10 States Sue To Stop Big Banks From Keeping Homeowners’ Escrow Interest
By CU Today Staff —
PORTLAND. Ore.--Ten states have sued the Office of the Comptroller of the Currency seeking to block rules that allow national banks to sidestep state laws requiring lenders to pay interest on funds held in mortgage escrow accounts, according to Bloomberg Law.
The lawsuit, filed Tuesday in U.S. District Court in Oregon, argues the OCC exceeded its authority under the National Bank Act and violated limits Congress placed on federal preemption in the Dodd-Frank Act.
“Congress has not delegated such boundless authority to the OCC,” the states said in the complaint, according to Bloomberg Law. “To the contrary, Congress placed strict substantive and procedural limits on the OCC’s ability to make preemption determinations when it enacted Dodd-Frank.”
California, Connecticut, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island and Vermont joined the lawsuit.
The OCC finalized the rules in May, concluding that state interest-on-escrow requirements significantly interfere with national banks’ ability to exercise their federally authorized real estate lending powers. The agency said differing state requirements create compliance and operational burdens and argued the rules could provide greater certainty and potentially encourage increased real estate lending. The OCC identified laws in roughly a dozen states requiring specified interest payments on mortgage escrow funds.
The dispute follows a 2024 Supreme Court ruling directing lower courts to more closely examine whether state escrow interest laws “significantly interfere” with national bank powers. Bloomberg Law reported the Second Circuit subsequently ruled against New York’s 2% requirement, while the First and Ninth circuits have allowed similar Rhode Island and California requirements to apply to national banks. The Supreme Court is now considering a petition from New York homeowners seeking another review of the issue.
Originally reported by CU Today.