OCC Issues Final Rules Regarding Federal Preemption of State Interest-on-Escrow Laws

The OCC recently finalized two rules, proposed in December 2025 (see prior coverage here), to clarify its position and reinforce national banks’ and federal saving associations’ lending powers and authority over mortgage escrow accounts and to preempt certain state laws requiring the payment of interest on escrowed funds.

The first final rule, codifying banks’ longstanding and recognized escrow account powers, was substantively unchanged from the proposed rule.  The second final rule, a preemption determination, comes after the U.S. Court of Appeals for the Second Circuit’s decision earlier this month that concluded federal law preempts New York’s interest-on-escrow law (see prior coverage here).  The OCC commended the Court for its decision, which cited the OCC’s proposed version of the final rules.

While the second final rule remains largely unchanged from the proposed rule, the OCC expanded the list of specific state interest-on-escrow laws that it has determined are preempted to Guam and the U.S. Virgin Islands.  Additionally, the OCC clarified that the preemption determination applies to the state laws that “restrict” and not just “eliminate” the flexibility of banks to set the terms and conditions on mortgage escrow accounts.

The final rules are effective June 18, 2026.