a consolidated oral argument on the pending motions. (See Oral
Arg. Tr. (18-CV-4157, Doc. No. 28) at 32.)
7 Plaintiffs structure their class claims differently but, for the purposes of these motions to dismiss, the differences
are immaterial. The Hymes Plaintiffs seek to represent a “New York Class” and a “Multi-State Class,” which
includes New York. On behalf of the former, they assert claims under New York General Business Law § 349.
(Hymes Compl. at ¶¶ 33–41.) On behalf of the latter – customers of the Bank with mortgaged properties in
Connecticut, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Oregon, Rhode
Island, and Utah – they assert claims for breach of contract and unjust enrichment. (Id. at ¶¶ 42–52.) Cantero seeks
to represent a single all-encompassing class, which includes customers of the Bank with properties in the same 11
states plus Vermont and Wisconsin. (Cantero Am. Compl. at ¶¶ 57, 79.) In addition, Cantero seeks to assert claims
under the consumer protection and escrow laws of each state, which he alleges are “substantially and materially
VII. The Instant Motions to Dismiss
The Bank moves to dismiss Plaintiffs’ complaints for failure to state a claim. See Fed. R.
Civ. P. 12(b)(6). The Bank argues, first, that all claims must fail because the NBA preempts
GOL § 5-601, and therefore it is not obligated to pay interest on mortgage escrow accounts.
(Hymes Mot. (18-CV-2352, Doc. No. 19-1) at 12–29; Cantero Mot. (18-CV-4157, Doc. No. 21-

1) at 13–29.) Second, following from this conclusion, it argues that Plaintiffs’ breach of contract
claims fail because the New York choice-of-law provisions in their mortgage agreements
obviously do not incorporate preempted laws like GOL § 5-601. (Hymes Mot. at 30–31; Cantero
Mot. at 32–33.) Third, it argues Plaintiffs’ unjust enrichment claims are barred because their
mortgage agreements cover the subject matter at issue. (Hymes Mot. at 31; Cantero Mot. at 33.)
And, fourth, it argues Plaintiffs’ GBL § 349 claims fail because they have not alleged the Bank
engaged in deceptive acts or practices. (Hymes Mot. at 31–32; Cantero Mot. at 33–34.) The
Bank does not make an argument specific to to Plaintiffs’ “violation of GOL § 5-601” claims
aside from its broader preemption argument.

On December 12, 2018, the parties in both Hymes and Cantero appeared before then–
District Judge Joseph F. Bianco to argue the merits of the Banks’ twin motions. (Oral Arg. Tr.
(18-CV-2352, Doc. No. 27).) In the months since, this action has been transferred to the
undersigned, and the parties have submitted supplemental letter briefs addressing various
pertinent issues. The Court has considered the arguments raised in these supplemental
submissions.

similar” to GOL § 5-601 and GBL § 349. (Id.) Whether these class claims can go forward will be addressed upon a
motion for class certification.
STANDARD OF REVIEW
To survive a Rule 12(b)(6) motion, “a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A
complaint need not contain “detailed factual allegations,” but it must contain “more than an

unadorned, the-defendant-unlawfully-harmed-me accusation.” Iqbal, 556 U.S. at 678 (quoting
Twombly, 550 U.S. at 555). That is, a complaint must include “enough facts to state a claim to
relief that is plausible on its face.” Twombly, 550 U.S. at 570. “A claim has facial plausibility
when the plaintiff pleads factual content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly,
550 U.S. at 570). The determination of whether “a complaint states a plausible claim for relief
will . . . be a context-specific task that requires the reviewing court to draw on its judicial
experience and common sense.” Iqbal, 556 U.S. at 678 (citing Iqbal v. Hasty, 490 F.3d 143,
157–58 (2d Cir. 2007)).

In deciding a motion to dismiss, a Court may “consider matters of which judicial notice
may be taken under Fed .R. Evid. 201.” Kramer v. Time Warner Inc., 937 F.2d 767, 773 (2d Cir.
1991). This includes “law, legislative facts, or factual matters that are incontrovertible,” so long
as “there is no dispute as to the authenticity of such materials.” Oneida Indian Nation of N.Y. v.
New York, 691 F.2d 1070, 1086 (2d Cir. 1982). Here, given that no facts are in dispute and the
issue before the Court turns purely on a question of law, the Court takes judicial notice of
relevant legal authorities, legislative histories, and secondary sources.
DISCUSSION
The Court concludes that the NBA does not preempt GOL § 5-601, and therefore that the
Plaintiffs’ complaints state claims for breach of contract. Because Plaintiffs’ contracts govern
this dispute, their unjust enrichment claims must be dismissed. Moreover, the Court concludes
that the complaints fail to allege deception on the part of the Bank sufficient to state claims for

violation of GBL § 349, and, accordingly, those claims also are dismissed.
I. NBA Preemption
“National banks are instrumentalities of the federal government created for a public
purpose, and as such necessarily subject to the paramount authority of the United States.”
McClellan v. Chipman, 164 U.S. 347, 357 (1896). For the past 200 years, it has been settled that
“federal law [is] supreme over state law with respect to national banking.” Watters, 550 U.S. at
10 (citing M’Culloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819)). Thus, state laws that purport
to “define the[] duties or control the conduct” of national banks are preempted under the
Supremacy Clause. See Davis v. Elmira Savings Bank, 161 U.S. 275, 283 (1896). This does not

mean, however, that “banks or other corporations or instrumentalities of the [federal]
government are to be wholly withdrawn from the operation of State legislation.” First Nat’l
Bank, 76 U.S. (9 Wall.) at 361. To the contrary, as noted above, “it is often said that we have a
‘dual banking system’ of federal and state regulation.” Burke, 414 F.3d at 314 (citations
omitted). For nearly as long as there has been a National Bank Act, the Supreme Court has
recognized a role for state regulation. See McClellan, 164 U.S. at 356; First Nat’l Bank, 76 U.S.
at 361–62. For example, national banks have historically been – and still are – subject to state
contract law, tort law, criminal law, and law governing the transfer of real property. See Watters,
550 U.S. at 11; McClellan, 164 U.S. at 356; 12 C.F.R. 34.4(b).
The question whether the NBA preempts a state law “is basically one of congressional
intent. Did Congress, in enacting the Federal Statute, intend to exercise its constitutionally
delegated authority to set aside the laws of a State?” Barnett Bank, 517 U.S. at 30. Sometimes,
the answer is more easily gleaned, as is the case when Congress has clearly stated its intent to
preempt state law or, conversely, when it has explicitly made exercise of a banking power

“subject to state law.” Id. at 31, 34 (citing examples of the latter throughout the NBA, including
12 U.S.C. §§ 36(c), 92a(a)). Often, though, Congress will not have spoken explicitly regarding
the applicability of a particular state law. In this circumstance, state laws will be preempted only
where Congress’s preemptive intent can be implied. That is, state laws are implicitly preempted
when they conflict with federal law – when adherence with both statutes is a “physical
impossibility,” id. at 31, or when “state law stands as an obstacle to the accomplishment and
execution of the full purposes,” Burke, 414 F.3d at 313–14 (citing, inter alia, Barnett Bank, 517
U.S. at 31; Fidelity Fed. Sav. & Loan Ass’n v. de la Cuesta, 458 U.S. 141, 159–60 (1984)).
In general, when conducting a preemption inquiry, Courts are guided by “the assumption

that the historic police powers of the States [are] not to be superseded by the Federal Act unless
that was the clear and manifest purpose of Congress.” Altria Grp., Inc. v. Good, 555 U.S. 70, 77
(2008) (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947)). In other words,
Courts typically employ a presumption against preemption. “The presumption against federal
preemption disappears, however, in fields of regulation that have been substantially occupied by
federal authority for an extended period of time. Regulation of federally chartered banks is one
such area.” Burke, 414 F.3d at 314 (quoting Flagg, 396 F.3d at 183) (citations omitted). Thus,
in confronting NBA preemption claims, there is a history of courts “interpreting grants of both
enumerated and incidental ‘powers’ to national banks as grants of authority not normally limited
by, but rather ordinarily pre-empting, contrary state law.” Barnett Bank, 517 U.S. at 32
(citations omitted).
Taking stock of this history and of the general principles of preemption, the Supreme
Court in Barnett Bank articulated the standard for implied preemption under the NBA as follows:
In defining the pre-emptive scope of statutes and regulations
granting a power to national banks, [our precedents] take the view
that normally Congress would not want States to forbid, or to impair
significantly, the exercise of a power that Congress explicitly
granted. To say this is not to deprive States of the power to regulate
national banks, where . . . doing so does not prevent or significantly
interfere with the national bank’s exercise of its powers.

