Ten States Take On The OCC Over National Bank Preemption Of State Escrow-Interest Laws

The battle over the scope of the Office of the Comptroller of the Currency’s authority to preempt state consumer financial laws has entered a new phase. On August 11, 2026, Oregon and nine other states with “blue” attorneys general filed a lawsuit challenging two rules adopted by the OCC that purport to preempt state laws requiring mortgage lenders to pay interest on funds held in escrow accounts.

The lawsuit, filed in the U.S. District Court for the District of Oregon, is State of Oregon et al. v. Office of the Comptroller of the Currency et al., No. 3:26-cv-01672-SI. The plaintiffs are Oregon, New York, California, Connecticut, Maine, Maryland, Massachusetts, Minnesota, Rhode Island, and Vermont.

The case presents a significant test of the limits Congress imposed on OCC preemption authority in the Dodd-Frank Act—and, in particular, whether the OCC has attempted to accomplish indirectly what Dodd-Frank prevents it from doing directly.

The Two OCC Rules at Issue

The OCC adopted two related final rules on May 15, 2026. Both became effective June 18.

The first, the “Escrow Powers Rule,” purports to codify the authority of national banks to establish and maintain escrow accounts and to determine the terms and conditions of those accounts. Most significantly, the rule provides that national banks may decide “whether and to what extent” interest or other compensation will be paid to customers whose money is held in escrow.

The second, the “Preemption Rule,” expressly determines that 14 state interest-on-escrow laws are preempted.

The states contend that the two rules must be viewed together. In their view, the OCC first created a federal rule declaring that national banks have unfettered discretion over escrow accounts and then used that newly created federal “power” as the basis for concluding that state laws regulating interest on escrow accounts conflict with federal law.

The complaint describes this as a “twin-regulation approach” designed to manufacture a conflict that did not previously exist.

That allegation goes to the heart of the lawsuit.

Why Escrow Interest Matters

Mortgage escrow accounts are commonplace. Borrowers generally make monthly payments into escrow accounts to cover property taxes and homeowners insurance, while those obligations are paid only periodically.

The states point out that this arrangement can result in substantial balances being held in escrow for extended periods. Those balances historically generated no interest for borrowers, effectively providing lenders with interest-free funds.

Congress addressed some aspects of escrow practices through the Real Estate Settlement Procedures Act, or RESPA. Among other things, RESPA limits the amount that lenders can require borrowers to maintain in escrow and imposes disclosure and accounting requirements.

But RESPA does not generally require lenders to pay interest on escrow balances.

Importantly, however, the states emphasize that RESPA expressly preserves state settlement-practice laws unless they are inconsistent with federal law. It also provides that state laws giving consumers greater protection are not considered inconsistent with RESPA.

Beginning in the 1970s, a number of states adopted statutes requiring lenders to pay interest on escrow balances.

The laws differ substantially.

California, for example, requires at least 2% interest. New York likewise generally requires 2% or a higher rate established by the state’s superintendent of financial services. Oregon ties its rate to the discount rate. Connecticut and Rhode Island use rates associated with savings deposits, while Maryland and Maine use formulas based on Treasury rates. Massachusetts permits the lender to determine the rate.

Some states also prohibit lenders from imposing fees that effectively reduce the required interest payment.

The states therefore argue that the OCC’s conclusion that these laws are “substantively equivalent” is difficult to reconcile with the actual differences among the statutes.

Congress Had Already Addressed the Issue in Dodd-Frank

The complaint places particular emphasis on the history of OCC preemption.

The OCC has long taken an expansive view of its authority to preempt state laws affecting national banks. The states point to the OCC’s 2004 preemption rule, which attempted to broadly preempt numerous categories of state banking laws.

The financial crisis changed the political and statutory landscape.

In Dodd-Frank, Congress expressly rejected field preemption in this area, providing that federal banking law “does not occupy the field” of state law. 12 U.S.C. § 25b(b)(4).

Congress also codified the Supreme Court’s decision in Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25 (1996). Under Dodd-Frank, a state consumer financial law is preempted only if it discriminates against national banks, “prevents or significantly interferes” with the exercise of national bank powers under the Barnett Bank standard, or is preempted by another federal statute.

That “significant interference” requirement is central to the new lawsuit.

