OCC Issues Two Proposed Rules on Mortgage Escrow Accounts

The Office of the Comptroller of the Currency (OCC) published two proposed rules in December 2025 related to the payment of interest and assessment of fees on real estate lending escrow accounts. The first rule allows national banks the flexibility to determine whether to pay interest or collect fees on escrow accounts. The second rule establishes that federal law preempts state law on these matters.  

Background

Escrow accounts are established in a real estate transaction to help borrowers budget and pay for taxes, insurance, and other ongoing property-related expenses. The OCC’s Proposal on Real Estate Lending Escrow Accounts cites that approximately 80 percent of US residential real estate mortgages use an escrow account.  

Proposal on Real Estate Lending Escrow Accounts

The OCC proposes to allow national banks the freedom to choose to pay interest or other compensation on escrow in consideration of the risks and rewards of establishing and managing their customers’ escrow accounts. The OCC argues that a bank needs to consider this choice as part of its overall risk management strategy and how it manages and protects collateral. Banks incur costs for administrating escrow accounts and may recoup these costs through investing the funds. In addition, the OCC illustrates how paying fixed interest to borrowers in a declining-interest-rate environment could result in the bank losing money on escrow accounts and also have downstream impacts of lending less or implementing new lending costs. The OCC outlines the benefits already provided to borrowers for having an escrow account by simplifying payments to a centralized party (the bank).  

The OCC’s proposal plans to provide clarity to national banks by codifying, in the definition of an escrow account, that the extent compensation is paid to a customer on an escrow account is a business decision made by the bank. The proposal explicitly allows banks to charge fees for the maintenance of a mortgage escrow account, which generally is not a practice banks currently pursue.   

Proposal on Preemption Determination: State Interest-on-Escrow Laws

The OCC proposes to explicitly outline the preemption determination on interest-on-escrow accounts to clarify to national banks that the option to pay interest on escrow under federal law may be chosen regardless of state laws that require such payment on escrow accounts. The OCC points out that under the US Constitution’s Supremacy Clause, federal law preempts contradictory state law. In addition, the Supreme Court has confirmed preemption where state law prohibits national banks from exercising their flexibility under federal law.  

The proposal focuses on the New York State interest-on-escrow law (New York General Obligations Law Section 5-601) and similar laws across eleven other states: California, Connecticut, Maine, Maryland, Massachusetts, Minnesota, Oregon, Rhode Island, Utah, Vermont, and Wisconsin.  

How BRG Can Help

BRG is ready to assist in assessing the impacts of these proposed rules on business decisions and operations. We can review terms of existing escrow accounts, current interest-on-escrow practices, and escrow-related fee structures; and advise on policy, procedure, system, workflow, and disclosure updates. We can assist in helping put in place the proper processes and controls should banks want to take advantage of this new revenue source.  

For more information, please contact Paul Noring (PNoring@thinkbrg.com) or Lindsay Potter (LPotter@thinkbrg.com).