10 States Sue OCC Over New Escrow Interest Rules

Ten states filed a lawsuit on August 11, 2026, challenging new regulations from the Office of the Comptroller of the Currency (OCC) that could eliminate interest payments on mortgage escrow accounts. Led by Oregon, the coalition of attorneys general argues that two specific provisions, the Escrow Powers Rule and the Preemption Rule, are unnecessary and undermine state laws requiring financial institutions to pay interest on funds held in escrow. These rules, described as a "twin-regulation" framework, aim to strip states of their authority to enforce these interest-on-escrow laws against national banks and federal savings associations.

When homeowners take out a mortgage, their monthly payments typically include principal, interest, and funds for an escrow account. This escrow account is used to pay for homeowners insurance premiums, property taxes, and mortgage insurance, if applicable. According to Lereta, approximately 80% of mortgage holders utilize escrow accounts. Currently, 14 states and U.S. territories have laws mandating that banks pay interest on the balances held within these escrow accounts. The states involved in the lawsuit—Oregon, New York, California, Connecticut, Maine, Maryland, Massachusetts, Minnesota, Rhode Island, and Vermont—contend that the OCC's new regulations are arbitrary and capricious and that Congress, in its 2006 amendments to federal laws governing escrow accounts for certain mortgages, explicitly stated that national banks must pay interest as required by applicable state or federal laws. The lawsuit seeks to preserve the states' ability to ensure their residents receive fair compensation on these held funds.

The core of the dispute lies in the interpretation of federal preemption and state consumer protection laws. The states argue that the OCC overstepped its authority by issuing rules that effectively preempt state-level consumer protections related to escrow accounts. They believe that the previous federal amendments did not grant national banks immunity from state-mandated interest payments on escrow balances. The attorneys general involved are committed to protecting consumers from potential financial losses, estimating that millions of dollars in interest payments could be at stake annually across the affected states. The legal action signifies a significant clash between federal regulatory power and state consumer protection initiatives, with the outcome potentially impacting a substantial portion of the U.S. homeowner population that relies on escrow accounts.