On May 19, 2026, the Office of the Comptroller of the Currency published a rule that declares Minnesota’s mortgage-escrow interest law preempted for national banks. It took effect June 18. Minnesota and nine other states sued in August. On October 5 the Supreme Court asked the Solicitor General for the government’s views in three escrow-interest cases still pending on its docket.
That’s the headline. Here’s what the headline leaves out. Read Minnesota’s statute and you’ll find the interest requirement only reaches escrow accounts on mortgage loans made before July 1, 1996. Run the arithmetic on a 30-year loan signed in June 1996 and its last scheduled payment lands around the middle of 2026, right about when the federal rule took effect.
So a federal regulator spent a rulemaking preempting a Minnesota interest mandate that Minnesota had already mostly retired. That doesn’t make the fight small. It makes it about something bigger than your $90.
What did the OCC actually do?
Two things, on the same day, in the same issue of the Federal Register.
The first is what the OCC calls its Escrow Powers Rule. It adds a two-sentence paragraph, 12 C.F.R. § 34.3(d), saying national banks may keep escrow accounts and that the terms are theirs to set:
The terms and conditions of any such escrow account, including the investment of escrowed funds, fees assessed for the provision of such accounts, or 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.
A matching provision covers federal savings associations at 12 C.F.R. § 160.30(b).
The second is the preemption determination, codified at a new 12 C.F.R. § 34.7. Here’s the operative sentence:
The OCC has determined that Federal law preempts State laws that restrict a national bank’s or Federal savings association’s flexibility to decide whether and to what extent to pay interest or other compensation on funds placed in escrow accounts or assess fees for such accounts . . . .
Then it lists fourteen jurisdictions. Number seven is “Minnesota: Minn. Stat. Ann. sec. 47.20, subd. 9”.
Why do banks escrow at all? The Supreme Court put it plainly in 2024: the arrangement protects “the loan collateral (the home) against tax foreclosure or uninsured damage.” Lenders like having the tax money in hand. For how far an unpaid Minnesota tax bill can go, see our piece on tax forfeiture after Tyler.
Notice the order. The OCC wrote a rule saying escrow terms are the bank’s call, then found that state escrow laws conflict with it. The determination says so outright: “The conflict is especially clear in light of the OCC’s concurrent Escrow Powers Rule.” The states call that a manufactured conflict.
The agency didn’t pretend borrowers come out ahead. In its own footnote: “While these rules are likely to impact certain mortgage borrowers, the flexibility that they provide to institutions (including the flexibility to reduce borrower costs in other areas in lieu of providing minimal interest on escrow accounts) will help to support efficient and effective mortgage lending . . . .” And in its unfunded-mandates analysis it predicted the rule “will likely result in a decrease in expenditures from OCC-supervised entities that may elect not to pay interest on funds held in escrow accounts”. That’s a bank’s saved expense. It’s also a borrower’s lost interest. Same dollar.
What Minnesota’s law actually says
Minnesota’s rule sits in the lending-authority statute, Minn. Stat. § 47.20, subd. 9, the same section whose subdivision 4a shows up in Minnesota’s usury rules. It reaches a wide set of lenders. “Mortgagee” there means “all state banks and trust companies, national banking associations, state and federally chartered savings associations, mortgage banks, savings banks, insurance companies, credit unions or assignees of the above.”
Here’s the interest requirement in paragraph (a). It applies to escrow for taxes or homeowner’s insurance on a “one-to-four family, owner-occupied residence located in this state,” and the mortgagee:
shall calculate interest on such funds at a rate of not less than three percent per annum.
The interest is figured on the average monthly balance over the prior 12 months and credited once a year to your principal, or, at the lender’s election, paid to you or credited to your account.
Then come the carve-outs. Paragraph (a) doesn’t apply if the escrow account is required by federal law or regulation, if the loan is a conventional loan above 80 percent of the lender’s appraised value when made, or if the loan is insured or guaranteed by HUD, the VA, or the Farmers Home Administration or its successor.
And then the last sentence of paragraph (a):
The requirement to pay interest shall apply to such accounts created in conjunction with mortgage loans made prior to July 1, 1996.
That sentence came from Laws 1996, chapter 414, article 1, section 8. Before that amendment, the statute required five percent and said it applied to accounts “created prior to June 1, 1976, as well as to accounts created after June 1, 1976.” The 1996 Legislature struck that language, cut the rate to three percent, and put in the July 1, 1996 cutoff.
Compare the very next paragraph. Paragraph (b), the right to stop escrowing, says: “This paragraph shall apply to accounts created prior to July 1, 1996, as well as to accounts created on or after July 1, 1996.” The Legislature knew how to write both. In paragraph (a) it didn’t. The ten states read it the same way in their own complaint: “Minnesota requires lenders to pay borrowers at least 3% interest on funds paid into escrow accounts created in conjunction with mortgage loans made prior to July 1, 1996.”
