Regulatory Alerts2026-05-15
Preemption Determination on State Interest-on-Escrow Laws
The Office of the Comptroller of the Currency has issued a final preemption determination concluding that federal law overrides state interest-on-escrow laws, granting national banks and Federal savings associations the flexibility to decide whether and how much interest or compensation to pay on real estate escrow funds. This determination resolves a circuit split by applying the National Bank Act’s conflict preemption standard to New York’s statute and eleven other states with substantively equivalent laws, ensuring compliance does not significantly interfere with federally authorized banking powers. By eliminating mandatory interest payment mandates, the rule reduces operational complexity and mortgage pricing burdens for lower-income borrowers while maintaining robust consumer protections through a flexible, uniform regulatory framework.