[Federal Register Volume 90, Number 246 (Tuesday, December 30, 2025)]
[Proposed Rules]
[Pages 61093-61099]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-23987]
-----------------------------------------------------------------------
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: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The OCC is proposing to issue a preemption determination
concluding that federal law preempts state laws that eliminate OCC-
regulated banks' flexibility to decide whether and to what extent to
(1) pay interest or other compensation on funds placed in real estate
escrow accounts; or (2) assess fees in connection with such accounts.
This preemption determination would provide much needed clarity to
banks and other stakeholders.
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 ``Preemption
Determination: State Interest-on-Escrow Laws'' to facilitate the
organization and distribution of the comments. You may submit comments
by any of the following methods:
Federal eRulemaking Portal--Regulations.gov:
Go to https://regulations.gov/. Enter ``Docket ID OCC-2025-0735''
in the Search Box and click ``Search.'' Public comments can be
submitted via the ``Comment'' box below the displayed document
information or by clicking on the document title and then clicking the
``Comment'' box on the top-left side of the screen. For help with
submitting effective comments, please click on ``Commenter's
Checklist.'' For assistance with the Regulations.gov site, please call
1-866-498-2945 (toll free) Monday-Friday, 9 a.m.-5 p.m. EST, or email
[email protected].
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.
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-2025-0735'' in your comment. In general, the OCC will
enter all comments received into the docket and publish the comments on
the Regulations.gov 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:
Viewing Comments Electronically--Regulations.gov:
Go to https://regulations.gov/. Enter ``Docket ID OCC-2025-0735''
in the Search Box and click ``Search.'' Click on the ``Dockets'' tab
and then the document's title. After clicking the document's title,
click the ``Browse All Comments'' tab. Comments can be viewed and
filtered by clicking on the ``Sort By'' drop-down on the right side of
the screen or the ``Refine Comments Results'' options on the left side
of the screen. Supporting materials can be viewed by clicking on the
``Browse Documents'' tab. Click on the ``Sort By'' drop-down on the
right side of the screen or the ``Refine Results'' options on the left
side of the screen checking the ``Supporting & Related Material''
checkbox. For assistance with the Regulations.gov site, please call 1-
866-498-2945 (toll free) Monday-Friday, 9 a.m.-5 p.m. ET, or email
[email protected].
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, 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
multi-state markets. As such, federal preemption is a critical tool for
reducing unnecessary burden, enabling local and national prosperity,
and unleashing economic growth. Congress has consistently reaffirmed
the important role that federal preemption plays in the dual banking
system, including by codifying preemption standards for OCC-regulated
banks as part of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank) \3\ and extending comparable federal
preemption standards to state-chartered banks in some cases.\4\
---------------------------------------------------------------------------
\1\ Cantero v. Bank of Am., N.A., 602 U.S. 205, 209-10 (2024).
\2\ When Congress enacted the National Bank Act over 150 years
ago, it ``intended to facilitate . . . a `national banking system.'
'' Marquette Nat'l Bank of Minneapolis v. First of Omaha Serv.
Corp., 439 U.S. 299, 314-15 (1978) (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
[s]tates.''); 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).
---------------------------------------------------------------------------
In addition, the U.S. Department of Justice (DOJ) and the National
Economic Council (NEC) recently recognized the
[[Page 61094]]
benefits of preemption when they solicited public comment on state laws
that significantly and adversely affect the national economy or
interstate economic activity and solutions to address such effects,
including whether such state laws are preempted by existing federal
law.\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.
---------------------------------------------------------------------------
\5\ Request for Information on State Laws Having Significant
Adverse Effects on the National Economy or Significant Adverse
Effects in Interstate Commerce, 90 FR 39427 (August 15, 2025).
