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Proposed Rule2025-23988

Real Estate Lending Escrow Accounts

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Published

December 30, 2025

Issuing agencies

Treasury DepartmentComptroller of the Currency

Abstract

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<title>Federal Register, Volume 90 Issue 246 (Tuesday, December 30, 2025)</title>
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[Federal Register Volume 90, Number 246 (Tuesday, December 30, 2025)]
[Proposed Rules]
[Pages 61099-61105]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-23988]

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 34 and 160

[Docket ID OCC-2025-0736]
RIN 1557-AF46

Real Estate Lending Escrow Accounts

AGENCY: Office of the Comptroller of the Currency (OCC), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The OCC is issuing a notice of proposed rulemaking to codify
longstanding powers of national banks and Federal savings associations
(collectively, banks) to establish or maintain real estate lending
escrow accounts and to exercise flexibility in making business judgment
as to the terms and conditions of such accounts, including whether and
to what extent to offer any compensation or to assess any fees related
thereto.

DATES: Comments must be received on or before January 29, 2026.

ADDRESSES: Commenters are encouraged to submit comments through the
Federal eRulemaking Portal. Please use the title ``Real Estate Lending
Escrow Accounts'' to facilitate the organization and distribution of
the comments. You may submit comments by any of the following methods:
<bullet> Federal eRulemaking Portal--<a href="http://Regulations.gov">Regulations.gov</a>:
Go to <a href="https://regulations.gov/">https://regulations.gov/</a>. Enter Docket ID ``OCC-2025-0736''
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 <a href="http://Regulations.gov">Regulations.gov</a> site, please call
1-866-498-2945 (toll free) Monday-Friday, 9 a.m.-5 p.m. ET, or email
<a href="/cdn-cgi/l/email-protection#b3c1d6d4c6dfd2c7dadcddc0dbd6dfc3d7d6c0d8f3d4c0d29dd4dcc5"><span class="__cf_email__" data-cfemail="96e4f3f1e3faf7e2fff9f8e5fef3fae6f2f3e5fdd6f1e5f7b8f1f9e0">[email&#160;protected]</span></a>.
<bullet> Mail: Chief Counsel's Office, Attention: Comment
Processing, Office of the Comptroller of the Currency, 400 7th Street
SW, Suite 3E-218, Washington, DC 20219.
<bullet> Hand Delivery/Courier: 400 7th Street SW, Suite 3E-218,
Washington, DC 20219.
Instructions: You must include ``OCC'' as the agency name and
Docket ID ``OCC-2025-0736'' in your comment. In general, the OCC will
enter all comments received into the docket and publish the comments on
the <a href="http://Regulations.gov">Regulations.gov</a> 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:
<bullet> Viewing Comments Electronically--<a href="http://Regulations.gov">Regulations.gov</a>:
Go to <a href="https://regulations.gov/">https://regulations.gov/</a>. Enter Docket ID ``OCC-2025-0736''
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 <a href="http://Regulations.gov">Regulations.gov</a> site, please call 1-
866-498-2945 (toll free) Monday-Friday, 9 a.m.-5 p.m. ET, or email
<a href="/cdn-cgi/l/email-protection#d0a2b5b7a5bcb1a4b9bfbea3b8b5bca0b4b5a3bb90b7a3b1feb7bfa6"><span class="__cf_email__" data-cfemail="d1a3b4b6a4bdb0a5b8bebfa2b9b4bda1b5b4a2ba91b6a2b0ffb6bea7">[email&#160;protected]</span></a>.
The docket may be viewed after the close of the comment period in
the same manner as during the comment period.

FOR FURTHER INFORMATION CONTACT: Karen McSweeney, Special Counsel,
Graham Bannon, Counsel, and Priscilla Benner, Counsel, Chief Counsel's
Office, 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.

SUPPLEMENTARY INFORMATION:

[[Page 61100]]