Barnett Bank, 517 U.S. at 33 (citing Anderson Nat’l Bank v. Luckett, 321 U.S. 233, 247–252
(1944); McClellan, 164 U.S. at 358; First Nat’l Bank, 76 U.S. at 362); accord Watters, 550 U.S.
at 12 (reiterating Barnett Bank’s “prevent or significantly interfere” language). As discussed
above, Congress subsequently codified this standard in the NBA. See 12 U.S.C. § 25b(b).
Therefore, as a matter of both statutory and constitutional law, the NBA implicitly preempts a
state law only if it “prevents or significantly interferes with” the national banks’ exercise of their
powers.
In this case, the parties agree that Congress has not explicitly spoken to whether the NBA
preempts state laws, like New York’s GOL § 5-601, requiring national banks to pay interest on
mortgage escrow accounts. The parties further agree that, therefore, the answer turns on divining
congressional intent through regulations and statutory provisions and, ultimately, through
application of Barnett Bank.
Between them, the parties point to three sources of authority bearing on congressional
intent. The first is the NBA itself, which has, for decades, endowed national banks with the
power to engage in real estate lending and activities incidental thereto, but which does not
specifically address escrow lending activities. See 12 U.S.C. §§ 24 (Seventh), 371(a). The
second is the OCC’s preemption regulations, first promulgated in 2004, interpreting the NBA to
permit lending “without regard to state law limitations concerning . . . [e]scrow accounts,
impound accounts, and similar accounts,” but saving state laws “made applicable by Federal
law.” 12 C.F.R. § 34.4(a), (b)(9). The third is the 2010 Dodd–Frank Act, in which Congress

simultaneously cabined the authority of the OCC to make preemption determinations and
provided, in law not subject to OCC oversight, that mortgage lenders must pay interest on certain
categories of mortgage escrow accounts “[i]f prescribed by applicable State or Federal law.” See
12 U.S.C. § 25b; 15 U.S.C. § 1639d(g)(3). This case turns on the meaning of these three
authorities.
It should be noted that this appears to be a question of first impression everywhere other
than in the Ninth Circuit. There, in Lusnak v. Bank of America, N.A., 883 F.3d 1185 (9th Cir.
2018), cert. denied, 139 S. Ct. 567 (2018), the Court of Appeals concluded that the NBA does
not preempt California’s analogue to GOL § 5-601. The Court reasoned that section 1639d(g)(3)

“expresses Congress’s view that” escrow interest laws “would not necessarily prevent or
significantly interfere with a national bank’s operations,” and therefore that, under Barnett Bank,
the NBA did not preempt the California law. Id. at 1194–95. With respect to the OCC’s 2011
preemption regulations, the Ninth Circuit found them to be “entitled to little, if any, deference,”
given that the agency failed to meaningfully revise them after Dodd–Frank repudiated the
agency’s approach to preemption. Id. at 1193. This Court finds Lusnak persuasive and reaches
the same result; however, this Memorandum and Order stands on its own.
Turning to the parties’ arguments, the Bank contends that the NBA and the OCC’s
preemption regulations each independently preempt GOL § 5-601 under a straightforward
application of Barnett Bank. (Hymes Mot. at 14–23; Cantero Mot. at 14–24.) Dodd–Frank, it
asserts, did not change things: The preemption regulations continue to be entitled to deference,
and section 1639d(g)(3) simply does not require compliance with preempted state laws because a
preempted law cannot be an “applicable” one within the meaning of that provision. (Hymes
Mot. at 23–29; Cantero Mot. at 24–29.) In support of its arguments, the Bank points to an OCC

amicus brief which was originally filed in support of the Bank’s unsuccessful motion for en banc
review of the Lusnak decision. (See OCC Brief (18-CV-2352, Doc. No. 19-2).) As relevant, the
OCC brief contends, based on its interpretation of case law, that the Bank’s positions are correct
and the OCC’s preemption regulations “directly address[] the issue in this case.” (Id. at 13–25.)
Plaintiffs respond to each of these arguments in turn. They contend that, although the
NBA grants real estate lending powers, GOL § 5-601’s modest directive to pay interest on
mortgage escrow accounts does not “significantly interfere” with those powers. (Hymes Opp’n
(18-CV-2352, Doc. No. 22) at 18–24; Cantero Opp’n (18-CV-4157, Doc. No. 22) at 9–20.) With
respect to section 1639d(g)(3), Plaintiffs dispute the Bank’s interpretation of “applicable” and

argue that, by enacting this provision, Congress signaled its view that laws like GOL § 5-601
could coexist with existing federal banking regulations. (Hymes Opp’n at 24–25; Cantero Opp’n
at 22–24.) It follows from this, Plaintiffs argue, that the preemption regulations’ exception for
state law made applicable by federal law encompasses GOL § 5-601. And they add that the
OCC’s relatively unexplained determination that the NBA preempts all “limitations on escrow
accounts” is not entitled to significant deference. (Hymes Opp’n at 26–30; Cantero Opp’n at 20–
22.)
Before applying Barnett Bank, it is necessary to resolve the parties’ interpretive
disagreements regarding the statutory scheme and the OCC’s preemption regulations. The Court
begins with the statutes.
A. NBA, RESPA, and Dodd–Frank
Although the NBA does not itself explicitly address national banks’ power to administer

mortgage escrow accounts, Congress has not left the subject untouched. Since 1974, RESPA has
governed the amounts mortgage lenders, including national banks, may require be deposited in
escrow. See 12 U.S.C. §§ 2601(a), 2609. And since 1974, Congress has devolved oversight of
RESPA upon agencies other than the OCC – to HUD from 1974 to 2010, see 88 Stat. at 1274,
and to the CFPB thereafter, see 124 Stat. at 1965.
The significance of this to the case at hand is twofold. First, it is clear evidence that
Congress intended mortgage escrow accounts, even those administered by national banks, to be
subject to some measure of consumer protection regulation. Although RESPA is not the same
sort of regulation as GOL § 5-601, the two share a unity of purpose. Both are directed to

limiting the extent to which borrowers may be separated from control over their money. RESPA
limits the amount initially demanded; GOL § 5-601 requires that a modest interest be paid on the
amount retained.
Second, RESPA – and all other mortgage-lending legislation dating back to the New Deal
– shows that the regulation of the mortgage industry has long transcended the confines of the
NBA. Historically, national banks have not been the largest participants in the national mortgage
business. Federally chartered savings and loan associations, mortgage companies, state-
chartered banks, and other entities have all, at various times, claimed a significant share of the
market. See Kenneth A. Snowden, RESEARCH INST. FOR HOUS. AM., Mortgage Banking in the
United States, 1870–1940, at 86 tbl.25 (2014) (listing types of mortgage lender by share of
mortgage originations from 1936 to 1939); Peter S. Rose & Richard L. Haney, Jr., The Players in
the Primary Mortgage Market, 1 J. HOUSING RES. 91, 93 tbl.2 (1990) (listing types of mortgage
lender by share of single-family loan originations from 1970 to 1989). In 1974, it would have
made no sense for Congress to assign federal regulation of mortgage escrow accounts to the

agency charged with oversight of only a fraction of the mortgage market. Nor, for example,
would this have made sense in 1968, when Congress enacted TILA to regulate all “creditors.”
See Pub. L. No. 90-321, §§ 103, 105, 82 Stat. 146, 147–48 (1968) (delegating rulemaking
authority to the Federal Reserve Board).8
In Dodd–Frank, Congress continued this approach with a newfound urgency, enacting a
battery of new consumer protection laws applicable to all mortgage lenders and consolidating the
power to administer them in the CFPB. One such law was section 1639d, which makes
mortgage escrow accounts mandatory for large swaths of loans for a minimum of five years, and
which requires creditors to “pay interest to the consumer on the amount held in any impound,

trust, or escrow account” “[i]f prescribed by applicable State or Federal law.” 15 U.S.C. §
1639d(g)(3). The meaning of this provision would appear to be straightforward. Recognizing
that escrow accounts offer borrowers “protection against tax liens and the forced placement of
insurance,” but, at the same time, that such accounts have long been subject to “RESPA and, if
applicable, State law,” Congress sought to strike a balance: it would require establishment of