---------------------------------------------------------------------------
Given that federal preemption has long been a critical feature of
the dual banking system, the OCC is well positioned to support the
Administration's preemption efforts. For example, in response to the
DOJ and NEC request for comment, banking industry commenters
specifically highlighted state laws that eliminate banks' flexibility
to decide whether and to what extent to pay interest or other
compensation on funds placed in escrow accounts (interest-on-escrow
laws), observing that these laws could cause banks to increase mortgage
prices or even reduce their mortgage lending.\6\ State interest-on-
escrow laws may also eliminate banks' flexibility to assess related
fees. The question of whether federal law preempts state interest-on-
escrow laws has been extensively litigated. However, while multiple
circuits and even the Supreme Court have considered this issue,\7\
there remains substantial uncertainty. Moreover, this litigation has
introduced ambiguity regarding how to evaluate National Bank Act
preemption generally.
---------------------------------------------------------------------------
\6\ See, e.g., Comment from Bank Policy Institute, Sept. 15,
2025; Comment from American Bankers Association, Sept. 15, 2025.
\7\ See, e.g., Lusnak v. Bank of Am., N.A., 883 F.3d 1185
(2018); Cantero v. Bank of Am., N.A., 49 F.4th 121, 131 (2022),
vacated by 602 U.S. 205 (2024); 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).
---------------------------------------------------------------------------
To provide much needed clarity, the OCC is proposing to issue a
preemption determination addressing state interest-on-escrow laws.
Specifically, this preemption determination would conclude that (1) the
National Bank Act \8\ preempts New York's Gen. Oblig. Law section 5-
601, the state's interest-on-escrow law; (2) eleven other states have
laws with substantively equivalent terms; and (3) these substantively
equivalent state laws are also preempted.\9\ This proposed preemption
determination would complement the OCC's notice of proposed rulemaking
to codify national banks' longstanding escrow accounts power, which the
agency is concurrently issuing.\10\ As discussed below, if that
concurrent rulemaking is finalized, state interest-on-escrow laws would
directly conflict with the federal power addressed therein and would
thus be preempted.
---------------------------------------------------------------------------
\8\ For purposes of this proposed 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.
\9\ The analysis in this proposed preemption determination
focuses 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 analysis is
equally applicable to Federal savings associations and preemption by
the HOLA.
\10\ This proposed rule relating to real estate lending escrow
accounts is published elsewhere in this issue of the Federal
Register.
---------------------------------------------------------------------------
B. New York Interest-on-Escrow Law
New York's Gen. Oblig. Law section 5-601 requires ``mortgage
investing institutions'' to pay ``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.\11\ 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.\12\
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.
---------------------------------------------------------------------------
\11\ New York's Gen. Oblig. Law 5-601.
\12\ Id.
---------------------------------------------------------------------------
C. 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.\13\ 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.\14\ In Barnett Bank v. Nelson, 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.\15\
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.'' \16\
---------------------------------------------------------------------------
\13\ 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.'').
\14\ Barnett Bank v. Nelson, 517 U.S. 25 (1996).
\15\ Id. at 33.
\16\ Id. at 32. As this language in Barnett reflects, there is
no presumption against preemption in the context of National Bank
Act preemption. See Bank of Am. v. City & Cnty. of San Francisco,
309 F.3d 551, 558 (9th Cir. 2002), as amended on denial of reh'g and
reh'g en banc (Dec. 20, 2002) (citations omitted).
---------------------------------------------------------------------------
In 2024, in Cantero v. Bank of America, 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.'' \17\ 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.'' \18\ In addition to Barnett, the Cantero Court specifically
discussed six antecedent cases, noting that they ``furnish content''
regarding the Barnett standard for conflict preemption in the banking
context.\19\
---------------------------------------------------------------------------
\17\ Cantero, 602 U.S. at 219.
\18\ Id. at 219-21 and n.3.
\19\ Id. at 219. 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.
---------------------------------------------------------------------------
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, but did not require, 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.\20\
---------------------------------------------------------------------------
\20\ Barnett Bank, 517 U.S. at 25.