I. Introduction

Real estate lending has been core to the business of national banks
for over 100 years and of Federal savings associations for their entire
existence of over 90 years. Banks are a key pillar supporting
homeownership and commercial real estate in the U.S. In order for banks
to engage in effective and efficient real estate lending, they use a
variety of tools to safely and soundly manage the associated risks.
Mortgages have several features that set them apart from most of banks'
other extensions of credit, including that they are typically
overcollateralized and the collateral is unique, is often illiquid, and
can be subject to acts of nature that rapidly depreciate its value. As
such, a significant risk in mortgage lending is related to a bank's
ability to assess, manage, and preserve the underlying collateral.\1\
Since the late 1930s, escrow accounts have become a crucial risk
mitigation tool that supports safe and sound mortgage lending.
Specifically, a lender may require a borrower to prepay a portion of
their annual property taxes, insurance premiums, and certain other
payments relating to the mortgaged property, which the lender places
into an escrow account. When those payments become due, the lender then
forwards the payment to the applicable party.\2\
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\1\ See OCC, Comptroller's Handbook, ``Mortgage Banking,'' 15,
53-54 (2014) (``Mortgage Banking Handbook'').
\2\ See id.; OCC, Comptroller's Handbook, ``Residential Real
Estate,'' 25-27 (2015).
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From the lender's perspective, escrow accounts can ensure in
advance that these payments will be met, which in turn enables the
lender to protect the priority of its mortgage lien and the value of
the collateral. Should a borrower fail to pay property taxes, for
example, a tax lien is, in general, superior to the lender's mortgage
lien.\3\ If a municipality forced a sale of the property to collect on
the taxes owed to it, there may be insufficient proceeds left over from
the sale of the property to enable the borrower to satisfy the
remaining real estate loan. Similarly, should a borrower fail to pay
premiums on an insurance policy covering the property, the lender may
bear the risk of uninsured damage to the collateral. For example, the
borrower may cease payment on the real estate loan if the property
becomes so damaged that its market price is less than the outstanding
mortgage balance. In this case, the lender may be unable to recover the
value of the outstanding mortgage loan through foreclosure on and sale
of the collateral property.
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\3\ See Mortgage Banking Handbook at 99. See also Gen. Acct.
Off., B-114860, Study of the Feasibility of Escrow Accounts on
Residential Mortgages Becoming Interest Bearing, 6 (1973) (``Escrow
accounts began during the economic depression of the 1930s when many
homeowners, because of their inability to pay property taxes, lost
their homes through foreclosure.''). Use of escrow accounts also
benefit state and local governments in reducing the number of
delinquent or delayed property tax filings and associated
foreclosure proceedings. Id. at 20.
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From the borrower's perspective, escrow accounts can help the
borrower budget for tax, insurance, and other payments.\4\ Use of an
escrow account also simplifies the operational aspects associated with
making payments and confirming satisfaction of the borrower's
obligations to multiple parties.
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\4\ Unlike principal and interest payments on the mortgage loan,
which are typically due monthly and are consistent over time, tax,
insurance, and certain other payments related to the mortgaged
property are typically due less frequently (e.g., every six-months)
and may change throughout the life of the mortgage loan due to, for
example, changes in local property tax rates, the assessed tax value
of the property, or annual insurance premium adjustments. Such lump
sum payments thus mean that total mortgage-related payments on these
tax, insurance, or other payments due dates are typically larger and
may vary over time.
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In light of those benefits to both lenders and borrowers, escrow
accounts are widely used. For example, approximately 80% of U.S.
residential real estate mortgages use an escrow account.\5\ While banks
typically provide escrow accounts free of charge, banks nonetheless
incur costs and assume risks related to administering these accounts,
including the operational costs of building escrow systems, ensuring
payments are timely made to the relevant parties, and complying with
contractual terms and applicable law.\6\ When banks establish and
maintain escrow accounts, they make a variety of decisions that
collectively allow them to balance these costs and risks with the
benefits of such accounts. For example, banks may recoup some of these
costs through investing escrow funds, typically in short term assets.
Banks may also choose to pay interest on such accounts or otherwise
offer some form of related compensation to mortgage borrowers. These
decisions may be informed by the bank's business strategy, costs,
market demand, competition from other real estate lenders, and
eligibility requirements for certain mortgage insurance programs,\7\
among other considerations.
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\5\ Fed. Hous. Fin. Agency & Consumer Fin. Prot. Bureau, A
Profile of 2016 Mortgage Borrowers: Statistics from the National
Survey of Mortgage Originations, 27, 30 (2018). In some cases,
including certain government insured or guaranteed loans, the use of
escrow accounts is required. See, e.g., 24 CFR 200.84(b)(3) (escrow
account requirements for Federal Housing Administration programs).
\6\ See Mortgage Banking Handbook 15, 53-54 (``Mortgage
servicers are exposed to considerable operational risk when they
manage escrow accounts . . . . Escrow account administration
consists of collecting and holding borrower funds in escrow to pay
such items as real estate taxes, flood and hazard insurance
premiums, property tax assessments, and, in some cases, interest on
escrow account balances. The escrow account administration unit (1)
sets up the account, (2) credits the account for the tax and
insurance funds received as part of the borrower's monthly mortgage
payment, (3) makes timely payments of the borrower's obligations,
(4) analyzes the account balance in relation to anticipated payments
annually, and (5) reports the account balance to the borrower
annually. Servicers must closely monitor property taxing authorities
and individual insurance contracts to ensure that escrow
calculations are accurate and that insurance policies have not
lapsed. . . . Servicers must comply with applicable law in
connection with its management of escrow accounts, including
collecting, holding, and escrowing funds on behalf of each borrower
in accordance with RESPA (12 U.S.C. 2609) and Regulation X (12 CFR
1024.17 and 1024.34). . . . Servicers also should ensure compliance
with legal requirements regarding the cessation of escrow
withholding for [private market insurance] on serviced loans.'').
\7\ See, e.g., U.S. Dep't of Hous. & Urb. Dev., HUD Handbook
4000.1, ``FHA Single Family Housing Policy Handbook--III. Servicing
and Loss Mitigation--A. Title II Insured Housing Programs Forward
Mortgages--1. Servicing of FHA-Insured Mortgages--g. Escrow--ii.
Escrowing of funds'' (2025).
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The terms and conditions of escrow accounts, including whether and
to what extent banks pay interest or other compensation, are ultimately
a business judgment made by each bank in accordance with safe and sound
banking principles. This discretion ensures that banks have the
flexibility to make business decisions about how to effectively and
efficiently set the terms and conditions of their escrow accounts,
which allows them to appropriately balance the costs and benefits of
these accounts and the risks and rewards of real estate lending more
generally. As such, it is a core component of banks' mortgage lending
powers under applicable law, including provisions of the Federal
Reserve Act,\8\ the Home Owners Loan Act of 1933 (HOLA),\9\ and the
National Bank Act.\10\ This is consistent with longstanding agency
precedent \11\ and bank practices, which

[[Page 61101]]

the OCC is proposing to codify in its regulations governing the
mortgage lending powers of national banks and Federal savings
associations, respectively, for the sake of clarity. Codifying this
longstanding power will reduce uncertainty with regards to bank escrow
practices and may thereby incentivize increased bank mortgage lending.
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\8\ 12 U.S.C. 371.
\9\ 12 U.S.C. 1464.
\10\ 12 U.S.C. 24(Seventh).
\11\ See OCC, Interpretive Letter No. 1041 (Sept. 28, 2005)
(detailing the broad array of escrow services permissible for
national banks and acknowledging that banks may place escrow funds
into accounts that do not pay interest to customers); OCC, Corporate
Decision No. 99-06 (Jan. 29, 1999) (opining that a bank's proposed
real estate closing and escrow services were permissible as
``functionally and operationally equivalent to activities undertaken
by banks . . . in their ordinary course of business. The real estate
loan closing and escrow services respond to customers' needs and do
not involve risks that are not already assumed by banks in their
capacity as closing and escrow agents, financial intermediaries,
custodians, and trustees''); OCC, Conditional Approval No. 276 (May
8, 1998) (noting that the provision of tax escrow services ``is an
integral part of or a logical outgrowth of the lending function'');
Mortgage Banking Handbook 53-54 (detailing the escrow account
administration practices of banks).
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II. National Banks' Real Estate Lending and Escrow Account Powers

