New Federal Rules Could End Escrow Interest for Some Homeowners

A rule change is moving through the courts right now, and it touches a part of your mortgage payment most people never think about. Escrow. If you have a mortgage with a national bank, the interest you used to earn on your escrow balance could go away.
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Here's what happened, who it affects, and the one part of your escrow bill you actually have some say over.
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What the OCC did
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On May 15, 2026, the Office of the Comptroller of the Currency (OCC) issued two rules. The OCC is the federal agency that regulates national banks and federal savings associations. The rules took effect June 18.
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The first rule says national banks get to set the terms of their own mortgage escrow accounts. That includes whether they pay you any interest on the money sitting in there.
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The second rule says federal law overrides state escrow-interest laws in 14 states and territories. For years, those states required lenders to pay homeowners a minimum interest rate on escrow balances. New York has required it since 1974.
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The affected jurisdictions are California, Connecticut, Guam, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, the U.S. Virgin Islands, Utah, Vermont, and Wisconsin.
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Why states are fighting back
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On August 11, 2026, ten state attorneys general sued the OCC in federal court in Oregon. Oregon and New York are leading the group.
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Their argument is that the OCC went past the limits Congress set on federal preemption under the Dodd-Frank Act. They want a judge to throw both rules out. You can read New York Attorney General Letitia James's statement on the lawsuit for the states' side of it.
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The case is still open. Nothing is settled yet. But if the rules stand, national banks in those 14 places won't have to pay escrow interest anymore.
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Does this actually affect you?
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Maybe. It comes down to two things.
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First, who services your loan. The rules apply to national banks and federal savings associations. Plenty of mortgages are serviced by companies that aren't national banks, and those servicers still follow state law. So the change doesn't reach everyone.
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Second, where you live. If your state was never on the interest-on-escrow list, you weren't earning escrow interest in the first place, so nothing changes for you.
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The homeowners most likely to feel this are the ones in the 14 affected states with a loan at a national bank.
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Even where it applies, the dollar amounts are usually small. State minimum rates vary a lot. Connecticut's required rate for 2026 is 0.5 percent. Minnesota generally requires 3 percent. On a typical escrow balance, that works out to a modest yearly figure, not a life-changing one. It's still your money though, and losing it stings.
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If you're wondering why an escrow account exists at all, it's mostly there to protect the lender. It guarantees your taxes and insurance get paid on time so the loan collateral stays protected. That same logic is why a lender can force coverage on you if your policy lapses, which we cover in our guide to lender-placed insurance.
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The part of your escrow bill you can actually influence
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You can't control the bank-interest rule. You can't control your property tax bill either. Your county sets that.
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But escrow pays two big things: property taxes and homeowners insurance. The insurance piece is the one part of that account where your choices matter.
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About 80 percent of mortgage holders pay their insurance and taxes through escrow, according to Lereta, a firm that handles tax and flood data for mortgage servicers. When your insurance premium goes up, your escrow payment goes up with it at the next annual review. That's usually the bigger reason a mortgage payment climbs, not the interest question. We break down the full list of causes in why your mortgage payment increased.
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Insurance costs have been climbing across the board. Cotality projected homeowners insurance premiums rising around 8 percent nationally in 2026. Higher premiums feed straight into higher escrow payments. Where you live drives a big share of that number, which we explain in how location affects your home insurance costs.
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You can't stop your county from raising taxes. You can review your homeowners policy. Rates and coverage options vary by carrier and state, so checking where your coverage stands is a smart habit, especially at renewal. See our complete home insurance guide for what to look at, and re-shopping your home insurance for how the process works.
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What to do right now
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Start with three quick checks.
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Check who services your loan. Your monthly statement lists it. If it's a national bank in one of the 14 affected states, keep an eye on your next escrow analysis for a change in the interest line.
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Read your escrow analysis statement when it arrives. It shows what got paid out for taxes and insurance and whether your account came up short. If you want a plain-English primer first, the CFPB explains how escrow accounts work.
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Look at your homeowners policy. This is the piece you can act on. If your premium jumped, that's what's pushing your escrow payment higher. Reviewing your coverage each year helps you see what's driving that number and whether your policy still fits. If you already switched or are thinking about it, read what happens when you change your policy after closing.
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Where this goes next
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The lawsuit will take months to resolve. If the court sides with the states, the OCC rules get vacated and the state interest laws stay in force. If it sides with the OCC, national banks keep the discretion to skip escrow interest. We'll update this post as the case moves.
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For now the practical takeaway is simple. The interest question is mostly out of your hands. The insurance side of your escrow account isn't.
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Covered is a licensed insurance agency. Not all carriers or products are available through Covered. Availability varies by state. Compensation may be received from carriers.

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