Rule2026-10037
Preemption Determination: State Interest-on-Escrow Laws
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
May 19, 2026
Effective
June 18, 2026
Issuing agencies
Treasury DepartmentComptroller of the Currency
Abstract
The OCC is issuing a preemption determination concluding that Federal law preempts State laws that restrict OCC-regulated banks' 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. This preemption determination will provide much-needed clarity to banks and other stakeholders.
Full Text
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<title>Federal Register, Volume 91 Issue 96 (Tuesday, May 19, 2026)</title>
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[Federal Register Volume 91, Number 96 (Tuesday, May 19, 2026)]
[Rules and Regulations]
[Pages 29350-29358]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-10037]
[[Page 29349]]
Vol. 91
Tuesday,
No. 96
May 19, 2026
Part IV
Department of the Treasury
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Office of the Comptroller of the Currency
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12 CFR Part 34
Preemption Determination: State Interest-on-Escrow Laws; Final Rule
Federal Register / Vol. 91 , No. 96 / Tuesday, May 19, 2026 / Rules
and Regulations
[[Page 29350]]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 34
[Docket ID OCC-2025-0735]
RIN 1557-AF45
Preemption Determination: State Interest-on-Escrow Laws
AGENCY: Office of the Comptroller of the Currency (OCC), Treasury.
ACTION: Final rule.
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SUMMARY: The OCC is issuing a preemption determination concluding that
Federal law preempts State laws that restrict OCC-regulated banks'
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. This preemption
determination will provide much-needed clarity to banks and other
stakeholders.
DATES: This final rule is effective on June 18, 2026.
FOR FURTHER INFORMATION CONTACT: 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.
SUPPLEMENTARY INFORMATION:
I. Background
A. Introduction
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.\1\ 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.\2\ 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
multistate markets. This can expand access to financial services and
facilitate competition, leading to lower costs and increased consumer
choice. 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) \3\ and extending comparable Federal
preemption standards to State-chartered banks in some cases.\4\
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\1\ Cantero v. Bank of Am., N.A., 602 U.S. 205, 209-10 (2024).
\2\ See Barnett Bank v. Nelson, 517 U.S. 25 (1996); Marquette
Nat'l Bank of Minneapolis v. First of Omaha Serv. Corp., 439 U.S.
299, 314-15 (1978) (stating that when Congress enacted the National
Bank Act over 150 years ago, it ``intended to facilitate . . . a
`national banking system.' '' (quoting Cong. Globe, 38th Cong., 1st
Sess., 1451 (1864))); see also Easton v. Iowa, 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
States.''); id. 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].'').
\3\ See, e.g., 12 U.S.C. 25b.
\4\ See, e.g., 12 U.S.C. 1831a(j).
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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. The DOJ
and NEC also requested public comment on solutions to address such
effects, including whether such State laws are preempted by existing
Federal law.\5\ 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.
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\5\ Request for Information on State Laws Having Significant
Adverse Effects on the National Economy or Significant Adverse
Effects on Interstate Commerce, 90 FR 39427 (Aug. 15, 2025).
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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 restrict 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.\6\ State interest-on-escrow laws may
also restrict banks' flexibility to assess related fees.
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\6\ See, e.g., Comment from Bank Policy Institute (Sept. 15,
2025); Comment from American Bankers Association (Sept. 15, 2025).
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While the Supreme Court considered whether Federal law preempts
State interest-on-escrow laws in Cantero v. Bank of America, N.A., the
Court did not affirmatively decide the question but instead reaffirmed
the standard for conflict preemption established in Barnett Bank v.
Nelson and codified in Dodd-Frank.\7\ Following the Supreme Court's
Cantero decision, several circuits have considered the issue. The U.S
Court of Appeals for the Second Circuit concluded that the relevant
State interest-on-escrow law is preempted while the First and Ninth
Circuits reached the opposite result, creating a circuit split.\8\ In
light of ongoing litigation, there remains substantial uncertainty for
stakeholders who seek to rely on longstanding principles of Federal
preemption in the context of State interest-on-escrow laws. Moreover,
this litigation has introduced ambiguity regarding how to evaluate
National Bank Act preemption generally.\9\ To provide much-needed
clarity and reaffirm these longstanding preemption principles, on
December 30, 2025, the OCC proposed to issue a preemption determination
addressing State interest-on-escrow laws.\10\ The OCC is now finalizing
its preemption determination, alongside its concurrent rulemaking to
codify national banks' and Federal savings associations' longstanding
escrow account powers (Escrow Powers Rule).\11\
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\7\ 602 U.S. 205.
\8\ Compare Cantero v. Bank of Am., N.A., -- F.4th --, 2026 WL
1217467 (2d Cir. May 5, 2026) (Cantero Remand) with Conti v.
Citizens Bank, NA, 157 F.4th 10, 17-18 (1st Cir. 2025); Kivett v.
Flagstar Bank, FSB, 154 F.4th 640 (9th Cir. 2025); see also Lusnak
v. Bank of Am., N.A., 883 F.3d 1185 (9th Cir. 2018).
\9\ For purposes of this preemption determination, references to
the National Bank Act generally include 12 U.S.C. 371, which
authorizes national banks to engage in real estate lending, although
section 371 is part of the Federal Reserve Act.
\10\ Preemption Determination: State Interest-on-Escrow Laws, 90
FR 61093 (Dec. 30, 2025).
\11\ The OCC's final Escrow Powers Rule is published elsewhere
in this issue of the Federal Register.
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B. Proposed Preemption Determination and Comments
The OCC proposed to conclude that (1) the National Bank Act
preempts
[[Page 29351]]
section 5-601 of New York's General Obligations Law, the State's
interest-on-escrow law; (2) eleven other States have laws with
substantively equivalent terms; \12\ and (3) these substantively
equivalent State laws are also preempted.\13\ The OCC's proposal
reflected the agency's conclusion that State interest-on-escrow laws
prevent or significantly interfere with a national bank's exercise of
its Federally authorized powers, consistent with Dodd-Frank and
relevant Supreme Court precedent. The OCC also explained that its
proposed preemption determination would complement the OCC's concurrent
proposed Escrow Powers Rule,\14\ stating that if the concurrent Rule
were finalized, State interest-on-escrow laws would directly conflict
with the Federal power addressed therein and would thus be preempted.
The OCC received approximately 20 comments on its proposed preemption
determination from a variety of stakeholders, including banks, trade
associations, members of Congress, consumer groups, academics, State
representatives, and individuals.\15\
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\12\ The OCC also requested comment on whether any additional
State laws have substantively equivalent terms.
\13\ The analysis in the proposed preemption determination
focused on national bank powers and preemption of State interest-on-
escrow laws by the National Bank Act. However, the Home Owners' Loan
Act of 1933 (HOLA) directs courts to apply ``the laws and legal
standards applicable to national banks'' in determining whether
Federal law preempts State regulation of Federal savings
associations. 12 U.S.C. 1465(a). As such, the OCC's proposed and
final analyses apply equally to Federal savings associations and
preemption by the HOLA.
\14\ Real Estate Lending Escrow Accounts, 90 FR 61099 (Dec. 30,
2025).
\15\ Several commenters requested that the OCC extend the
comment period, which the OCC declined to do. The OCC determined
that the original comment period provided a meaningful opportunity
to comment consistent with the requirements of the Administrative
Procedure Act and that its preemption determination should be
finalized as expeditiously as possible. The volume and range of
comments the OCC received on the proposal is consistent with the
OCC's conclusion that the comment period was sufficient.