---------------------------------------------------------------------------
In Fidelity Federal Savings & Loan Association v. de la Cuesta, the
Supreme Court considered a California
[[Page 61095]]
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.\21\
---------------------------------------------------------------------------
\21\ 458 U.S. 141, 159 (1982).
---------------------------------------------------------------------------
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.\22\ Federal law granted national banks the power to accept
savings deposits and advertise this power. Because the state law
interfered with national banks' ability to exercise these powers
``effectively'' and ``efficiently,'' it was preempted.\23\
---------------------------------------------------------------------------
\22\ 347 U.S. 373 (1954).
\23\ Cantero, 602 U.S. at 216 (discussing Franklin).
---------------------------------------------------------------------------
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. 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.\24\
---------------------------------------------------------------------------
\24\ 262 U.S. 366, 370 (1923).
---------------------------------------------------------------------------
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.\25\ For example, in
Anderson National Bank v. Luckett, the Supreme Court contrasted
California's 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 ``old as the common law itself.'' \26\ The Anderson
Supreme Court noted that the state law addressed the transfer and
devolution of property in the state,\27\ a kind of generally applicable
state `infrastructure' law that is typically not preempted.\28\
---------------------------------------------------------------------------
\25\ Barnett, 517 U.S. at 33-34 (internal citations omitted).
\26\ 321 U.S. 233, 251-52 (1944).
\27\ Id. at 248.
\28\ See 12 CFR 7.4007(c)(5), 7.4008(e)(5), and 34.4(b)(6).
---------------------------------------------------------------------------
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 efficiency. 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.\29\
Similarly, in First National Bank v. Commonwealth of Kentucky, the
Supreme Court held that a Kentucky tax law was not preempted, 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.\30\
---------------------------------------------------------------------------
\29\ 164 U.S. 357 (1896).
\30\ Commonwealth, 76 U.S. 353 (1869). 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. at 362-63.
---------------------------------------------------------------------------
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.\31\ Specifically, these cases
demonstrate that a state law prevents or significantly interferes with
a federal power, at a minimum, when it interferes with critical
flexibility granted to a national bank under federal law,\32\
interferes with a national bank's efficiency and effectiveness in
exercising its federal power, or qualifies a federal power in an
unusual way. In contrast, as discussed above, generally applicable
infrastructure laws typically apply to national banks.
---------------------------------------------------------------------------
\31\ Cantero, 602 U.S. at 215.
\32\ 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.
---------------------------------------------------------------------------
D. 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,'' \33\ such as state interest-on-escrow laws.\34\ In particular,
section 25b codified the Barnett standard,\35\ expressly recognized the
OCC's role in preemption, and established procedural requirements for
OCC ``preemption determinations.'' \36\
---------------------------------------------------------------------------
\33\ 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).
\34\ 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'').
\35\ 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 1173, December 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).
\36\ 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. In addition, Dodd-Frank
requires that the preemption determination be supported by
``substantial evidence, made on the record of the proceeding.'' \37\
---------------------------------------------------------------------------
\37\ 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. Should the OCC decide to
finalize this preemption determination, 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.
---------------------------------------------------------------------------
II. Proposed Preemption Determination
A. Analysis of New York's Interest-on-Escrow Law
National banks ``are instrumentalities of the Federal government,
created for a public purpose, and as such necessarily subject to the
paramount authority of the United States.'' \38\ 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
[[Page 61096]]
manner, comply with applicable law, provide fair access to financial
services, and treat customers fairly.\39\
---------------------------------------------------------------------------
\38\ Davis v. Elmira Sav. Bank, 161 U.S. 275, 283 (1896).
\39\ 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 . . . such
restrictions and requirements as the Comptroller of the Currency may
prescribe by regulation or order.'' \40\ Frequently, national banks
offer or require borrowers to establish escrow accounts when they make
real estate loans. These escrow accounts serve a variety purposes,
including protecting the priority of the bank's security interest in
the property that collateralizes the loan and maintaining appropriate
insurance on the property.\41\ As such, they are a crucial risk
mitigation tool that supports safe and sound lending.
