The money has been there all along. Millions of homeowners send in a mortgage payment each month that includes a little extra money set aside for insurance and property taxes that aren’t due for months. The funds are kept in an escrow account. It also accrues interest while it waits. It used to, at least, in 14 states and territories. Ten states are currently suing to stop a new federal rule that is altering that picture.
The U.S. District Court for the District of Oregon received a joint lawsuit from the attorneys general of Oregon, New York, California, Connecticut, Maine, Maryland, Massachusetts, Minnesota, Rhode Island, and Vermont on August 11, 2026. The Office of the Comptroller of the Currency and Comptroller Jonathan Gould are their targets. The main grievance is that the OCC overreached its legal authority when it issued two regulations in May that essentially give national banks and federal savings associations the freedom to choose whether or not to pay interest on mortgage escrow balances, independent of state law.
On the surface, the disagreement is dry and technical. However, ordinary homeowners face real financial risks. For a typical American household, the annual cost of property taxes and homeowners insurance can easily reach $7,000 or more.
That escrow account has a significant float because borrowers make monthly contributions while taxes and insurance are typically only billed once or twice a year. A $5,000 balance with a 4% interest rate could yield a $200 annual return. That falls to roughly $31 at the current national average savings rate of 0.63%. The difference isn’t life-altering, but it’s also not insignificant.
Observing this develop gives the impression that the lawsuit is about more than a few hundred dollars per household. The states contend that the OCC’s regulations are an attempt to undermine established consumer rights in a manner that is just not allowed by federal law. The OCC must make preemption decisions on a case-by-case basis and provide substantial evidence to back them up in accordance with the Dodd-Frank Act. The states claim that the agency did neither, treating laws with disparate interest rates, coverage requirements, and enforcement strategies as though they were all the same.
The Supreme Court’s 2024 ruling in Cantero v. Bank of America serves as the legal basis for the states. In that case, the Court advocated for a practical, fact-specific analysis of whether a state law actually interferes with a bank’s federally granted powers, rejecting a broad, categorical approach to preempting state banking laws. The states contend that having to pay a small amount of interest on an escrow account only restricts a preferred profit practice and does not significantly interfere with bank power.
George Washington University law professor Arthur Wilmarth is one of the more vocal critics who contend that the OCC’s regulations exceed what Congress has approved. According to him, the action is similar to the agency’s discredited 2004 blanket preemption rules, which Congress specifically rejected in 2010 after determining they were a contributing factor in the financial crisis. Regulators who have observed this agency’s operations for decades appear cautious because, while history doesn’t always repeat, it occasionally rhymes.
The speed at which the court will proceed is still unknown. Regarding the lawsuit, the OCC has not made any public remarks. It is evident that the case presents a challenging question to a federal judge: who wins when federal regulators grant banks more flexibility and states claim that flexibility comes at the expense of consumers? For homeowners in California, New York, Oregon, and a dozen other states, it’s a question worth keeping an eye on even though the answer won’t be available right away.