8 TILA struck a balance, delegating the authority to promulgate regulations to the Federal Reserve Board (and, after
Dodd–Frank, the CFPB), but delegating enforcement to several different agencies based on their expertise and
purview. See 15 U.S.C. § 1604(a); 82 Stat. at 148. Thus, it vested the OCC with the power to enforce TILA against,
inter alia, national banks. See 12 U.S.C. § 1813(q); 15 U.S.C. § 1607(a)(1)(A).
such accounts, subject to various restrictions and requirements imposed by RESPA and state law.
See H.R. Rep. No. 111-94, at 49, 53.
The Bank, however, vigorously disputes this interpretation as applied to national banks.
It argues that “applicable” means, at least in part, “not preempted.” Therefore, to the extent state
laws like GOL § 5-601 are preempted by the NBA, they are not incorporated into section

1639d(g)(3) and, consequently, that provision has no bearing on this case. (Hymes Mot. at 25–
26; Cantero Mot. at 26–27.) It could not be otherwise, says the Bank, because had Congress
intended to “modify” its approach to NBA preemption, thereby permitting state escrow interest
laws to govern national banks, it would have done so more explicitly. (Hymes Mot. at 25–26;
Cantero Mot. at 26–27.)
The Court is not persuaded that Congress intended “applicable” to create a massive
preemption-based exemption for national banks. For the reasons set forth below, the Court
concludes that the better reading of section 1639d(g)(3) is that it has nothing to say about
preemption one way or the other – that, when Congress wrote the statute and used “applicable”

before “State or Federal law,” it was not concerned with NBA preemption. Rather, it appears
Congress meant “applicable” simply to mean “relevant.”
To begin with the text, the Bank takes a too-narrow view of the statute’s plain meaning.
See, e.g., Smith v. Berryhill, 139 S. Ct. 1765, 1774 (2019) (“We begin with the text.”). Citing
Webster’s II New College Dictionary (1999), the Bank defines “applicable” as “able to be
applied; appropriate.” (Hymes Mot. at 25; Cantero Mot. at 26.) From here, it concludes that,
since preempted laws of course are not “able to be applied,” “applicable” must mean “not
preempted.” (Hymes Mot. at 25; Cantero Mot. at 26.) The year after Dodd–Frank’s enactment,
however, the Supreme Court defined “applicable” more broadly and flexibly to mean “‘capable
of being applied: having relevance’ or ‘fit, suitable, or right to be applied: appropriate.’”
Ransom v. FIA Card Servs., N.A., 562 U.S. 61, 69 (2011) (quoting WEBSTER’S THIRD NEW
INTERNATIONAL DICTIONARY 105 (2002)). The task here is to choose among these various
meanings.
“The general rule is that the ‘meaning of a word, and, consequently, the intention of the

legislature,’ should be ‘ascertained by reference to the context.’” Ali v. Fed. Bureau of Prisons,
552 U.S. 214, 231 (2008) (quoting Neal v. Clark, 95 U.S. 704, 709 (1878)). “[A] word is given
more precise content by the neighboring words with which it is associated.” United States v.
Williams, 553 U.S. 285 (2008). Here, although the surrounding words in section 1639d(g)(3) do
little to pinpoint a meaning, they at least suggest that Congress was not thinking in terms of
preemption. The provision twice refers to “applicable State or Federal law,” which can quite
naturally be read such that “applicable” modifies “Federal law,” and which at best is ambiguous
as to which words “applicable” modifies. Had Congress been concerned with preemption –
which, of course, does not limit federal laws – it is unlikely it would have taken this approach.9

Turning to section 1639d as a whole, “applicable” appears ten times. In the majority of
these instances, it is best read as meaning “relevant” or “having relevance,” and not “able to be
applied.” For example, it mandates creating escrow accounts “for the payment of taxes and
hazard insurance, and, if applicable” – i.e., if relevant – “flood insurance, mortgage insurance,

9 Focused on the Lusnak decision, the Bank points to other language in section 1639d. In Lusnak, the Ninth Circuit
concluded “that [Congress] used the term ‘applicable’ to refer to state escrow interest laws where they exist” – i.e., to
account for the fact that, at the time, only approximately a dozen states had escrow interest laws. Lusnak, 883 F.3d at
1195. The Bank argues this must be wrong because “Congress accounted for the absence of escrow interest laws in
some states not with the word ‘applicable,’ but with the phrase ‘[i]f prescribed by,’” which appears at the very
beginning of section 1639d(g)(3). (Hymes Mot. at 25–26; Cantero Mot. at 26–27.) For “applicable” to mean what
the Lusnak court says it does, contends the Bank, would render “[i]f prescribed by” surplusage. (Hymes Mot. at 25–
26; Cantero Mot. at 26–27.) Because the Court does not interpret “applicable” the same way the Ninth Circuit did, it
need not address this argument. It suffices that the Court’s reading of “applicable” to mean “relevant” is perfectly
compatible with the Bank’s chosen reading of “[i]f prescribed by.”
ground rents, and any other required periodic payments.” See 15 U.S.C. § 1639d(a); see also id.
§ 1639d(h)(3)–(5).10 Elsewhere, the statute refers to “residence[s] of the applicable size” – i.e.,
relevant or appropriate size. Id. § 1639d(b)(3)(A)–(B). It would make no sense in either of these
contexts for “applicable” to mean “able to be applied.” Nor would it make sense at all for
“applicable” to have anything to do with preemption.11

Usage of “applicable” throughout the Act further reinforces the Court’s interpretation.
“It is a normal rule of statutory construction that identical words used in different parts of the
same act are intended to have the same meaning.” Taniguchi v. Kan Pac. Saipan, Ltd., 566 U.S.
560, 571, (2012) (internal quotation marks omitted) (quoting Gustafson v. Alloyd Co., 513 U.S.
561, 570 (1995)). Dodd–Frank repeatedly uses “applicable” to qualify references to state law,
federal law, or both. In every instance, reading “applicable” to mean “relevant” makes sense;
whereas reading it to mean “able to be applied” and “not preempted” does not. Indeed, the
statute sometimes inverts the language in section 1639d(g)(3) and refers to “applicable Federal
or State law.” See 124 Stat. at 1451. More pertinently, sometimes it simply refers to “applicable

Federal law.” See id. § 210(a)(16)(D)(ii). It cannot be the case that Congress nonsensically
meant to invoke federal law only to the extent it is not preempted.12

10 This usage repeats later in the statute, where “if applicable” is appended to references to premiums on optional
insurance policies. See id. § 1639d(h)(3)–(5).
11 The other two usages in section 1639d are not to the contrary. One refers to “the law of the State, if applicable,”
which, just as the passage at issue, is susceptible to being interpreted as either “relevant” or “able to be applied.”
See 12 U.S.C. § 1639d(g)(2)(C). The other refers to “applicable fees or costs” associated with not creating an
escrow account or with closing an escrow account. Id. § 1639d(j)(2)(A). This, too, is susceptible of two
interpretations.
12 Beyond these examples, “applicable” appears nearly 350 times throughout the Act. The Court does not attempt to
catalogue all usages here. It suffices to say that, upon careful review of a significant number of them, it is rarely if
ever the case that “applicable” could not naturally be read to mean “relevant.”
Next, the Court’s interpretation is supported by “the broader structure of the Act.” King
v. Burwell, 135 S. Ct. 2480, 2492 (2015). As the Bank correctly points out, Congress knew how
to address preemption when it wanted to. (Hymes Mot. at 26; Cantero Mot. at 27.) Subtitle D of
Title X is named “Preservation of State Law,” and it establishes rules for when state laws are and
are not preempted. (Incidentally, this subtitle never once uses the phrase “applicable State law.”)