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Commenters who supported the proposal stated that it would, among
other things, (1) be consistent with Federal law, which already
preempts State interest-on-escrow laws; (2) provide helpful clarity;
(3) support uniformity; and (4) reduce operational complexity. They
also observed that these State laws can increase mortgage prices and
decrease mortgage availability, especially for lower-income
borrowers.\16\ These commenters also noted that the proposal would
support a stable and accessible mortgage market.
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\16\ For example, one commenter provided a case study of Iowa's
repeal of its mandatory interest-on-escrow requirement, which
concludes that the majority of interest payments pre-repeal were
passed on to consumers via higher origination fees, including at a
rate of over 100 percent for lower-income borrowers, and that
origination fees fell substantially post-repeal, as compared to
other similarly situated States.
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Commenters who opposed to the proposal raised a variety of legal
and policy objections, including that the preemption determination (1)
incorrectly applies the Barnett standard; (2) reflects an inaccurate
reading of one or more of the Barnett antecedent cases cited in
Cantero; and (3) does not comply with the requirements of 12 U.S.C.
25b. These commenters also raised concerns regarding the effects of the
proposal, including on competitive equality between different types of
mortgage lenders, mortgage affordability, consumer protection,
fairness, and litigation risk for banks that fail to comply with these
State laws.\17\ Key themes raised by commenters are addressed below.
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\17\ The OCC has carefully considered the policy issues raised
by these commenters and believes that this rule, in conjunction with
the agency's concurrent Escrow Powers Rule, is consistent with
applicable law and provides important clarity to stakeholders. The
OCC also believes that there is a robust Federal framework to
protect consumers. While these rules are likely to impact certain
mortgage borrowers, the flexibility that they provide to
institutions (including the flexibility to reduce borrower costs in
other areas in lieu of providing minimal interest on escrow
accounts) will help to support efficient and effective mortgage
lending, which ultimately inures to the benefit of U.S. consumers
and the economy.
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Preemption standard. Many commenters provided their views on the
Barnett standard and its application to State interest-on-escrow laws.
For example, several commenters asserted that these State laws are not
preempted, that the OCC has not properly understood and applied
Barnett's antecedent cases, and that the OCC has not demonstrated that
compliance with State interest-on-escrow laws would result in net
losses related to escrow account administration.\18\ Other commenters
agreed with the OCC conclusions on preemption but suggested some
changes, including recommending that the OCC emphasize that the Barnett
standard does not require financial harm. The OCC's preemption
determination reflects the agency's application of the Barnett standard
based on its careful review of Dodd-Frank and relevant precedent. This
standard does not require the OCC or a national bank to demonstrate
that compliance with State interest-on-escrow laws would cause
financial harm. Requiring such a showing would make application of the
Barnett standard variable, unpredictable, and ultimately unworkable
because it would turn on multiple changing factors, such as bank size
and activity, economic conditions, and geography. There is no support
for this contention in Cantero, Barnett, or Barnett's antecedent cases.
Rather, preemption is fundamentally a question of law that includes
consideration of Barnett and its antecedent cases, as well as ``the
text and structure of the laws, comparison to other precedents, and
common sense.'' \19\
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\18\ Some commenters asserted that 15 U.S.C. 1639d, which
addresses escrow account requirements for certain mortgages, evinces
broad congressional intent to require national banks to comply with
State interest-on-escrow laws, including for escrow accounts outside
the scope of the statute. The OCC disagrees with these commenters.
Section 1639d is not limited to national banks but rather applies to
a wide variety of creditors, including many that are State
regulated. Section 1639d's references to State law are thus best
understood to reflect Congress's intent to ensure that State law
continues to apply to other creditors. Furthermore, Congress
simultaneously enshrined the Barnett standard in 12 U.S.C. 25b, and
nothing in section 1639d supports the contention that the same
Congress intended to obliquely overturn or modify this standard as
applied to national banks' escrow accounts.
\19\ Cantero, 602 U.S. at 220 n.3; see also Cantero Remand, 2026
WL 1217467, at *6, n.5.
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Field preemption. Some commenters viewed the OCC preemption
determination as applying a field preemption standard to State
interest-on-escrow laws, which Congress expressly rejected in Dodd-
Frank. Contrary to these commenters' assertions, this preemption
determination is based on a case-by-case application of the National
Bank Act's conflict preemption standard, which was articulated by the
Supreme Court in Barnett, codified in Dodd-Frank, and reaffirmed by the
Supreme Court in Cantero. It addresses State interest-on-escrow laws
specifically and is based on the OCC's conclusion that these laws
prevent or significantly interfere with a national bank's exercise of
its Federally authorized powers.
Preemption precedent generally. Some commenters asserted that the
OCC cannot rely on certain Supreme Court precedents that were not cited
in Cantero or on pre-Cantero decisions issued by lower courts. The OCC
continues to believe that it has appropriately cited these cases. More
generally, preemption precedent that applies the Barnett standard
continues to be good law, regardless of whether the precedent pre-dates
Cantero. Cantero itself emphasized the role of precedent in analyzing
National Bank Act preemption, and there is no basis to conclude that it
intended to silently overturn decades of well-developed case
[[Page 29352]]
law applying Barnett.\20\ Moreover, many of the decisions that
commenters objected to have been cited in relevant Supreme Court
precedent or other recent lower court decisions.
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\20\ Id. (stating that Barnett and its antecedents were based on
consideration of ``comparison to other precedents''); see also id.
at 215-16 (``[C]ourts addressing preemption questions in this
context must . . . take account of those prior decisions of this
Court and similar precedents.'').
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Interest-on-escrow precedent. Several commenters asserted that the
OCC's preemption determination ignores or is otherwise inconsistent
with decisions in the First and Ninth Circuits addressing whether the
National Bank Act preempts State interest-on-escrow laws. As explained
throughout this preemption determination, the OCC believes its analysis
and conclusions are fully consistent with Supreme Court precedent.
Moreover, the analysis and conclusions are consistent with the First
Circuit's decision, which concluded that State laws are preempted where
there is a direct or obvious conflict with State law.\21\ In addition,
following the close of the comment period, the Second Circuit concluded
that the National Bank Act preempts New York's interest-on-escrow law.
The OCC's proposed analysis is consistent with the Second Circuit's
decision, which cited both the OCC's proposed preemption determination
and proposed Escrow Powers Rule.
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\21\ See Conti, 157 F.4th at 17-18. While this preemption
determination is consistent with this standard, the OCC also
emphasizes that the National Bank Act preempts State laws that
prevent or significantly interfere with a national bank's exercise
of its Federally authorized powers, regardless of whether those
powers are specifically enumerated or incidental; enumerated powers
do not have some greater preemptive effect than those that are
incidental. See Barnett, 517 U.S. at 32 (concluding that ``grants of
both enumerated and incidental `powers' to national banks . . .
[are] not normally limited by, but rather ordinarily pre-empt[],
contrary state law''); see also Cantero, 602 U.S. at 215 (quoting
this language from Barnett); Watters v. Wachovia Bank, N.A., 550
U.S. 1, 19, 20 (2007) (``[W]hen state prescriptions significantly
impair the exercise of authority, enumerated or incidental under the
[National Bank Act], the State's regulations must give way.''),
superseded by statute on other grounds, 12 U.S.C. 25b.
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Compliance with procedural requirements of Dodd-Frank. Multiple
commenters addressed the OCC's compliance with the procedural
requirements of Dodd-Frank (codified at 12 U.S.C. 25b). For example,
some asserted that the OCC did not comply with the requirement to act
on a case-by-case basis, including because it did not engage in a
sufficiently particularized assessment of the relevant State laws.
Others recommended that the OCC clarify the meaning of case-by-case.
