The OCC says state interest-on-escrow laws don't bind national banks
Two OCC final rules, effective 18 June 2026, say national banks and federal savings associations set escrow account terms at their own discretion, and name 14 state and territorial interest-on-escrow laws as preempted.
A number of states require lenders to pay interest on the money borrowers keep in mortgage escrow accounts for taxes and insurance. Whether national banks have to follow those laws is an old argument, and the Supreme Court's 2024 decision in Cantero v. Bank of America didn't settle it. On 19 May 2026 the OCC published two final rules that give its answer. Both took effect on 18 June 2026.
Rule one: escrow terms are the bank's call
The first rule, "Real Estate Lending Escrow Accounts" (91 FR 29340), amends 12 CFR part 34 for national banks and part 160 for federal savings associations. It says a national bank "may establish or maintain escrow accounts," and that the terms are "business decisions to be made by each national bank in its discretion." Those terms include how escrowed funds are invested, what fees are charged, and "whether and to what extent interest or other compensation is calculated and paid to customers." Federal savings associations get the same treatment.
The OCC doesn't say federal law stops applying. A footnote notes that "banks' real estate lending operations may be subject to additional requirements under Federal law," and the preamble walks through what RESPA already requires on escrow disclosures, timely payments and limits on how much can be collected.
Rule two: the named state laws are preempted
The second rule (91 FR 29350) adds a new 12 CFR 34.7, "OCC preemption determinations." In it the OCC "has determined that Federal law preempts State laws that restrict a national bank's or Federal savings association's flexibility" over escrow interest and fees, and it lists the specific statutes:
| Jurisdiction | Law named |
|---|---|
| California | Cal. Civ. Code sec. 2954.8 |
| Connecticut | Conn. Gen. Stat. sec. 49-2a |
| Guam | 11 Guam Code Ann. sec. 106103 |
| Maine | Me. Rev. Stat. Ann. tit. 9-B, sec. 429; Me. Rev. Stat. Ann. tit. 33, sec. 504 |
| Maryland | Md. Code Ann., Com. Law secs. 12-109, 12-109.2 |
| Massachusetts | Mass. Gen. L. ch. 183, sec. 61 |
| Minnesota | Minn. Stat. Ann. sec. 47.20, subd. 9 |
| New York | N.Y. Gen. Oblig. Law sec. 5-601 |
| Oregon | Or. Rev. Stat. secs. 86.245, 86.250 |
| Rhode Island | 19 R.I. Gen. Laws sec. 19-9-2 |
| U.S. Virgin Islands | V.I. Code tit. 9, sec. 67 |
| Utah | Utah Code Ann. sec. 7-17-3 |
| Vermont | Vt. Stat. Ann. tit. 8, sec. 10404 |
| Wisconsin | Wis. Stat. secs. 138.051, 138.052 |
The legal basis is 12 U.S.C. 25b, which codifies the Barnett Bank conflict preemption standard, and Cantero, which the OCC reads as reaffirming that standard. The OCC itself says Cantero did not decide the escrow question.
One state is missing on purpose. New Hampshire's law "only applies to banks chartered by the State," according to the OCC, so it left that statute out.
The determination was proposed on 30 December 2025 (90 FR 61093). The OCC received about 20 comments.
Who it reaches
The rules cover national banks and federal savings associations. They don't touch state-chartered banks, and the OCC doesn't address credit unions. A state bank in New York or California is still working under its state's interest-on-escrow law.
What it could mean
For a national bank or federal savings association in one of the 14 jurisdictions, this gives a firm regulatory position where there used to be a live argument. It doesn't make the argument disappear. Preemption determinations get challenged, and we'd expect borrowers or states to test this one. A bank that stops paying escrow interest tomorrow is betting that the OCC's position holds.
Our view is that the cheaper move is to do nothing quickly. Before changing what you pay, read your own mortgage documents and escrow disclosures. If your notes or escrow agreements promise interest, the preemption determination is about state statutes and probably doesn't change a contract you signed.
Then there's the competitive angle. State banks down the street still have to pay. If interest on escrow matters to your borrowers, and in some markets it's a talking point at closing, a national bank that stops paying may find it's handed its competitors a line for their sales pitch. The amounts are usually small per loan, so the decision is often more about reputation and servicing workload than about the money.
For state banks and credit unions in these states, the practical change is nil, apart from knowing that the national bank across the road may now play by different rules.