For example, Subtitle D deprives state attorneys general of the power to enforce the Act against
national banks in all but some limited circumstances. See 124 Stat. at 2012. Section 1639d, and
the title in which it is located (Title XIV), does none of these things. Pursuant to its zero-sum
approach, the Bank argues that because section 1639d(g)(3) lacks an “explicit statement” of
intent to not preempt state laws, it must mean that the provision instead intended to preserve
existing preemption rules. But, as the foregoing discussion shows, it is possible and in fact more
likely that, in enacting section 1639d, Congress meant nothing with respect to preemption at all.
Although not necessary to the Court’s conclusion, legislative history also supports
reading section 1639d(g)(3) as the Court does – as not containing a relatively hidden exemption

to a mortgage lending rule for the nation’s largest mortgage lenders. As detailed earlier in this
Order, Congress was acutely aware of the benefits of mortgage escrow accounts, particularly for
subprime borrowers, and the risks of issuing home loans without them. See H.R. Rep. No. 111-
94, at 49, 53–54; see also Lusnak, 883 F.3d at 11985. In seeking to increase the use of such
accounts, the House Report noted that they must be administered “in accordance with [RESPA],
. . . and, if applicable, the law of the State where the real property securing the transaction is
located, including making interest payments on the escrow account if required under such laws.”
Id. at 91. Nothing in this passage – other than the Bank’s ill-fitting reading of “applicable” –
suggests Congress intended to exempt national banks, who as of 2010 controlled a majority of
the mortgage lending market, from this directive.
Bank of America argues that, because “the worst subprime loans were originated by
nonbank lenders,” section 1639d “was aimed primarily at subjecting these nonbank entities’
mortgage lending practices to minimum federal consumer protection standards.” (Hymes at 26–

27 (citations omitted).) As the Bank surely knows, however, by 2010, many of these nonbank
lenders were no longer in business. Two years before, the Bank itself had purchased the largest
such lender: Countrywide Financial Corporation. See FIN. CRISIS INQUIRY COMM’N, supra, at
22. It would have made little sense for Congress to regulate in 2010 as if it were still 2006.
Finally, although the CFPB has not definitively issued a regulation interpreting section
1639d(g)(3), it bears noting that its final rulemaking gives no hint that it believed national banks
would be exempted from state escrow interest laws. In a detailed analysis of the rationale for the
interest requirement, the notice of rulemaking does not make any distinction between national
banks and other creditors. See Escrow Requirements Under the Truth in Lending Act, 78 Fed.

Reg. at 4726–57. Although it frequently notes that many creditors will not be required to pay
interest, the notice attributes this to the fact that some states do not have interest laws – not to the
fact that some creditors will be exempt given principles of preemption. Thus, it acknowledges,
“[d]epending on the State, the creditor might not be required to pay interest,” and “[u]nder some
State regulations, creditors are not required to pay interest.” Id. at 4745, 4757; accord Lusnak,
883 F.3d at 1195 (quoting the same language).
In sum, the text and structure of section 1639d, and Dodd–Frank more broadly, compel
the conclusion that by “applicable State or Federal law,” Congress meant “relevant State or
Federal law,” and that Congress did not intend to create a preemption-based exception for
national banks. Thus, although section 1639d(g)(3) does not govern the specific loans at issue in
this case, it is nonetheless significant, for it evinces a clear congressional purpose to subject all
mortgage lenders to state escrow interest laws. As this section began by explaining, this purpose
is not surprising. Indeed, it is wholly consistent with the history of mortgage-lending regulation
in this country, and with the limited history of mortgage escrow account regulation from

RESPA’s enactment to the present. Congress has determined, again and again, to subject
lenders, including national banks, to reasonable consumer protection laws. Especially after the
post-crisis consolidation of the mortgage-market in the hands of a few large national banks, it
would be perverse to interpret Congress’s latest regulatory effort as obliquely exempting those
banks. This conclusion does not end the preemption inquiry. It merely informs it, giving insight
into Congress’s intent.
B. The OCC’s Preemption Regulations
The preemption inquiry is also informed by the OCC’s regulations. Where the agency
has issued regulations preempting state law, “[t]he proper focus” is on the content of those

regulations. See Burke, 414 F.3d at 314. The deference owed to the agency, however, differs
based on the substance of the regulation. Regulations that reflect the agency’s informed
interpretation of its organic statute are entitled to Chevron deference. See, e.g., id. at 315–18
(applying Chevron to OCC regulations granting banks the power to conduct banking activities
through subsidiaries, subject to the same level of state regulation as the parent bank); accord
Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842–43 (1984). Such
regulations are binding on courts so long as they represent “a permissible construction of” an
ambiguous statute. Chevron, 467 U.S. at 842. Regulations that reflect the “agency’s conclusion
that . . . state law is pre-empted” receive lesser, Skidmore deference. See Wyeth v. Levine, 555
U.S. 555, 576 (2009). Such regulations guide the court’s inquiry only to the extent of their
“thoroughness, consistency, and persuasiveness.” Id. (citing United States v. Mead Corp., 533
U.S. 218, 234–35 (2001); Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)).
Here, the OCC’s preemption regulations, codified at 12 C.F.R. § 34.4, plainly fall into the
latter category. See Lusnak, 883 F.3d at 1192 (“The Supreme Court . . . has indicated that

regulations of this kind should receive, at most, Skidmore deference . . . .”). The Bank resists
this conclusion, pointing to Wachovia Bank, N.A. v. Burke, a 2005 case in which the Second
Circuit gave section 34.4 Chevron deference. (Hymes Mot. at 23; Cantero Mot. at 23–24.)13 But
Burke is not fully apposite, and subsequent events have undermined aspects of its approach.
First, Burke pre-dated the Supreme Court’s 2009 decision in Wyeth v. Levine, in which the Court
made clear that agency conclusions about preemption should receive only Skidmore deference.
See 555 U.S. at 576. Second, Burke also pre-dated Dodd–Frank, in which Congress effectively
applied Wyeth to the OCC, mandating that courts “assess the validity of [the agency’s
preemption] determinations, depending upon the thoroughness evident in the consideration of the

agency, the validity of the reasoning of the agency, the consistency with other valid
determinations made by the agency, and other factors which the court finds persuasive and
relevant to its decision.” 12 U.S.C. § 25b(b)(5)(A). Third, Burke involved section 34.4 and a
collection of other regulations which, together, interpreted the NBA to empower national banks
to carry on the full panoply of banking activities through their subsidiaries. See Burke, 414 F.3d
at 311–13 (describing the framework created by 12 C.F.R. §§ 5.34, 7.4000, 34.1, 34.4 (2005)).

13 The Bank may have intended to retreat from this position at oral argument when it argued that, under either
Skidmore or Chevron, section 34.4 is entitled to deference. (See Oral Arg. Tr. at 46.) In an abundance of caution,
however, the Court assumes it did not.
There is no analogous regulatory scheme in this case. Accordingly, the Court will afford section
34.4 Skidmore deference – deferring to it only to the extent it is persuasive.
Section 34.4 has two subsections: 34.4(a), which contains the list of preempted state
laws, and 34.4(b), which sets out a competing list of state laws that are not preempted to the
“extent consistent” with Barnett Bank, including any law that is “made applicable by Federal

law.” 12 C.F.R. § 34.4. Subpart (b) is unambiguous, and it plainly applies here. Section
1639d(g)(3) is a “Federal law” and, as explained at length in the preceding section, it makes
GOL § 5-601 “applicable” to national banks. Under subpart (b), then, whether GOL § 5-601 is
preempted turns on a straightforward application of Barnett Bank.
The Bank and the OCC say that subpart (a) supplies just that application, but the Court is
not convinced. As the Ninth Circuit explained at length in Lusnak, there no evidence that, when
the agency first promulgated the regulations in 2004, it had engaged in a careful, considered
analysis of whether the NBA preempts state laws limiting escrow accounts. See Lusnak, 883
F.3d at 1192–94 (“The OCC did not conduct its own review of specific potential conflicts on the

ground.”). Nor is there evidence that, at this time, the agency gave any thought whatsoever to
the specific question raised in this case, which is whether the NBA preempts escrow interest
laws. The agency’s proposed and final rulemakings do not offer a specific rationale for
preempting state laws limiting escrow accounts, and they do not even mention escrow interest
laws. See Real Estate Lending and Appraisals, 69 Fed. Reg. at 1911–14 (notice of final rule);
Real Estate Lending and Appraisals, 68 Fed. Reg. at 46,119–32 (notice of proposed rule).14

14 This is not to question the persuasiveness of the 2004 regulations more generally, which the Second Circuit,
applying a greater level of deference pre-Wyeth and Dodd–Frank, found to be reasonable. See Burke, 414 F.3d at
320–21. The point is that, with respect to mortgage escrow accounts generally and state escrow interest laws more
specifically, the 2004 rulemakings did not say anything at all.
The agency’s 2011 regulations, which updated the 2004 regulations in the wake of Dodd–
Frank, did nothing to remedy this oversight. Explaining that it had “re-reviewed” the list of
preempted state laws “to confirm that the specific types of laws cited in the rules are consistent
with the standard for conflict preemption,” the OCC declined to amend the list. Dodd–Frank Act
Implementation, 76 Fed. Reg. at 43,557. But, once again, the agency did not get more specific.