Commenters also asserted that the OCC's preemption determination was
not supported by substantial evidence. Some also suggested that the OCC
could strengthen its analysis by including more data. As the proposal
and this final determination make clear, the OCC has complied with the
requirements of section 25b. National Bank Act preemption is
fundamentally a question of law, and this final preemption
determination includes ample analysis to support its conclusion.\22\
The OCC has added more detail to its discussion of these statutory
requirements where appropriate to provide clarity.
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\22\ Another commenter alleged that the OCC failed to provide
technical studies and data supporting its proposed preemption
determination. Relevant caselaw requires that agencies disclose
technical studies, when such studies form the basis of a proposed
rule, in order to give the public adequate opportunity to provide
comment. See Owner-Operator Indep. Drivers Ass'n, Inc. v. Fed. Motor
Carrier Safety Admin., 494 F.3d 188, 199 (D.C. Cir. 2007) (cited by
the commenter). The OCC has not relied on any technical studies or
data for its analysis in this preemption determination, nor is it
required to do so.
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Comments on regulatory text. The OCC also received comments
recommending specific changes to its proposed regulatory text, which
would have provided: ``The OCC has determined that federal law preempts
state laws that eliminate a national bank's or Federal savings
association's flexibility to decide whether and to what extent to pay
interest or other compensation on funds placed in escrow accounts or
assess fees for such accounts, including'' the twelve listed State
interest-on-escrow laws and any other State law with substantively
equivalent terms. First, commenters requested that the OCC revise its
preemption determination to clarify that it applies to State interest-
on-escrow laws that ``restrict'' flexibility, not only those that
``eliminate'' it. The OCC agrees and has amended its final preemption
determination accordingly. Consistent with the analysis in the OCC's
proposed preemption determination and the OCC's concurrently proposed
Escrow Powers Rule, a State interest-on-escrow law does not need to
completely remove all flexibility to be preempted.
Second, commenters recommended that the OCC expand the preemption
determination to include the interest-on-escrow laws in Guam and the
U.S. Virgin Islands. The OCC agrees that these interest-on-escrow laws
both have substantively equivalent terms to New York's interest-on-
escrow law, and the OCC has incorporated these laws into its preemption
determination.\23\ Third, some commenters raised concerns with the
proposed inclusion of language providing that any other State law with
substantively equivalent terms is preempted. The OCC included this
placeholder language in its proposal to reflect the possibility that
commenters might identify additional State interest-on-escrow laws for
potential inclusion in the final preemption determination, a topic on
which the OCC specifically requested comment. Now that commenters have
addressed this issue, the placeholder language is no longer necessary.
The OCC has removed it from the final regulatory text.\24\
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\23\ For purposes of this preemption determination, the term
``State'' includes Guam and the U.S. Virgin Islands.
\24\ The OCC notes, however, that the same preemption standard
and analysis would apply to other State interest-on-escrow laws that
have substantively equivalent terms even if they are not
specifically incorporated into this final preemption determination.
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Additional State laws. Commenters also recommended that the OCC
expand the scope of its proposed preemption determination to address
State laws that impose other kinds of requirements on escrow accounts
or require the payment of interest on funds held by national banks in
other similar circumstances. The OCC declines to expand the scope of
this preemption determination beyond State interest-on-escrow laws,
which are the focus of this issuance. However, the OCC will continue to
assess whether to issue additional preemption determinations, including
with respect to the other State laws highlighted by commenters, as
appropriate.
After carefully considering these comments, the OCC is issuing this
final preemption determination, which concludes that (1) the National
Bank Act preempts section 5-601 of New York's General Obligations Law,
the State's interest-on-escrow law; (2) thirteen other States have laws
with substantively equivalent terms; and (3) these substantively
equivalent State laws are also preempted.\25\ The OCC has made
clarifying changes to this final preemption determination as
appropriate.
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\25\ As noted above, the Second Circuit recently issued a
decision concluding that Federal law preempts New York's interest-
on-escrow law. See Cantero Remand, 2026 WL 1217467. Nonetheless, the
OCC has decided to retain this structure, including the discussion
and focus on the New York law, in this final preemption
determination to maintain consistency with the proposal and clarity.
Regardless of this focus, however, the preemption analysis set forth
herein applies equally to the thirteen other laws with substantively
equivalent terms.
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II. Final Preemption Determination
A. New York Interest-on-Escrow Law
Section 5-601 of New York's General Obligations Law requires
``mortgage investing institutions'' to pay
[[Page 29353]]
``dividends or interest at a rate of not less than two per centum per
year . . . or a rate prescribed by the [New York] superintendent of
financial services'' on escrow account balances. This statutory
obligation applies whenever the institution ``maintains an escrow
account pursuant to any agreement executed in connection with a
mortgage on any one to six family residence occupied by the owner or on
any property owned by a cooperative apartment corporation'' located in
New York.\26\ This New York law also requires the institution to credit
the interest to the escrow account on a quarterly basis, and it
generally prohibits the assessment of a service charge in connection
with maintaining an escrow account.\27\ Accordingly, this New York
interest-on-escrow law purports to require national banks to pay a
specific amount of interest on funds placed in an escrow account
maintained in connection with a covered mortgage and to prohibit them
from charging related fees except in limited circumstances.
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\26\ N.Y. Gen. Oblig. Law 5-601.
\27\ Id.
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B. Standard for National Bank Act Preemption
The U.S. Constitution provides that Federal law is the supreme law
of the land and contrary State law is preempted.\28\ In applying this
principle, the Supreme Court has identified several ways in which
Federal law may preempt State law, including when there is a
conflict.\29\ In Barnett, the Supreme Court clarified the standard for
conflict preemption in the national banking context, holding that State
law is preempted when it prevents or significantly interferes with a
national bank's exercise of its Federal powers.\30\ The Barnett Court
also stated that Federal grants of authority in the national banking
context are ``not normally limited by, but rather ordinarily pre-
empt[], contrary state law.'' \31\
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\28\ U.S. Const. art. VI, cl. 2 (``This Constitution, and the
Laws of the United States which shall be made in Pursuance thereof;
and all Treaties made, or which shall be made, under the Authority
of the United States, shall be the supreme Law of the Land; and the
Judges in every State shall be bound thereby, any Thing in the
Constitution or Laws of any State to the Contrary
notwithstanding.'').
\29\ See Barnett, 517 U.S. at 25.
\30\ Id. at 33; see 12 U.S.C. 25b.
\31\ Barnett, 517 U.S. at 32. As this language in Barnett
reflects, there is no presumption against preemption in the context
of National Bank Act preemption. See, e.g., Bank of Am. v. City &
County of San Francisco, 309 F.3d 551, 558 (9th Cir. 2002).
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In 2024, in Cantero, the Supreme Court reaffirmed the Barnett
standard and explained that its application must be based on ``a
practical assessment of the nature and degree of the interference
caused by a state law.'' \32\ This assessment may include consideration
of Barnett and its antecedents and be based on ``the text and structure
of the laws, comparison to other precedents, and common sense.'' \33\
In addition to Barnett, the Cantero Court specifically discussed six
antecedent cases, noting that they ``furnish content'' regarding the
Barnett standard.\34\
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\32\ Cantero, 602 U.S. at 219-20.
\33\ Id. at 219-21 and n.3.
\34\ Id. at 219-20 (citing Fid. Fed. Sav. & Loan Ass'n v. de la
Cuesta, 458 U.S. 141 (1982); Franklin Nat'l Bank of Franklin Square
v. New York, 347 U.S. 373 (1954); First Nat'l Bank of San Jose v.
California, 262 U.S. 366 (1923); Anderson Nat'l Bank v. Luckett, 321
U.S. 233 (1944); McClellan v. Chipman, 164 U.S. 347 (1896); First
Nat'l Bank v. Kentucky, 76 U.S. 353 (1869)). The Court also stated
that ``courts addressing preemption questions in this context must
do as Barnett Bank did and likewise take account of those prior
decisions of this Court and similar precedents.'' Id. at 215-16.