The Federal Reserve Act and HOLA, respectively, evince clear
Congressional intent to provide banks with broad, discretionary real
estate lending powers, which includes the flexibility to make business
decisions about how to effectively and efficiently set the terms and
conditions of escrow accounts. Each of these statutes also provides the
OCC broad discretionary grants of rulemaking authority. Additionally,
the flexibility to make business judgments concerning the investment
and use of escrowed funds has long since been inherent to the business
of banking codified in the National Bank Act. These practices are the
logical outgrowth or functional equivalent of other longstanding
permissible bank practices regarding collateral protection. They
benefit the bank and its customers and are well within the types of
risks national banks manage in the ordinary course of business.

Broad Real Estate Lending Powers Under the Federal Reserve Act and HOLA

National banks are authorized under the Federal Reserve Act to
``make, arrange, purchase or sell loans or extensions of credit secured
by liens on interests in real estate,'' subject to requirements imposed
by the OCC.\12\ Congress has progressively expanded national banks'
mortgage lending powers under this law. Initially limited to loans on
farmland,\13\ Congress amended the law to include limited general real
estate lending in 1916 \14\ and, through the years, removed all limits
and conditions on real estate lending other than those prescribed in
regulation by the Comptroller.\15\ The Federal Reserve Act provides the
OCC broad authority to prescribe regulations governing national banks'
loans or extensions of credit secured by liens on interest in real
estate.\16\
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\12\ 12 U.S.C. 371(a).
\13\ See Public Law 63-43, 38 Stat. 251, 273 (Dec. 23, 1913).
\14\ See Public Law 64-270, 39 Stat. 752, 754-55 (Sept. 7,
1916).
\15\ See Public Law 97-320, 96 Stat. 1469, 1510-11 (Oct. 15,
1982).
\16\ 12 U.S.C. 371(a); see also Secs. Indus. Ass'n v. Clarke,
885 F.2d 1034, 1048 (2d Cir. 1989) (``Legislative history indicates
that the [1982] amendment [to 12 U.S.C. 371(a)] was intended to
simplif[y] the real estate lending authority of national banks by
deleting rigid statutory requirements. Section 403 [which amended 12
U.S.C. 371] is intended to provide national banks with the ability
to engage in more creative and flexible financing, and to become
stronger participants in the home financing market.'' (citation
modified)).
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Likewise, residential mortgage lending is the central business of
Federal savings associations.\17\ The explicit purpose of HOLA is to
create a Federal chartering regime for institutions that provide credit
for housing.\18\ HOLA provides Federal savings associations broad
powers to invest in, sell, or otherwise deal in residential real
property loans, subject to regulations issued by the Comptroller.\19\
HOLA also provides the OCC with broad authority to prescribe rules and
regulations to provide for the organization, incorporation,
examination, operation, and regulation \20\ of Federal savings
associations and to specify their powers to invest in, sell, or
otherwise deal in various loans and other investments.\21\
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\17\ The history of savings associations more generally in the
United States dates back to 1831, ``when townspeople in Frankford,
Pa., agreed to pool their money to buy their own homes. The result
was the Oxford Association, which lasted until all 40 original
members had been given the opportunity to become homeowners. The
Oxford Provident Building Association's example of cooperative
finance to promote home ownership inspired the founding of other
associations across the country.'' OCC, The History of the OCC,
``The Federal Thrift Charter is Created,'' available at <a href="https://www.occ.gov/about/who-we-are/history/history-of-the-occ/1914-1935/1914-1935-the-federal-thrift-charter-is-created.html">https://www.occ.gov/about/who-we-are/history/history-of-the-occ/1914-1935/1914-1935-the-federal-thrift-charter-is-created.html</a>.
\18\ 12 U.S.C. 1464(a).
\19\ See 12 U.S.C. 1464(c); 12 CFR part 160. HOLA also
authorizes Federal savings associations to engage in nonresidential
real estate lending not in excess of 400% of capital or certain
greater amount as determined by the Comptroller, subject to
regulations issued by the Comptroller. 12 U.S.C. 1464(c)(2)(B).
\20\ 12 U.S.C. 1464(a); see also Fid. Fed. Sav. & Loan Ass'n v.
de la Cuesta, 458 U.S. 141, 145 (1982) (``Pursuant to this
authorization [12 U.S.C. 1464(a)], the [Federal Home Loan Bank]
Board has promulgated regulations governing the powers and
operations of every Federal savings and loan association from its
cradle to its corporate grave.'' quotation marks omitted)). This
authority to promulgate regulations for Federal savings associations
was ultimately transferred to the OCC. 12 U.S.C. ch. 53. The grant
of rule writing authority to the OCC in each of 12 U.S.C. 371(a) and
1464(a) are of a type that ``empower[s] an agency to prescribe rules
to fill up the details of a statutory scheme.'' Loper Bright Enters.
v. Raimondo, 603 U.S. 369, 395 (2024) (citation modified). That is,
they are grants of authority to the agency to ``exercise a degree of
discretion.'' Id. at 394.
\21\ 12 U.S.C. 1464(c).
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Since the earliest days of the Federal banking system, courts have
held that banks have wide latitude in managing and protecting property
acquired in the usual course of banking, even where such activities are
not otherwise permissible.\22\ Courts have also explicitly linked the
power to lend as inextricably bound up in the power to make good on
collateral.\23\ As such, it is clear that the discretion afforded a
bank in making business judgments related to real estate lending does
not end when a bank decides the means by which to finance the costs of
managing and protecting property that serves as collateral for its
loans.\24\
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\22\ See, e.g., First Nat'l Bank v. Nat'l Exch. Bank, 92 U.S.
122, 128 (1875) (holding that a bank may accept stock in
satisfaction of a defaulted debt, notwithstanding a prohibition in
dealing in stocks); Cockrill v. Abeles, 86 Fed. 505, 511 (8th Cir.
1898) (holding that where a national bank acquired an undivided
interest in real property in satisfaction of a debt, it could also
purchase other undivided interests in the property and discharge
thereon where necessary to better enable the bank to manage or
dispose of the property); Cooper v. Hill, 94 Fed. 582, 586 (8th Cir.
1899) (holding that a bank could expend money to restore a mine
shaft acquired in satisfaction of a debt to presentable condition
for purposes of attracting a buyer); Second Nat'l Bank of
Parkersburg, W. Va., v. U.S. Fid. & Guar. Co., 266 F. 489, 494 (4th
Cir. 1920) (citing other cases related to the protection and
disposition of collateral as ``sufficient to illustrate the latitude
that is permitted national banks, not in the character of the acts
they may primarily engage in as a business, but in the management
and protection of property and property rights acquired in the usual
course of banking transactions, and it includes such minor
incidental powers as may be reasonably adapted to the ends in
view'').
\23\ See JPMorgan Chase Bank, N.A. v. Johnson, 719 F.3d 1010,
1017-18 (8th Cir. 2013) (``There is little doubt the power to
foreclose is closely related to and useful in carrying out the
business of banking. As the district court recognized, [t]he power
to engage in real estate lending would be rendered a nullity if
national banks could not also foreclose when the borrower
defaulted.'' (citation modified)).
\24\ See also 12 CFR 7.4002 (providing that a national bank may
charge non-interest fees, including deposit account service charges,
and that the establishment, amount, and method of calculation are
business decisions made by each national bank it its discretion). As
noted above, escrow accounts are typically provided free of cost to
consumers. However, a bank's decision to not charge permissible fees
may in many cases be underwritten by reasonable short-term returns
that banks are able to earn on escrowed funds.
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This history, and the statutory role of the OCC as the agency
delegated discretion in enacting real estate lending regulations for
both national banks and Federal savings associations, evince a clear
Congressional intent to provide banks with broad, discretionary real
estate lending powers.
This intent is clear too from the primary piece of Federal
legislation governing escrow accounts. In the

