Attorney General Bonta Sues to Block Trump Administration’s Unlawful Handout to Big Banks

OAKLAND - CaliforniaAttorney General Rob Bonta today, as part of a coalition of 10 attorneys general, filed a lawsuit to block the Trump Administration's latest effort to favor big business over working families. The lawsuit, filed in the U.S. District Court for the District of Oregon, challenges two rules by the Office of the Comptroller of the Currency (OCC) that invalidate state laws requiring mortgage lenders to pay interest on the money they require borrowers to deposit into escrow accounts to cover taxes and insurance. These laws are designed to prevent lenders from profiting from interest-free deposits at the borrower's expense and are consistent with limitations enacted by Congress.

"The Trump Administration is attempting to slash critical state consumer protection laws that protect homeowners, a decision that would take money away from Californians and put it right into the pockets of big banks. This is blatantly illegal and will only worsen the affordability crisis felt by people up and down our state," said Attorney General Bonta. "Alongside attorneys general nationwide, we are taking the Trump Administration to court yet again, and in doing so, standing up for states' rights to protect consumers from financial exploitation."

California law requires financial institutions, including banks, to pay at least 2% annual interest on funds deposited in mortgage escrow accounts. Funds in an escrow account can be used by lenders to ensure timely payment of property taxes and insurance. These state interest-on-escrow laws are a simple and important consumer protection. Before they were enacted, some lenders would require significant deposits in escrow earlier than was needed to timely pay taxes and insurance, and would not pay any interest to the borrower, giving the lender essentially an interest-free loan at the borrower's expense. The interest-on-escrow laws help ensure that borrowers are treated fairly.

In May 2026, responding to a request from banking lobbyists, the OCC issued rules that purport to invalidate state laws, including California's, that require lenders to share the money they earn on borrowers' escrowed funds with the borrowers themselves. It's not just borrowers who lose out under the OCC's rules. Because they only exempt national banks from California's interest-on-escrow law, smaller, state-chartered banks are left at a disadvantage. In today's lawsuit, the attorneys general argue that the OCC's rules exceed the agency's rulemaking authority per the Administrative Procedure Act and challenge states' sovereign interest in enforcing our own consumer protection statutes. If allowed to stand, borrowers could lose out on thousands of dollars in interest payments every year.

In bringing this lawsuit, Attorney General Bonta joins the attorneys general of Oregon, New York, Connecticut, Maine, Maryland, Massachusetts, Minnesota, Rhode Island, and Vermont.