A coalition of ten state attorneys general initiated legal proceedings on Tuesday to challenge federal regulations issued by the Office of the Comptroller of the Currency. The contested rules, which took effect on June 18, permit national banks and federal savings associations regulated by the OCC to establish their own terms for mortgage escrow accounts, including decisions about interest payments and fees.
The regulations consist of two components: one codifies the authority of OCC-regulated institutions to determine escrow account terms, while the other establishes that federal law takes precedence over state statutes governing these matters for federally chartered banks. The lawsuit, filed in U.S. District Court in Oregon, names the OCC and Comptroller Jonathan Gould as defendants and argues the agency exceeded its statutory authority.
Mortgage escrow accounts hold funds for property taxes, homeowners insurance, and mortgage insurance premiums. Approximately 80% of mortgage holders maintain such accounts, according to industry data. Because property taxes and insurance premiums are typically paid annually or semiannually, these accounts accumulate substantial balances throughout the year. Current estimates place average annual property tax bills at $4,271 and average homeowners insurance costs at approximately $3,057.
Currently, fourteen states and territories mandate interest payments on escrow balances, with rates varying by jurisdiction. Rhode Island requires accounts to earn savings account interest rates, while Maryland ties rates to one-year U.S. Treasury yields. The difference is substantial: savings accounts currently average 0.63% interest annually, compared to approximately 4% for Treasury yields, meaning a $5,000 balance could generate between $31.50 and $200 annually depending on applicable rates.
State attorneys general contend the OCC overstepped its authority and violated established legal precedent protecting state consumer protection measures. Experts note uncertainty about whether banks will immediately alter practices, as conflicting court decisions across federal jurisdictions may influence compliance strategies. State-chartered banks remain unaffected by the rules, though some states contain provisions allowing those institutions parity with national banks’ practices.
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