The OCC’s determination never names that cutoff.
The money, worked out
An illustration with invented numbers, not anyone’s actual account. Say your escrow account averages $3,000 across the year once tax and insurance disbursements are netted out.
- At Minnesota’s current three percent: $3,000 × 0.03 = $90 a year, credited to your principal or paid to you.
- At the pre-1996 five percent: $3,000 × 0.05 = $150 a year.
- From a national bank under the OCC’s rule: whatever the bank decides, and that can be zero.
Ninety dollars won’t change anybody’s life. Multiply numbers like that across every covered account in fourteen jurisdictions, every year, and you see why banks filed comments and states filed suit.
What Cantero required, and what Dodd-Frank requires
The OCC didn’t invent this question. The Supreme Court took it up in Cantero v. Bank of America, N.A., 602 U.S. 205 (2024), over New York’s two-percent law. A unanimous Court didn’t decide whether New York’s law was preempted. It told the Second Circuit it had used the wrong test and sent the case back.
The test comes from Dodd-Frank, codified at 12 U.S.C. § 25b. A state consumer financial law is preempted “only if” it discriminates against national banks, is preempted by some other federal statute, or, the one that matters here, under the standard of Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25 (1996):
the State consumer financial law prevents or significantly interferes with the exercise by the national bank of its powers . . . .
Cantero explained how a court applies that:
A court applying that Barnett Bank standard must make a practical assessment of the nature and degree of the interference caused by a state law.
602 U.S. at 219–20. The Court faulted the Second Circuit for building “a categorical test that would preempt virtually all state laws that regulate national banks, at least other than generally applicable state laws such as contract or property laws.” Id. at 220–21. It also noted that Dodd-Frank “ruled out field preemption.” Id. at 213. And then a line I’d frame for my wall: “We appreciate the desire by both parties for a clearer preemption line one way or the other.” Id. at 221. Nobody got one. (For a different preemption fight with Minnesota stakes, see Monsanto v. Durnell.)
One more detail. The Court flagged, as something the Second Circuit “may address as appropriate on remand”, “the significance here (if any) of the preemption rules of the Office of the Comptroller of the Currency”. Id. at 221 n.4. The OCC has now written those rules.
On remand, the Second Circuit held New York’s law preempted a second time: “Having done so, we again conclude that GOL § 5-601 is preempted.” Cantero v. Bank of America, N.A., Nos. 21-400, 21-403 (2d Cir. May 5, 2026), reproduced in Pet. App. 7a, No. 25-1313. The dissent said the majority “trudges through a strained analysis of the Supreme Court’s precedents to reach an approach that is just as capacious.” Id., Pet. App. 29a (Pérez, J., dissenting). The OCC’s own determination admits the First and Ninth Circuits “reached the opposite result, creating a circuit split.”
Dodd-Frank also put procedural limits on the OCC. A preemption determination by the Comptroller has to be made “on a case-by-case basis,” which the statute defines as a determination “concerning the impact of a particular State consumer financial law on any national bank that is subject to that law, or the law of any other State with substantively equivalent terms.” 12 U.S.C. § 25b(b)(1)(B), (b)(3)(A). Before calling another state’s law substantively equivalent, the Comptroller must consult the CFPB. § 25b(b)(3)(B). And no OCC preemption rule can knock out a state law:
unless substantial evidence, made on the record of the proceeding, supports the specific finding regarding the preemption of such provision . . . .
§ 25b(c).
Why the states say the OCC skipped the work
The OCC analyzed New York’s statute in detail and then handled the other thirteen in one paragraph and three footnotes. It conceded that “the specific provisions of these laws vary to some degree,” then concluded that “each State law has the same effect: depriving national banks of the flexibility to exercise the discretion that Federal law, as confirmed in the OCC’s Escrow Powers Rule, vests in them.” Footnote 84 adds the closest thing to a state-by-state look: “For example, the State laws have varied scoping provisions. These distinctions do not undermine the OCC’s determination that these state laws have substantively equivalent terms.” On the CFPB consultation, the whole account is two sentences, and the second one reads: “The CFPB concurred with the OCC’s determination and reasoning.”
On evidence, the OCC said the quiet part in a footnote: “The OCC has not relied on any technical studies or data for its analysis in this preemption determination, nor is it required to do so.” Its position is that “National Bank Act preemption is fundamentally a question of law”.
