FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

DONALD M. LUSNAK, on behalf of 

himself and all others similarly 

situated,

Plaintiff-Appellant,

v.

BANK OF AMERICA, N.A.,

Defendant-Appellee.

No. 14-56755

D.C. No.

2:14-cv-01855-

GHK-AJW

OPINION

Appeal from the United States District Court

for the Central District of California

George H. King, District Judge, Presiding

Argued and Submitted November 7, 2016

Pasadena, California

Filed March 2, 2018

Before: Marsha S. Berzon, Morgan Christen,

and Jacqueline H. Nguyen, Circuit Judges.

Opinion by Judge Nguyen
2 LUSNAK V. BANK OF AMERICA

SUMMARY*

Preemption / National Bank Act

The panel reversed the district court’s dismissal of a 

putative class action; held that that the National Banking Act 

did not preempt California’s state escrow interest law, Cal. 

Civil Code § 2954.8(a); and remanded so that the plaintiff 

could proceed with his California Unfair Competition Law 

(“UCL”) and breach of contract claims against Bank of 

America.

Plaintiff filed his lawsuit on behalf of himself and a 

proposed class of similarly situated Bank of America 

customers, alleging that the Bank violated both California 

state law and federal law by failing to pay interest on his 

escrow account funds.

In 2010, Congress enacted the Dodd-Frank Wall Street 

Reform and Consumer Protection Act. Titles X and XIV of 

Dodd-Frank aim to prevent, and mitigate the effects of, 

another mortgage crisis.

The panel held that although Dodd-Frank significantly 

altered the regulatory framework governing financial 

institutions, with respect to National Bank Act preemption, 

it merely codified the existing standard established in 

Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25 

(1996). Applying that standard, the panel held that the 

National Bank Act did not preempt Cal. Civil Code 

 * This summary constitutes no part of the opinion of the court. It 

has been prepared by court staff for the convenience of the reader.
LUSNAK V. BANK OF AMERICA 3

§ 2954.8(a) because it did not prevent or significantly 

interfere with Bank of America’s exercise of its powers. 

Turning to plaintiff’s claims for relief, the panel held that 

plaintiff may proceed with his California UCL and breach of 

contract claims against Bank of America. The panel held 

that plaintiff could not rely on 15 U.S.C. § 1639d(g)(3) in 

prosecuting his UCL claim where plaintiff’s escrow account 

was established prior to the effective date of the section, but 

this did not preclude him from obtaining relief under the 

theory that the Bank violated the UCL by failing to comply 

with Cal. Civil Code § 2954.8(a).

COUNSEL

Roger N. Heller (argued), Jordan Elias, and Michael W. 

Sobol, Lieff Cabraser Heimann & Bernstein LLP, San 

Francisco; Jae K. Kim and Richard D. McCune, Redlands, 

California; for Plaintiff-Appellant.

Mark William Mosier (argued), Andrew Soukup, and Keith 

A. Noreika, Covington & Burling LLP, Washington, D.C.; 

Peter J. Kennedy and Marc A. Lackner, Reed Smith LLP, 

Los Angeles, California; for Defendant-Appellee.
4 LUSNAK V. BANK OF AMERICA

OPINION

NGUYEN, Circuit Judge:

Congress significantly altered the regulation of financial 

institutions with the enactment of the Dodd-Frank Wall 

Street Reform and Consumer Protection Act (“DoddFrank”). This sweeping piece of legislation was a response 

to the worst financial crisis since the Great Depression, in 

which millions of Americans lost their homes. This appeal 

requires us to determine whether in light of Dodd-Frank, the 

National Bank Act (“NBA”) preempts California’s state 

escrow interest law, California Civil Code § 2954.8(a).

California’s escrow interest law, enacted in 1976, 

requires financial institutions to pay borrowers at least two 

percent annual interest on the funds held in the borrowers’ 

escrow accounts. This type of account is often set up in 

conjunction with a mortgage, either as a condition set by the 

lender or at the request of the borrower. Its purpose is to 

ensure payment of obligations such as property taxes and 

insurance. These accounts often carry a significant positive 

balance.

Plaintiff Donald Lusnak, on behalf of a putative class, 

filed suit against Bank of America, which does not pay 

borrowers any interest on the positive balance in their 

accounts. The district court dismissed the suit on the ground 

that the NBA preempted California Civil Code § 2954.8(a).

We reverse. Although Dodd-Frank significantly altered 

the regulatory framework governing financial institutions, 

with respect to NBA preemption, it merely codified the 

existing standard established in Barnett Bank of Marion 

County, N.A. v. Nelson, 517 U.S. 25 (1996). Applying that 

standard here, we hold that the NBA does not preempt 
LUSNAK V. BANK OF AMERICA 5

California Civil Code § 2954.8(a), and Lusnak may proceed 

with his California Unfair Competition Law (“UCL”) and 

breach of contract claims against Bank of America.