It failed to explain why or to what extent the NBA preempted state laws limiting escrow
accounts, and it did not mention escrow interest laws. It is therefore difficult to conclude that the
OCC has ever considered the question before the Court. And to the extent it has, its regulations
do nothing to persuade the Court that it answered the question thoughtfully or carefully. See 12
U.S.C. § 25b(b)(5)(A); Wyeth, 555 U.S. at 576.
Urging the opposite conclusion, the Bank points to two other categories on the list of
preempted state laws, those limiting “[t]he terms of credit,” and those limiting “the ability of a
creditor to require or obtain . . . risk mitigants,” and it argues both should be read to encompass
escrow interest laws. (See Hymes Mot. at 21 (quoting 12 C.F.R. 34.4(a)(2), (4), (6)); Cantero

Mot. at 22 (same).) But these categories suffer from exactly the same deficiencies the “escrow
accounts” category does. They are strikingly broad, and nothing about them suggests that the
OCC considered whether, under Barnett Bank, the NBA preempts state escrow interest laws.
To the extent the Bank is instead arguing that subsection (a) represents the OCC’s
considered view that all state laws that could even arguably affect terms of credit, risk mitigants,
or escrow accounts are preempted, the Court disagrees. Such a blunderbuss approach to
preemption would run headlong into Dodd–Frank. Through that Act, Congress limited the
OCC’s power to effect preemption by prescribing Skidmore deference for all preemption
determinations and mandating that future determinations affecting state consumer protection
laws be made on a case-by-case basis in consultation with the CFPB. See 12 U.S.C. §
25b(b)(1)(B), (b)(3), (b)(5)(A). Congress also consolidated the power to administer consumer
protection laws in the CFPB, and it decided that, in some instances, state laws should govern.
See 15 U.S.C. § 1639d(g)(3). The Court cannot subscribe to reading section 34.4 as thoroughly
disregarding these developments.

Finally, the Court is not persuaded by, and has no obligation to defer to, the view
expressed in the OCC’s Ninth Circuit amicus brief that “12 C.F.R. § 34.4[] directly addresses the
issue in this case.” (OCC Brief at 17.) First, the Ninth Circuit implicitly declined to defer to the
agency’s interpretation when it rejected the Bank’s petition for en banc review. Second, under
Auer v. Robbins, 519 U.S. 452 (1997), agency interpretations of their own regulations “become[]
of controlling weight unless . . . plainly erroneous or inconsistent with the regulation[s].” Bowles
v. Seminole Rock & Sand Co., 325 U.S. 410 (1945); accord Auer, 519 U.S. at 461. But as the
Supreme Court has very recently explained, there are several important exceptions to Auer. See
Kisor v. Wilkie, 139 S. Ct. 2400, 2414–18 (2019). One of them applies when the agency’s

interpretation does not “in some way implicate its substantive expertise.” Id. at 2417. Then, the
agency’s interpretation merits deference only to the extent it has the “power to persuade.” Id. at
2414. Here, the OCC’s interpretation does not in any way implicate the agency’s substantive
expertise. It is based almost exclusively on the agency’s analysis, in the brief, of relevant case
law. (OCC Brief at 13–25.) Analysis of case law, as a general rule, falls squarely within the
expertise the federal courts, not agencies. See, e.g., New York v. Shalala, 119 F.3d 175, 180 (2d
Cir. 1997) (“[A]n agency has no special competence or role in interpreting a judicial decision.”);
cf. Kisor, 139 S. Ct. at 2417 (“Some interpretive issues may fall more naturally into a judge’s
bailiwick.”). And when it comes to the OCC in particular, Congress has made it abundantly
clear that courts are not to give any heightened deference to the agency’s views on NBA
preemption. See 12 U.S.C. § 25b(b)(5)(A); cf. Kisor, 139 S. Ct. at 2414 (“[W]e presume that
Congress intended courts to defer to agencies when they interpret their own ambiguous rules.
But when the reasons for that presumption do not apply . . courts should not give deference . . .
.”). Moreover, the one short sentence in the brief which speaks to the OCC’s deliberative

process in enacting section 34.4 – “[b]y the time of the promulgation of the 2004 regulations, the
OCC’s judgement had been informed by several years of litigation experience,” (OCC Brief at
18) – does nothing but parrot the 2004 rulemaking, and it does not provide specific support for
the OCC’s interpretation of section 34.4. See Real Estate Lending and Appraisals, 69 Fed. Reg.
at 1908 (“As we have learned from our experience supervising national banks, . . . by the extent
of litigation in recent years . . . national banks’ ability to conduct operations . . . has been
curtailed . . . .”). Accordingly, the OCC’s amicus brief is relevant here only to the extent it is
persuasive, and for the reasons already explained in this section, the Court does not find its
interpretation of section 34.4 persuasive.

The Court concludes that section 34.4 does not preempt GOL § 5-601, and, as a guide to
congressional intent on the narrow question at hand, it has little to offer. In subpart (b), the
regulation unambiguously exempts state laws “made applicable by Federal law,” leaving the
question of their preemption up to an individualized application of Barnett Bank. 12 C.F.R. §
34.4(b). In subpart (a), the regulation fails to supply that individualized application. There is
little evidence to suggest the OCC’s decision to retain “escrow accounts” on the list after Dodd–
Frank was the product of reasoned judgment, and there is no evidence whatsoever to suggest the
OCC considered escrow interest laws when drafting or revising that provision. Thus, the only
clear directive from the OCC is to apply Barnett Bank. It is to this task that the Court now turns.
C. Application of Barnett Bank
Barnett Bank holds that state laws which “prevent or significantly interfere” with banking
powers are preempted. In its most recent recitation of the standard, the Supreme Court described
it thus:
States are permitted to regulate the activities of national banks where
doing so does not prevent or significantly interfere with the national
bank’s or the national bank regulator’s exercise of its powers. But
when state prescriptions significantly impair the exercise of
authority, enumerated or incidental under the NBA, the State’s
regulations must give way.

Watters, 550 U.S. at 12 (citing Barnett Bank, 517 U.S. at 32–34; Franklin Nat’l Bank of Franklin
Square v. New York, 347 U.S. 373, 377–79 (1954)). The analysis proceeds in two steps. The
Court must first determine what banking powers are at issue. Then, it must determine whether
state law prevents or significantly interferes with the exercise of those powers. See Barnett
Bank, 517 U.S. at 30.
Here, the Court agrees with the Bank that the specific banking power at issue is “the
power to provide escrow services.” (Hymes Mot. at 15; Cantero Mot. at 16.) Section 371
authorizes national banks to “make, arrange, purchase or sell loans or extensions of credit
secured by liens on interests in real estate,” 12 U.S.C. § 371(a), and section 24 grants them “all
such incidental powers as shall be necessary to carry on the business of banking,” id. § 24
(Seventh). Although neither the NBA nor its formal implementing regulations get more specific,
the OCC has, since at least the late 1990s, interpreted these statutory grants to authorize banks to
“provide real estate closing and escrow services to their loan or title policy customers as
activities that are part of or incidental to the business of banking.” OCC Corporate Decision No.
99-06, 1999 WL 74103, at *2 (citing 12 U.S.C. § 24 (Seventh)). This makes sense as a matter of
practice and policy. As the Bank points out, “[b]anks often are unwilling to make secured
mortgage loans without these escrow accounts.” (Hymes Mot. at 15 (citing Bruce E. Foote,
CONG. RESEARCH SERV., 98-979, MORTGAGE ESCROW ACCOUNTS: AN ANALYSIS OF THE ISSUES
1 (1998)); Cantero Mot. at 16 (same).) And in the wake of the consolidation of the mortgage
market in the hands of national banks and Dodd–Frank mandating the creation of escrow
accounts for a significant share of that market, it is untenable to think national banks lack the

power to maintain such accounts.
The question then becomes whether GOL § 5-601 “significantly interferes with” (no one
argues it “prevents”) banks’ exercise of their power to administer mortgage escrow accounts.
The Supreme Court has never explained in detail what this standard entails. At minimum,
obviously, state laws that merely affect or minimally impact the exercise of banking powers are
not preempted. As noted earlier, national banks are subject to an array of state laws – contract
law, tort law, criminal law, law regarding the transfer of real property – which apparently fall
into this category. See 12 C.F.R. § 34.4(a); see also McClellan, 164 U.S. at 358 (holding law
governing real estate transfers not preempted). The interference must be “significant” in a way