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In Barnett, the Supreme Court evaluated whether the National Bank
Act preempted a Florida law that prohibited national banks from selling
insurance. Federal law permitted national banks to sell insurance in
small towns. Holding that this authority vested national banks with ``a
broad, not a limited'' power and was ``without relevant
qualification,'' the Court concluded that the Federal law preempted the
State law.\35\
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\35\ Barnett, 517 U.S. at 32.
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In Fidelity Federal Savings & Loan Association v. de la Cuesta, the
Supreme Court considered a California law that limited when a Federal
savings and loan association could exercise a due-on-sale clause. A
Federal regulation recognized the power of Federal savings and loans to
include these clauses in mortgage contracts and specifically provided
these institutions with the flexibility to decide when to exercise
them. Finding that the State law limitations would interfere with this
flexibility, which was critical to the Federal scheme, the Fidelity
Court concluded that the State law was preempted.\36\
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\36\ 458 U.S. at 159.
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In Franklin National Bank of Franklin Square v. New York, the
Supreme Court considered a New York law that prohibited banks from
using the word ``saving'' or its variants in advertising and
business.\37\ Federal law granted national banks the express power to
accept savings deposits and the incidental power to advertise. Because
the State law interfered with national banks' ability to exercise these
powers ``effectively'' and ``efficiently,'' it was preempted.\38\
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\37\ 347 U.S. at 373.
\38\ Cantero, 602 U.S. at 216 (discussing Franklin). The Supreme
Court's preemption analysis in Franklin did not turn on a
distinction between the express Federal power and the incidental
Federal power.
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In First National Bank of San Jose v. California, the Supreme Court
considered a California dormant account law that included an expedited
process for escheating deposits to the State.\39\ The Court found that
the State law qualified national banks' deposit-taking authority in an
``unusual'' way. As such, the Court held that the State law was
preempted.
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\39\ 262 U.S. at 366-67, 370.
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The Supreme Court has also recognized that when a State law does
not prevent or significantly interfere with the national bank's
exercise of its powers, it is not preempted.\40\ For example, in
Anderson National Bank v. Luckett, the Supreme Court contrasted the
California dormant account law addressed in San Jose with a more
conventional dormant account law in Kentucky. The Supreme Court found
that the Kentucky law was not preempted, including because it applied a
rule that was as ``old as the common law itself.'' \41\ The Anderson
Supreme Court noted that the State law addressed the transfer and
devolution of property in the State,\42\ a kind of generally applicable
State ``infrastructure'' law that is typically not preempted.\43\
---------------------------------------------------------------------------
\40\ Barnett, 517 U.S. at 33-34.
\41\ 321 U.S. at 251-52.
\42\ Id. at 248.
\43\ See 12 CFR 7.4007(c)(5), 7.4008(e)(5), and 34.4(b)(6). The
differing outcomes in San Jose and Anderson, which both addressed
State dormant account laws, demonstrate that even generally
applicable State infrastructure laws may be preempted if they
prevent or significantly interfere with a national bank's exercise
of its Federally authorized powers.
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In McClellan v. Chipman, the Supreme Court considered a
Massachusetts law that prohibited certain transfers of property. The
Court's decision recognized that national banks are subject to general
State laws in their ``dealings and contracts,'' unless those laws
expressly conflict with Federal law, frustrate the purpose of national
banks, or impair their ability to efficiently exercise their Federally
authorized powers. Finding that the Massachusetts law was generally
applicable and national banks were subject to no greater conditions and
restrictions than other Massachusetts citizens, the McClellan Court
held that the State law was not preempted.\44\ Similarly, in First
National Bank v. Kentucky, the Supreme Court held that a Kentucky tax
law was not preempted,
[[Page 29354]]
noting that national banks are generally subject to State laws on
contracts, the acquisition and transfer of property, and the right to
collect and be sued for debts.\45\
---------------------------------------------------------------------------
\44\ 164 U.S. at 357-61.
\45\ 76 U.S. at 262-63. The Court also stated that the State law
``in no manner hinder[ed]'' the national bank and imposed ``no
greater interference with the functions of the bank than any other
legal proceeding.'' Id.
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While the Supreme Court precedent discussed above does ``not
purport to establish a clear line to demarcate'' which State laws are
and are not preempted by Federal law, they offer a lens through which
the standard comes into focus.\46\ Specifically, these cases
demonstrate that, at a minimum, a State law prevents or significantly
interferes with a Federal power when it interferes with critical
flexibility granted to a national bank under Federal law, interferes
with a national bank's effectiveness or efficiency in exercising its
Federal power, or qualifies a Federal power in an unusual way.\47\ In
contrast, as discussed above, generally applicable infrastructure laws
typically apply to national banks, unless they prevent or significantly
interfere with a national bank's exercise of its Federally authorized
powers.
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\46\ Cantero, 602 U.S. at 215.
\47\ As the First Circuit recently observed, certain State laws,
such as those that interfere with flexibility that Federal law
specifically grants to banks, can create an ``obvious'' or direct
conflict that results in preemption. Conti, 157 F.4th at 17-18; see
supra n.21.
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C. 12 U.S.C. 25b and State Consumer Financial Laws
As part of Dodd-Frank, Congress addressed National Bank Act
preemption, primarily with respect to ``State consumer financial
laws,'' \48\ such as State interest-on-escrow laws.\49\ In particular,
section 25b codified the Barnett standard,\50\ expressly recognized the
OCC's role in preemption, and established procedural requirements for
OCC ``preemption determinations.'' \51\
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\48\ A State consumer financial law is ``a State law that does
not directly or indirectly discriminate against national banks and
that directly and specifically regulates the manner, content, or
terms and conditions of any financial transaction (as may be
authorized for national banks to engage in), or any account related
thereto, with respect to a consumer.'' 12 U.S.C. 25b(a)(2).
\49\ See Cantero, 602 U.S. at 213 (noting that Dodd-Frank
established the controlling preemption standard for State consumer
financial laws ``like New York's interest-on-escrow law'').
\50\ This codification did not create a new standard but rather
incorporated the conflict preemption standard reflected in Barnett.
Id. at 214 n.2 (``Dodd-Frank adopted Barnett Bank, and . . . Barnett
Bank was also the governing preemption standard before Dodd-
Frank.''); see also OCC, Interpretive Letter No. 1173 (Dec. 18,
2020); Office of Thrift Supervision Integration; Dodd-Frank Act
Implementation, 76 FR 43549, 43555 (July 21, 2011). Section 25b also
includes two other preemption standards for State consumer financial
laws: when the State law has a discriminatory effect and when it is
preempted by other Federal law (including 12 U.S.C. 371). 12 U.S.C.
25b(b)(1)(A) and (C).
\51\ A ``preemption determination'' refers to an OCC regulation
or order that concludes that a State consumer financial law is
preempted in accordance with the Barnett standard under section
25b(b)(1)(B).
---------------------------------------------------------------------------
Specifically, Dodd-Frank provides that the OCC may issue a
preemption determination by regulation or order on a case-by-case
basis, which means that the determination may address the impact of (1)
a particular State consumer financial law; and (2) the law of any other
State with substantively equivalent terms. When making a determination
that the law of another State has substantively equivalent terms, the
OCC must first consult with the Consumer Financial Protection Bureau
(CFPB) and take its views into account. This provision makes clear that
the OCC can address multiple State laws in one preemption determination
and is not required to engage in a separate law-by-law preemption
analysis. Moreover, by its express language, section 25b does not
require these State laws to have identical terms, only terms that are
substantively equivalent.
