Maryland sues OCC over new mortgage escrow interest rules

New federal regulations from the Office of the Comptroller of the Currency (OCC) may allow national banks and federal savings associations to stop paying interest on mortgage escrow accounts. These rules, which took effect June 18, grant lenders discretion over whether to pay interest on funds collected for property taxes and insurance, regardless of state laws.

Maryland is among the states where this change could have a significant impact. Under state law, lenders are required to pay annual interest on escrow balances at a rate tied to one-year U.S. Treasuries, which is currently near 4 percent. This is substantially higher than the average traditional savings account rate.

Maryland has joined a lawsuit against the OCC, arguing that the agency exceeded its congressional authority and is attempting to bypass restrictions set by the Dodd-Frank Act. The state also contends that the rule creates unfair competition, as smaller state-chartered banks must still follow Maryland's interest requirements while national banks may opt out.