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

WASHINGTON—The Office of the Comptroller of the Currency (OCC) today issued two final rules on national banks’ and federal savings associations’ real estate lending powers related to the payment of interest on funds held in escrow accounts.

The OCC’s actions emphasize federal preemption as a critical tool for reducing unnecessary burden, enabling local and national prosperity, and unleashing economic growth.

The OCC is codifying longstanding powers of national banks and federal savings associations to establish or maintain real estate lending escrow accounts and to exercise flexibility in making business judgments as to the terms and conditions of such accounts, including whether and to what extent to offer any compensation paid to customers or to assess any related fees. Codifying these longstanding powers provides clarity and reduces uncertainty with regards to bank escrow practices and may thereby incentivize increased bank real estate lending. This final rule is being adopted without changes to the proposed regulatory text.

Second, the OCC is issuing a preemption determination concluding that federal law preempts state laws that restrict national banks’ and federal savings associations’ flexibility to decide whether and to what extent to (1) pay interest or other compensation on funds placed in real estate escrow accounts; or (2) assess fees in connection with such accounts. Specifically, the preemption determination concludes that federal law preempts a New York interest-on-escrow law; 13 other states and territories have laws with substantively equivalent terms; and these substantively equivalent laws are also preempted. The final preemption determination added the interest-on-escrow laws of two U.S. territories—Guam and the U.S. Virgin Islands—but contains no other material changes.

The OCC also commends the U.S. Court of Appeals for the Second Circuit for its recent decision concluding that federal law preempts New York’s interest-on-escrow law. This Second Circuit decision cited to the proposed version of the rules the OCC is finalizing today and, together, they provide important clarity on federal preemption. This clarity will help ensure that national banks and federal savings associations continue to play an essential role in the nation’s economy.

Related Links

• Final Rule: Real Estate Lending Escrow Accounts (PDF)
• Final Rule: Preemption Determination: State Interest-on-Escrow Laws (PDF)