The American Bankers Association (ABA) and the Mortgage Bankers Association wrote to federal regulators in support of two proposals that would make national banks expressly exempt from state laws applicable to real estate escrow accounts.
The financial services industry has become vocal proponents of preemption policies in response to several states that have enacted “interest-on-escrow” laws in recent years. These states include California, Connecticut, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Oregon, Rhode Island, Utah, Vermont and Wisconsin.
In December, the Office of the Comptroller of the Currency (OCC) issued a proposed rule to reassert its federal preemption authority over state escrow laws with respect to national banks and federal savings associations. Separately, the agency proposed to codify its authority to set and maintain terms for real estate lending escrow accounts.
The trade groups agreed with the agency’s proposed actions in their joint letter to Comptroller of the Currency Jonathan Gould.
“The proposal rightly recognizes that escrow account management is not an ancillary or ministerial function, but rather an integral aspect of real estate lending grounded in federal statute, longstanding agency precedent and safety and soundness principles,” the trades wrote. “The proposed rule properly codifies this historical understanding and provides important clarity in an area where state-law intrusion threatens to undermine core federal banking powers.”
The trade groups also requested the OCC broaden the definition of “escrow accounts” in the proposal to apply to “any account established for this purpose, regardless of nomenclature, including trust, reserve, impound, insurance claims or similarly designated accounts.” This change would be useful given that banks and services use various terminology for the accounts, per the letter.
The U.S. Chamber of Commerce issued a separate letter along with the ABA, expressing support for both proposals. That letter included recommendations for improving the proposed preemption determination, such as adding language to emphasize the low bar for triggering federal preemption.