I. Background

A. The National Bank Act

“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 (2007) (citations 

omitted). The NBA provides for the formation of national 

banks and grants them several enumerated powers as well as 

“‘all such incidental powers as shall be necessary to carry on 

the business of banking.’” Id. at 11 (quoting 12 U.S.C. 

§ 24(Seventh)). Congress established the Office of the

Comptroller of the Currency (“OCC”) to charter, regulate, 

and supervise these national banks. National Bank Act, 

38 Cong. Ch. 106, § 1, 13 Stat. 99, 99–100 (1864)1; About 

the OCC, Office of the Comptroller of the Currency, 

https://www.occ.treas.gov/about/what-we-do/mission/indexabout.html (last visited Jan. 25, 2018) (“The OCC charters, 

regulates, and supervises all national banks . . . .”).

The NBA also ushered in a “dual banking system,” 

wherein banks could be chartered either by the OCC or by a 

State authority and be subject to different legal requirements 

and oversight from different regulatory bodies. See First 

Nat’l Bank of Fairbanks v. Camp, 465 F.2d 586, 592 (D.C. 

Cir. 1972); Kenneth E. Scott, The Dual Banking System: A 

Model of Competition in Regulation, 30 Stan. L. Rev. 1 

 1 The Act was renamed “the national-bank act” in 1874. An Act 

Fixing the Amount of United States Notes, 43d Cong. Ch. 343, § 1, 18 

Stat. 123, 123 (1874).
6 LUSNAK V. BANK OF AMERICA

(1977). Since the NBA’s enactment, the Supreme Court has 

often ruled on the scope of State authority to regulate

national banks. See Watters, 550 U.S. at 11–13. Congress 

has also enacted legislation “[t]o prevent inconsistent or 

intrusive state regulation from impairing the national 

system.” See id. at 11.

B. Dodd-Frank

In 2010, Congress enacted Dodd-Frank in response to a 

“financial crisis that nearly crippled the U.S. economy.”2 

S. Rep. No. 111-176, at 2 (2010); see also id. at 15 (“It has 

become clear that a major cause of the most calamitous 

worldwide recession since the Great Depression was the 

simple failure of federal regulators to stop abusive lending, 

particularly unsustainable home mortgage lending.” 

(quoting The Creation of a Consumer Financial Protection 

Agency to Be the Cornerstone of America’s New Economic 

Foundation: Hearing Before S. Comm. On Banking, Hous., 

and Urban Affairs, 111th Cong. 82 (2009) (Statement of 

Travis Plunkett, Legislative Director, Consumer Federation 

of America))). Dodd-Frank brought about a “sea change” in 

the law, affecting nearly every corner of the nation’s 

financial markets. See, e.g., Loan Syndications & Trading 

Ass’n v. S.E.C., 818 F.3d 716, 718 (D.C. Cir. 2016); Damian 

Paletta & Aaron Lucchetti, Law Remakes U.S. Financial 

Landscape, Wall St. J., July 16, 2010, at A1 (“Congress 

approved a rewrite of rules touching every corner of finance 

. . . .”). One of Congress’s main goals in this sweeping 

 2 The crisis resulted in 9.3 million lost homes, 8.8 million lost jobs, 

and $19.2 trillion in lost household wealth. See U.S. Dep’t of the 

Treasury, The Financial Crisis Response in Charts 3 (2012); Laura 

Kusisto, Many Who Lost Homes to Foreclosure in Last Decade Won’t 

Return, Wall St. J., Apr. 20, 2015, at A2.
LUSNAK V. BANK OF AMERICA 7

legislation was to prevent another mortgage crisis, which 

resulted in “unprecedented levels of defaults and home 

foreclosures.” See, e.g., H.R. Rep. No. 111-94, at 48 (2009).

Titles X and XIV of Dodd-Frank, at issue in this case, 

aim to prevent, and mitigate the effects of, another mortgage 

crisis. In a section of Title X called “Preservation of State 

Law,” Congress addressed the framework of NBA 

preemption determinations. These provisions were designed 

to address “an environment where abusive mortgage lending 

could flourish without State controls.” S. Rep. No. 111-176, 

at 17. Congress aimed to undo broad preemption 

determinations, which it believed planted the seeds “for 

long-term trouble in the national banking system.” Id. at 17. 

In a section of Title XIV called “Escrow and Impound 

Accounts Relating to Certain Consumer Credit 

Transactions,” Congress established a series of measures to 

help borrowers understand their mortgage obligations. 

Dodd-Frank Wall Street Reform and Consumer Protection 

Act, Pub. L. No. 111-203, § 1461, 124 Stat. 1376, 2178–81 

(2010) (codified at 15 U.S.C. § 1639d). These provisions 

were designed to correct abusive and deceptive lending 

practices that contributed to the mortgage crisis, specifically 

with regard to the administration of escrow accounts for 

property taxes and insurance. H.R. Rep. No. 111-94, at 53–

56.

C. Factual Background

In July 2008, Lusnak purchased a home in Palmdale, 

California with a mortgage from Countrywide Financial. 

