In a shot across the bow for national banks, the U.S. Court of Appeals for the Ninth Circuit ruled that such banks may not avoid paying interest on funds held in California escrow accounts. The reason? The California law does not significantly interfere with or impede a national bank’s exercise of its banking powers.

The decision will most certainly will have a material impact on those national banks doing business in California (and elsewhere within that Circuit) that relied on National Bank Act (NBA) preemption to avoid a number of consumer banking laws, and not just those that currently require interest on customer escrow accounts.

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