---------------------------------------------------------------------------
\40\ 12 U.S.C. 371. Congress has progressively expanded national
banks' real estate lending powers under section 371. Initially
limited to loans on farm land (Pub. L. 63-43, ch. 6, Sec. 24, 38
Stat. 251, 273 (Dec. 23, 1913)), Congress amended the law to include
limited general real estate lending in 1916 (Pub. L. 64-270, ch.
461, 39 Stat. 752, 754 (Sept. 7, 1916)), and has through the years
removed all limits and conditions on real estate lending (Pub. L.
97-320, Title IV, Sec. 403(a), 96 Stat. 1469, 1510-11 (Oct. 15,
1982)), other than those prescribed in regulation by the
Comptroller.
\41\ Cantero, 602 U.S. at 210-11.
---------------------------------------------------------------------------
The OCC is concurrently proposing a regulation to codify national
bank's authority to establish and maintain escrow accounts and to
clarify that the terms and conditions of any such escrow account,
including the investment of escrowed funds, fees assessed for the use
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.\42\ As noted in the proposed rule,
that regulation would codify authority that national banks already have
under federal law. Even in the absence of that rule, national banks
have the flexibility to make informed business decisions about how to
effectively and efficiently set the terms and conditions of their
escrow accounts.
---------------------------------------------------------------------------
\42\ For purposes of soliciting public comments regarding the
OCC's proposed preemption determination herein, the OCC assumes that
its concurrently proposed rulemaking will be finalized as proposed.
The OCC believes that issuing these two proposals concurrently
provides the public with more complete information, which will
improve its opportunity to comment. The OCC will revisit its
preemption analysis discussed herein in light of any changes to the
concurrently proposed rule, including based on the comments it
receives, if and when that rule is finalized.
---------------------------------------------------------------------------
Contrary to the flexibility granted by federal law as proposed to
be codified by the OCC, New York's interest-on-escrow law dictates a
minimum interest national banks must pay on funds held in escrow
accounts and generally prohibits them 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 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.\43\
---------------------------------------------------------------------------
\43\ Conti, 157 F.4th at 17-18 (categorizing each of these 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, Commonwealth, 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'').
---------------------------------------------------------------------------
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.'' \44\ 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.\45\ As such, the state law created a direct
conflict with the federal regulation and was preempted.\46\
---------------------------------------------------------------------------
\44\ Fidelity, 458 U.S. at 146-47.
\45\ Id. at 155.
\46\ 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.'' \47\ In
both cases, these state laws created similar direct conflicts 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 part of or incidental to the business of
banking.\48\
---------------------------------------------------------------------------
\47\ See Franklin, 347 U.S. at 374 (emphasis added).
\48\ 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)
(quoting 12 U.S.C. 24); 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 Texas 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 & Cnty. 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 Franklin concerned a direct conflict created by the
prohibition on the use of a particular Congressionally recognized term,
the decision also 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 efficiently and effectively
exercise the full range of powers granted to them by Congress.\49\
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.''
\50\ That is, the power to advertise savings accounts emanated from the
power to
[[Page 61097]]
receive savings deposits, even if it was not explicitly enumerated.\51\
Because the state law 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.\52\
---------------------------------------------------------------------------
\49\ 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 (so-called 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 America Bank, N.A., 278
P.3d 1193, 1200 (Cal. 2012), cert. denied, 468 U.S. 1028 (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.'' (emphasis in original)).
\50\ Franklin, 347 U.S. at 377-78.
\51\ 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 North Carolina, N.A. v.
Variable Annuity Life Ins. Co., 513 U.S. 251, 258, n.2 (Jan. 18,
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), cert.
denied, 436 U.S. 956 (1978) (``[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 to permit the use of
new ways of conducting the very old business of banking.''); 12 CFR
7.1000.
