Feds Tell States: Hands Off Bank Escrow Interest Rules!
Published Date: 12/30/2025
Proposed Rule
Summary
The Treasury’s Office of the Comptroller of the Currency (OCC) wants to make it clear that federal law lets banks decide if they pay interest or charge fees on real estate escrow accounts, not state laws. This change affects banks regulated by the OCC and aims to simplify rules, helping banks manage escrow accounts more easily. People can share their thoughts by January 29, 2026, before the rule is finalized.
Analyzed Economic Effects
4 provisions identified: 1 benefits, 3 costs, 0 mixed.
Banks May Choose Escrow Interest/Fees
The OCC proposes a preemption determination saying federal law lets OCC‑regulated banks decide whether and to what extent to pay interest or other compensation on real estate escrow accounts or to assess related fees. The OCC proposes that New York and 11 other states (California, Connecticut, Maine, Maryland, Massachusetts, Minnesota, Oregon, Rhode Island, Utah, Vermont, and Wisconsin) have laws with substantively equivalent terms that would be preempted.
Rule Also Applies to Federal Savings Associations
The OCC explains that its analysis under the National Bank Act is equally applicable to Federal savings associations under the Home Owners' Loan Act, so the proposed preemption determination would also apply to those Federal savings associations and their escrow account practices.
New York's 2% Escrow Interest Requirement Endangered
New York General Obligations Law section 5-601 requires mortgage investing institutions to pay dividends or interest of not less than 2% per year (or a rate prescribed by the NY superintendent) on escrow balances for one-to-six family owner‑occupied residences and certain co‑ops, crediting interest quarterly and generally prohibiting service charges. The OCC proposes that this New York law is preempted by federal law.
OCC Says Small Institutions Likely Save Costs
The OCC estimates it supervises 1,005 institutions and that about 609 are small entities under the Regulatory Flexibility Act. The OCC states the proposal would likely result in some cost savings for OCC‑supervised small entities and certifies it will not have a significant economic impact on a substantial number of small entities.
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