The states contend that the OCC has substituted a substantially different test: whether a state law interferes with a national bank’s “flexibility” or “business judgment.”

That distinction could prove critical.

The Cantero Decision Makes the OCC’s Approach Particularly Vulnerable

The complaint relies heavily on the Supreme Court’s 2024 decision in Cantero v. Bank of America, N.A., 602 U.S. 205 (2024).

Cantero itself involved New York’s interest-on-escrow statute, the very statute that the OCC now has declared preempted.

The Supreme Court rejected the Second Circuit’s approach, which had effectively treated state regulation of national banks as preempted whenever the state law interfered with a federally authorized banking power.

The Supreme Court instead instructed courts to undertake a “practical assessment of the nature and degree of the interference” caused by the state law.

The Court specifically rejected a “categorical test” that would “preempt virtually all state laws that regulate national banks.”

The states argue that the OCC has now adopted precisely the type of categorical approach that Cantero rejected.

According to the complaint, under the OCC’s reasoning, any state law requiring a national bank to pay interest on escrow balances necessarily interferes with the bank’s federal “flexibility” to decide whether to pay interest. If any interference is enough, rather than significant interference, virtually every state regulation affecting escrow accounts becomes preempted.

That, the states contend, is Cantero’s categorical test in different clothing.

The Ninth Circuit Has Already Ruled on California’s Law

The lawsuit also presents a particularly important issue for the OCC in the District of Oregon: controlling Ninth Circuit precedent.

In Lusnak v. Bank of America, N.A., 883 F.3d 1185 (9th Cir. 2018), the Ninth Circuit rejected a National Bank Act preemption challenge to California’s interest-on-escrow statute.

The Ninth Circuit concluded that there was no legal authority establishing that state escrow-interest laws prevent or significantly interfere with national bank powers. The court also relied on Congress’s treatment of state escrow-interest laws in Dodd-Frank.

After the Supreme Court decided Cantero, the Ninth Circuit revisited the issue in Kivett v. Flagstar Bank, FSB, 154 F.4th 640 (9th Cir. 2025).

The Ninth Circuit concluded that Lusnak remained good law and that its reasoning was not inconsistent with Cantero.

That creates an obvious issue for the OCC in defending a rule that declares California’s law, and similar laws, preempted.

The complaint also points to the First Circuit’s decision in Conti v. Citizens Bank, N.A., 157 F.4th 10 (1st Cir. 2025), which likewise concluded that the National Bank Act does not preempt Rhode Island’s interest-on-escrow law.

The Second Circuit, by contrast, has continued to find New York’s law preempted following the Supreme Court’s remand in Cantero. Thus, the issue remains the subject of an important circuit split.

The OCC’s “Substantive Equivalence” Theory Is Another Major Target

Dodd-Frank imposes procedural requirements on the OCC when it makes preemption determinations.

Among other things, the OCC generally must make its determination on a case-by-case basis and evaluate the impact of the particular state law on national banks. Dodd-Frank also permits the OCC to treat other state laws as preempted when they have “substantively equivalent terms” to a law that has been analyzed.

The OCC analyzed New York’s law and then concluded that 13 other state laws were substantively equivalent.

The states argue that the OCC did not actually conduct the analysis required by Dodd-Frank.

That argument appears significant because the laws are not identical.

As the complaint points out, some states impose fixed interest rates, some use variable formulas, some tie interest to savings-account rates, and some allow banks to determine the rate. The statutes also apply to different categories of mortgage loans and differ concerning service and maintenance fees.

The states therefore contend that the OCC’s conclusion that all 14 statutes are substantively equivalent is not supported by the record.

The complaint is particularly critical of the OCC’s failure to explain what standard it used to determine “substantive equivalence.”

Where Was the “Substantial Evidence”?

Perhaps the most interesting statutory argument concerns Dodd-Frank’s evidentiary requirement.

Section 25b(c) provides that the OCC may not determine that a state consumer financial law is preempted unless “substantial evidence, made on the record of the proceeding,” supports the specific finding of preemption.

The states contend that the OCC simply did not develop such evidence.

Indeed, they quote the OCC’s own rulemaking record as stating that the agency did not rely upon technical studies or data because it viewed preemption as fundamentally a question of law.

