On May 15, the OCC issued two final rules addressing national banks’ and federal savings associations’ authority to administer mortgage escrow accounts and the preemption of certain state interest-on-escrow laws. The OCC stated that the rules clarify that federally chartered institutions may determine the terms and conditions of escrow accounts, including whether to pay interest on escrow balances and whether to assess related fees.
The first rule codifies the OCC’s position that escrow-account administration is part of federally authorized real estate lending powers. The OCC stated that decisions regarding the investment of escrowed funds, the assessment of fees, and whether and to what extent interest or other compensation is paid are business decisions left to each institution’s discretion.
The second rule concludes that federal law preempts certain state laws requiring interest on mortgage escrow accounts. The OCC determined that federal law preempts state laws that restrict a national bank’s or federal savings association’s flexibility to decide whether and to what extent to pay interest or other compensation on escrowed funds. The rule also applies to state laws that restrict federally chartered institutions’ ability to assess fees in connection with escrow accounts.
Putting It Into Practice: The OCC’s latest action continues a broader push by federal banking regulators to expand the scope of federal preemption in areas affecting core banking activities, including payment processing and mortgage servicing. National banks and federal savings associations should review escrow account terms, disclosures, and complaint-handling scripts in light of the final rules taking effect June 18, 2026.