In addition, Dodd-Frank requires that ``substantial evidence, made
on the record of the proceeding, supports the specific finding
regarding the preemption . . . in accordance with'' Barnett.\52\
Consistent with the Supreme Court's directive in Cantero, a finding of
preemption under Barnett is based on an assessment of that decision and
its antecedent cases, as well as ``the text and structure of the laws,
comparison to other precedents, and common sense.'' \53\ The analysis
is ``broadly legal and not factual in nature'' \54\ and does not
require ``evidence of a law's real-world effects.'' \55\
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\52\ 12 U.S.C. 25b(c). Dodd-Frank also requires the OCC to (1)
publish a list of preemption determinations then in effect at least
quarterly; and (2) conduct periodic reviews of each determination
that Federal law preempts a State consumer financial law. See 12
U.S.C. 25b(d), (g). The OCC will comply with these requirements at
the appropriate time. In addition, 12 U.S.C. 43 imposes procedural
requirements on the OCC when it takes certain preemption actions,
including requiring the OCC to provide notice of the issue in the
Federal Register and give interested parties at least 30 days to
submit written comments.
\53\ Cantero, 602 U.S. at 220 n.3.
\54\ Ill. Bankers Ass'n v. Raoul, -FEFF;-FEFF;- F. Supp. 3d -
FEFF;-FEFF;-, 2026 WL 371196, at *5 (N.D. Ill. Feb. 10, 2026),
vacated on other grounds, 2026 WL 1291987, at *1 (7th Cir. May 8,
2026).
\55\ Cantero Remand, 2026 WL 1217467, at *6, n.5 (stating that
none of the Supreme Court's preemption cases consider ``evidence of
a state law's `real-world consequences upon banks' '').
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D. Analysis of New York's Interest-on-Escrow Law
National banks are ``necessarily subject to the paramount authority
of the United States.'' \56\ At the center of this system is a Federal
framework for regulation and supervision that authorizes national banks
to engage in the business of banking and ensures that they operate in a
safe and sound manner, comply with applicable law, provide fair access
to financial services, and treat customers fairly.\57\
---------------------------------------------------------------------------
\56\ Davis v. Elmira Sav. Bank, 161 U.S. 275, 283 (1896).
\57\ Congress expressly charged the OCC with ensuring that these
goals are met. 12 U.S.C. 1(a).
---------------------------------------------------------------------------
Real estate lending has been core to the business of national banks
for over 100 years. Congress has specifically authorized national banks
to ``make, arrange, purchase or sell loans or extensions of credit
secured by liens on interests in real estate, subject to [12 U.S.C.
1828(o)] and such restrictions and requirements as the Comptroller of
the Currency may prescribe by regulation or order.'' \58\ Much like the
Federal power addressed in Barnett, national banks' real estate lending
authority is a ``broad, not a limited'' authorization that is ``without
relevant qualification.'' \59\ As such, it is a grant of authority
``not normally limited by, but rather ordinarily pre-empting, contrary
state law.'' \60\
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\58\ 12 U.S.C. 371; see also 12 U.S.C. 24(Seventh) (vesting
banks with additional powers). Congress has progressively expanded
national banks' real estate lending powers under section 371.
Initially limited to loans on farm land (sec. 24, Pub. L. 63-43, 38
Stat. 251, 273 (1913)), Congress amended the law to include limited
general real estate lending in 1916 (Pub. L. 64-270, 39 Stat. 752,
754-55 (1916)) and, through the years, removed all limits and
conditions on real estate lending other than those prescribed by the
Comptroller (sec. 403, Pub. L. 97-320, 96 Stat. 1469, 1510-11
(1982)). The statute's grant of authority to the OCC to establish
applicable restrictions and requirements does not reflect
Congressional intent to limit this power.
\59\ Barnett, 517 U.S. at 32; see also Cantero, 602 U.S. at 215.
\60\ Barnett, 517 U.S. at 32.
---------------------------------------------------------------------------
Frequently, national banks offer or require borrowers to establish
escrow accounts when they make real estate loans. These escrow accounts
serve a variety of purposes, including protecting the priority of the
bank's security interest in the property that collateralizes the loan,
maintaining appropriate insurance on the property, and simplifying
expenses and budgeting for the borrower.\61\ When a national bank
establishes and maintains an escrow account, it makes a variety of
decisions that collectively allow the bank to balance these costs and
risks with the benefits of such accounts.
[[Page 29355]]
Flexibility in structuring the terms and conditions of such accounts is
critical to help ensure that banks can effectively and efficiently use
escrow accounts, which are a crucial risk mitigation tool that supports
safe and sound lending. The OCC has long recognized this principle,
including in its Interagency Guidelines for Real Estate Lending.\62\
These Guidelines 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. However, the Guidelines give banks
substantial flexibility in how they address these topics.
---------------------------------------------------------------------------
\61\ Cantero, 602 U.S. at 210-11.
\62\ See 12 CFR part 34 appendix A to subpart D.
---------------------------------------------------------------------------
Further, the OCC is concurrently issuing its final Escrow Powers
Rule to codify national banks' longstanding authority to establish and
maintain escrow accounts and their flexibility to make informed
business decisions about how to effectively and efficiently set the
terms and conditions of their escrow accounts. Specifically, the Escrow
Powers Rule clarifies that 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. The Escrow Powers Rule thus makes
express national banks' broad, federally authorized power to ``offer
and set the terms of mortgage-escrow accounts.'' \63\
---------------------------------------------------------------------------
\63\ See Cantero Remand, 2026 WL 1217467, at *1.
---------------------------------------------------------------------------
Contrary to the flexibility granted by Federal law, New York's
interest-on-escrow law dictates a minimum interest a national bank must
pay on funds held in escrow accounts and generally prohibits the
national bank from assessing related service charges, regardless of
whether paying this interest or assessing such charges is consistent
with the bank's business judgment. As such, the nature and degree of
interference with a national bank's Federally authorized powers caused
by the New York interest-on-escrow law is ``more akin'' to the
interference identified in at least three of the antecedent cases where
the Court found preemption: Barnett, Franklin, and Fidelity.\64\
---------------------------------------------------------------------------
\64\ Cantero Remand, 2026 WL 1217467, at *9 (``New York's
interest-on-escrow law is preempted because it is `akin to' the laws
the Supreme Court has struck down for significantly interfering with
a national bank's powers.'') (citations omitted); Conti, 157 F.4th
at 15, 17-18 (categorizing each of the laws or regulations at issue
in Barnett, Franklin, and Fidelity as creating a direct or obvious
conflict). Moreover, New York's interest-on-escrow law is not
analogous to the cases where the Court did not find preemption:
Anderson, Kentucky, and McClellan. As discussed above, these cases
focus on State laws of general applicability. Accordingly, these
cases have limited relevance to State interest-on-escrow laws. See
Conti, 157 F.4th at 20 (describing State interest-on-escrow laws as
``banking-specific''); Cantero Remand, 2026 WL 1217467, at *7 (``New
York's law is not generally applicable. . . . That characteristic
differentiates it from the non-preempted laws in McClellan and
Anderson.'').
---------------------------------------------------------------------------
Fidelity is particularly apt. In that case, a Federal regulation
provided each Federal savings and loan association with authority to
exercise contractual due-on-sale clauses ``at its option'' and stated
that the exercise of such option was ``exclusively governed by the
terms of the loan contract.'' \65\ A California State law forbade a
Federal savings and loan association from exercising due-on-sale
clauses at its option and ``deprived the lender of the `flexibility'''
given to it by Federal law.\66\ As such, the Federal regulation
preempted the State law.\67\
---------------------------------------------------------------------------
\65\ Fid. Fed. Sav. & Loan Ass'n, 458 U.S. at 146-47 (quoting 12
CFR 545.8-3(f) (1982)).
