Ten US states sue banking regulator over mortgage escrow rules

Ten U.S. states, including Oregon, California, Connecticut, Maine, Maryland, Massachusetts, Minnesota, New York, Rhode Island, and Vermont, have filed a lawsuit against the Office of the Comptroller of the Currency (OCC). The legal challenge, filed in the U.S. District Court for the District of Oregon, contests two new rules issued by the OCC in May.

The rules grant national banks and federal savings associations the discretion to decide whether to pay interest on funds held in mortgage escrow accounts. This effectively allows these institutions to bypass state laws in 12 states and two territories that require lenders to pay homeowners interest on the money held for property taxes and insurance.

Plaintiffs argue that the OCC has exceeded its congressional authority and is attempting to circumvent restrictions established by the Dodd-Frank Act. State officials contend that these changes could cost homeowners significant amounts of money annually, potentially increasing the financial burden on residents already facing high housing costs.