Massachusetts AG Challenges Federal Rule Affecting Mortgage Escrow Payments

Highlights

• Massachusetts Attorney General Andrea Joy Campbell and nine other state attorneys general filed a lawsuit challenging a federal mortgage escrow rule.
• The lawsuit targets an Office of the Comptroller of the Currency rule issued in May 2026.
• The rule could prevent national banks from complying with state laws requiring interest payments on certain mortgage escrow balances.
• Massachusetts officials say the policy could affect homeowners and create a competitive disparity between national and state-chartered banks.
• The coalition is asking a federal court to block the rule.

A federal dispute over mortgage escrow requirements could affect housing costs and lending conditions in states that require lenders to share interest earned on borrowers' escrow funds. Massachusetts Attorney General Andrea Joy Campbell and a coalition of state attorneys general filed a lawsuit Aug. 11 seeking to prevent the federal rule from overriding those state requirements.

Lawsuit Targets OCC Escrow Rule

The legal challenge centers on a rule issued by the Office of the Comptroller of the Currency in May 2026. The rule asserts that certain state laws requiring mortgage lenders to pay interest on escrow funds are invalid when applied to national banks.

Mortgage escrow accounts generally hold borrower funds designated for expenses such as property taxes and insurance. Massachusetts is among the states with requirements concerning interest earned on those balances.

The Massachusetts attorney general's office argues that the federal action conflicts with existing legal decisions supporting state interest-on-escrow requirements. The coalition also contends that the OCC did not follow statutory safeguards governing federal preemption of state banking laws.

Impact on Mortgage Lending

The lawsuit also raises concerns about competition among financial institutions. According to the Massachusetts filing, the OCC rule would exempt national banks from the state's interest-on-escrow requirement while leaving smaller state-chartered banks subject to Massachusetts law.

The coalition includes attorneys general from California, Connecticut, Maine, Maryland, Minnesota, New York, Oregon, Rhode Island and Vermont.

The states are asking the court to prevent implementation of the OCC rule and preserve their ability to enforce interest-on-escrow laws.

Why It Matters

The dispute is directly tied to mortgage lending and housing costs rather than construction activity. For developers, homebuilders and other housing-market participants, changes affecting mortgage costs and lending requirements can influence the broader financing environment for residential buyers.

The immediate legal question is whether the OCC can preempt state interest-on-escrow requirements for national banks. The lawsuit will determine whether those state protections remain enforceable while the challenge proceeds.

Source: Mass. Gov.