these laws are not. The standard’s different linguistic formulations bear this out – Barnett Bank
favorably cited cases framing the question as whether the state law “unlawfully encroaches” or
“destroys or hampers” the exercise of banking power. Barnett Bank, 517 U.S. at 33–34
(citations omitted).
A closer examination of precedent further illuminates the standard’s contours. For
example, in Anderson National Bank v. Luckett, one of the principal cases on which Barnett
Bank relied, the Supreme Court upheld a Kentucky escheat law requiring banks “to turn over to
the state, deposits which have remained inactive and unclaimed for specified periods,” and to
“file reports of inactive accounts” with the state. 321 U.S. at 236, 252–53. The banking power
with which it interfered was the authorization, in 12 U.S.C. § 24 (Seventh), to “receiv[e]
deposits.” But the Supreme Court concluded the interference was minimal, reasoning that the
state law would not “deter [customers] from placing their funds in national banks.” Id. at 252.
The Court continued, “It cannot be said that it would have that effect, more than would the tax
laws, the attachment laws, or the laws for the administration of estates of decedents . . . which a

state may maintain and apply to depositors in national banks.” Id.
In Franklin National Bank of Franklin Square v. New York, another case relied on by
Barnett Bank, the Supreme Court again considered a state law that interfered with the power to
“receive deposits,” but it reached a different conclusion. 347 U.S. 373. The challenged New
York statute prohibited national banks, other than savings banks, from using the words “‘saving’
or ‘savings,’ or their equivalent in relation to [their] banking or financial business,” or “in any
way solicit[ing] or receiv[ing] deposits as a savings bank.” Id. at 374–75. In other words,
whereas the NBA expressly authorized banks to receive deposits, state law prevented them from
in any way communicating this fact to prospective customers. Finding the state statute to be

preempted, the Court observed that it could not subscribe to “an interpretation that would permit
a national bank to engage in a business but gave no right to let the public know about it.” Id. at
377–78.
Barnett Bank itself is of a piece with Franklin National Bank. In Barnett Bank, the
federal provision at issue authorized national banks located in small towns to “act as the agent
for any fire, life, or other insurance company authorized by the authorities of the State . . . by
soliciting and selling insurance.” Barnett Bank, 517 U.S. at 28 (quoting Act of Sept. 7, 1916, 39
Stat. 753) (alterations in original). A competing Florida statute directly prohibited the exercise
of this power by barring insurance agents associated with “financial institutions” from operating
within the state. Id. at 29. The Court had little trouble finding that this law significantly
interfered with federal purposes.15
Applying these precedents, the Court concludes GOL § 5-601 does not “significantly
interfere” with national banks’ power to administer mortgage escrow accounts. Compared to the
state laws in Barnett Bank and Franklin National Bank, GOL § 5-601’s degree of interference is

minimal. It requires the Bank to pay interest on the comparatively small sums deposited in
mortgage escrow accounts. It does not bar the creation of mortgage escrow accounts, or subject
them to state visitorial control, or otherwise limit the terms of their use. As a court interpreting
GOL § 5-601 shortly after its enactment put it, “All New York State has done is to act upon
funds which are kept by [the Bank] for the ultimate benefit of the original homeowner-
mortgagor.” Nat’l Mortg. Ass’n v. Lefkowitz, 390 F. Supp. 1364, 1369 (S.D.N.Y. 1975).
Unlike in Barnett Bank and Franklin National Bank, the cost of compliance with the state
law is not practical abrogation of the banking power at issue. As the Bank concedes, it could
continue to make escrow accounts available and either “use other means” to mitigate credit risk

or “do nothing and assume greater risk.” (Hymes Mot. at 17; Cantero Mot. at 18.) National
banks already do these things to accommodate other, not-preempted state laws. Foreclosure law,
for example, which has “historically . . . been within a state’s purview,” Real Estate Lending and
Appraisals, 69 Fed. Reg. at 1212 n.59, has a direct impact on credit risk. See generally Cem
Remiroglu et al., State Foreclosure Laws and the Incidence of Mortgage Default, 57 J.L. &
ECON. 225 (2014) (measuring the relation between various state foreclosure schemes and rates of

15 The primary analytical question in Barnett Bank was not what constitutes “significant interference” – as noted, the
case dedicates little attention to elaborating that phrase – but instead whether the federal statute, in using permissive
language (as in, “you may sell insurance”) rather than mandatory language (“you must sell insurance”) imparted
only a limited power that was subject to state regulation. Barnett Bank, 517 U.S. at 31–33. The Court concluded it
did not. Id.
default). There is nothing to suggest that compliance with mortgage escrow interest laws would
more significantly interfere with national banking powers than compliance with foreclosure laws
already does. See Luckett, 321 U.S. at 252. Nor does it appear that, by passing the credit risk
back to customers by raising fees or rates, the Bank would thereby lose significant business.
Wells Fargo, one of its largest competitors and a fellow national bank, already complies with

GOL § 5-601 and its analogues in other states.16
Of course, compliance with GOL § 5-601 will cost the Bank money, as will compliance
with its analogues in other states. But as the Supreme Court’s precedents illustrate, “significant
interference” is not a question of cost – it is not this Court’s role to determine the bottom-line
impact of escrow interest laws on the business operations of national banks, or to allocate the
benefits of mortgage lending between borrower and lender. Such policy judgments are the
domain of legislatures. The “significant interference” test is a question of law. It asks the Court,
simply, to determine whether the power specifically authorized by Congress may be exercised
relatively unimpaired and unhampered by the state law. See Barnett Bank, 517 U.S. at 33–34. In

Barnett Bank and Franklin National Bank, application of the state law would have practically
nullified a specific grant of power. Here, there is no evidence that application of GOL § 5-601
would cause anything approaching this level of interference.
Moreover, through Dodd–Frank, Congress has explicitly required creditors, including
national banks, to pay interest in accordance with state laws to a broad swath of borrowers. See
15 U.S.C. § 1639d(g)(3). Given that the purpose of a preemption inquiry is to determine

16 For the purposes of these motions to dismiss, the Court accepts as true Cantero’s allegation to this effect. (See
Cantero Mot. at 5 n.2 (“Defendant’s uniform policy . . . is at odds with other mortgage lenders such as Wells Fargo
Bank, N.A., the largest mortgage originator in the United States, which complies with New York law and pays
interest on escrow accounts.”)). However, this allegation is not material to the Barnett Bank analysis.
congressional intent, see Barnett Bank 517 U.S. at 30, the Court cannot disregard the latest word
from Congress. As discussed earlier, this is not to say that, through section 1639d, Congress
announced that the NBA would never preempt state escrow interest laws. See supra, section I.A.
A state escrow interest law “setting punitively high rates” could very well significantly interfere
with national banks’ power to administer escrow accounts. See Lusnak, 883 F.3d at 1195 n.7.

Rather, section 1639d evinces a policy judgment that there is little incompatibility between
requiring mortgage lenders to maintain escrow accounts and requiring them to pay a reasonable
rate of interest on sums thereby received. Cf. id. at 1194–95 (observing that section 1639d
“expresses Congress’s view that such laws would not necessarily prevent or significantly
interfere with a national bank’s operations”). It is this Court’s job to give effect to that
judgment.
The cases the Bank cites are all distinguishable on this ground; none featured a law like
section 1639d(g)(3). Instead, exemplifying the typical NBA preemption case, they relied on
comprehensive OCC rules, interpretive letters, and the like to discern congressional intent. See