Soon thereafter, Bank of America purchased Countrywide 

Financial and assumed control over Lusnak’s mortgage. In 

March 2009, Lusnak refinanced his mortgage, and in 

January 2011, he and Bank of America agreed to modify 

certain terms. The 2009 agreement and 2011 modification 
8 LUSNAK V. BANK OF AMERICA

contain the relevant terms governing Lusnak’s mortgage. 

The agreements provide that Lusnak’s mortgage “shall be 

governed by federal law and the law of the jurisdiction in 

which the Property is located.” The parties agree that the 

terms of Lusnak’s mortgage require Bank of America to pay 

interest on escrow funds if required by federal law or state 

law that is not preempted.

As a condition for obtaining a mortgage, Lusnak was 

required to open a mortgage escrow account into which he 

pays $250 per month. Lusnak alleges that Bank of America 

is able to enrich itself by earning returns on funds in his 

account. Bank of America acknowledges that it does not 

comply with state escrow interest laws and that Wells 

Fargo—its chief competitor and the largest mortgage banker 

in America—does. But it contends that no federal or 

“applicable” state law requires it to pay interest on Lusnak’s 

escrow account funds.

D. Procedural History

On March 12, 2014, Lusnak filed this lawsuit on behalf 

of himself and a proposed class of similarly situated Bank of 

America customers. Pursuant to the “unlawful” prong of 

California’s UCL, Lusnak alleged that Bank of America 

violated both state law, Cal. Civ. Code § 2954.8(a), and 

federal law, 15 U.S.C. § 1639d(g)(3), by failing to pay 

interest on his escrow account funds. Lusnak also brings a 

breach of contract claim, alleging that Bank of America’s 

failure to pay interest violated his mortgage agreement. 

Bank of America promptly moved to dismiss on the ground 

that California Civil Code § 2954.8(a) is preempted by the 

NBA.

The district court granted the motion to dismiss. Lusnak 

v. Bank of Am., N.A., No. CV 14-1855-GHK (AJWx), 2014 
LUSNAK V. BANK OF AMERICA 9

WL 6779131 (C.D. Cal. Oct. 29, 2014). It first 

acknowledged that Dodd-Frank clarified and amended the 

NBA preemption framework. Id. at *3–5. The district court 

then concluded that California’s escrow interest law 

“prevents or significantly interferes with” banking powers 

and therefore is preempted by the NBA. Id. at *7–8. In so 

concluding, the district court determined that section 

1639d(g)(3) of Dodd-Frank did not impact the preemption 

analysis. Id. at *8–9. This appeal followed.

II. Jurisdiction and Standard of Review

We have jurisdiction under 28 U.S.C. § 1291. This court 

reviews de novo a district court’s dismissal for failure to 

state a claim under Federal Rule of Civil Procedure 12(b)(6). 

Aguayo v. U.S. Bank, 653 F.3d 912, 917 (9th Cir. 2011). 

“Questions of statutory interpretation are reviewed de novo 

. . . as are questions of preemption.” Lopez v. Wash. Mut. 

Bank, 302 F.3d 900, 903 (9th Cir. 2002) (citations omitted).

III. Discussion

The central question here is whether the NBA preempts 

California Civil Code § 2954.8(a). Section 2954.8(a) 

requires “[e]very financial institution” to pay “at least 

2 percent simple interest per annum” on escrow account 

funds.3 The portion of Dodd-Frank to which the parties draw 

 3 In full, California Civil Code § 2954.8(a) states:

Every financial institution that makes loans upon the 

security of real property containing only a one- to fourfamily residence and located in this state or purchases 

obligations secured by such property and that receives 

money in advance for payment of taxes and 

assessments on the property, for insurance, or for other 
10 LUSNAK V. BANK OF AMERICA

this court’s attention, section 1639d(g)(3), which amends the 

Truth in Lending Act (“TILA”), states:

(3) Applicability of payment of interest

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.

15 U.S.C. § 1639d(g)(3). According to Lusnak, this 

section’s plain language—requiring creditors to pay interest 

on escrow fund accounts like his if “prescribed by 

applicable” state law—made clear that Congress perceived 

no conflict between state laws like California Civil Code 

§ 2954.8(a) and the powers of national banks. Therefore, 

Congress clearly did not intend for these state laws to be 

preempted by the NBA. Bank of America counters that such 

state laws are preempted because they prevent or 

significantly interfere with the exercise of its banking 

powers, and a preempted law cannot be an “applicable” law 

under section 1639d(g)(3). We begin by examining the 

relevant preemption framework.

