Federal Rules Override State Bank Escrow Interest Limits
Published Date: 5/19/2026
Rule
Summary
Starting June 18, 2026, federal law will override state rules that limit how banks regulated by the OCC pay interest or charge fees on real estate escrow accounts. This means these banks get more freedom to decide if and how they pay interest or fees, making things clearer and simpler for banks and customers alike. If you have a mortgage or work with banks, expect smoother, more consistent handling of escrow accounts across states.
Analyzed Economic Effects
3 provisions identified: 2 benefits, 1 costs, 0 mixed.
Federal rule frees OCC banks on escrow interest
If you have a mortgage, starting June 18, 2026 federal law overrides State rules that limit how banks regulated by the OCC decide whether and to what extent to pay interest or other compensation on real estate escrow accounts or assess fees for those accounts. This gives OCC-regulated banks more freedom and is intended to make escrow handling clearer and more consistent across States.
New York 2% escrow interest preempted
New York General Obligations Law section 5-601 required certain mortgage institutions to pay at least 2% per year (or a rate set by the New York superintendent) on escrow balances, required quarterly crediting, and generally barred service charges. Effective June 18, 2026, the OCC determined that Federal law preempts that New York law for national banks and Federal savings associations, so those institutions are no longer bound by the section 5-601 interest or fee restrictions.
Preemption covers 13 States plus territories
The OCC's final determination concludes that the National Bank Act preempts New York's interest-on-escrow law and thirteen other State laws that have substantively equivalent terms; it also incorporates interest-on-escrow laws in Guam and the U.S. Virgin Islands. The OCC says this group preemption and the concurrent Escrow Powers Rule are intended to provide clarity and uniformity for national banks and Federal savings associations.
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