[[Page 61102]]

1970s, Congress determined that certain abuses in mortgage lenders'
real estate settlement processes necessitated nationwide reform,
including with respect to lenders that were requiring excessive funds
be placed in escrow accounts.\25\ Enacted in 1974, the Real Estate
Settlement Procedures Act (RESPA) \26\ extensively regulates the use
and operation of escrow accounts in residential real estate loans. It
requires disclosures as to the nature and purposes of escrow
accounts,\27\ mandates the provision of free annual escrow account
statements,\28\ requires amounts in escrow accounts be paid timely as
they become due and any funds remaining in such accounts after the loan
is repaid be promptly returned to the borrower,\29\ and establishes
proportional caps on the total amounts that may be collected from
borrowers in escrow accounts.\30\ RESPA does not, however, include any
provisions related to the use of funds in escrow accounts or require
lenders to pay compensation on such accounts. RESPA, in legislating a
system of escrow account disclosures and amount limits, implicitly
recognizes the flexibility banks have in deciding how to invest, and
whether and to what extent to pay interest on escrowed funds.\31\
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\25\ See 12 U.S.C. 2601(a), (b)(3).
\26\ Public Law 93-533, 88 Stat. 1724 (Dec. 22, 1974), codified
at 12 U.S.C. 2601 et seq.
\27\ 12 U.S.C. 2604(b)(9).
\28\ 12 U.S.C. 2609(c), 2610.
\29\ 12 U.S.C. 2605(g).
\30\ 12 U.S.C. 2609(a).
\31\ See Flagg v. Yonkers Sav. & Loan Ass'n, FA, 396 F.3d 178,
185 (2d Cir. 2005) (``RESPA is meant to regulate the amount of money
that a borrower is required to deposit in escrow by tying that
amount to the costs the escrow fund is meant to secure. RESPA is
not, however, designed to reduce the dollar costs of taxes, fees,
and insurance premiums. RESPA can, and does, accomplish its task by
setting rules on required escrow contributions. That this system
may, in the end, be more expensive to borrowers than, say, keeping
their money in interest-bearing accounts to pay their own bills,
does not violate RESPA's stated goal of `reduc[ing] the amounts home
buyers are required to place in escrow accounts.' '' (citations
omitted)).
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Congress has largely refrained from interfering with the
flexibility of banks in setting the terms and conditions of how
escrowed funds are handled by the bank.\32\ This flexibility allows
banks to efficiently and effectively balance the risks and rewards of
mortgage lending, just as banks do with other aspects of the credit
underwriting and lending process. The OCC has long recognized this
principle as well. For example, the Interagency Guidelines for Real
Estate Lending state that each insured depository institution should
establish loan administration procedures for its real estate portfolio
that address ``escrow administration,'' along with other core aspects
of the lending arrangements, including ``documentation,'' ``loan
closing and disbursement,'' ``payment processing,'' ``collateral
administration,'' ``loan payoffs,'' ``collections and foreclosures,''
``claims processing,'' and ``servicing and participation agreements.''
\33\ That is, the Guidelines outline broad topics for banks to address,
including escrow administration, but give banks substantial flexibility
in how to address them.
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\32\ Indeed, Congress has left these business decisions to a
bank's discretion except in specific limited circumstances. See 15
U.S.C. 1639d.
\33\ 12 CFR part 34 Appendix A to Subpart D--Interagency
Guidelines for Real Estate Lending.
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More generally, neither the Federal Reserve Act, HOLA, nor the
National Bank Act displaces a national bank's or Federal savings
association's general business judgment with respect to compensation
paid to or fees assessed on customers. For example, no Federal law
dictates or contemplates a minimum interest rate that national banks or
Federal savings associations must pay on general deposit accounts.
Additionally, a national bank's non-interest charges and fees are
subject only to the bank's ``discretion, according to sound banking
judgment and safe and sound banking principles.'' \34\
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\34\ 12 CFR 7.4002(b)(2). See also OCC, Interpretive Letter No.
906 (Jan. 19, 2001) (``The National Bank Act does not displace
business judgments by dictating any general restrictions on the
kinds or amounts of fees that banks may charge for services, leaving
those decisions to the discretion of bank management.'').
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Business of Banking