\66\ Id. at 155 (quoting 12 CFR 556.9(f)(1) (1982)).
\67\ Id.; Conti, 157 F.4th at 28; see also Cantero, 602 U.S. at
217 (observing that ``[t]he California law thus interfered with `the
flexibility given' to the savings and loan by'' the regulation).
---------------------------------------------------------------------------
Similarly, in Barnett, the State law forbade banks from engaging in
a power that Congress had expressly authorized (selling insurance in
small towns), and in Franklin, the State law prohibited banks from
using the word ``savings'' in advertising, even though Congress had
specifically authorized banks to receive ``savings deposits.'' \68\ In
both cases, these State laws conflicted with Federal law and were
preempted. Other Federal courts have repeatedly reached similar
conclusions where State law would prohibit national banks from
exercising the flexibility granted to them by Federal law, including as
codified in OCC regulations addressing both enumerated powers and
powers that are part of or incidental to the business of banking.\69\
---------------------------------------------------------------------------
\68\ See Franklin, 347 U.S. at 374 (emphasis added).
\69\ See, e.g., Gutierrez v. Wells Fargo Bank, NA, 704 F.3d 712,
723, 730 (9th Cir. 2012) (holding that ``[b]oth the `business of
banking' and the power to `receiv[e] deposits' necessarily include
the power to post transactions'' and that a State law purporting
``to dictate a national bank's order of posting'' is preempted
(second alteration in original) (quoting 12 U.S.C. 24)), abrogated
in part on other grounds by TransUnion LLC v. Ramirez, 594 U.S. 413
(2021); Baptista v. JPMorgan Chase Bank, N.A., 640 F.3d 1194, 1198
(11th Cir. 2011) (``The state's prohibition on charging fees to non-
account-holders, which reduces the bank's fee options by 50%, is in
substantial conflict with federal authorization to charge such
fees.''); Monroe Retail, Inc. v. RBS Citizens, N.A., 589 F.3d 274,
284 (6th Cir. 2009) (holding that the State law would ``
`significantly interfere' not only with the [b]anks' ability to
collect and set their service fees, but also with the [b]anks'
federal authority to complete other transactions and balance their
accounts'' (citation omitted)); Wells Fargo Bank of Tex. NA v.
James, 321 F.3d 488, 495 (5th Cir. 2003) (``[N]ational banks are
authorized by federal regulation 12 CFR 7.4002(a) to charge non-
account holding payees a check-cashing fee. Thus, because [the State
law] prohibits the exercise of a power which federal law expressly
grants the national banks, [it] is in irreconcilable conflict with
the federal regulatory scheme, and it is preempted by operation of
the Supremacy Clause.''); Bank of Am. v. City & County of San
Francisco, 309 F.3d at 564 (``[T]he National Bank Act and OCC
regulations together preempt conflicting state limitations on the
authority of national banks to collect fees for provision of deposit
and lending-related electronic services.'').
---------------------------------------------------------------------------
Moreover, while the State law at issue in Franklin prohibited the
use of a particular congressionally recognized term, the decision
reflects a more holistic assessment of the nature and degree of
interference caused by the State law based on the view that national
banks must be permitted to effectively and efficiently exercise the
full range of powers granted to them by Congress.\70\ Given the role of
advertising in modern business, the Court concluded that ``[i]t would
require some affirmative indication to justify an interpretation that
would permit a national bank to engage in a business'' but give them
``no right to let the public know about it.'' \71\ That is, the power
to advertise savings accounts emanated from the power to receive
savings deposits, even if it was not explicitly enumerated.\72\ Because
the State law
[[Page 29356]]
prohibited banks from ``using the commonly understood description,'' it
interfered with banks' ability to ``effectively'' and ``efficiently''
exercise their power to advertising and was preempted.\73\
---------------------------------------------------------------------------
\70\ See Conti, 157 F.4th at 18; see also Rose v. Chase Bank,
USA, N.A., 513 F.3d 1032, 1037-38 (9th Cir. 2008) (concluding that,
under Barnett and Franklin, State disclosure requirements on certain
credit products known as convenience checks are preempted based on
their interference with a national bank's exercise of its lending
power, even though such disclosures did not directly affect the
terms of the bank's lending); Parks v. MBNA Am. Bank, N.A., 278 P.3d
1193, 1200 (Cal. 2012) (``However, to say that [a national bank] may
offer convenience checks so long as it complies with [state
disclosure laws on certain credit products] is equivalent to saying
that [the bank] may not offer convenience checks unless it complies
with [the State law]. Whether phrased as a conditional permission or
as a contingent prohibition, the effect of [the State law] is to
forbid national banks from offering credit in the form of
convenience checks unless they comply with state law.'').
\71\ Franklin, 347 U.S. at 377-78.
\72\ This view of national bank powers is consistent with
Supreme Court precedent recognizing that national banks are entitled
to exercise National Bank Act powers inherent in the operation of
the business of banking. See 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 and that the Comptroller therefore has
discretion to authorize activities beyond those specifically
enumerated.''); see also M & M Leasing Corp. v. Seattle First Nat'l
Bank, 563 F.2d 1377, 1382 (9th Cir. 1977) (``[T]he 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 so as to
permit the use of new ways of conducting the very old business of
banking.''); 12 CFR 7.1000.
\73\ Cantero, 602 U.S. at 216.
---------------------------------------------------------------------------
These cases make clear that New York's interest-on-escrow law
prevents or significantly interferes with a national bank's exercise of
Federally authorized powers. The conflict is especially clear in light
of the OCC's concurrent Escrow Powers Rule.\74\ Much like Fidelity,
Barnett, and Franklin, compliance with this New York law would forbid
national banks from exercising discretion regarding the payment of
interest-on-escrow and the assessment of related fees and thus deprive
them of the flexibility granted by Federal law and confirmed by the
OCC's concurrent Escrow Powers Rule.\75\ As such, New York's interest-
on-escrow law creates a direct conflict with the broad Federally
authorized powers expressly codified in the OCC's concurrent Escrow
Powers Rule.
---------------------------------------------------------------------------
\74\ Fid. Fed. Sav. & Loan Ass'n, 458 U.S. at 153 (``Federal
regulations have no less pre-emptive effect than federal
statutes.''). The dissent in the Cantero Remand attempts to
distinguish Fidelity from the OCC's issuance of this preemption
determination alongside its Escrow Powers Rule. Specifically, the
dissent notes that the Supreme Court in Fidelity found that the
agency had the authority to promulgate the regulations at issue and
to preempt state law. Cantero Remand, 2026 WL 1217467, at *21, n.13
(P[eacute]rez, J., dissenting). Rather than distinguishing Fidelity,
this point highlights why these OCC actions are squarely aligned
with Fidelity. The OCC has clear statutory authority to promulgate
its Escrow Powers Rule, as the OCC has extensively set forth in that
preamble. That an OCC regulation may have the effect of preempting
certain state law does not undermine the OCC's authority to issue
it. See, e.g., Conf. of State Bank Supervisors v. Conover, 710 F.2d
878, 883 (D.C. Cir. 1983) (``[I]f the regulations would otherwise be
valid, their preemptive effect does not invalidate them unless
Congress has expressed, either explicitly or implicitly, an intent
that preemption is not within the Comptroller's power.''). In
addition, section 25b specifically authorizes the OCC to determine
whether Federal law, which includes OCC regulations, preempts a
state consumer financial law under the Barnett standard. That is
precisely what the OCC is doing in this preemption determination.
Therefore, the OCC clearly has authority to issue each of these
actions independently. There is no basis to conclude that issuing
them concurrently undermines this authority.
