State Regulators, Consumer Groups Push Back On Occ’s Escrow Account Proposals

State regulators and consumer advocates are pushing back against two proposals from the Office of the Comptroller of the Currency (OCC) that would expand banks’ authority over escrow accounts and assert that federal law preempts state rules that govern these accounts. 

In a joint letter, the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) said the proposals exceed the OCC’s “authority, ignore legal precedent, and would benefit national banks at the expense of homeowners.”

The National Consumer Law Center (NCLC) echoed these concerns, warning that the proposals would reduce price transparency, create an unlevel playing field for competition and make homeownership more expensive for consumers.

In December, the OCC proposed a rule to formally codify banks’ authority to manage real estate escrow accounts, including discretion over their terms, compensation and fees. Another proposal would also establish that federal law preempts state rules that restrict banks’ ability to decide whether to pay interest on escrow funds or charge related fees.

Opponents argue the changes would exempt national banks from paying interest to homeowners on funds held in mortgage escrow accounts for property taxes and insurance.

Currently, 12 states — California, Connecticut, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Utah, Vermont and Wisconsin — have laws designed to discourage banks from inflating escrow balances to benefit from interest-free funding. Roughly 30% of the nation’s mortgages are located in these states, the groups said.

“The OCC cannot regulate around Congress and the courts,” Brandon Milhorn, CSBS president and CEO, said in a statement. “The OCC’s interest-on-escrow regulatory proposals would erode 50 years of state law designed to protect consumers.”

The groups also warned that the proposals would disadvantage institutions that would continue to pay interest under state consumer protection laws, including state-chartered banks and nonbank mortgage servicers.

“This power grab by the OCC will allow national banks to require home buyers to make their tax and insurance payments into non-interest bearing accounts,” Carolyn Carter, senior attorney at NCLC, said in a statement. “It will allow national banks to effectively charge a hidden back-end fee by withholding interest on a homeowner’s money.”