The states respond that Dodd-Frank specifically requires more.

Their argument is straightforward: If Congress required “substantial evidence” to support a preemption determination, the OCC cannot satisfy that requirement by deciding that no evidence is necessary.

The complaint also argues that the OCC produced no evidence demonstrating that state interest-on-escrow laws have caused national banks to suffer losses, reduced mortgage lending, or otherwise significantly interfered with their ability to operate escrow accounts.

Instead, the OCC allegedly relied on speculation that requiring banks to pay interest on mortgage escrow accounts could cause them to increase origination fees or reduce mortgage lending.

The states contend that speculation about what might happen is not substantial evidence demonstrating that state law actually prevents or significantly interferes with national bank powers.

The “Pretext” Argument

The most consequential allegation in the complaint may be the states’ assertion that the Escrow Powers Rule itself is a pretext.

The OCC characterized the rule as an effort to provide clarity concerning national banks’ authority to establish and administer escrow accounts.

But the states point to language in the OCC’s own rulemaking indicating that the purpose of codifying the federal power was to make clear that state interest-on-escrow laws “directly conflict” with federal law.

That creates an interesting administrative-law question.

An agency unquestionably may issue regulations implementing authority delegated to it by Congress. But, as the Supreme Court held in Louisiana Public Service Commission v. FCC, 476 U.S. 355 (1986), an agency may preempt state law only when it is acting within the scope of its congressionally delegated authority.

The states argue that Congress did not give the OCC a free-standing power to create federal banking regulations for the purpose of manufacturing conflicts with state consumer-protection laws.

If the court accepts that characterization, the Escrow Powers Rule could fall independently of the Preemption Rule.

The States Also Invoke the Major Changes Dodd-Frank Made to OCC Preemption

The complaint’s broader theme is that the OCC is attempting to recreate the expansive preemption regime that Congress rejected in Dodd-Frank.

The states emphasize that Congress deliberately limited OCC preemption authority after the financial crisis.

Dodd-Frank rejected field preemption, codified the Barnett Bank standard, required case-by-case determinations, imposed a substantial-evidence requirement, required consultation with the CFPB concerning substantive equivalence, and limited the degree of deference owed to OCC preemption determinations.

The states contend that the OCC’s new rules effectively circumvent each of these limitations.

That makes this case about considerably more than escrow interest.

If the OCC prevails, its approach could provide a roadmap for preempting other state consumer financial laws. The agency could identify a broad federal banking power, define that power to include discretion over matters regulated by the states, and then characterize the state regulation as an impermissible interference with that federal power.

The states argue that such an approach would allow the OCC to accomplish indirectly what Dodd-Frank expressly prohibits it from doing directly.

The CFPB Also Has a Role in the Case

There is an additional wrinkle.

Dodd-Frank requires the OCC to consult with the CFPB and take the Bureau’s views into account when determining whether state laws have substantively equivalent terms.

The OCC stated that it consulted with the CFPB and that the CFPB concurred with its conclusion.

But the states say the administrative record does not explain the nature or extent of that consultation or what standard the CFPB applied.

That issue could become important as the litigation develops, particularly because the CFPB’s participation in the process is expressly contemplated by the statute.

What Is at Stake for Mortgage Lenders and Consumers?

At the immediate level, the case concerns whether national banks must comply with state laws requiring interest payments on mortgage escrow balances.

For consumers in the affected states, the practical consequence could be substantial. If the OCC’s rules remain in effect, national banks would not have to comply with the states’ interest-on-escrow requirements, even though state-chartered banks could remain subject to those requirements.

That raises an important dual-banking-system issue.

The states argue that national banks have historically been subject to many state banking and consumer-protection laws notwithstanding their federal charters. In their view, national bank preemption is an exception to that general rule, not a principle of blanket federal immunity.

The OCC’s position, by contrast, reflects a broader conception of the federal powers associated with national bank mortgage lending.

The case therefore presents a fundamental question about how much regulatory authority remains with the states when Congress has authorized national banks to engage in a particular activity.

The Supreme Court May Soon Decide Whether to Revisit Cantero

The timing of the Oregon lawsuit is particularly significant because the Supreme Court is now considering three cases involving the same fundamental question: whether the National Bank Act preempts state laws requiring national banks to pay interest on mortgage escrow accounts. The status of those cases has changed since our May 27, 2026 discussion of the subject.