\52\ 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 proposed escrow rule.\53\ 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 proposed
escrow rule.\54\ As such, New York's interest-on-escrow law creates a
direct conflict with this OCC regulation.
---------------------------------------------------------------------------
\53\ Fidelity, 458 U.S. at 153 (``Federal regulations have no
less pre-emptive effect than federal statutes.'').
\54\ See also cases cited supra note 48.
---------------------------------------------------------------------------
In addition, much like the state law in Franklin, compliance with
New York's interest-on-escrow law would interfere with national banks'
ability to efficiently and effectively 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. If, for example, the
state's mandated interest rate renders escrow accounts unprofitable in
light of dynamic market rates and variable business conditions, this
may cause national banks to, among other things, offer escrow accounts
on fewer real estate loans; attempt to recoup costs in other ways; or
even reduce lending.\55\ 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.\56\
---------------------------------------------------------------------------
\55\ This 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 San Jose, 262 U.S. at 370 (``If
California may thus interfere other States may do likewise; and . .
. varying limitations may be prescribed.'').
\56\ 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.
---------------------------------------------------------------------------
As federal courts have recognized, `` `the level of interference
that gives rise to preemption under the [National Bank Act] is not very
high.' '' \57\ Therefore, under the Barnett standard as clarified in
Cantero, New York's interest-on-escrow law is preempted and ``must give
way'' to federal law.\58\
---------------------------------------------------------------------------
\57\ Illinois Bankers Ass'n, et al. v. Raoul, 760 F. Supp. 3d
636, 657 (N.D. Ill. 2024) (citing Monroe Retail, 589 F.3d at 283
(citation omitted) and quoting Am. Bankers Ass'n v. Lockyer, 239 F.
Supp. 2d 1000, 1017 (E.D. Ca. 2002) (``The threshold of preemption
is in some cases remarkably low.'')).
\58\ See Watters v. Wachovia Bank, N.A., 550 U.S. 1, 12-13
(2007); see also 12 CFR 34.4.
---------------------------------------------------------------------------
B. State Laws With Substantively Equivalent Terms
In addition to New York, at least 11 other states have interest-on-
escrow laws that purport to apply to national banks: California,
Connecticut, Maine, Maryland, Massachusetts, Minnesota, Oregon, Rhode
Island, Utah, Vermont, and Wisconsin.\59\ Much like New York's
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 is also proposing to determine that each of
these state laws have substantively equivalent terms to New York's Gen.
Oblig. Law section 5-601 and are thus also preempted. They each have
the same effect as New York's interest-on-escrow law: they deprive
national banks of the flexibility to exercise the discretion that
federal law, as confirmed in the OCC's regulation, vests in them.
Consistent with section 25b, the OCC will consult with the CFPB on
whether these state laws have substantively equivalent terms.
Accordingly, the OCC proposes to include these state interest-on-escrow
laws in its preemption determination.
---------------------------------------------------------------------------
\59\ 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 proposes to
exclude these state laws from this proposed preemption
determination.
---------------------------------------------------------------------------
III. Request for Comment
The OCC invites comments on all aspects of this proposed preemption
determination. The OCC specifically requests comment on whether there
are any additional laws that have substantively equivalent terms to New
York's law, including regarding the payment of interest-on-escrow or
the assessment of related fees.
IV. Regulatory Analyses
A. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 \60\ (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 proposal 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 proposal.
---------------------------------------------------------------------------
\60\ 44 U.S.C. 3501-3521.
---------------------------------------------------------------------------
B. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (RFA) \61\ 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 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
[[Page 61098]]
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.
---------------------------------------------------------------------------
\61\ 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),\62\ of which approximately 609 are small entities under the
RFA.\63\
---------------------------------------------------------------------------
\62\ Based on data accessed using the OCC's Financial
Institutions Data Retrieval System on November 20, 2025.
\63\ 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. While the proposed rule would impact all OCC-
supervised small entities, it would likely result in some cost savings
for those institutions. Therefore, the OCC certifies that this proposed
preemption determination, if adopted, will not have a significant
impact on a substantial number of small entities.