Furthermore, national banks are permitted to engage in the business
of banking more generally and ``all such incidental powers as shall be
necessary to carry on the business of banking.'' \35\ Courts have noted
that ``the National Bank Act did not freeze the practices of national
banks in their nineteenth century forms. . . . [W]hatever the scope of
such powers may be, we believe the powers of national banks must be
construed to permit the use of new ways of conducting the very old
business of banking.'' \36\
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\35\ 12 U.S.C. 24(Seventh); see also NationsBank of N.C., N.A.
v. Variable Annuity Life Ins. Co., 513 U.S. 251, 258 n.2 (1995)
(``We expressly hold that the `business of banking' is not limited
to the enumerated powers in Sec. 24 Seventh . . . .''). See also 12
U.S.C. 93a (providing the OCC authority to ``prescribe rules and
regulations to carry out the responsibilities of the office.'').
\36\ M & M Leasing Corp. v. Seattle First Nat'l Bank, 563 F.2d
1377, 1382 (9th Cir. 1977), cert. denied, 436 U.S. 956 (1978).
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Given the discussion in the preceding section, the OCC has
consistently taken the position that escrow accounts activities are
part of the business of banking.\37\ The OCC considers the following
factors for determining whether an activity that is not explicitly
enumerated in 12 U.S.C. 24(Seventh) is nonetheless part of the business
of banking:
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\37\ See supra note 11.
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(i) Whether the activity is the functional equivalent to, or a
logical outgrowth of, a recognized banking activity;
(ii) Whether the activity strengthens the bank by benefiting its
customers or its business;
(iii) Whether the activity involves risks similar in nature to
those already assumed by banks; and
(iv) Whether the activity is authorized for State-chartered
banks.\38\
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\38\ 12 CFR 7.1000(c)(1). The weight accorded to each factor
depends on the facts and circumstances of each case. 12 CFR
7.1000(c)(2). Relatedly, an activity is ``incidental to the business
of banking if it is convenient or useful to an activity that is
specifically authorized for national banks or to an activity that is
otherwise part of the business of banking.'' The OCC considers the
following factors in such analysis: ``(i) Whether the activity
facilitates the production or delivery of a bank's products or
services, enhances the bank's ability to sell or market its products
or services, or improves the effectiveness or efficiency of the
bank's operations, in light of risks presented, innovations,
strategies, techniques and new technologies for producing and
delivering financial products and services; and (ii) Whether the
activity enables the bank to use capacity acquired for its banking
operations or otherwise avoid economic loss or waste.'' 12 CFR
7.1000(d)(1).
---------------------------------------------------------------------------

Flexibility to exercise a national bank's business judgment as to
how to structure its escrow operations and whether and what extent to
offer any compensation to customers is a clear logical outgrowth of
national banks' other powers to manage and protect collateral. As
discussed above, courts have long recognized the wide latitude that
banks have in the activities they may undertake in managing and
protecting collateral on loans.\39\ Furthermore, this flexibility can
also be seen as the functional equivalent of national banks' deposit
taking powers. Escrow funds are placed into an account and, just like
any other account, it is a fundamental precept of banking that the bank
has flexibility in determining what, if any, interest is paid on such
accounts.\40\
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\39\ See supra notes 22-23 and accompanying text.
\40\ See OCC, Interpretive Letter No. 1041 (Sept. 28, 2005)
(``[T]he first three activities listed when the Bank acts as escrow
agent [receiving funds, depositing funds into a separate non-
interest escrow account, and honoring checks written against the
account] constitute depository and check cashing functions that are
enumerated powers set forth in statutory law.''); OCC, Corporate
Decision No. 98-09 (Jan. 28, 1998) (``[I]nterest rates paid by the
bank on its deposit accounts are generally a business decision as
long as the rates do not violate federal banking laws or
regulations. . . . [I]t is generally a business decision of the bank
to determine which lending programs fit in to its lending goals and
objectives.'').