 

purposes relating to the property, shall pay interest on 

the amount so held to the borrower. The interest on 

such amounts shall be at the rate of at least 2 percent 

simple interest per annum. Such interest shall be 

credited to the borrower's account annually or upon 

termination of such account, whichever is earlier.
LUSNAK V. BANK OF AMERICA 11

A. Preemption Framework

1. Guiding Principles of Preemption

Our analysis is governed by “the two cornerstones of . . .

preemption jurisprudence.” Wyeth v. Levine, 555 U.S. 555, 

565 (2009). “First, ‘the purpose of Congress is the ultimate 

touchstone in every pre-emption case.’” Id. (quoting 

Medtronic, Inc. v. Lohr, 518 U.S. 470, 485 (1996)). “[W]hen 

Congress has made its intent known through explicit 

statutory language, the courts’ task is an easy one.” English 

v. Gen. Elec. Co., 496 U.S. 72, 79 (1990). Second, we start 

with the assumption that the State’s historic police powers 

are not preempted “unless that was the clear and manifest 

purpose of Congress.” Wyeth, 555 U.S. at 565 (quoting 

Medtronic, 518 U.S. at 485).

In the context of the NBA, Dodd-Frank provides that 

state laws are preempted if they “prevent[] or significantly 

interfere[] with the exercise by the national bank of its 

powers.” 12 U.S.C. § 25b(b)(1)(B). Applying this standard, 

there is no presumption against preemption. See Bank of Am. 

v. City & Cty. of San Francisco, 309 F.3d 551, 558 (9th Cir. 

2002). This does not, however, absolve a national bank of 

the burden of proving its preemption defense. See Dilts v. 

Penske Logistics, LLC, 769 F.3d 637, 649 (9th Cir. 2014) 

(“Defendants . . . bear the burden of proof in establishing the 

affirmative defense of preemption.”). Where, as here, we are 

confronted with state consumer protection laws, “a field 

traditionally regulated by the states, compelling evidence of 

an intention to preempt is required.” Aguayo, 653 F.3d at 

917 (quoting Gen. Motors Corp. v. Abrams, 897 F.2d 34, 41–

42 (2d Cir. 1990)). Accordingly, because this case involves 

state regulation of consumer credit, Bank of America must 

affirmatively demonstrate that Congress intended to 

preclude states from enforcing their escrow interest laws.
12 LUSNAK V. BANK OF AMERICA

2. Dodd-Frank’s Amendments to the NBA Preemption 

Framework

Dodd-Frank addressed the preemptive effect of the NBA 

in several ways. First, it emphasized that the legal standard 

for preemption set forth in Barnett Bank of Marion County, 

N.A. v. Nelson, 517 U.S. 25 (1996), applies to questions of 

whether state consumer financial laws are preempted by the 

NBA. 12 U.S.C. § 25b(b)(1)(B). Second, it required the 

OCC to follow specific procedures in making any 

preemption determination. See id. §§ 25b(b)(1)(B) 

(requiring the OCC to make any preemption determination 

on a “case-by-case basis”); 25b(b)(3)(B) (requiring the OCC 

to consult the Bureau of Consumer Financial Protection 

when making a preemption determination). And third, it 

clarified that the OCC’s preemption determinations are 

entitled only to Skidmore deference. 12 U.S.C. 

§ 25b(b)(5)(A); see Skidmore v. Swift & Co., 323 U.S. 134, 

140 (1944) (explaining that an agency’s views are “entitled 

to respect” only to the extent that they have the “power to 

persuade”). Of these, only the second amendment was an 

actual change in the law. The first and third amendments 

merely codified existing law as set forth by the Supreme 

Court.

Before Dodd-Frank, the Supreme Court held in Barnett 

Bank that states are not “deprive[d] . . . 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.” 517 U.S. at 33 (emphasis added). This is 

because “normally Congress would not want States to 

forbid, or to impair significantly, the exercise of a power that 

Congress explicitly granted.” Id.

Following Barnett Bank, the OCC issued in 2004 its 

interpretation of the NBA preemption standard: “Except 
LUSNAK V. BANK OF AMERICA 13

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.” 12 C.F.R. § 34.4(a) 

(effective Jan. 13, 2004). The OCC framed its interpretation 

as merely reflecting Barnett Bank and earlier obstacle 

preemption case law. See Bank Activities and Operations; 

Real Estate Lending and Appraisals, 69 Fed. Reg. 1904, 

1910 (Jan. 13, 2004) (“The OCC intends this phrase as the 

distillation of the various preemption constructs articulated 

by the Supreme Court, as recognized in Hines and Barnett, 

and not as a replacement construct that is in any way 

inconsistent with those standards.”). But its formulation 

raised concern and confusion over the scope of NBA 

preemption.4

We never addressed whether the OCC’s interpretation 

was inconsistent with Barnett Bank, or whether the 

regulation was owed deference while it was in effect. The 

Supreme Court, however, has indicated that regulations of 

 4 The OCC’s preemption rule reads more broadly than Barnett 

Bank’s “prevent or significantly interfere” standard in two respects. 

First, the OCC omitted the intensifier “significantly” and used the terms 

“impair” and “condition” rather than “interfere.” Second, it insisted that 

banks be able to “fully” exercise their NBA powers. See Staff of H. 