Cantero: Certiorari Petition Is Fully Briefed

The most important of the three cases is, once again, Cantero v. Bank of America, N.A., No. 25-1313.

After the Second Circuit issued its May 5, 2026 decision on remand from the Supreme Court, again holding that New York’s interest-on-escrow law is preempted as applied to national banks, the Cantero petitioners filed a new petition for certiorari on May 22. The Supreme Court docketed the petition on May 27. 

The petition asks the Court to decide:

“Does the National Bank Act preempt the application of state interest-on-escrow laws to national banks?”

The briefing is now complete. Bank of America sought and received extensions of time to respond, and its opposition was filed on August 10, 2026. Thus, as of August 12, the petition is pending before the Supreme Court and is ready for the Court’s consideration at conference. 

This is potentially the most consequential of the three cases because it returns to the Supreme Court the very issue the Court addressed in 2024. The Court previously rejected the Second Circuit’s categorical approach and instructed courts to conduct a “practical assessment of the nature and degree of the interference” caused by state law. The Second Circuit’s May 2026 decision nevertheless concluded that New York’s law is preempted.

The new petition therefore gives the Supreme Court an opportunity to determine whether the Second Circuit actually followed the Court’s 2024 instructions or merely repackaged the same broad preemption theory in different terms.

Conti: Certiorari Was Denied, but the Rehearing Petition Remains Pending

The procedural history of Conti v. Citizens Bank, N.A., No. 25-1004, is more unusual.

Citizens Bank petitioned for certiorari from the First Circuit’s decision holding that Rhode Island’s interest-on-escrow law is not preempted. The Supreme Court denied the petition on April 20, 2026.

But that was not the end of the matter.

Following the Second Circuit’s May 5 decision in Cantero, Citizens Bank filed a petition for rehearing on May 11, arguing that the newly reinforced circuit conflict warranted reconsideration of the Court’s earlier denial of certiorari. The Supreme Court requested a response from John Conti, which was filed on July 8. The petition was distributed for consideration and then rescheduled on July 28.

Consequently, Conti is still pending before the Supreme Court—not on the original certiorari petition, which was denied, but on Citizens Bank’s petition for rehearing.

That distinction is important. A petition for rehearing is rarely granted. Nevertheless, the circumstances here are unusual because the petition for rehearing points to a development that occurred after the original certiorari denial: the Second Circuit’s May 5, 2026 decision expressly disagreed with the First Circuit and created an acknowledged circuit conflict over the meaning of the Supreme Court’s own 2024 Cantero decision.

Kivett: Ninth Circuit Case Is Also Pending on Certiorari

The third case is Kivett v. Flagstar Bank, N.A., No. 25-1350.

In October 2025, the Ninth Circuit held that its earlier decision in Lusnak remained good law after Cantero and that California’s interest-on-escrow law was not preempted. The Ninth Circuit denied rehearing on March 26, 2026. Flagstar then filed a petition for certiorari on June 1, 2026. 

The Supreme Court initially scheduled the petition for its June 25 conference. The Court subsequently requested a response, and the respondents sought and received an extension. Their opposition to certiorari was filed on July 30. 

Kivett therefore also remains pending before the Supreme Court.

The three cases now present the Court with three different procedural vehicles for addressing essentially the same national-bank-preemption question: Cantero comes from the Second Circuit and involves New York’s law; Conti comes from the First Circuit and involves Rhode Island’s law; and Kivett comes from the Ninth Circuit and involves California’s law.

The Three Cases Make the Oregon Litigation Particularly Interesting

The Supreme Court’s consideration of these three cases could have an immediate procedural consequence for the new Oregon litigation.

The Oregon complaint challenges the OCC’s Escrow Powers Rule and Preemption Rule largely on the ground that they are inconsistent with the Supreme Court’s decision in Cantero, as well as the First and Ninth Circuit decisions in Conti and Kivett. Indeed, the complaint expressly relies on the continuing circuit conflict and argues that the OCC’s categorical preemption approach is precisely the approach that Cantero rejected.

The OCC therefore has a strong argument for asking the Oregon district court to stay the litigation while the Supreme Court determines whether to grant review in one or more of these cases.