The states’ complaint, filed August 11, 2026 in State of Oregon v. Office of the Comptroller of the Currency, No. 3:26-cv-01672-SI (D. Or.), brings two counts under the Administrative Procedure Act: action in excess of statutory authority and contrary to law, and arbitrary-and-capricious action. It accuses the OCC of “lumping the remaining thirteen laws together without any reasoning”, and calls the Escrow Powers Rule “a pretext to manufacture a conflict”. It points out how different the laws really are. Oregon’s rate is tied to Treasury bills “and thus in certain years has required banks to pay no interest at all.” Massachusetts lets the bank set the rate. Minnesota’s applies only to pre-July-1996 loans.
Minnesota’s law makes the states’ case better than any brief could. If you’re doing a “particular”, case-by-case assessment, an interest rule that stops at loans made before July 1, 1996 is about as particular as it gets. The OCC did say scoping differences don’t matter. It never said which ones it looked at, and it never named Minnesota’s.
Now the other side, in its best form. The OCC says the Barnett standard doesn’t require proof of financial harm, and that demanding it would make preemption turn on “bank size and activity, economic conditions, and geography.” It says forced interest pushes banks to recover the cost elsewhere, possibly through higher mortgage pricing, and it reports a commenter’s case study of Iowa’s repeal concluding “that the majority of interest payments pre-repeal were passed on to consumers via higher origination fees”. And it has a federal appeals court that agrees with it on New York. That’s a serious argument.
The states ask the court to declare both rules unlawful and vacate them. On October 5, 2026, a motion went on the docket to transfer the case or dismiss it, docketed as a motion to change venue and to dismiss for lack of jurisdiction and for failure to state a claim.
Two rooms, one question
The same day that motion was docketed, the Supreme Court entered the same order in three cases:
The Solicitor General is invited to file a brief in this case expressing the views of the United States.
The three are Cantero v. Bank of America, N.A., No. 25-1313, where the borrowers are asking the Court to review their second loss; Flagstar Bank, N.A. v. Kivett, No. 25-1350, where a bank is asking the Court to review the Ninth Circuit’s ruling against it; and Citizens Bank, N.A. v. Conti, No. 25-1004, where the Court denied review on April 20, 2026 and a petition for rehearing is pending.
So the question of whether a state can make a national bank pay interest on your escrow is sitting in a federal courtroom in Portland and on the Supreme Court’s docket at the same time. In 2024, the United States appeared in Cantero as amicus curiae supporting vacatur of the Second Circuit’s first pro-bank ruling. Since then, the government’s own bank regulator has picked a side by rule. Now the Court wants the government’s brief. Whatever it files, it’ll be reading its own regulator’s homework.
How this ends, nobody knows yet.
What a Minnesota borrower can do now
- Pull your annual escrow statement. Federal law requires your servicer to send one, itemizing what went in, what went out, and “the balance in the escrow account at the conclusion of the period.” 12 U.S.C. § 2609(c)(2)(A). Look for an interest line. Most people have never noticed whether there is one.
- Find the date your loan was made. If it’s before July 1, 1996, and it isn’t FHA, VA, or a conventional loan over 80 percent of appraised value, Minnesota’s three-percent rule was written for you. If it’s after, paragraph (a)’s interest rule, by its own words, doesn’t reach your account, no matter who holds it.
- Find out who holds your loan and what charter it has. The OCC’s determination covers national banks and federal savings associations. It doesn’t name state-chartered banks, credit unions, or mortgage banks, and Minnesota’s statute lists all three as mortgagees. The FDIC’s BankFind Suite will tell you a bank’s charter, and the NCUA’s Credit Union Locator covers credit unions. The company that sends your statement may be servicing the loan for someone else, so ask who holds it.
- Know the exit ramp. Separate from interest, § 47.20, subd. 9(b) and (d) let you elect, in writing, to stop escrowing after the fifth anniversary of your mortgage, unless you’ve been more than 30 days delinquent in the previous 12 months or the account is one of the exempt types in paragraph (a). A negative balance or shortage has to be cleared first. The lender has to return the remaining funds within 60 days of your written notice under paragraph (f). The OCC’s determination says provisions that “do not relate to interest-on-escrow or fees” are “outside the scope of this preemption determination.” By my reading, that leaves the exit right standing even against a national bank. The no-fee rule in paragraph (g) is another story, because fees are squarely inside the OCC’s text.
- Ask, in writing. If you think you were owed interest and didn’t get it, or you were charged a fee to administer or leave your escrow, put the question to the servicer and keep the answer.
Your escrow balance is your money sitting in the bank’s account. Minnesota decided in 1996 that new loans wouldn’t earn anything on it. The OCC decided in 2026 that, for national banks, it gets the last word either way. The second decision is the one in court.
Madgett Law, LLC represents Minnesota homeowners and consumers in disputes with banks, mortgage lenders, and servicers, including escrow and fee disputes, consumer-finance claims, and foreclosure litigation, whether by advertisement or by action. If your servicer’s escrow statement doesn’t add up, send us a message or call 612-470-6529.
