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States Sue OCC Over New Bank Escrow Rules
13 Aug
Summary
- New OCC rules permit banks to decide on paying escrow account interest.
- Ten states filed a lawsuit challenging the OCC's authority.
- Escrow accounts hold funds for property taxes and homeowners insurance.
A legal dispute has emerged concerning new federal regulations on mortgage escrow accounts. Ten state attorneys general filed a lawsuit on Tuesday in U.S. District Court in Oregon, challenging two Office of the Comptroller of the Currency (OCC) rules. These rules, effective June 18, empower national banks and federal savings associations to decide whether to pay interest on escrow balances.
The plaintiffs contend that the OCC overstepped its authority by issuing these rules, which they argue preempt state laws that mandate interest payments on escrow accounts. Escrow accounts typically hold funds collected from homeowners to cover annual property taxes and insurance premiums.
Previously, 14 states and U.S. territories required banks to pay interest on these accounts, with rates and methods varying by state. The lawsuit cites legal precedent suggesting Congress and courts have protected states' roles in consumer protection against federal preemption attempts.
Whether state-chartered banks will be directly affected is unclear, as some states have 'wild card' statutes allowing them to adopt federal rules. The outcome remains uncertain due to conflicting court decisions.
