Ten states sue federal banking regulator over escrow interest rule

Ten states, spearheaded by Oregon Attorney General Dan Rayfield, have brought a joint legal action against the Office of the Comptroller of the Currency to overturn two May rules that nullify state laws requiring mortgage lenders to pay interest on escrowed tax and insurance funds. The federal rules assert that federal law preempts such state mandates and allow banks to decide whether to credit interest or impose fees.

The states contend the policy robs homeowners of earned interest and benefits large banks, while also disadvantaging state-chartered banks. Attorneys general from Oregon, California, New York, Connecticut, Maine, Maryland, Massachusetts, Minnesota, Rhode Island and Vermont joined the suit, labeling the administration's action illegal and detrimental to consumer affordability. The Comptroller, part of the Treasury Department, argues the changes will promote economic growth and lessen regulatory load on national banks. A spokesperson for the office did not respond to requests for comment.