Sources: Office of the Comptroller of the Currency, Preemption Determination: State Interest-on-Escrow Laws, 91 Fed. Reg. 29350 (May 19, 2026) (Docket ID OCC-2025-0735; RIN 1557-AF45; FR Doc. 2026-10037; effective June 18, 2026), including 12 C.F.R. § 34.7(b) and (b)(7) (the determination and the Minnesota listing); Part I.B n.17 (“likely to impact certain mortgage borrowers”); n.22 (no technical studies or data); Part I.B, preemption-standard discussion (“fundamentally a question of law”; financial harm not required); n.16 (commenter’s Iowa case study); Part I.A (First and Ninth Circuits; “circuit split”); Part II.D (“especially clear in light of the OCC’s concurrent Escrow Powers Rule”; recoupment through mortgage pricing); Part II.E and nn.84–85 (thirteen substantively equivalent laws; n.84 “varied scoping provisions”; “vary to some degree”; CFPB concurrence; provisions outside the scope); Part III, Unfunded Mandates Reform Act discussion (“decrease in expenditures”), federalregister.gov. Office of the Comptroller of the Currency, Real Estate Lending Escrow Accounts, 91 Fed. Reg. 29340 (May 19, 2026) (Docket ID OCC-2025-0736; RIN 1557-AF46; effective June 18, 2026), corrected 91 Fed. Reg. 38991 (June 29, 2026), amending 12 C.F.R. § 34.3(d) and § 160.30(b), federalregister.gov. Minn. Stat. § 47.20, subd. 9 (definition of “mortgagee”; paragraph (a), the three-percent rate, the computation and crediting method, the exemptions, and the July 1, 1996 limitation; paragraph (b), the right to discontinue escrow and its application to accounts created before and after July 1, 1996; paragraph (d), the fifth-anniversary trigger; paragraph (f), return of funds within 60 days; paragraph (g), the fee prohibitions), Minnesota Office of the Revisor of Statutes; Laws 1996, ch. 414, art. 1, § 8 (amending subd. 9: five percent to three percent; replacing the June 1, 1976 language with the July 1, 1996 limitation), Minnesota Office of the Revisor of Statutes. 12 U.S.C. § 25b(b)(1), (b)(3)(A)–(B), and (c) (preemption only if; Barnett Bank standard; case-by-case basis; CFPB consultation; substantial evidence), Cornell Legal Information Institute. 12 U.S.C. § 2609(c)(2)(A) (annual escrow account statement), Cornell Legal Information Institute. Cantero v. Bank of America, N.A., 602 U.S. 205 (2024) (Kavanaugh, J., for a unanimous Court), at 211 (escrow protects “the loan collateral (the home) against tax foreclosure or uninsured damage”), 213 (Dodd-Frank “ruled out field preemption”), 219–20 (“practical assessment of the nature and degree of the interference”), 220–21 (rejecting “a categorical test”), 221 (no “clearer preemption line”), and 221 n.4 (OCC preemption rules left for remand), and at 208 (listing of counsel: the United States as amicus curiae supporting vacatur), supremecourt.gov. Cantero v. Bank of America, N.A., Nos. 21-400, 21-403 (2d Cir. May 5, 2026), majority opinion at Pet. App. 7a and dissenting opinion of Pérez, J., at Pet. App. 29a, as reproduced in the Appendix to the Petition for a Writ of Certiorari, No. 25-1313, supremecourt.gov. Supreme Court of the United States, dockets in No. 25-1313 (Cantero v. Bank of America, N.A.), No. 25-1350 (Flagstar Bank, N.A. v. Kivett), and No. 25-1004 (Citizens Bank, N.A. v. Conti) (orders of Oct. 5, 2026 inviting the Solicitor General; denial of certiorari in No. 25-1004 on Apr. 20, 2026 and the pending petition for rehearing), supremecourt.gov. Complaint, State of Oregon v. Office of the Comptroller of the Currency, No. 3:26-cv-01672-SI (D. Or. filed Aug. 11, 2026), ECF No. 1, ¶¶ 11, 16, 44, 45, 90, Counts 1 and 2, and Prayer for Relief — a party’s pleading, not a court finding; and docket entry 16 (Oct. 5, 2026) (motion docketed as change/transfer venue, dismiss, dismiss for failure to state a claim, and dismiss for lack of jurisdiction), RECAP archive, CourtListener.
This article is general legal information about Minnesota and federal law, not legal advice, and reading it does not create an attorney–client relationship. It describes rules, pleadings, and decisions in proceedings involving other parties; nothing here predicts how any court will rule or applies the law to any reader’s loan. No outcome is promised or implied.