Preemption Determination: State Interest-on-Escrow Laws

DEPARTMENT OF THE TREASURY <SUBAGY>Office of the Comptroller of the Currency</SUBAGY> <CFR>12 CFR Part 34</CFR> <DEPDOC>[Docket ID OCC-2025-0735]</DEPDOC> <RIN>RIN 1557-AF45</RIN> <SUBJECT>Preemption Determination: State Interest-on-Escrow Laws</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Office of the Comptroller of the Currency (OCC), Treasury. <HD SOURCE="HED">ACTION:</HD> Notice of proposed rulemaking. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The OCC is proposing to issue a preemption determination concluding that federal law preempts state laws that eliminate OCC-regulated banks' 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. This preemption determination would provide much needed clarity to banks and other stakeholders. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments must be received on or before January 29, 2026. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> Commenters are encouraged to submit comments through the Federal eRulemaking Portal. Please use the title “Preemption Determination: State Interest-on-Escrow Laws” to facilitate the organization and distribution of the comments. You may submit comments by any of the following methods: • <E T="03">Federal eRulemaking Portal—Regulations.gov:</E> Go to <E T="03">https://regulations.gov/.</E> Enter “Docket ID OCC-2025-0735” in the Search Box and click “Search.” Public comments can be submitted via the “Comment” box below the displayed document information or by clicking on the document title and then clicking the “Comment” box on the top-left side of the screen. For help with submitting effective comments, please click on “Commenter's Checklist.” For assistance with the <E T="03">Regulations.gov</E> site, please call 1-866-498-2945 (toll free) Monday-Friday, 9 a.m.-5 p.m. EST, or email <E T="03">regulationshelpdesk@gsa.gov.</E> • <E T="03">Mail:</E> Chief Counsel's Office, Attention: Comment Processing, Office of the Comptroller of the Currency, 400 7th Street SW, Suite 3E-218, Washington, DC 20219. • <E T="03">Hand Delivery/Courier:</E> 400 7th Street SW, Suite 3E-218, Washington, DC 20219. <E T="03">Instructions:</E> You must include “OCC” as the agency name and “Docket ID OCC-2025-0735” in your comment. In general, the OCC will enter all comments received into the docket and publish the comments on the <E T="03">Regulations.gov</E> website without change, including any business or personal information provided such as name and address information, email addresses, or phone numbers. Comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not include any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure. You may review comments and other related materials that pertain to this action by the following method: • <E T="03">Viewing Comments Electronically—Regulations.gov:</E> Go to <E T="03">https://regulations.gov/.</E> Enter “Docket ID OCC-2025-0735” in the Search Box and click “Search.” Click on the “Dockets” tab and then the document's title. After clicking the document's title, click the “Browse All Comments” tab. Comments can be viewed and filtered by clicking on the “Sort By” drop-down on the right side of the screen or the “Refine Comments Results” options on the left side of the screen. Supporting materials can be viewed by clicking on the “Browse Documents” tab. Click on the “Sort By” drop-down on the right side of the screen or the “Refine Results” options on the left side of the screen checking the “Supporting & Related Material” checkbox. For assistance with the <E T="03">Regulations.gov</E> site, please call 1-866-498-2945 (toll free) Monday-Friday, 9 a.m.-5 p.m. ET, or email <E T="03">regulationshelpdesk@gsa.gov.</E> The docket may be viewed after the close of the comment period in the same manner as during the comment period. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Karen McSweeney, Special Counsel, Graham Bannon, Counsel, Priscilla Benner, Counsel, and Harry Naftalowitz, Attorney, 202-649-5490; Office of the Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219. If you are deaf, hard of hearing, or have a speech disability, please dial 7-1-1 to access telecommunications relay services. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> <HD SOURCE="HD2">A. Introduction</HD> The dual banking system, which is “made up of parallel federal and state banking systems” that “co-exist and compete,” is foundational to the American financial system. <SU>1</SU> <FTREF/> Congress designed this system to permit banks to choose the charter—state or federal—that best fits their business needs and allows them to best serve their customers. Federal preemption, which derives from the Supremacy Clause of the U.S. Constitution, has long been recognized as fundamental to the design of the dual banking system. <SU>2</SU> <FTREF/> It removes barriers and creates efficiencies associated with operating under a uniform set of rules, which fosters the development of national products and services and multi-state markets. As such, federal preemption is a critical tool for reducing unnecessary burden, enabling local and national prosperity, and unleashing economic growth. Congress has consistently reaffirmed the important role that federal preemption plays in the dual banking system, including by codifying preemption standards for OCC-regulated banks as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank)  <SU>3</SU> <FTREF/> and extending comparable federal preemption standards to state-chartered banks in some cases. <SU>4</SU> <FTREF/> <FTNT> <SU>1</SU>   <E T="03">Cantero</E> v. <E T="03">Bank of Am., N.A.,</E> 602 U.S. 205, 209-10 (2024). </FTNT> <FTNT> <SU>2</SU>  When Congress enacted the National Bank Act over 150 years ago, it “intended to facilitate . . . a `national banking system.' ” <E T="03">Marquette Nat'l Bank of Minneapolis</E> v. <E T="03">First of Omaha Serv. Corp.,</E> 439 U.S. 299, 314-15 (1978) (quoting Cong. Globe, 38th Cong., 1st Sess., 1451 (1864)); <E T="03">see also Easton</E> v. <E T="03">Iowa,</E> 188 U.S. 220, 229 (1903) (observing that federal legislation and regulation “has in view the erection of a system extending throughout the country, and independent, so far as powers conferred are concerned, of state legislation which, if permitted to be applicable, might impose limitations and restrictions as various and as numerous as the [s]tates.”); <E T="03">id.</E> at 231 (“It thus appears that Congress has provided a symmetrical and complete scheme for the banks to be organized under the provisions of the [National Bank Act].”). </FTNT> <FTNT> <SU>3</SU>   <E T="03">See, e.g.,</E> 12 U.S.C. 25b. </FTNT> <FTNT> <SU>4</SU>   <E T="03">See, e.g.,</E> 12 U.S.C. 1831a(j). </FTNT> In addition, the U.S. Department of Justice (DOJ) and the National Economic Council (NEC) recently recognized the benefits of preemption when they solicited public comment on state laws that significantly and adversely affect the national economy or interstate economic activity and solutions to address such effects, including whether such state laws are preempted by existing federal law. <SU>5</SU> <FTREF/> This request for comment was not limited to banking but rather covered state laws that affect all parts of the American economy, consistent with the role that federal preemption plays in many other sectors, including energy and aviation. <FTNT> <SU>5</SU>   <E T="03">Request for Information on State Laws Having Significant Adverse Effects on the National Economy or Significant Adverse Effects in Interstate Commerce,</E> 90 FR 39427 (August 15, 2025). </FTNT> Given that federal preemption has long been a critical feature of the dual banking system, the OCC is well positioned to support the Administration's preemption efforts. For example, in response to the DOJ and NEC request for comment, banking industry commenters specifically highlighted state laws that eliminate banks' flexibility to decide whether and to what extent to pay interest or other compensation on funds placed in escrow accounts (interest-on-escrow laws), observing that these laws could cause banks to increase mortgage prices or even reduce their mortgage lending. <SU>6</SU> <FTREF/> State interest-on-escrow laws may also eliminate banks' flexibility to assess related fees. The question of whether federal law preempts state interest-on-escrow laws has been extensively litigated. However, while multiple circuits and even the Supreme Court have considered this issue, <SU>7</SU> <FTREF/> there remains substantial uncertainty. Moreover, this litigation has introduced ambiguity regarding how to evaluate National Bank Act preemption generally. <FTNT> <SU>6</SU>   <E T="03">See, e.g.,</E> Comment from Bank Policy Institute, Sept. 15, 2025; Comment from American Bankers Association, Sept. 15, 2025. </FTNT> <FTNT> <SU>7</SU>   <E T="03">See, e.g., Lusnak</E> v. <E T="03">Bank of Am., N.A.,</E> 883 F.3d 1185 (2018); <E T="03">Cantero</E> v. <E T="03">Bank of Am., N.A.,</E> 49 F.4th 121, 131 (2022), <E T="03">vacated</E> by 602 U.S. 205 (2024); <E T="03">Conti</E> v. <E T="03">Citizens Bank, NA,</E> 157 F.4th 10, 17-18 (1st Cir. 2025); <E T="03">Kivett</E> v. <E T="03">Flagstar Bank, FSB,</E> 154 F.4th 640 (9th Cir. 2025). </FTNT> To provide much needed clarity, the OCC is proposing to issue a preemption determination addressing state intere ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 58k characters. 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