Comm. on Fin. Servs., 108th Cong., Views and Estimates of the 

Committee on Financial Services on Matters to be Set Forth in the 

Concurrent Resolution on the Budget for Fiscal Year 2005 15–16 

(Comm. Print 2004) (“[The OCC’s 2004] rules may represent an 

unprecedented expansion of Federal preemption authority . . . .”); Jared 

Elosta, Dynamic Federalism and Consumer Financial Protection: How 

the Dodd-Frank Act Changes the Preemption Debate, 89 N.C. L. Rev. 

1273, 1280 (2011) (“[T]here is reason to believe that the OCC went 

beyond clarifying Barnett Bank and in fact made it much easier for the 

OCC to preempt state laws than the Barnett Bank standard would 

allow.”).
14 LUSNAK V. BANK OF AMERICA

this kind should receive, at most, Skidmore deference—and 

even then, only as to a conflict analysis, and not as to the 

legal conclusion on preemption. In Wyeth v. Levine, the 

Supreme Court noted that when Congress has not authorized 

an agency to preempt state law directly, the Court “ha[s] not 

deferred to an agency’s conclusion that state law is preempted.” 555 U.S. at 576. Rather, it “ha[s] attended to an 

agency’s explanation of how state law affects the regulatory 

scheme” based on the agency’s “unique understanding of the 

statutes [it] administer[s] and [its] attendant ability to make 

informed determinations about how state requirements may 

pose an ‘obstacle to the accomplishment and execution of 

the full purposes and objectives of Congress.’” Id. at 576–

77 (citations omitted). And the weight to be accorded an 

agency’s explanation of a state law’s impact on a federal 

scheme “depends on its thoroughness, consistency, and 

persuasiveness.” Id. at 577; see Skidmore, 323 U.S. at 140.

We conclude that under Skidmore, the OCC’s regulation 

would have been entitled to little, if any, deference in light 

of Barnett Bank, even before the enactment of Dodd-Frank. 

This regulation was the OCC’s articulation of its legal 

analysis; the OCC simply purported to adopt the Supreme 

Court’s articulation of the applicable preemption standards 

in prior cases, but did so inaccurately. See 69 Fed Reg. at 

1910 (“We have adopted in this final rule a statement of 

preemption principles that is consistent with the various 

formulations noted [in Supreme Court precedent] . . . ; that 

is, that state laws do not apply to national banks if they 

impermissibly contain a bank’s exercise of a federally 

authorized power.”). The OCC did not conduct its own 

review of specific potential conflicts on the ground. See id. 

It follows that the OCC’s 2004 preemption regulation had no 

effect on the preemption standard prior to Dodd-Frank, 

which was governed by Barnett Bank.
LUSNAK V. BANK OF AMERICA 15

In Dodd-Frank, Congress underscored that Barnett Bank 

continues to provide the preemption standard; that is, state 

consumer financial law is preempted only if it “prevents or 

significantly interferes with the exercise by the national bank 

of its powers,” 12 U.S.C. § 25b(b)(1)(B). Congress also 

made clear that only Skidmore deference applies to 

preemption determinations made by the OCC.5 See id.

§ 25b(b)(5)(A). The OCC has recognized as much. See, 

e.g., 76 Fed. Reg. at 43557 (conceding that section 

25b(b)(1)(B) “may have been intended to change the OCC’s 

approach by shifting the basis of preemption back to the 

[Barnett Bank] decision itself”). Therefore, to the extent that 

the OCC has largely reaffirmed its previous preemption 

conclusions without further analysis under the Barnett Bank

standard, see 76 Fed. Reg. at 43556, we give it no greater 

deference than before Dodd-Frank’s enactment, as the 

standard applied at that time did not conform to Barnett 

Bank. That is, the OCC’s conclusions are entitled to little, if 

any, deference.

 5 That these provisions were among those that had a future effective 

date, see 124 Stat. at 2018, makes no difference to our analysis. If we 

were to apply the “previous” NBA preemption standard and level of 

deference to OCC preemption determinations, we would apply, as 

explained above, the Barnett Bank standard and Skidmore deference 

required by the Dodd-Frank amendments.

Of course, a statute should be “so construed that, if it can be 

prevented, no clause, sentence, or word shall be superfluous, void, or 

insignificant.” TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001) (quoting 

Duncan v. Walker, 533 U.S. 167, 174 (2001)). But no such superfluity 

exists here where the effective date provision applies to the whole 

subtitle, which imposes other requirements upon the OCC, and not just 

the provisions clarifying the preemption and agency deference standards. 

124 Stat. at 2018. In fact, the OCC appears to have interpreted the 

effective date in just such a manner. See 76 Fed. Reg. at 43557.
16 LUSNAK V. BANK OF AMERICA

The one substantive change in the law that Dodd-Frank 

enacted was to require the OCC to follow certain procedures 

in making preemption determinations. Dodd-Frank 

mandates that all of the OCC’s future preemption 

determinations be made “on a case-by-case basis, in 

accordance with applicable law.” 12 U.S.C. § 25b(b)(1)(B). 

