A coalition of state attorneys general initiated legal action against the Office of the Comptroller of the Currency, challenging two rules issued in May that became effective in June. The rules permit national banks and federal savings associations regulated by the OCC to establish their own terms for mortgage escrow accounts without regard to state-mandated interest payments.
Mortgage escrow accounts hold funds designated for property taxes, homeowners insurance, and mortgage insurance payments. Approximately 80% of mortgage holders maintain such accounts. Since property taxes and insurance premiums are typically paid annually or semiannually while homeowners make monthly escrow contributions, these accounts accumulate substantial balances throughout the year. Based on recent data, the average annual property tax bill reaches approximately $4,271, while homeowners insurance costs are projected to average $3,057 annually by the end of this year.
Fourteen states and U.S. territories currently have laws requiring interest payments on escrow balances, with rates varying by jurisdiction. Some states mandate interest matching regular savings account yields, while others tie rates to U.S. Treasury instruments. Current savings account rates average 0.63% annually, whereas one-year Treasury yields approach 4%. The actual interest earned depends on account balance calculations and applicable rates set by each state.
The plaintiffs contend the OCC exceeded its regulatory authority and cite legal precedent suggesting states retain central responsibility for consumer protection in lending practices. The lawsuit was filed in U.S. District Court in Oregon. State-chartered banks face indirect impacts through reciprocity provisions in certain state banking laws that permit parity with national bank practices. Legal experts note uncertainty regarding whether banks will immediately modify existing practices given conflicting precedent in different federal courts.
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