Gutierrez v. Wells Fargo Bank, N.A., 704 F.3d 712, 723–24 (9th Cir. 2012) (relying on 12 C.F.R.
§ 7.4002 and subsequent OCC interpretive letters); Baptista v. JPMorgan Chase Bank, N.A., 640
F.3d 1194, 1197–98 (11th Cir. 2011) (relying on 12 C.F.R. § 7.4002); Monroe Retail, Inc. v. RBS
Citizens, N.A., 589 F.3d 274, 280–81, 283 (6th Cir. 2009) (relying on 12 C.F.R. § 7.4002); Rose
v. Chase Bank, USA, N.A., 513 F.3d 1032, 1035–36 (9th Cir. 2008) (relying on 12 C.F.R. §
7.4008); SPGGC v. Ayotte, 488 F.3d 525, 531–33 (1st Cir. 2007) (relying on 12 C.F.R. § 7.5002
and subsequent OCC bulletins); Wells Fargo Bank of Tex., N.A. v. James, 321 F.3d 488, 490–93
(5th Cir. 2003) (relying on 12 C.F.R. § 7.4002); Bank of America v. San Francisco, 309 F.3d
551, 561–64 (9th Cir. 2002) (relying on 12 C.F.R. §§ 7.4002, 7.4003 and subsequent OCC
interpretive letters). Or they relied on the plain language of the NBA itself. See Pacific Capital
Bank, N.A. v. Connecticut, 542 F.3d 341, 352 (2d Cir. 2008) (relying on the express grant of
power in 12 U.S.C. § 85).
Moreover, even setting aside section 1639d(g)(3), nearly all of these cases are
distinguishable on the ground that they featured a conflict between national banks’ power to set

fees and state laws directly restricting or eliminating that power. See Gutierrez, 704 F.3d at 717
(overdraft fees); Baptista, 640 F.3d at 1194 (check-cashing fees); Monroe Retail, 589 F.3d at
283–84 (garnishment processing fees at one dollar); James, 321 F.3d at 488 (check-cashing
fees); San Francisco, 309 F.3d at 556 (ATM fees).17 As for the remaining two cases, both of
which were decided before Dodd–Frank, they are simply not instructive as to what constitutes
“significant interference.” See Rose, 513 F.3d at 1036–38; Ayotte, 488 F.3d at 528–33. In
SPGGC v. Ayotte, the First Circuit concluded that a New Hampshire law prohibiting selling gift
cards under $100 if they were subject to fees and expiration dates “significantly interfered” with
national banks’ power to issue gift cards. 488 F.3d at 528–33. And Rose v. Chase Bank, USA,

N.A., the Ninth Circuit concluded that a California law requiring banks (and other covered
entities) to print certain disclosures when extending credit to their customers through checks

17 The Court is not convinced by the Bank’s argument that, because fees and interest are two sides of the same coin,
both “core pricing decisions essential to establishing the terms on which a bank makes a mortgage loan,” these cases
must control the outcome here. (Hymes Reply at 10; Cantero Reply (18-CV-4157, Doc. No. 23) at 8 n.2.) First, as
just explained, the Barnett Bank test is not about significant interference with national banks’ balance sheets – it is
about significant interference with the exercise of banking powers granted by Congress. The banking power
asserted in these cases was the power to set fees only – not the power to set interest rates. The NBA does, in fact,
empower national banks to set interest rates, but it explicitly subjects the exercise of this power to state law. See 12
U.S.C. § 85. The Court will not second-guess Congress’s obvious judgment to treat national banks’ fee powers and
interest-rate powers as distinct. Second, the Bank’s argument proves too much. It is difficult to imagine what state
laws would not, in some way, impact the Bank’s “pricing decisions.” Compliance with state regulations costs
money. National banks are free to elect whether to absorb the cost or attempt to pass it along to consumers in the
form of heightened fees. But just because a state regulation might impel a national bank to raise its fees does not
thereby transmute that regulation into a limitation on the bank’s fee-setting power. Were this the case, the fee power
would effectively preempt the field of national banking regulation.
“significantly interfered” with national banks’ power to make non–real estate loans. 513 F.3d at
1036–38. Neither case explained why the challenged state laws occasioned significant
interference or offered a view of what less-than-significant interference might look like. Indeed,
neither case analyzed the meaning of “significant interference” at all. Although the Court does
not question the results reached in either case, it finds neither one persuasive here.

Finally, the Court does not agree with the Bank that the Second Circuit’s reasoning in
Flagg v. Yonkers Savings & Loan Association, N.A. “applies equally” to this case. In Flagg, the
Circuit held that the Home Owners’ Loan Act of 1933 (“HOLA”), 12 U.S.C. § 1461 et seq.,
preempts GOL § 5-601’s application to federal savings associations. Flagg, 396 F.3d at 181. As
the Bank acknowledges, because the case involved application of field preemption standards
pursuant to HOLA rather than the conflict preemption standards under the NBA, Flagg does not
govern the outcome of this case. (Hymes Mot. at 18–19; Cantero Mot. at 19.) But Flagg
differed in another way, too: the preemption question had already been decided by the district
court, and the only issue for the Circuit on appeal was whether the Office of Thrift Supervision

(“OTS”) had acted arbitrarily or unreasonably in promulgating its preemption regulations.
Flagg, 396 F.3d at 182 (“On appeal the Flaggs do not contest the District Court’s determination
that the OTS has preempted state law . . . .”). Concluding it had not, the Circuit “recognize[d]
the potential interest that the OTS has in providing for consistency across the field of mortgage
accounts offered by federal savings associations” and observed that, in preempting GOL § 5-601
and similar laws, OTS “provide[d] a consistent nationwide playing field while giving individual
institutions a level of flexibility.” Id. at 184. If the issue here were whether OCC’s preemption
regulations were arbitrary, this reasoning might indeed apply with equal force. But it is not. The
question is whether, in view of a different statutory scheme that is less predisposed to
preemption, and in view of section 1639d, Congress intended laws like GOL § 5-601 be
preempted. For all the reasons explained above, the Court concludes that it did not.
In demarcating the permissible boundaries within which state law may operate in a way
consonant with the federal design, the guiding principle is the intent of Congress. See Barnett
Bank, 517 U.S. at 30. At bottom, this case is about how to reconcile two acts of Congress that, to

some extent, speak past each other. Section 1639d(g)(3) represents Congress’s judgment that
mortgage lenders can comply with reasonable state escrow interest laws. The NBA, however,
represents Congress’s judgment that national banks’ power to engage in mortgage lending and
offer escrow services is a “grant[] of authority not normally limited by, but rather ordinarily pre-
empting, contrary state law.” Id. at 32. If Congress had the NBA in mind when it enacted section
1639d, it is not obvious. Nevertheless, the two acts can be read harmoniously, and they must be
so read if each is to be given full effect. As the Supreme Court has explained, “[i]n the final
analysis, there can be no one crystal clear distinctly marked formula. Our primary function is to
determine whether, under the circumstances of this particular case, [the state’s] law stands as an

obstacle to the accomplishment and execution of the full purposes and objectives of Congress.”
Hines v. Davidowitz, 312 U.S. 52, 67 (1941) (emphasis added). Here, in view of the purposes and
objectives of Congress expressed in both the NBA and Dodd–Frank, the Court concludes that GOL
§ 5-601 is not – and has never been18 – such obstacle. Bank of America’s motions to dismiss on
this ground are denied.

18 The test for NBA preemption has been the same since at least 1996, when the Supreme Court decided Barnett
Bank. Although this Court’s application of the test has been informed by Dodd–Frank, it has not depended on it.
The Court’s conclusion that the NBA does not preempt GOL § 5-601 therefore applies equally to the time periods
before and after Dodd–Frank became effective. And, as relevant to this case, it means that GOL § 5-601 was not
preempted at the time Cantero purchased his home in 2010. (See Cantero Mot. at 29–32.) This result is consistent
with that reached in Lusnak. See Lusnak, 883 F.3d at 1197. It is also consistent with the Court’s interpretation of
section 1639d(g)(3) as a provision that was not intended to impact NBA preemption one way or another.
II. Plaintiffs’ Claims
Plaintiffs assert claims against the Bank for breach of contract; unjust enrichment; and
violation of New York’s consumer protection statute, GBL § 349. The Bank moves to dismiss.19
For the reasons explained next, the Bank’s motions are denied with respect to the breach of
contract claims, and they are granted with respect to the unjust enrichment and GBL § 349

claims.
A. Breach of Contract
Under New York law, there are four elements to a breach of contract claim: “(1) the
existence of an agreement, (2) adequate performance of the contract by the plaintiff, (3) breach
of contract by the defendant, and (4) damages.” Katz v. Travelers, 241 F. Supp. 3d 397, 405
(E.D.N.Y. 2017) (quoting Harsco Corp. v. Segui, 91 F.3d 337, 348 (2d Cir. 1996)). Here, the
Bank’s sole argument for dismissal of these claims is predicated on its incorrect view that GOL §
5-601 is preempted. It argues that the Plaintiffs cannot show breach because the relevant choice-
of-law provisions in their mortgage agreements do not refer to preempted state law. (Hymes

