Lawsuit challenges new bank rules

Key Points:

• Ten state attorneys general have filed a federal lawsuit challenging new Office of the Comptroller of the Currency (OCC) rules that allow certain banks to avoid paying interest on mortgage escrow account balances, arguing these rules preempt state laws designed to protect consumers.
• The OCC's new rules, effective June 18, grant national banks and federal savings associations the authority to set terms for escrow accounts, including whether to pay interest, effectively overriding state laws in 14 states and territories that require interest payments on such accounts.
• Escrow accounts hold funds for property taxes and homeowners insurance, which can accumulate significant balances throughout the year; interest rates required by state laws vary, with some states mandating rates tied to savings accounts or U.S. Treasury yields.
• Plaintiffs contend the OCC exceeded its authority and cite legal precedents supporting states' rights to regulate consumer protections, while some state-chartered banks may adopt similar practices due to parity laws, potentially affecting homeowners' interest earnings depending on the bank's charter and jurisdiction.
• The impact on whether homeowners will lose escrow interest payments remains uncertain due to conflicting court decisions and varying responses by banks across different federal districts.