Under the “case-by-case basis” requirement, the OCC must 

individually evaluate state consumer laws and consult with 

the Bureau of Consumer Financial Protection before making 

any preemption determinations. 12 U.S.C. § 25b(b)(3). In 

addition, the OCC may not deem preempted a provision of a 

state consumer financial law “unless substantial evidence, 

made on the record of the proceeding, supports the specific 

finding regarding the preemption of such provision in 

accordance with [Barnett Bank].” 12 U.S.C. § 25b(c). 

Finally, the OCC must review its preemption determinations 

at least once every five years. 12 U.S.C. § 25b(d). These 

changes have no bearing here where the preemption 

determination is made by this court and not the OCC.

We now turn to the question of whether the NBA 

preempts California’s escrow interest law.

B. The NBA Does Not Preempt California’s

Escrow Interest Law

Under both Barnett Bank and Dodd-Frank, we must 

determine whether California Civil Code § 2954.8(a) 

“prevents or significantly interferes” with Bank of 

America’s exercise of its national bank powers.6 As 

 6 Ordinarily, affirmative defenses such as preemption may not be 

raised on a motion to dismiss except when the defense raises no disputed 

issues of fact. Scott v. Kuhlmann, 746 F.2d 1377, 1378 (9th Cir. 1984) 

(per curiam); see also Rose v. Chase Bank USA, N.A., 513 F.3d 1032, 
LUSNAK V. BANK OF AMERICA 17

Congress provided in Dodd-Frank, the operative question is 

whether section 2954.8(a) prevents Bank of America from 

exercising its national bank powers or significantly 

interferes with Bank of America’s ability to do so. See

12 U.S.C. § 25b(b)(1)(B). Minor interference with federal 

objectives is not enough. Watters, 550 U.S. at 11 (“[F]ederal 

control shields national banking from unduly burdensome 

and duplicative state regulation.” (emphasis added)); id. at 

12 (“[W]hen state prescriptions significantly impair the 

exercise of authority, enumerated or incidental under the 

NBA, the State’s regulations must give way.” (emphasis 

added)).

Applying that standard here, we hold that California 

Civil Code § 2954.8(a) is not preempted because it does not 

prevent or significantly interfere with Bank of America’s 

exercise of its powers. Again, section 1639d(g)(3) of DoddFrank states, “If prescribed by applicable State or Federal 

law, each creditor shall pay interest to the consumer on the 

amount held in any . . . escrow account that is subject to this 

section in the manner as prescribed by that applicable State 

or Federal law.” 15 U.S.C. § 1639d(g)(3). This language 

requiring banks to pay interest on escrow account balances 

“[i]f prescribed by applicable State [] law” expresses 

Congress’s view that such laws would not necessarily 

 

1038 n.4 (9th Cir. 2008) (declining to remand for further discovery 

because “no amount of discovery would change the central holding that 

Congress intended for the NBA to preempt [this] state restriction[] on 

national banks . . . .”). Such is the case here. Bank of America’s 

arguments are purely legal and do not depend on resolution of any factual 

disputes over the effect of California law on the bank’s business. Indeed, 

Bank of America confirms that “[n]o discovery is necessary . . . because 

this is a legal inquiry, not a factual one.”
18 LUSNAK V. BANK OF AMERICA

prevent or significantly interfere with a national bank’s 

operations.

Dodd-Frank does not define the term “applicable.” But 

the Supreme Court recently explained:

“Applicable” means “capable of being 

applied: having relevance” or “fit, suitable, or 

right to be applied: appropriate.” Webster’s 

Third New International Dictionary 105 

(2002). See also New Oxford American 

Dictionary 74 (2d ed. 2005) (“relevant or 

appropriate”); 1 Oxford English Dictionary 

575 (2d ed. 1989) (“[c]apable of being 

applied” or “[f]it or suitable for its purpose, 

appropriate”). So an expense amount is 

“applicable” within the plain meaning of the 

statute when it is appropriate, relevant, 

suitable, or fit.

Ransom v. FIA Card Servs., N.A., 562 U.S. 61, 69 (2011);

see also Applicable, Collins English Dictionary 97 (12th ed. 

2014) (“being appropriate or relevant”); Applicable, Oxford 

Dictionaries (Oxford University Press), https://premium.

oxford dictionaries.com/definition/american_english/

applicable (last visited Jan. 25, 2018) (“[r]elevant or 

appropriate”). Accordingly, “applicable” law in the context 

of section 1639d(g)(3) would appear to include any relevant 

or appropriate state laws that require creditors to pay interest 

on escrow account funds.

The inclusion of this term makes sense because not every 

state has escrow interest laws. In a regulation implementing 

Dodd-Frank’s amendments to the TILA, the Consumer 

Financial Protection Bureau explained that:
LUSNAK V. BANK OF AMERICA 19

[T]he creditor may be able to gain returns on 

the money that the consumers keep in their 

escrow account. Depending on the State, the 

creditor might not be required to pay interest 

on the money in the escrow account. The 

amount that the consumer is required to have 

in the consumer’s escrow account is 

generally limited to two months’ worth of 

property taxes and home insurance. 