\75\ See also supra nn. 69, 70 and associated text (collecting
cases). In the Cantero Remand decision, the dissent opines that the
Barnett analysis does not turn on whether a state law constrains a
national bank's flexibility because this would result in preemption
of virtually every state law. Cantero Remand, 2026 WL 1217467, at
*21-22 (P[eacute]rez, J., dissenting). In Cantero, the Supreme Court
specifically noted that the state law at issue in Fidelity was
preempted because it ``interfered with `the flexibility given' to
the savings and loan by federal law,'' (i.e., a federal regulation).
Cantero, 602 U.S. at 217 (citations omitted). This framing reflects
the Supreme Court's recognition that a state law can prevent or
significantly interfere with a national bank's powers if it
interferes with flexibility. However, the OCC need not define the
outer bounds of this flexibility analysis because New York's
interest-on-escrow law is clearly within these bounds. As the Second
Circuit majority recognized when it cited the OCC's proposed Escrow
Powers Rule, ``mortgage-escrow accounts are a `crucial risk
mitigation tool that supports safe and sound mortgage lending,'''
national banks have the authority ``to offer and set the terms of
mortgage-escrow accounts,'' and the nature and degree of
interference caused by New York's interest-on-escrow law is akin to
that in Fidelity, Barnett, and Franklin. Cantero Remand, 2026 WL
1217467, at *1, 6-9.
---------------------------------------------------------------------------
In addition, much like the State law in Franklin, New York's
interest-on-escrow law interferes with national banks' ability to
effectively and efficiently exercise their real estate and related
escrow powers. The discretion to set the terms and conditions of an
escrow account in accordance with informed business judgment allows
banks to appropriately balance the costs and benefits of establishing
and maintaining these accounts and, ultimately, the risks and rewards
of real estate lending more generally. The OCC's regulations have long
made clear that national banks have broad discretion to determine the
pricing of their products and services based on consideration of
relevant factors, including costs, which supports their ability to
effectively and efficiently exercise their Federally authorized
powers.\76\ Requiring compliance with State interest-on-escrow laws
would undermine this discretion and could cause national banks to,
among other things, attempt to recoup or offset costs in other ways
that are not as well aligned with their sound banking judgment or safe
and sound banking principles and that may even increase mortgage
pricing. It could also lead national banks to offer escrow accounts on
fewer real estate loans or even reduce lending if, for example, the
cost of compliance is too high, particularly as dynamic market rates
and business conditions evolve.\77\ This may disproportionately affect
lower-income borrowers.\78\ Moreover, by generally prohibiting related
service charges, New York's interest-on-escrow law would further limit
a national bank's ability to defray costs, compounding its effect. This
type of interference with national bank powers is at least as
significant as a restriction on a national bank's power to advertise
using a specific word.\79\
---------------------------------------------------------------------------
\76\ See 12 CFR 7.4002 (addressing non-interest fees); see also
12 U.S.C. 85 and 12 CFR 7.4001 (addressing permissible interest for
national bank loans, including the applicable usury cap). Multiple
courts have concluded that State laws on non-interest fees, such as
ATM fees, prevent or significantly interfere with a national bank's
exercise of its Federally authorized powers and are preempted. See,
e.g., cases cited supra note 69; see also Cantero Remand, 2026 WL
1217467, at *9 (``a state law restricting the pricing of a bank's
product would have a material impact''); Kivett, 154 F.4th at 660
(Nelson, J., dissenting) (concluding that the advertising
restriction in Franklin ``pales in comparison to a state law that
dictates a national bank's pricing of its mortgage products'').
\77\ See Kivett, 154 F.4th at 660 (Nelson, J., dissenting)
(quoting McShannock v. JP Morgan Chase Bank, N.A., 976 F.3d 881,
893-94 (9th Cir. 2020)). This example is intended to make clear the
potential effects of State interest-on-escrow laws on national
banks. However, the OCC emphasizes that the Barnett standard does
not require financial impact, such as unprofitability or net losses.
As noted previously, requiring such a showing would make application
of the Barnett standard variable, unpredictable, and ultimately
unworkable because it would turn on multiple changing factors, such
as bank size and activity, economic conditions, and geography.
Cantero, Barnett, and the Barnett antecedents do not support such an
outcome.
\78\ See id. The effects on a national bank's exercise of its
powers may be magnified when considering the cumulative effect of
complying not only with New York's law but also with varying laws in
multiple States. See First Nat'l Bank of San Jose, 262 U.S. at 370
(``If California may thus interfere other states may do likewise;
and . . . varying limitations may be prescribed.''); see also
Kivett, 154 F.4th at 662-63 (Nelson, J., dissenting) (citing
Watters, 550 U.S. at 13-14, and Easton, 188 U.S. at 229). Several
commenters provided information supporting this conclusion, noting
that compliance with varied State interest-on-escrow laws introduces
significant complexity, including compliance and operational
challenges. This is consistent with the OCC's supervisory experience
as reflected in the Comptroller's Handbook, which addresses
operational costs and risks associated with managing escrow
accounts. See OCC, Comptroller's Handbook, ``Mortgage Banking,'' 15,
53-54 (2014).
\79\ The State law at issue in Franklin did not prohibit
national banks from advertising their savings deposits, and it is
not hard to imagine a national bank being able to use a different
advertising formulation to similar competitive effect. See Cantero
Remand, 2026 WL 1217467, at *8 (citations omitted); Kivett, 154
F.4th at 660 (Nelson, J., dissenting).
---------------------------------------------------------------------------
As Federal courts have recognized, ``the level of `interference'
that gives rise to preemption under the [National Bank Act] is not very
high.'' \80\ Therefore, under the Barnett standard as clarified in
Cantero, New York's interest-on-escrow law is preempted \81\ and ``must
give way'' to Federal law.\82\
---------------------------------------------------------------------------
\80\ Monroe Retail, 589 F.3d at 283 (citing Ass'n of Banks in
Ins., Inc. v. Duryee, 270 F.3d 397, 409 (6th Cir. 2001)); see also
Am. Bankers Ass'n v. Lockyer, 239 F. Supp. 2d 1000, 1017 (E.D. Ca.
2002).
\81\ Cantero Remand, 2026 WL 1217467.
\82\ See Watters, 550 U.S. at 12-13; see also 12 CFR 34.4.
---------------------------------------------------------------------------
E. State Laws With Substantively Equivalent Terms
In addition to New York, at least thirteen other States have
interest-on-escrow laws that purport to apply to national banks:
California, Connecticut, Guam, Maine, Maryland, Massachusetts,
Minnesota, Oregon, Rhode Island, Utah, Vermont, Wisconsin, and the U.S.
Virgin Islands.\83\ Much like New York's
[[Page 29357]]
interest-on-escrow law, these State laws (1) require the payment of
interest on funds deposited in certain real estate escrow accounts; and
(2) in some cases, restrict the assessment of fees in connection with
such accounts. The OCC has evaluated the terms of each of these State
laws and determined that they have substantively equivalent terms to
section 5-601 of New York's General Obligations Law. Although the
specific provisions of these laws vary to some degree,\84\ each State
law has the same effect: depriving national banks of the flexibility to
exercise the discretion that Federal law, as confirmed in the OCC's
Escrow Powers Rule, vests in them. Consistent with section 25b, the OCC
has consulted with the CFPB on whether these State laws have
substantively equivalent terms. The CFPB concurred with the OCC's
determination and reasoning. Accordingly, the OCC's final preemption
determination incorporates these thirteen other State interest-on-
escrow laws.\85\
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\83\ While Iowa has an interest-on-escrow law, the OCC
understands it to be permissive. In addition, the OCC understands
that New Hampshire has an interest-on-escrow law that only applies
to banks chartered by the State. As such, the OCC proposed to
exclude these State laws from its preemption determination.