C. Unfunded Mandates Reform Act of 1995
The OCC has analyzed the proposed rule under the factors in the
Unfunded Mandates Reform Act of 1995 (UMRA).\64\ 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,\65\ if a proposed rule
meets this UMRA threshold, the OCC would prepares a written statement
that includes, among other things, a cost-benefit analysis of the
proposal.
---------------------------------------------------------------------------
\64\ 2 U.S.C. 1531 et seq.
\65\ 2 U.S.C. 1532.
---------------------------------------------------------------------------
This proposal imposes no new mandates and would likely result in a
decrease in expenditures from OCC-supervised entities that may elect
not to pay interest on funds held in escrow accounts. Therefore, the
OCC concludes that this proposal determination, if finalized, would not
result in an expenditure of $187 million or more annually by any State,
local, and Tribal government, in the aggregate, or by the private
sector.
D. 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,\66\ 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 proposal.
---------------------------------------------------------------------------
\66\ 12 U.S.C. 4802(a).
---------------------------------------------------------------------------
E. Providing Accountability Through Transparency Act of 2023
The Providing Accountability Through Transparency Act of 2023 \67\
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
www.regulations.gov.
---------------------------------------------------------------------------
\67\ 5 U.S.C. 553(b)(4).
---------------------------------------------------------------------------
The OCC is proposing to issue a preemption determination concluding
that federal law preempts state laws that eliminate OCC-regulated
banks' flexibility to decide whether and to what extent to (1) pay
interest or other compensation on funds placed in real estate escrow
accounts; or (2) assess fees in connection with such accounts. This
preemption determination would provide much needed clarity to banks and
other stakeholders.
The proposal and required summary can be found for the OCC at
https://www.regulations.gov by searching for Docket ID OCC-2025-0735
and https://occ.gov/topics/laws-and-regulations/occ-regulations/proposed-issuances/index-proposed-issuances.html.
F. 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 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.
G. 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
[[Page 61099]]
with at least 10 prior regulations. The OCC expects the proposal, if
finalized, will be a deregulatory action under Executive Order 14192
because it would result in potential cost savings for OCC-supervised
banks.
List of Subjects
Accounting, Banks, Banking, Consumer protection, Credit, Mortgages,
National banks, Reporting and recordkeeping requirements, Savings
associations, Truth-in-lending.
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, and under the authority
of 12 U.S.C. 93a, chapter I of title 12 of the Code of Federal
Regulations is proposed to be 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, 1465, 1701j-
3, 1828(o), 3331 et seq., 5101 et seq., and 5412(b)(2)(B).
0
2. Amend part 34, subpart A by adding a new section 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 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 following state laws:
(1) Cal. Civ. Code Sec. 2954.8;
(2) Conn. Gen. Stat. Sec. 49-2a;
(3) Me. Rev. Stat. Ann. tit. 33, Sec. 504; Me. Rev. Stat. Ann.
tit. 9-B, Sec. 429;
(4) MD. Comm. Law Code Ann. Sec. 12-109, Sec. 12-109.2;
(5) Mass. Gen. L. ch. 183, Sec. 61;
(6) Minn. Stat. Ann. Sec. 47.20, subd. 9;
(7) N.Y. Gen. Oblig. Law Sec. 5-601;
(8) OR. Rev. Stat. Sec. 86.245; Sec. 86.250;
(9) R.I. Gen. Laws Sec. 19-9-2;
(10) Utah Code Ann. Sec. 7-17-3;
(11) Vt. Stat. Ann. tit. 8, Sec. 10404;
(12) Wis. Stat. Sec. Sec. 138.051; 138.052; and
(13) The laws of any other state with substantively equivalent
terms.
Jonathan V. Gould,
Comptroller of the Currency.
[FR Doc. 2025-23987 Filed 12-29-25; 8:45 am]
BILLING CODE 4810-33-P