A legal challenge has been initiated against regulations issued by the Office of the Comptroller of the Currency regarding the treatment of mortgage escrow accounts. The lawsuit, filed in U.S. District Court in Oregon on Tuesday, was brought by ten state attorneys general and targets two OCC rules that became effective June 18.
The regulations in question permit national banks and federal savings associations under OCC supervision to determine the terms of escrow accounts independently, including decisions about interest payments and fees. The rules also establish that federal law takes precedence over state laws on this matter for OCC-regulated institutions. These rules were issued in May and codify existing authority that the OCC had previously asserted.
Mortgage escrow accounts serve a specific function within the lending system. Most homeowners—approximately 80% of mortgage holders—have escrow accounts where they deposit money monthly that is subsequently used to pay property taxes, homeowners insurance, and mortgage insurance. Because property taxes and insurance premiums are typically paid annually or semiannually, these accounts can accumulate substantial balances throughout the year. The average annual property tax bill among owner-occupied homes in the U.S. was $4,271 in 2024, and homeowners insurance costs are projected to average $3,057 by the end of 2026.
Currently, fourteen states and U.S. territories have laws mandating that interest be paid on escrow balances, with rates varying by jurisdiction. Rhode Island requires escrow accounts to earn interest comparable to regular savings accounts, while Maryland bases rates on one-year Treasury yields. Traditional savings account rates average 0.63%, whereas one-year Treasury yields are approximately 4%. The financial implications differ substantially depending on the rate applied—a $5,000 balance at 0.63% annually generates roughly $31.50 in interest, compared to $200 at a 4% rate.
The states argue that the OCC exceeded its statutory authority in issuing these rules, citing legal precedent and legislation that they contend preserves states’ authority in consumer protection matters. Financial services legal experts note that state-chartered banks are not directly affected by the new rules, though some states have provisions that could allow them to follow the federal approach. The ultimate impact on homeowners remains uncertain, as conflicting court decisions in different jurisdictions may influence how banks implement these regulations.
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