OCC Seeks Dismissal of Multistate Lawsuit on Mortgage Escrow Preemption
The OCC filed a motion to dismiss a multistate lawsuit challenging its mortgage escrow preemption rule.
Why it matters: The case could shape the balance between federal and state authority over mortgage servicing and escrow interest requirements, affecting national banks and consumers.
- May 15, 2026: OCC issues final rule preempting state laws on mortgage escrow interest.
- August 2026: Ten states including New York and California sue to block OCC's preemption.
- October 7, 2026: OCC moves to dismiss lawsuit citing lack of standing and improper venue.
- OCC argues no national bank has stopped paying escrow interest due to its rule.
On May 15, 2026, the Office of the Comptroller of the Currency (OCC) finalized a preemption determination stating that federal law overrides state laws requiring national banks to pay interest on mortgage escrow accounts. This includes New York's General Obligations Law section 5-601 and similar laws in 13 other states and territories.
In August 2026, ten states—Oregon, New York, California, Connecticut, Maine, Maryland, Massachusetts, Minnesota, Rhode Island, and Vermont—filed a lawsuit challenging the OCC’s preemption rule and related escrow powers regulation. They argue the OCC’s actions infringe on state authority to protect consumers.
Responding on October 7, 2026, the OCC filed a motion to dismiss the lawsuit. It contends that the states lack standing because they have not shown an actual or imminent injury, noting that "no national bank has ceased paying interest on escrow accounts due to the OCC’s actions." The OCC also claims that the District of Oregon is an improper venue and suggests moving the case to the District of Columbia, where the agency is headquartered.
In its motion, the OCC emphasized that its escrow rule "does not require a national bank to stop paying interest on escrow balances" but rather acknowledges the banks’ federal authority to decide how escrow accounts are managed, including the payment of interest or compensation.
The dispute highlights a broader tension between federal banking regulators and states over regulation of national banks. The outcome of this legal battle will influence how mortgage servicing and escrow requirements are governed across the country, potentially setting precedents on federal preemption in banking consumer protections.
By the numbers:
- May 15, 2026 — OCC issues final preemption determination on escrow interest laws
- August 2026 — Ten states file lawsuit challenging OCC preemption rule
- October 7, 2026 — OCC moves to dismiss multistate lawsuit
Yes, but: The lawsuit's progress remains unclear, and courts may still find the states have standing despite OCC's dismissal arguments.
What's next: The court will rule on the OCC's motion to dismiss, which could determine whether the multistate lawsuit proceeds.