Commenters did not provide contrary information, and as such, the
OCC is not including these State laws in its final preemption
determination.
\84\ For example, the State laws have varied scoping provisions.
These distinctions do not undermine the OCC's determination that
these state laws have substantively equivalent terms. This
conclusion is consistent with the Second Circuit's analysis in the
Cantero Remand, which did not turn on the specific provisions of New
York's law.
\85\ The OCC's regulatory text cites each State law at the
section level. To the extent that these sections of State law
include provisions that do not relate to interest-on-escrow or fees,
they are outside the scope of this preemption determination.
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III. Administrative Law Matters
Paperwork Reduction Act
The Paperwork Reduction Act of 1995 \86\ (PRA) 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 rule and determined that it does not create any new or
revise any existing collections of information under the PRA.
Accordingly, no PRA submissions to OMB will be made with respect to
this final rule.
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\86\ 44 U.S.C. 3501-21.
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Regulatory Flexibility Act
In general, the Regulatory Flexibility Act (RFA) \87\ requires an
agency, in connection with a final rule, to prepare a final regulatory
flexibility analysis describing the impact of the rule on small
entities (defined by the Small Business Administration for purposes of
the RFA to include commercial banks and savings institutions with total
assets of $850 million or less and trust companies with total assets of
$47 million or less). However, under section 605(b) of the RFA, this
analysis is not required if an agency certifies that the rule would not
have a significant economic impact on a substantial number of small
entities and publishes its certification and a short explanatory
statement in the Federal Register along with its rule.
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\87\ 5 U.S.C. 601 et seq.
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The OCC currently supervises 991 institutions (national banks,
Federal savings associations, and branches or agencies of foreign
banks),\88\ of which approximately 602 are small entities under the
RFA.\89\
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\88\ Based on data accessed using the OCC's Financial
Institutions Data Retrieval System on May 8, 2026.
\89\ 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 counts 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 on December 31,
2025, 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.
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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.
While the final rule will impact a substantial number of OCC-
supervised small entities, it would likely result in some cost savings
for those institutions. For these reasons, the OCC certifies that this
final preemption determination will not have a significant impact on a
substantial number of small entities supervised by the OCC.
Accordingly, a final regulatory flexibility analysis is not required.
Unfunded Mandates Reform Act of 1995
The OCC has analyzed the final rule under the factors in the
Unfunded Mandates Reform Act of 1995 (UMRA).\90\ Under this analysis,
the OCC considered whether the final 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 ($193 million as adjusted annually for
inflation). Pursuant to section 202 of the UMRA,\91\ if a final rule
meets this UMRA threshold, the OCC prepares a written statement that
includes, among other things, a cost-benefit analysis of the final
rule.
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\90\ 2 U.S.C. 1531 et seq.
\91\ 2 U.S.C. 1532.
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This final rule imposes no new mandates and will likely result in a
decrease in expenditures from OCC-supervised entities that may elect
not to pay interest on funds held in escrow accounts due to clarity on
the preemption of state interest-on-escrow laws. Therefore, this final
preemption determination will not result in an additional expenditure
of $193 million or more annually by any State, local, and Tribal
government, in the aggregate, or by the private sector. Accordingly,
the OCC has not prepared the written statement described in section 202
of the UMRA.
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,\92\ 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 will not impose any reporting, disclosure, or
other requirements on insured depository institutions. Therefore,
section 302(a) does not apply.
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\92\ 12 U.S.C. 4802(a).
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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 final rule is a ``significant
regulatory action'' prior to the disclosure of the final rule to the
public. If OIRA finds
[[Page 29358]]
the final rule to be a ``significant regulatory action,'' Executive
Order 12866 requires the OCC to conduct a cost-benefit analysis of the
final rule and for OIRA to conduct a review of the final 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 the principles set forth in Executive Order
12866.
OIRA has determined that this final rule is not a significant
regulatory action under Executive Order 12866 and, therefore, it 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 ten 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
ten prior regulations. The final rule is not an Executive Order 14192
regulatory action because it is not significant under Executive Order
12866. Further, the final rule is a deregulatory action under Executive
Order 14192 because it would result in potential cost savings for OCC-
supervised banks.
Congressional Review Act
For purposes of the Congressional Review Act, OMB makes a
determination as to whether a final rule constitutes a ``major''
rule.\93\ If a rule is deemed a ``major rule'' by the OMB, the
Congressional Review Act generally provides that the rule may not take
effect until at least 60 days following its publication.\94\
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\93\ 5 U.S.C. 801 et seq.
\94\ 5 U.S.C. 801(a)(3).
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The Congressional Review Act defines a ``major rule'' as any rule
that the Administrator of OIRA finds has resulted in or is likely to
result in (1) an annual effect on the economy of $100,000,000 or more;
(2) a major increase in costs or prices for consumers, individual
industries, Federal, State, or local government agencies or geographic
regions; or (3) significant adverse effects on competition, employment,
investment, productivity, innovation, or on the ability of United
States-based enterprises to compete with foreign-based enterprises in
domestic and export markets.\95\
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\95\ 5 U.S.C. 804(2).
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OIRA has determined that this final rule is not a major rule. As
required by the Congressional Review Act, the OCC will submit the final
rule and other appropriate reports to Congress and the Government
Accountability Office for review.
List of Subjects in 12 CFR Part 34
Accounting, Banks, banking, Consumer protection, Credit, Mortgages,
National banks, Reporting and recordkeeping requirements, Savings
associations, Truth-in-lending.
Authority and Issuance
For the reasons set forth in the preamble, and under the authority
of 12 U.S.C. 93a, chapter I of title 12 of the Code of Federal
Regulations is amended as follows:
PART 34--REAL ESTATE LENDING AND APPRAISALS
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, 1462a, 1463,
1464, 1465, 1701j-3, 1828(o), 3331 et seq., 5101 et seq.,
5412(b)(2)(B), and 15 U.S.C. 1639h.
0
2. Amend subpart A by adding Sec. 34.7 to read as follows:
Sec. 34.7 OCC preemption determinations.
(a) Purpose. This section codifies preemption determinations issued
by the Office of the Comptroller of the Currency.
(b) Escrow. The OCC has 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 funds placed in escrow accounts or assess fees
for such accounts, including the following State laws:
(1) California: Cal. Civ. Code sec. 2954.8;
(2) Connecticut: Conn. Gen. Stat. sec. 49-2a;
(3) Guam: 11 Guam Code Ann. sec. 106103;
(4) Maine: Me. Rev. Stat. Ann. tit. 9-B, sec. 429; Me. Rev. Stat.
Ann. tit. 33, sec. 504;
(5) Maryland: Md. Code Ann., Com. Law secs. 12-109, 12-109.2;
(6) Massachusetts: Mass. Gen. L. ch. 183, sec. 61;
(7) Minnesota: Minn. Stat. Ann. sec. 47.20, subd. 9;
(8) New York: N.Y. Gen. Oblig. Law sec. 5-601;
(9) Oregon: Or. Rev. Stat. secs. 86.245, 86.250;
(10) Rhode Island: 19 R.I. Gen. Laws sec. 19-9-2;
(11) United States Virgin Islands: V.I. Code tit. 9, sec. 67;
(12) Utah: Utah Code Ann. sec. 7-17-3;
(13) Vermont: Vt. Stat. Ann. tit. 8, sec. 10404; and
(14) Wisconsin: Wis. Stat. secs. 138.051, 138.052.
Jonathan V. Gould,
Comptroller of the Currency.
[FR Doc. 2026-10037 Filed 5-18-26; 8:45 am]
BILLING CODE 4810-33-P
</pre></body>
</html>Indexed from Federal Register on May 19, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.