The Office of the Comptroller of the Currency is proposing two rules to clarify that national banks are exempt from state laws regulating real estate escrow accounts.
New York, California and at least 10 other states have enacted interest-on-escrow laws in recent years. Currently, California’s law is facing a legal challenge by Flagstar Bank, with a federal appeals court ruling earlier this year that the National Bank Act does not preempt the state law. The American Bankers Association filed a coalition amicus brief in the case urging the court to reconsider the decision.
According to an OCC statement, the first proposed rule would codify longstanding powers of national banks and federal savings associations to establish or maintain real estate lending escrow accounts and to exercise flexibility in making business judgment as to the terms and conditions of such accounts, including whether to offer any compensation paid to customers or to assess any related fees.
The second proposed rule would state that federal law preempts state laws that eliminate national banks’ and federal savings associations’ 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.
Comments on the proposals are due 30 days following publication in the Federal Register.
In a statement on X, ABA welcomed the proposals.
“Consistent and sound application of federal preemption principles is essential to maintaining a unified national banking system and reducing regulatory fragmentation,” ABA said. “We look forward to reviewing the proposals and offering our comments.”
