The OCC has issued a final rule to codify longstanding and recognized powers of national banks and Federal savings associations (collectively, banks) to establish or maintain real estate lending escrow accounts and to exercise flexibility in making business judgments as to the terms and conditions of such accounts, including whether and to what extent to offer any compensation or to assess any fees related thereto.
The OCC concurrently issued a final rule on preemption determination with respect to state interest-on-escrow laws that restrict banks’ flexibility to decide whether and to what extent to pay interest or other compensation on funds placed in escrow accounts or assess related fees. The OCC determined that those state laws prevent or significantly interfere with banks’ exercise of their federally authorized powers and are thus preempted.
The final rule became effective on June 18, 2026.
I. ESCROW ACCOUNTS
The final rule amends the OCC’s real estate lending and appraisals regulations applicable to national banks and its lending and investment regulations applicable to Federal savings associations to add a definition of ‘‘escrow account,’’ expressly codify banks’ power to establish and maintain escrow accounts, and to clarify that the terms and conditions of escrow accounts, including the extent of any compensation paid to customers, are business decisions to be made by each bank.
The final rule defines an ‘‘escrow account’’ used by national banks as an account established in connection with a loan or extension of credit secured by a lien on interest in real estate in which the borrower places funds for the purpose of assuring payment of taxes, insurance premiums, or other charges with respect to the property. The final rule defines ‘‘escrow accounts’’ in substantially similar terms in the context of Federal savings associations.
The final rule also codifies national banks’ escrow powers, including the flexibility such banks have as to how to organize and manage escrow accounts. Specifically, the final rule codifies that (1) the powers of national banks include establishing and maintaining escrow accounts in connection with real estate loans; and (2) the terms and conditions of such escrow accounts (including, but not limited to, the investment of escrowed funds, fees assessed for the provision of such accounts, and whether and to what extent interest or other compensation is calculated and paid to customers whose funds are placed in the escrow account) are business decisions to be made by each national bank in its discretion. The final rule codifies these powers in the context of Federal savings associations in substantially similar terms.
II. PREEMPTION DETERMINATION
The OCC’s final preemption determination concludes that federal law preempts state laws that restrict 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.