Mot. at 30–31; Cantero Mot. at 32–33.) Because GOL § 5-601 is not preempted, and the Bank
has offered no other legal reason to doubt that it therefore governs the mortgage agreements at
issue, the Bank’s motions to dismiss these claims are denied.
B. Unjust Enrichment
“To prevail on a claim for unjust enrichment in New York, a plaintiff must establish (1)
that the defendant benefitted; (2) at the plaintiff’s expense; and (3) that ‘equity and good

19 Plaintiffs also purport to assert claims for “violation of” GOL § 5-601. (Hymes Compl. at ¶¶ 39–41; Cantero Am.
Compl. at ¶¶ 73–82.) This does not, however, appear to be an independent cause of action. Plaintiffs point to no
authority that GOL § 5-601 created a private right of action, and the Court is aware of none. In its motions to
dismiss, although the Bank argues in general that all claims should be dismissed on the basis of its preemption
defense, it does not specifically address the viability of the GOL § 5-601 claims. Nor, in their opposition briefing,
do Plaintiffs explain the legal basis for these claims. As the parties have not addressed this issue, the Court will not
reach it here.
conscience’ require restitution.” Kaye v. Grossman, 202 F.3d 611, 616 (2d Cir. 2000) (citation
omitted). Moreover, an unjust enrichment claim is quasi-contractual, meaning that it does not lie
when a valid contract governs the subject matter of the dispute. See Beth Israel Med. Ctr. v.
Horizon Blue Cross & Blue Shield of N.J., Inc., 448 F.3d 573, 586–87 (2d Cir. 2006) (“It is an
obligation the law creates in the absence of any agreement.” (quoting Goldman v. Metro. Life

Ins. Co., 841 N.E.2d 742 (N.Y. 2005))); Clark-Fitzpatrick, Inc. v. Long Island R. Co., 516
N.E.2d 190, 193 (N.Y. 1987) (“The existence of a valid and enforceable written contract
governing a particular subject matter ordinarily precludes recovery in quasi contract for events
arising out of the same subject matter.” (citations omitted)).
Here, both the Hymes Plaintiffs and Cantero plead unjust enrichment in the alternative to
their contract claims seeking recovery of escrow interest payments. (Hymes Compl. at ¶¶ 48–52;
Cantero Am. Compl. at ¶¶ 83–85, 90–92.) Because their mortgage agreements expressly govern
such payments, their unjust enrichment claims must be dismissed. See, e.g., Cont’l Cas. Co. v.
Contest Promotions NY, LLC, No. 15-CV-501 (MKB), 2016 WL 1255726, at *4 (E.D.N.Y. Mar.

28, 2016) (“Because this dispute is governed by a valid contract, Plaintiff is not entitled to
recover on an unjust enrichment theory.”)
Cantero additionally alleges that the Bank was unjustly enriched when it “use[d] the
amounts it was obligated to pay as interest to generate float income.” (Cantero Am. Compl. at ¶
86.) It argues this income is “distinct” from the interest and therefore a “plausible independent
basis for this claim.” (Cantero Opp’n at 29.) Far from being distinct, however, money a
defendant makes through “having use of another person’s money for a specified period,” is
recoverable as prejudgment interest. Mohassel v. Fenwick, 832 N.E.2d 1174, 1178 (N.Y. 2005)
(citations omitted). “Under New York law, a plaintiff who prevails on a claim for breach of
contract is entitled to prejudgment interest as a matter of right.” U.S. Naval Inst. v. Charter
Commc’ns, Inc., 936 F.2d 692, 698 (2d Cir. 1991) (citing, inter alia, N.Y. C.P.L.R. §§ 5001,
5002). Because Cantero can recover all the money he seeks through his contract claim, he is not
entitled to simultaneously pursue recovery of a portion of that money through an unjust
enrichment claim. See Cont’l Cas. Co., 2016 WL 1255726, at *4; cf. In re Bayou Grp., LLC,

439 B.R. 284, 337 (S.D.N.Y. 2010) (noting that New York’s pre-judgment interest statutes “do[]
not provide an independent cause of action”).
C. General Business Law § 349
GBL § 349 provides that “[d]eceptive acts or practices in the conduct of any business,
trade or commerce or in the furnishing of any service in this state are . . . unlawful.” “To
maintain a cause of action under § 349, a plaintiff must show: (1) that the defendant’s conduct is
‘consumer-oriented’; (2) that the defendant is engaged in a ‘deceptive act or practice’; and (3)
that the plaintiff was injured by this practice.” Wilson v. Nw. Mut. Ins. Co., 625 F.3d 54, 64 (2d
Cir. 2010) (quoting Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, N.A.,

647 N.E.2d 741, 744–45 (N.Y. 1995)). A “deceptive act or practice” is one that is “deceptive or
misleading in a material way.” Sanchez v. Ehrlich, No. 16-CV-8677 (LAP), 2018 WL 2084147,
at *10 (S.D.N.Y. Mar. 29, 2018) (quoting Oswego Laborers’ Local 214 Pension Fund, 647
N.E.2d at 744). In other words, it must be “likely to mislead a reasonable consumer acting
reasonably under the circumstances.” Id. (citation omitted). An act “is not deceptive simply
because it is mistaken.” Shapiro v. Berkshire Life Ins. Co., 212 F.3d 121, 127 (2d Cir. 2000).
Here, Plaintiffs fail to allege the existence of a deceptive act or practice. The Hymes
Plaintiffs’ complaint does not offer anything more than the most conclusory allegations to this
effect. (Hymes Compl. at ¶ 34 (“Defendant committed and continues to commit deceptive and
unlawful business acts and practices by failing to pay interest . . . .”).) Cantero’s amended
complaint does more. It alleges that the Bank was “aware of the applicable law,” promised to
follow it, and then forewent paying interest. (Cantero Am. Compl. at ¶¶ 62–63.) But these
allegations do not plausibly allege anything deceptive. They only beg the question: what
“applicable law” did the Bank believe it was following? For Cantero’s claim to survive, he

would need to allege the Bank believed GOL § 5-601 to be applicable law, promised him he
would be paid interest accordingly, and then failed to do so. This, he did not do. In fact, the
only fair inference to be drawn from nearly everything else in his complaint is that the Bank did
not believe it was required to follow GOL § 5-601. (See Cantero Am. Compl. at ¶ 28
(“Defendant systematically refuses to pay interest on funds held in escrow accounts . . . .”).)
Accordingly, his GBL § 349 claim, along with the Hymes Plaintiffs’, must be dismissed. See
Shapiro, 212 F.3d at 127.20
CONCLUSION
Bank of America’s motions to dismiss (18-CV-2352, Doc. No. 19; 18-CV-4157, Doc.

No. 21) are granted in part and denied in part. The Court concludes that the National Bank Act
does not preempt New York General Obligations Law § 5-601. Accordingly, Plaintiffs’

20 In their oppositions to the Bank’s motions, Plaintiffs cite to notices they received from the Bank informing them
that, based on the Bank’s view of the law, it would not pay interest on their escrow funds. (Hymes Opp’n at 32;
Cantero Opp’n at 30.) Given that Plaintiffs did not plead details about or otherwise reference the notices in their
complaints, the Court will not rely on them to decide the instant motion. See, e.g., Palin v. N.Y. Times Co., 2019
WL 3558545, at *3 (2d Cir. Aug. 6, 2019) (slip op.) (Under Rule 12(b), “matters outside the pleadings” are not to be
considered on motions to dismiss.). However, it bears noting that the notices only further support the Bank’s
position. Each one clearly and simply explained that, based on the Bank’s view of the law, customers would not be
paid interest on their escrow accounts. (Hymes Notice (Doc. No. 19-5) at 1; Cantero Notice (Doc. No. 21-4) at 1.)
Thus, although the Bank may have erroneously withheld fees, there can be no contention that it attempted to deceive
Plaintiffs along the way. See Silvester v. Selene Fin., LP, No. 7:18-CV-02425 (NSR), 2019 WL 1316475, at *10
(S.D.N.Y. Mar. 21, 2019) (“The loan agreement clearly provided for these additional charges and, therefore,
Plaintiff has failed to allege how they were materially deceptive . . . .”).
complaints state valid claims for breach of contract. Plaintiffs’ claims for unjust enrichment and
violation of New York General Business Law § 349 are dismissed.

SO ORDERED.

Dated: Brooklyn, New York Roslynn R. Mauskopf
September 30, 2019
____________________________________
ROSLYNN R. MAUSKOPF
United States District Judge

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10303185. Public record. Not legal advice.