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[[Page 61103]]

Flexibility to exercise a national bank's business judgment as to
how to structure the financing of its escrow operations can also
strengthen a national bank by benefiting its customers or its business.
As noted above, this flexibility allows banks to defray the costs of
providing escrow services, including coordinating payments by the
customer to multiple different parties free of charge.\41\ While a
bank's customers may not receive any interest payments if the bank
decides not to offer it, the bank's ability to exercise its business
judgment in how it structures its escrow operations may make it more
likely for the bank to use escrow accounts in its mortgage lending
operations, with their attendant benefits to both the lender and
borrower, and offer lower prices or fees. For example, if national
banks were required to use some fixed interest calculation to determine
what compensation to pay to customers using escrow accounts, should
market interest rates fall below such threshold, then banks could face
losses on their provision of escrow accounts and may reasonably decide,
where practicable, to desist from using escrow accounts, implement
fees, otherwise increase borrower costs to offset such loses, or reduce
their overall mortgage lending due to decreased profitability.
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\41\ See Clement Nat'l Bank v. Vermont, 231 U.S. 120, 140-41
(1913) (allowing national banks to pay state taxes on depositors'
accounts from their customers' account balances in part justified by
the benefit to each customer in not having to separately calculate
the tax and submit an individual tax return, which would remove
unnecessary obstacles to the successful prosecution of the bank's
business). See also M & M Leasing Corp., 563 F.2d at 1381-82
(holding that leases of personal property constitute the loan of
money secured by the properties leased, and so are part of the
business of banking. In reaching this holding, the court noted that
``leasing yields to the banks a rate of return that compares
favorably to that of lending. A portfolio of prudently-arranged
leases imposes no greater risks than one of equally prudently-
arranged loans. It is small wonder, therefore, that today over 1000
national banks are engaged in the leasing of personal property which
has an aggregate value in excess of $2 billion.''). Compare the
flexibility of national banks to structure secured lending programs
as leases and the wide adoption of national bank leasing programs to
the flexibility banks may exercise in structuring their escrow
accounts and their adoption in approximately 80% of mortgages. See
supra note 5.
---------------------------------------------------------------------------

National banks also have a core competency in managing risks
associated with fee structures and investing funds. In exercising its
business judgment as to how to structure the financing of its escrow
operations, a bank does not ``assume[ ] material burdens other than
those of a lender of money and is [not] subject to significant risks
not ordinarily incident to a secured loan.'' \42\ Rather, it continues
to protect its security interest and the attendant collateral while
managing investment risks associated with what are typically short-term
investments using the escrowed funds.
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\42\ M & M Leasing Corp., 563 F.2d at 1380.
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Finally, roughly three quarters of states permit state-chartered
banks flexibility to exercise their business judgment as to how to
structure the financing of their escrow operations for residential real
estate lending, either explicitly \43\ or implicitly in silence on the
subject,\44\ and the OCC is not aware of any state restricting this
flexibility with regards to commercial real estate lending.
---------------------------------------------------------------------------

\43\ See Iowa Code 524.905(2) (2025) (``A bank receiving funds
in escrow pursuant to an escrow agreement executed in connection
with a loan . . . may pay interest to the borrower on those funds.''
(emphasis added)).
\44\ The states that require their own state-chartered banks to
pay specified interest amounts on mortgage escrow accounts include
California (Cal. Civ. Code Sec. 2954.8 (2025)), Connecticut (Conn.
Gen. Stat. Sec. 49-2a (2025)), Maine (Me. Rev. Stat. Ann. tit. 9-B,
Sec. 429; Me. Rev. Stat. Ann. tit. 33, Sec. 504 (2025)), Maryland
(MD. Comm. Law Code Ann. Sec. 12-109, Sec. 12-109.2 (2025)),
Massachusetts (Mass. Gen. L. ch. 183, Sec. 61 (2025)), Minnesota
(Minn. Stat. Ann. Sec. 47.20, subd. 9 (2025)), New Hampshire (N.H.
Rev. Stat. Ann. Sec. 383-B:3-303(a)(7)(E) (2025)), New York (N.Y.
Gen. Oblig. Law Sec. 5-601 (2025)), Oregon (OR. Rev. Stat.
Sec. Sec. 86.245; 86.250 (2025)), Rhode Island (R.I. Gen. Laws
Sec. 19-9-2 (2025)), Utah (Utah Code Ann. Sec. 7-17-3 (2025)),
Vermont (Vt. Stat. Ann. tit. 8, Sec. 10404 (2025)), and Wisconsin
(Wis. Stat. Sec. Sec. 138.051; 138.052 (2025)).
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* * * * *
As such, these statutory schemes make clear that the flexibility of
banks to make the appropriate business judgment in structuring escrow
accounts and investing related funds is a core component of banks'
broad mortgage lending powers under applicable law. The OCC has broad
authority to prescribe regulations that would codify this flexibility.

III. Description of the Proposed Rule

The proposed rule would amend the OCC's real estate lending and
appraisals regulations applicable to national banks and its lending and
investment regulations applicable to Federal savings associations to
add a definition of ``escrow account,'' expressly codify banks' power
to establish and maintain escrow accounts, and to clarify that the
terms and conditions of escrow accounts, including the extent of any
compensation paid to customers, are business decisions to be made by
each bank. The OCC proposes to define ``escrow accounts'' used by
national banks as an account established in connection with a loan or
extension of credit secured by a lien on interest in real estate in
which the borrower places funds for the purpose of assuring payment of
taxes, insurance premiums, or other charges with respect to the
property. The OCC proposes to define ``escrow accounts'' in
substantially similarly terms in the context of Federal savings
associations.
The OCC also proposes to codify national banks' escrow powers,
including the flexibility such banks have as to how to organize and
manage escrow accounts. Specifically, the OCC proposes to codify that
(1) the powers of national banks include establishing and maintaining
escrow accounts in connection with real estate loans; and (2) the terms
and conditions of such escrow accounts (including, but not limited to,
the investment of escrowed funds, fees assessed for the use of such
accounts, and whether and to what extent interest or other compensation
is calculated and paid to customers whose funds are placed in the
escrow account) are business decisions to be made by each national bank
in its discretion. The OCC proposes to codify these powers in the
context of Federal savings associations in substantially similar
terms.\45\
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\45\ While Federal law vests banks with broad discretion, banks'
real estate lending operations may be subject to additional
requirements under Federal law, and any such operations should be
conducted pursuant to safe and sound banking principles and the
terms of any applicable agreement with the borrower.
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IV. Regulatory Analysis

Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (PRA) \46\ states that no
agency may conduct or sponsor, nor is the respondent required to
respond to, an information collection unless it displays a currently
valid Office of Management and Budget (OMB) control number. The OCC has
reviewed this proposed rule and determined that it does not create any
information collection or revise any existing collection of
information. Accordingly, no PRA submissions to OMB will be made with
respect to this proposed rule.
---------------------------------------------------------------------------

\46\ 44 U.S.C. 3501-3521.
---------------------------------------------------------------------------

Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) \47\ requires an agency to
consider the impact of its proposed rules on small entities. In
connection with a proposed rule, the RFA generally requires an agency
to prepare an Initial Regulatory Flexibility Analysis (IRFA) describing
the impact of the rule on small entities, unless the head of the

[[Page 61104]]

agency certifies that the proposed rule will not have a significant
economic impact on a substantial number of small entities and publishes
such certification along with a statement providing the factual basis
for such certification in the Federal Register. An IRFA must contain:
(1) a description of the reasons why action by the agency is being
considered; (2) a succinct statement of the objectives of, and legal
basis for, the proposed rule; (3) a description of and, where feasible,
an estimate of the number of small entities to which the proposed rule
will apply; (4) a description of the projected reporting,
recordkeeping, and other compliance requirements of the proposed rule,
including an estimate of the classes of small entities that will be
subject to the requirements and the type of professional skills
necessary for preparation of the report or record; (5) an
identification, to the extent practicable, of all relevant Federal
rules that may duplicate, overlap with, or conflict with the proposed
rule; and (6) a description of any significant alternatives to the
proposed rule that accomplish its stated objectives.
---------------------------------------------------------------------------

\47\ 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------

The OCC currently supervises 1,005 institutions (national banks,
Federal savings associations, and branches or agencies of foreign
banks),\48\ of which approximately 609 are small entities under the
RFA.\49\
---------------------------------------------------------------------------

\48\ Based on data accessed using the OCC's Financial
Institutions Data Retrieval System on November 20, 2025.
\49\ The OCC bases its estimate of the number of small entities
on the Small Business Administration's size thresholds for
commercial banks and savings institutions, and trust companies,
which are $850 million and $47 million, respectively. Consistent
with the General Principles of Affiliation, 13 CFR 121.103(a), the
OCC counted the assets of affiliated financial institutions when
determining if it should classify an OCC-supervised institution as a
small entity. The OCC used average quarterly assets in December 31,
2024 to determine size because a ``financial institution's assets
are determined by averaging the assets reported on its four
quarterly financial statements for the preceding year.'' See
footnote 8 of the U.S. Small Business Administration's Table of Size
Standards.
---------------------------------------------------------------------------

In general, the OCC classifies the economic impact on an individual
small entity as significant if the total estimated impact in one year
is greater than 5 percent of the small entity's total annual salaries
and benefits or greater than 2.5 percent of the small entity's total
non-interest expense. Furthermore, the OCC considers 5 percent or more
of OCC-supervised small entities to be a substantial number, and at
present, 30 OCC-supervised small entities would constitute a
substantial number. Since the proposed rule would affect all OCC-
supervised institutions, a substantial number of OCC-supervised small
entities would be impacted.
However, this proposed rulemaking imposes no new mandates, and thus
no direct costs, on affected OCC-supervised institutions. Therefore,
the OCC certifies that the proposed rule would not have a significant
economic impact on a substantial number of small entities.

Unfunded Mandates Reform Act

The OCC has analyzed the proposed rule under the factors in the
Unfunded Mandates Reform Act of 1995 (UMRA).\50\ Under this analysis,
the OCC considered whether the proposed rule includes a Federal mandate
that may result in the expenditure by State, local, and tribal
governments, in the aggregate, or by the private sector, of $100
million or more in any one year ($187 million as adjusted annually for
inflation). Pursuant to section 202 of the UMRA,\51\ if a proposed rule
meets this UMRA threshold, the OCC would prepare a written statement
that includes, among other things, a cost-benefit analysis of the
proposal.
---------------------------------------------------------------------------

\50\ 2 U.S.C. 1531 et seq.
\51\ 2 U.S.C. 1532.
---------------------------------------------------------------------------

This proposed rulemaking imposes no new mandates, and thus no
direct costs, on affected OCC-supervised institutions. Therefore, the
proposal would not require additional expenditure by any State, local,
or tribal governments, in the aggregate, or by the private sector of
$187 million or more in any one year.

Riegle Community Development and Regulatory Improvement Act of 1994

Pursuant to section 302(a) of the Riegle Community Development and
Regulatory Improvement Act (RCDRIA) of 1994,\52\ in determining the
effective date and administrative compliance requirements for new
regulations that impose additional reporting, disclosure, or other
requirements on insured depository institutions, the OCC must consider,
consistent with principles of safety and soundness and the public
interest, (1) any administrative burdens that the final rule would
place on depository institutions, including small depository
institutions and customers of depository institutions and (2) the
benefits of the final rule. This rulemaking would not impose any
reporting, disclosure, or other requirements on insured depository
institutions. Therefore, section 302(a) does not apply to this proposed
rule.
---------------------------------------------------------------------------

\52\ 12 U.S.C. 4802(a).
---------------------------------------------------------------------------

Providing Accountability Through Transparency Act of 2023

The Providing Accountability Through Transparency Act of 2023 \53\
requires that a notice of proposed rulemaking include the internet
address of a summary of not more than 100 words in length of a proposed
rule, in plain language, that shall be posted on the internet website
<a href="http://www.regulations.gov">www.regulations.gov</a>.
---------------------------------------------------------------------------

\53\ 5 U.S.C. 553(b)(4).
---------------------------------------------------------------------------

The OCC is issuing a notice of proposed rulemaking to codify
longstanding powers of national banks and Federal savings associations
(collectively, banks) to establish or maintain real estate lending
escrow accounts and to exercise flexibility in making business judgment
as to the terms and conditions of such accounts, including whether and
to what extent to offer any compensation or to assess any fees related
thereto.
The proposal and required summary can be found for the OCC at
<a href="https://www.regulations.gov">https://www.regulations.gov</a> by searching for Docket ID OCC-2025-0736
and <a href="https://occ.gov/topics/laws-and-regulations/occ-regulations/proposed-issuances/index-proposed-issuances.html">https://occ.gov/topics/laws-and-regulations/occ-regulations/proposed-issuances/index-proposed-issuances.html</a>.

