A coalition of ten state attorneys general filed suit on August 11, 2026, in the U.S. District Court for the District of Oregon targeting two federal banking rules.
The lawsuit challenges Office of the Comptroller of the Currency rules that preempt state laws requiring national banks and federal savings associations to pay interest on mortgage escrow funds.
The states allege that the OCC rules violate the Dodd-Frank Wall Street Reform and Consumer Protection Act as well as the Administrative Procedure Act.
The two contested rules were issued by the OCC on May 15, 2026, and have drawn significant scrutiny from state regulators and consumer advocates since their release.
The first rule codifies the OCC’s position that federally chartered institutions have authority to determine the terms and conditions of mortgage escrow accounts, including whether to pay interest.
The second rule formally determines that federal law preempts interest-on-escrow laws currently in place across 14 states and territories.
The breadth of that preemption determination has provoked particular concern among state officials who argue it strips meaningful consumer protections from millions of homeowners.
The states contend that the OCC exceeded the limits Congress placed on national bank preemption under Dodd-Frank when crafting and finalising both rules.
As their primary remedy, the states seek a court order declaring the rules unlawful and vacating them entirely, which would restore state-level interest requirements for escrow accounts.
The legal action adds to ongoing and deepening disputes between federal banking regulators and states over the precise scope of federal preemption authority in consumer financial matters.
The tension between state consumer protection laws and federal preemption has become one of the most contested fault lines in American banking regulation in recent years.
Mortgage escrow accounts typically hold funds collected from borrowers to cover property taxes and insurance, and interest on those balances can amount to meaningful sums for homeowners over time.
Fourteen states and territories currently have laws requiring lenders to pay some form of interest on escrow balances, making the OCC’s preemption determination particularly consequential for those jurisdictions.
National banks, federal savings associations, mortgage servicers, and other market participants should monitor the litigation and evaluate whether future rulings affect escrow practices and state-law compliance obligations.
The outcome of the case could reshape how federally chartered institutions structure escrow arrangements and what consumer protections states can enforce going forward.