Attorney General James Sues Trump Administration to Protect Valuable Interest Payments to Homeowners

August 11, 2026

NEW YORK - New York Attorney General Letitia James today joined a coalition of nine other attorneys general in suing the U.S. Office of the Comptroller of the Currency (OCC) to defend state laws that require banks to pay interest to homeowners on funds held in escrow that cover property taxes and home insurance costs. For decades, states have enacted laws to protect homeowners by requiring banks to pay interest on funds that homeowners have to put in escrow. In May 2026, OCC issued two new rules to prevent state escrow interest laws from applying to national banks and federal savings associations, threatening the interest payments that help homeowners pay their bills. Attorney General James and the coalition allege that these new rules violate the law by exceeding critical limits that Congress placed on OCC's ability to preempt state consumer protection laws in the wake of the 2008 financial crisis. Attorney General James and the coalition are seeking a court order declaring the rules illegal and preventing them from being implemented.

"At a time when homeownership is more expensive than ever, the Trump administration is trying to make it even more costly with these unlawful rules," said Attorney General James. "Big banks and mortgage lenders should not be able to force homeowners to lock away significant amounts of money without paying interest. For decades, New York has prevented lenders from taking advantage of homeowners, and my office is taking action to defend our laws."

Beginning in the 1930s, mortgage lenders required borrowers to make monthly payments into escrow accounts to cover property taxes and home insurance premiums. These monthly payments effectively functioned as interest-free loans to banks and mortgage lenders, and many often required significantly larger deposits than necessary. To address these abuses and protect homeowners, states began enacting laws in the 1970s requiring lenders to pay interest on funds held in escrow. New York enacted its law more than 50 years ago in 1974, requiring mortgage lenders to pay interest at a rate of at least two percent. As Attorney General James and the coalition argue in their lawsuit, these laws are critical consumer protection measures for millions of homeowners. As of 2016, about 80 percent of mortgages nationwide had an associated escrow account.

On May 15, 2026, OCC issued two final rules designed to preempt state escrow interest laws, preventing them from applying to national banks and federal savings associations. The rules determine that New York and 13 other states and territories' escrow interest laws supposedly weaken national banks' "flexibility" to set the terms of escrow accounts and therefore should not apply. Attorney General James and the coalition argue that the rules fail to demonstrate how current state laws interfere with national banks' operations of escrow accounts. The OCC fails to identify any market disruptions and does not explain how its rules will protect consumers from abuse. Instead, OCC's new rules are designed to create a conflict with state escrow interest laws to justify preempting them.

Attorney General James and the coalition argue that OCC's new rules violate the law in several different ways. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) has strict limits on OCC's ability to preempt state consumer protection laws, which Congress set after OCC's broad preemption of state laws contributed to the 2008 foreclosure crisis and recession. Dodd-Frank requires OCC to consider whether a state law "substantially interferes" with a national bank's power. By that standard, state escrow interest laws should not be preempted because they only minimally affect national bank operations.

Attorney General James and the coalition also argue that OCC is exceeding its authority by giving new powers to national banks in violation of the Administrative Procedure Act (APA). The lawsuit also alleges that the rules lack any factual basis, are based on unsupported speculation, and fail to meaningfully consider how they harm consumers and the financial system, making them arbitrary and capricious under the APA and violating the requirements in Dodd-Frank. Attorney General James and the coalition are seeking a court order declaring the rules unlawful and preventing them from being implemented.

Joining Attorney General James in this lawsuit are the attorneys general of California, Connecticut, Maine, Maryland, Massachusetts, Minnesota, Oregon, Rhode Island, and Vermont.