However, some States require a fixed interest 

rate to be paid on escrow accounts, resulting 

in an additional cost to the creditors.

Escrow Requirements Under the Truth in Lending Act

(Regulation Z), 78 Fed. Reg. 4726, 4747 (Jan. 22, 2013). 

Lusnak notes that only thirteen states appear to have escrow 

interest laws similar to California’s. Through its 

requirement that creditors pay interest “in the manner as 

prescribed by” the relevant state law, Congress demonstrated 

an awareness of, and intent to address, the differences among 

state escrow interest laws. 15 U.S.C. § 1639d(g)(3). “[W]e 

may reasonably presume that Congress was aware of 

[existing law when it legislated],” Do Sung Uhm v. Humana, 

Inc., 620 F.3d 1134, 1155 (9th Cir. 2010), and that it used 

the term “applicable” to refer to state escrow interest laws 

where they exist.7

 7 In so construing the term “applicable,” we do not suggest that a 

state escrow interest law can never be preempted by the NBA. For 

example, a state law setting punitively high rates banks must pay on 

escrow balances may prevent or significantly interfere with a bank’s 

ability to engage in the business of banking. We simply recognize that 

Congress’s reference to “applicable State . . . law” in section 1639d(g)(3) 

reflects a determination that state escrow interest laws do not necessarily 

prevent or significantly interfere with a national bank’s business.
20 LUSNAK V. BANK OF AMERICA

Although we need not resort to legislative history, we 

note that it, too, confirms our interpretation of 

section 1639d(g)(3). A House Report discusses how 

mortgage servicing, and specifically escrow accounts, 

contributed to the subprime mortgage crisis. H.R. Rep. No. 

111-94, at 53–56. The Report notes that mortgage servicers 

are typically “large corporations” who “may . . . earn income 

from the float from escrow accounts they maintain for 

borrowers to cover the required payments for property 

insurance on the loan.” Id. at 55. The Report’s section-bysection analysis of Dodd-Frank then explains Congress’s 

purpose behind section 1639d(g)(3), stating:

Servicers must administer such accounts in 

accordance with the Real Estate Settlement 

Procedures Act (RESPA), [Flood Disaster 

Protection Act], 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 (emphasis added). This passage shows Congress’s 

view that creditors, including large corporate banks like 

Bank of America, can comply with state escrow interest laws 

without any significant interference with their banking 

powers.

No legal authority supports Bank of America’s position 

that California Civil Code § 2954.8(a) prevents or 

significantly interferes with the exercise of its powers. Bank 

of America falls back on the OCC’s pre-Dodd-Frank 

preemption rule, 12 C.F.R. § 34.4(a) (2004), but as we 

explained, Congress has since clarified that Barnett Bank’s 

preemption standard applies. Bank of America’s reliance on 
LUSNAK V. BANK OF AMERICA 21

the OCC’s post-Dodd-Frank revision of section 34.4(a) also 

fails. Reading section 34.4(a) in isolation, Bank of America 

argues that state escrow interest laws necessarily prevent or 

significantly impair its real estate lending authority. 

However, the OCC’s amendments specifically altered the 

language of section 34.4(b) to clarify that state laws “that 

[are] made applicable by Federal law” (which would include 

Dodd-Frank’s TILA amendments) “are not inconsistent with 

the real estate lending powers of national banks . . . to the 

extent consistent with [Barnett Bank].” 12 C.F.R. 

§ 34.4(b)(9) (2011).

All of Bank of America’s cited cases are inapposite. 

Flagg v. Yonkers Savings & Loan Association concerned the 

Office of Thrift Supervision’s (“OTS”) authority to regulate 

federal savings associations, and the Second Circuit’s 

holding in that case was based on the OTS’s field preemption 

over the regulation of such associations. 396 F.3d 178, 182 

(2d Cir. 2005). Unlike the OTS, the OCC does not enjoy 

field preemption over the regulation of national banks.8 

Aguayo, 653 F.3d at 921–22 (“[W]hile the OTS and the OCC 

regulations are similar in many ways . . . the OCC has 

explicitly avoided full field preemption in its rulemaking and 

has not been granted full field preemption by Congress.”). 

First Federal Savings and Loan Association of Boston v. 

Greenwald also fails to support Bank of America’s position. 

591 F.2d 417 (1st Cir. 1979). Greenwald concerned a direct 

conflict between a state regulation requiring payment of 

interest on certain escrow accounts and a federal regulation 

expressly stating that no such obligation was to be imposed 

on federal savings associations “apart from the duties 

 8 Nor does the OCC enjoy field preemption over the regulation of 

federal savings associations. 12 U.S.C. § 1465(b).
22 LUSNAK V. BANK OF AMERICA

imposed by this paragraph” or “as provided by contract.” Id.

at 425. Here, there is no federal regulation that directly 

conflicts with section 2954.8(a).9

In sum, no legal authority establishes that state escrow 

interest laws prevent or significantly interfere with the 

exercise of national bank powers, and Congress itself, in 

enacting Dodd-Frank, has indicated that they do not. 