Executive Order 12866 (as Amended)

Executive Order 12866, titled ``Regulatory Planning and Review,''
as amended, requires the Office of Information and Regulatory Affairs
(OIRA), OMB, to determine whether a proposed rule is a ``significant
regulatory action'' prior to the disclosure of the proposed rule to the
public. If OIRA finds the proposed rule to be a ``significant
regulatory action,'' Executive Order 12866 requires the OCC to conduct
a cost-benefit analysis of the proposed rule and for OIRA to conduct a
review of the proposed rule prior to publication in the Federal
Register. Executive Order 12866 defines a ``significant regulatory
action'' to mean a regulatory action that is likely to (1) have an
annual effect on the economy of $100 million or more or adversely
affect in a material way the economy, a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or State, local, or tribal governments or communities; (2)
create a serious inconsistency or otherwise interfere with an action
taken or planned by another agency; (3) materially alter the budgetary
impact of entitlements, grants, user fees, or loan programs or the
rights and obligations of recipients thereof; or (4) raise novel legal
or policy issues arising out of legal mandates, the President's
priorities, or

[[Page 61105]]

the principles set forth in Executive Order 12866.
OIRA has determined that this proposed rule is not a significant
regulatory action under section 3(f)(1) of Executive Order 12866 and,
therefore, is not subject to review under Executive Order 12866.

Executive Order 14192

Executive Order 14192, titled ``Unleashing Prosperity Through
Deregulation,'' requires that an agency, unless prohibited by law,
identify at least 10 existing regulations to be repealed when the
agency publicly proposes for notice and comment or otherwise
promulgates a new regulation with total costs greater than zero.
Executive Order 14192 further requires that new incremental costs
associated with new regulations shall, to the extent permitted by law,
be offset by the elimination of existing costs associated with at least
10 prior regulations. This proposed rule is a deregulatory action under
Executive Order 14192 because it would provide legal clarity (and
therefore a potential reduction in legal-related costs) on how banks
may structure the financing of their escrow operations and whether
(and, if so, to what extent) to offer any compensation to customers or
assess any fee.

List of Subjects

12 CFR Part 34

Accounting, Banks, Banking, Consumer protection, Credit, Mortgages,
National banks, Reporting and recordkeeping requirements, Savings
associations, Truth-in-lending.

12 CFR Part 160

Consumer protection, Investments, Manufactured homes, Mortgages,
Reporting and recordkeeping requirements, Savings associations,
Securities, Usury.

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Chapter I

Authority and Issuance

For the reasons set forth in the preamble, the OCC proposes to
amend parts 34 and 160 of chapter I of title 12 of the Code of Federal
Regulations as follows:

PART 34--REAL ESTATE LENDING AND APPRAISALS

Subpart A--General

0
1. The authority citation for part 34 continues to read as follows:

Authority: 12 U.S.C. 1 et seq., 25b, 29, 93a, 371, 1465, 1701j-
3, 1828(o), 3331 et seq., 5101 et seq., and 5412(b)(2)(B).

0
2. Amend Sec. 34.2 by:
0
a. Redesignating paragraph (b) and (c) as paragraphs (c) and (d),
respectively, and
0
b. Adding a new paragraph (b).
The revisions read as follows:

Sec. 34.2 Definitions.

* * * * *
(b) Escrow account means an account established in connection with
a loan or extension of credit secured by a lien on interest in real
estate in which the borrower places funds for the purpose of assuring
payment of taxes, insurance premiums, or other charges with respect to
the property.
* * * * *
0
3. Amend Sec. 34.3 by adding a new paragraph (d) to read as follows:

Sec. 34.3 General Rule

* * * * *
(d) National banks may establish or maintain escrow accounts. The
terms and conditions of any such escrow account, including the
investment of escrowed funds, fees assessed for the provision of such
accounts, or whether and to what extent interest or other compensation
is calculated and paid to customers whose funds are placed in the
escrow account, are business decisions to be made by each national bank
in its discretion.

PART 160--LENDING AND INVESTMENT

0
1. The authority citation for part 160 continues to read as follows:

Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1701j-3, 1828,
3803, 3806, 5412(b)(2)(B); 42 U.S.C. 4106.

0
2. Amend Sec. 160.3 by adding a new paragraph after the definition of
``credit card account'' as follows:

Sec. 160.3 Definitions.

* * * * *
Escrow account means an account established in connection with a
real estate loan in which the borrower places funds for the purpose of
assuring payment of taxes, insurance premiums, or other charges with
respect to the property.
* * * * *
0
3. Amend Sec. 160.30 by:
0
a. Designating the existing content as paragraph (a) and
0
b. Adding a new paragraph (b).
The revisions read as follows:

Sec. 160.30 General lending and investment powers of Federal savings
associations.

* * * * *
(b) Federal savings associations may establish or maintain escrow
accounts. The terms and conditions of any such escrow account,
including the investment of escrowed funds, fees assessed for the
provision of such accounts, or whether and to what extent interest or
other compensation is calculated and paid to customers whose funds are
placed in the escrow account, are business decisions to be made by each
Federal savings association in its discretion.

Jonathan V. Gould,
Comptroller of the Currency.
[FR Doc. 2025-23988 Filed 12-29-25; 8:45 am]
BILLING CODE 4810-33-P

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