The Office of the Comptroller of the Currency today finalized two rules to clarify that national banks are exempt from state laws regulating real estate escrow accounts. Both rules were first proposed late last year.
The first rule codifies 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 to offer any compensation paid to customers or to assess any related fees.
The second states that federal law preempts state laws that eliminate national banks’ and federal savings associations’ flexibility to decide whether and to what extent to pay interest or other compensation on funds placed in real estate escrow accounts, or assess fees in connection with such accounts.
New York, California and at least 12 other states and territories have enacted interest-on-escrow laws in recent years. In a statement, the OCC said its actions “emphasize federal preemption as a critical tool for reducing unnecessary burden, enabling local and national prosperity, and unleashing economic growth.”
In January, the American Bankers Association and the Mortgage Bankers Association expressed their support for the proposed rule codifying national banks’ authority to set the terms and conditions of escrow accounts. ABA issued a statement on X following the finalization of the rules, saying that it appreciated the OCC’s commitment to national bank preemption.
“Without clear federal standards, a fragmented patchwork of state requirements would increase consumer costs and limit credit access,” ABA said.
The finalized rules come roughly a week after the U.S. Court of Appeals for the Second Circuit concluded for a second time that New York’s law was preempted by federal law. The U.S. Supreme Court previously vacated the appeals court’s first decision on the matter and sent it back, directing the justices to conduct a “nuanced comparative analysis.”