Accordingly, we hold that the NBA does not preempt 

California Civil Code § 2954.8(a).

C. Lusnak’s Claims For Relief

We turn now to Lusnak’s two claims for relief. Using 

the UCL as a procedural vehicle, Lusnak alleges that Bank 

of America violated both state law, Cal. Civ. Code 

§ 2954.8(a), and federal law, 15 U.S.C. § 1639d(g)(3), by 

failing to pay interest on his escrow account funds. See 

Levitt v. Yelp! Inc., 765 F.3d 1123, 1130 (9th Cir. 2014) (“In 

prohibiting ‘any unlawful’ business practice, the UCL 

‘borrows violations of other laws and treats them as unlawful 

practices that the unfair competition law makes 

independently actionable.’”). Lusnak also brings a state-law 

breach of contract claim, alleging that Bank of America’s 

failure to pay interest violated his mortgage agreement.

 9 Bank of America’s district court authorities are nonbinding and 

unpersuasive. See Hayes v. Wells Fargo Bank, N.A., No. 13cv1707 

L(BLM), 2014 WL 3014906 (S.D. Cal. Jul. 3, 2014); Wis. League of Fin. 

Insts., Ltd. v. Galecki, 707 F. Supp. 401 (W.D. Wis. 1989). As in Flagg, 

the court in Hayes based its holding on the OTS’s field preemption over 

the regulation of federal savings associations. 2014 WL 3014906, at *5. 

And Galecki concerned the regulatory authority of the Federal Home 

Loan Bank Board, which was “preemptive of any state law purporting to 

address the subject of the operations of a Federal [savings] association.” 

707 F. Supp. at 404 (quoting 12 C.F.R. § 545.2).
LUSNAK V. BANK OF AMERICA 23

Bank of America—failing to distinguish between 

Lusnak’s state and federal theories—argues that his UCL 

claim cannot proceed because his escrow account was 

created before section 1639d’s effective date of January 21, 

2013. 124 Stat. at 2136. We agree that Lusnak cannot rely 

on section 1639d in prosecuting his UCL claim. Section 

1639d mandates that creditors establish escrow accounts in 

connection with certain mortgages. See 15 U.S.C. 

§ 1639d(a)–(b). Specifically, section 1639d(a) states that “a 

creditor, in connection with the consummation of a 

consumer credit transaction secured by a first lien on the 

principal dwelling of the consumer . . . shall establish, 

before the consummation of such transaction, an escrow or 

impound account . . . as provided in, and in accordance with, 

this section.” 15 U.S.C. § 1639d(a) (emphasis added). The 

use of prospective language, specifically “shall establish, 

before the consummation of such transaction,” indicates that 

Congress intended the detailed requirements in section 

1639d to apply to accounts established pursuant to that 

section after it took effect in 2013.

Moreover, section 1639d(g)(3) requires creditors to pay 

interest under “applicable” state law on funds in federally 

mandated escrow accounts that are “subject to this section.” 

15 U.S.C. § 1639d(g)(3). Lusnak’s escrow account was not 

a federally mandated account “subject to” section 1639d at 

the time it was created because it was established before that 

section took effect in 2013. See Bowen v. Georgetown Univ. 

Hosp., 488 U.S. 204, 208 (1988) (“[C]ongressional 

enactments . . . will not be construed to have retroactive 

effect unless their language requires this result.”).

However, these conclusions do not preclude Lusnak 

from obtaining relief under the UCL. Because California 

Civil Code § 2954.8(a) is not preempted, Bank of America 
24 LUSNAK V. BANK OF AMERICA

was required to follow that law, and Lusnak may proceed on 

his UCL claim on the theory that Bank of America violated 

the UCL by failing to comply with section 2954.8(a). The 

parties argue over when exactly Bank of America’s 

obligation to comply with section 2954.8(a) might have 

begun. Given that the Barnett Bank standard applied both 

pre- and post-Dodd Frank, the preemption analysis is the 

same in both time periods. Therefore, because section 

2954.8(a) was not preempted when Bank of America 

assumed control over Lusnak’s pre-existing escrow account, 

Bank of America’s obligation to pay interest on any funds in 

Lusnak’s escrow account was triggered from that point 

forward.

Lusnak may also proceed on his breach of contract claim. 

Lusnak’s mortgage documents require Bank of America to 

pay escrow interest if “Applicable Law requires interest to 

be paid on the Funds.” The mortgage defines “Applicable 

Law” as “all controlling applicable federal, state and local 

statutes, regulations, ordinances and administrative rules and 

orders (that have the effect of law) as well as all applicable 

final, non-appealable judicial opinions.” Accordingly, on 

the allegations in the complaint, a jury could find that the 

“Applicable Law” provision of the contract also requires that 

Bank of America pay interest on funds in Lusnak’s escrow 

account.

IV. Conclusion

For the reasons set forth above, we REVERSE and 

REMAND the case for further proceedings consistent with 

this Opinion.