GW Law Faculty Publications & Other Works

Document Type

Article

Publication Date

2026

Status

Working

Abstract

In December 2025, the Office of the Comptroller of the Currency (“OCC”) issued a proposal to preempt all state laws that require national banks and federal savings associations to pay interest on borrowers’ funds held in mortgage escrow accounts. The OCC’s proposal is unlawful and must be rescinded. Under 12 U.S.C. § 25b and the Supreme Court’s decisions in Cuomo v. Clearing House and Cantero v. Bank of America, the OCC does not have authority to preempt state interest-on-escrow (IOE) laws.

The OCC’s proposal for a categorical, across-the-board preemption of state IOE laws violates three requirements set forth in 12 U.S.C. § 25b. First, the OCC’s proposal violates § 25b’s governing preemption standard, which provides that a state consumer financial law can be preempted “only if” that state law “prevents or significantly interferes with the exercise by a national bank of its powers.” A careful analysis of state IOE laws demonstrates that they do not prevent or significantly interfere with the exercise of any national bank power. The OCC’s proposed categorical preemption of state IOE laws also contravenes provisions in § 25b that require the OCC to proceed on a “case-by-case basis” and to support its findings of preemption with “substantial evidence, made on the record of the proceeding.”

The potential implications of the OCC’s proposal extend far beyond state IOE laws.  The aggressive preemption claims advanced in the OCC’s proposal indicate that the agency’s ultimate goal is to revive its discredited regime of de facto field preemption for national banks.  The OCC created that illegal regime by issuing blanket preemption rules in 2004.  In 2010, Congress repudiated the OCC’s 2004 preemption rules by adopting § 25b, after determining that the OCC’s rules contributed to the severity of the financial crisis of 2007-09.  Similarly, the Supreme Court rejected the OCC’s field preemption rationale for its 2004 rules in Cuomo and Cantero.  Despite those setbacks, the OCC’s proposal to override state IOE laws continues to assert an unbounded power to preempt state consumer protection laws, and the proposal ignores the limitations imposed on the OCC’s preemption authority by Congress and the Supreme Court.

Based on its past record, the OCC will probably use its proposal as a launching pad for a larger campaign to revive its discredited de facto field preemption regime. Such a regime would heavily favor large multistate national banks, which provide most of the funding for the OCC’s budget and are its most influential regulated constituents. The OCC has frequently tried to expand the powers and privileges of national banks beyond their statutory limits, and the OCC has also refused to comply with judicial decisions upholding those limits. Accordingly, federal courts and Congress must be prepared once again to rein in the OCC and preserve the states’ authority to protect their consumers, businesses, and communities under 12 U.S.C. § 25b.

GW Paper Series

2026-17

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