OCC escrow plan opposed by regulators, consumer advocates

"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 Milhor, 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 Office of the Comptroller of the Currency proposed rules to codify national banks' authority to manage mortgage escrow accounts, set terms, and determine compensation and fees. A second proposal would clarify that federal law preempts state restrictions on whether banks must pay interest on escrow funds or may charge related fees. Opponents say the changes would let national banks avoid paying interest on escrow balances used for property taxes and insurance. Twelve states have laws discouraging inflated escrow balances and roughly 30% of mortgages fall within those states. Consumer advocates and state regulators warn the proposals would erode decades of state consumer protections and advantage national banks.

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