A legal challenge has been initiated against recently issued regulations from the Office of the Comptroller of the Currency. Ten state attorneys general filed suit in U.S. District Court in Oregon on Tuesday, naming the OCC and Comptroller Jonathan Gould as defendants. The lawsuit seeks to strike down two rules issued in May that became effective June 18.
The contested regulations address how federally regulated banking institutions handle escrow accounts—accounts into which homeowners deposit funds that are subsequently used to pay property taxes, homeowners insurance, and mortgage insurance. One rule permits national banks and federal savings associations to establish the terms of these accounts, including decisions about interest payments and fees. The second rule establishes that federal law supersedes state regulations when it concerns how OCC-regulated banks manage escrow account terms.
According to industry data, approximately 80% of mortgage holders maintain escrow accounts. Escrow balances can accumulate substantially throughout the year because homeowners make monthly deposits while property taxes and insurance are typically paid annually or semiannually. Using available benchmarks, average annual property taxes amount to $4,271 for owner-occupied homes, while homeowners insurance is projected to average $3,057 annually by the end of 2026.
Currently, 14 states and U.S. territories mandate that interest be paid on escrow balances, though the required rates vary significantly by jurisdiction. Rhode Island requires escrow accounts to earn the same interest as regular savings accounts, currently averaging 0.63%, while Maryland ties rates to one-year Treasury yields, currently near 4%. The financial impact varies correspondingly—a $5,000 balance could generate approximately $31.50 annually at 0.63% or roughly $200 at 4%.
State officials argue that the OCC overstepped its authority. The lawsuit emphasizes that Congress and courts have historically protected states’ role in consumer protection and prevented federal banking regulators from circumventing state borrower protections. Legal experts note that state-chartered banks may face similar pressures through parity statutes in some states, and uncertainty remains about whether affected banks will immediately alter their practices pending court decisions.
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