Ten states sued the Office of the Comptroller of the Currency on Aug. 11, 2026, seeking to block new federal rules that would let national banks stop paying interest on mortgage escrow balances in 14 states and territories that currently require it, according to a press release from the Oregon Department of Justice. The suit, filed in federal court in Portland and co-led by Oregon Attorney General Dan Rayfield and New York Attorney General Letitia James, also includes California, Connecticut, Maine, Maryland, Massachusetts, Minnesota, Rhode Island and Vermont.
“Time and again, we’ve seen the Trump Administration hand out favors to insiders and corporate special interests at the expense of Oregonians,” Rayfield said in the release. The states argue the OCC’s rules, issued in May 2026, disregard prior federal court rulings that upheld state interest-on-escrow laws and let national banks keep interest earnings that should flow back to homeowners β while putting state-chartered banks, which remain bound by the state laws, at a competitive disadvantage.
What the Rules Do
The OCC issued two rules in May: one asserting that federally chartered banks and savings associations can set their own terms for mortgage escrow accounts, including whether to pay interest, and a second declaring that federal law preempts state interest-on-escrow requirements in the 14 affected jurisdictions. About 80% of mortgage holders have an escrow account, which collects funds for property taxes, homeowners insurance and mortgage insurance, according to Lereta, cited in an Aug. 24, 2026 explainer from Realtor.com. The states’ complaint contends the rules violate the Dodd-Frank Act and the Administrative Procedure Act.
How Much Money Is Actually at Stake
The dollar amounts involved are modest at the household level but vary widely by state. Rhode Island and Connecticut require interest equal to the rate paid on a regular savings account β currently well under 1% β while Massachusetts lets the lender set its own rate. Maryland’s law is among the most generous, tying the rate to the one-year U.S. Treasury yield, currently 3.99%. On a hypothetical $10,000 escrow balance, that would generate about $400 a year in Maryland versus roughly $63 in Rhode Island or Connecticut at the national average savings rate of 0.63%, per Bankrate.
“We are talking about $3 to $50 to $100 per year of interest on the standard escrow buffer, depending on how much of a balance there is and how big the tax and insurance amounts are,” said Cody Schuiteboer, president and CEO of Best Interest Financial, in the Realtor.com piece. “At the household level, this is real money, although it does not impact people’s behavior.” Schuiteboer noted most borrowers do not even realize their escrow account earns interest until they spot a small line item on their annual escrow analysis.
The Banks’ Counterargument
The Bank Policy Institute, a banking industry research and advocacy group, released a report in February arguing that when state law forces lenders to pay escrow interest, lenders typically offset the cost through higher upfront origination fees β and that without those requirements, banks could instead recover escrow administration costs gradually over the life of the loan, potentially lowering fees. Schuiteboer said he is skeptical of that claim absent supporting data. “The price moves in favor of the margin rather than the customer in this case, so I would take such claims with a grain of salt until there is proof in the form of the before-and-after prices from a national lender,” he said.
What It Means
The case adds to a broader fight this year over how far federal banking regulators can preempt state consumer-protection law β RealtyWire has separately covered the OCC and FDIC’s parallel move to narrow Community Reinvestment Act obligations. For homeowners in the 14 affected states and territories, the practical dollar impact of losing escrow interest is small per household, but the legal question β whether federal preemption can override state consumer laws that predate current OCC leadership β carries stakes well beyond escrow accounts. The case, State of Oregon et al. v. Office of the Comptroller of the Currency et al., is pending in the U.S. District Court for the District of Oregon.