A stay would make practical sense. If the Supreme Court grants review in Cantero, Conti, or Kivett, its eventual decision could directly affect the central legal issue presented by Oregon’s complaint. The Supreme Court’s decision could establish the governing standard for determining whether state interest-on-escrow laws are preempted and could either validate or undermine the OCC’s principal rationale for its Preemption Rule.

There is an additional reason a stay could be attractive to the district court. The Oregon case is in the Ninth Circuit, and Kivett is itself a Ninth Circuit decision concerning California’s substantially similar interest-on-escrow law. Although Kivett does not bind the district court with respect to the validity of the OCC’s new rules in every respect, the Supreme Court’s treatment of Kivett could directly affect the preemption issue at the heart of the Oregon case.

It is therefore quite possible that the OCC’s first significant procedural move in Oregon will be a motion to stay pending the Supreme Court’s disposition of the pending escrow-interest cases.

Whether the district court would grant such a motion is a separate question. The Oregon plaintiffs could argue that their challenge is not merely a private preemption dispute between a borrower and a national bank. They are challenging the OCC’s administrative action under the APA and contend that the OCC exceeded the statutory authority Congress gave it, failed to comply with Dodd-Frank’s procedural requirements, and acted arbitrarily and capriciously. Those issues are not necessarily resolved by a Supreme Court decision addressing direct preemption of a particular state escrow-interest statute.

Nevertheless, the overlap is substantial. A Supreme Court decision holding that state interest-on-escrow laws are not preempted would seriously undermine the OCC’s Preemption Rule. Conversely, a decision upholding the Second Circuit’s approach could substantially strengthen the OCC’s defense.

For that reason, the Supreme Court’s next steps in Cantero, Conti, and Kivett may be almost as important to the Oregon litigation as the merits of the OCC’s new rules themselves.

A Potentially Important Convergence

The timing is striking. The OCC issued its two rules on May 15. The Second Circuit issued its new Cantero decision on May 5. The Cantero petition was filed May 22. The Kivett petition followed on June 1. The briefing in Cantero was completed on August 10, and the briefing in Kivett was completed on July 30. Meanwhile, the Conti rehearing petition remains pending.

Thus, when the Oregon lawsuit was filed on August 11, the Supreme Court already had before it three proceedings capable of determining the legal landscape in which the OCC’s rules must operate.

That convergence could make the new Oregon case an important fourth front in what has become a nationwide dispute over the scope of national-bank preemption.

The next few months may determine whether the Supreme Court takes up one of the existing cases or whether the Oregon litigation becomes the vehicle through which the OCC’s new preemption strategy is tested.

The Bigger Issue: Who Decides the Scope of National Bank Preemption?

This lawsuit comes at an especially important time in the continuing evolution of national bank preemption law.

For decades, the OCC advocated a broad conception of preemption. Congress responded in Dodd-Frank by establishing specific substantive and procedural limits. The Supreme Court subsequently reinforced those limits in Cantero by rejecting categorical preemption and requiring courts to examine the actual nature and degree of interference caused by state law.

The OCC’s new rules test how far those limitations extend.

The states’ central argument is that the OCC cannot transform “flexibility” into an independent federal banking power and then use that newly defined power to eliminate state regulation. If accepted, that theory would allow the OCC to make virtually any state consumer-protection requirement look like an interference with national bank discretion.

The states are asking the District Court to declare both rules unlawful and vacate them under the Administrative Procedure Act.

The case will therefore be closely watched not only by mortgage lenders and borrowers, but by banks, fintech companies, state financial regulators, consumer advocates, and anyone concerned about the continuing struggle between federal banking preemption and state consumer financial protection.

At bottom, the lawsuit asks a question that has been at the center of federal banking law for decades: When Congress gives a national bank a federal power, how much room remains for the states to regulate the manner in which that power is exercised? The Supreme Court’s answer in Cantero was that the answer cannot be determined categorically. It requires a practical assessment of the nature and degree of the state’s interference. The states now contend that the OCC has attempted to evade that command by creating a federal rule that makes the conflict categorical from the outset.

That makes this new lawsuit about much more than interest on mortgage escrow accounts. It could become another major chapter in the continuing battle over the proper limits of OCC preemption authority.