California Attorney General Rob Bonta has joined a bipartisan coalition of 23 attorneys general and several state bank regulators in opposing two proposed rules from the Office of the Comptroller of the Currency (OCC) that would override state laws requiring national banks to pay minimum interest on mortgage-escrow accounts. The California Department of Financial Protection and Innovation is also part of this group.
Many states, including California, mandate that national banks pay a minimum interest rate on funds held in mortgage-escrow accounts. These requirements are intended to prevent lenders from benefiting from holding borrowers’ funds without paying interest, aligning with congressional limitations and upheld by the U.S. Supreme Court.
“States play a crucial role in consumer financial protection. California has laws protecting consumers from abusive lending practices by Big Banks, including when it comes to holding money in a mortgage escrow account. Now, the federal government is attempting to preempt these important laws and leave consumers in the dust,” said Attorney General Bonta. “Alongside a bipartisan coalition of attorneys general, I’m standing up for states’ rights to enforce state laws that protect consumers from financial exploitation.”
Under current California law, financial institutions must pay at least 2% annual interest on escrowed funds collected for property taxes and insurance payments. This regulation was implemented because some lenders previously collected more than necessary without paying any interest back to borrowers, effectively receiving an interest-free loan at the expense of homeowners. Similar laws exist in at least 13 other states.
The letter sent by the attorneys general argues that OCC’s proposed changes would undermine state authority to protect their residents in dealings with national banks. They maintain that Congress has never restricted states’ power to require minimum escrow interest since passing the National Bank Act in 1864 and point out that the Dodd-Frank Act only allows preemption if state law significantly interferes with bank operations—a standard they say these regulations do not meet.
In addition to California, signatories include New York, Arizona, Colorado, Connecticut, Delaware, Hawai’i, Illinois, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, North Carolina, Oklahoma, Oregon, Rhode Island, Vermont, Virginia, Washington State and the District of Columbia.
Attorney General Bonta recently filed a lawsuit against what he called an unlawful decision by Consumer Financial Protection Bureau’s (CFPB) Acting Director not to fund agency operations—a move he said prevents legally required consumer protections. He referenced actions under the Trump Administration aimed at weakening or closing down CFPB functions as threats to families and financial markets nationwide.
Bonta also highlighted his support for last year’s U.S. Supreme Court decision in Cantero v. Bank of America which clarified how courts should evaluate whether state requirements—such as New York’s law mandating 2% minimum escrow account interest—are overridden by federal banking statutes. The ruling affirmed states’ ability to enforce such consumer protection measures unless they prevent or significantly interfere with national bank powers.
