On May 15, the OCC finalized two actions, effective June 18, that it had proposed in December 2025 (covered by InfoBytes here): (i) a rule codifying national banks’ and federal savings associations’ escrow account powers; and (ii) a preemption determination addressing state interest-on-escrow laws. The final rule codifies what the OCC referred to as the “longstanding and recognized powers” of banks to establish and maintain real estate lending escrow accounts and to exercise flexibility in setting the terms and conditions of those accounts — including the investment of escrowed funds, fees assessed, and whether and to what extent to pay interest or other compensation to customers — as business decisions to be made by each bank in its discretion, irrespective of state law. The OCC adopted the final rule without changes to the proposed regulatory text.

The final preemption determination concludes that federal law preempts state laws that restrict banks’ flexibility to decide whether and to what extent to pay interest or other compensation on escrow account funds or to assess fees in connection with escrow accounts. The OCC determined that the National Bank Act preempts New York’s interest-on-escrow law (N.Y. Gen. Oblig. Law § 5-601), along with substantively equivalent laws in 13 other states and territories. The final determination expanded the proposal by adding the interest-on-escrow laws of Guam and the U.S. Virgin Islands and amended the regulatory text to cover state laws that “restrict” bank flexibility, not only those that “eliminate” it. The OCC commended the 2nd Circuit’s recent decision finding New York’s interest-on-escrow law preempted (covered by InfoBytes here), noting that the court cited the proposed versions of both of the OCC’s actions. The OCC stated that the 2nd Circuit’s decision and the two final rules together provide “important clarity on federal preemption.” The OCC received approximately 20 comments on the preemption determination; opponents argued the determination misapplied the Barnett standard and raised concerns about “competitive equality” between different types of mortgage lenders and consumer protection, while supporters stated the actions would provide helpful clarity, support uniformity, and reduce operational complexity.