• Does Your Institution Need to Pay Interest on Escrow Accounts?
  • April 24, 2018 | Author: Marjorie A. Corwin
  • Law Firm: Gordon Feinblatt LLC - Baltimore Office
  • Does your institution make residential mortgage loans in Maryland? It may be time for banks regulated by the Office of the Comptroller of the Currency (OCC) to reevaluate whether to comply with Maryland’s law that requires interest to be paid on escrow accounts established in connection with those mortgage loans. Until enactment of the Dodd Frank Act, there was very clear authority supporting the conclusion that Maryland’s law requiring interest on escrow accounts was preempted by federal law for federal savings associations. There also was authority for national banks – slightly less definitive – to this same effect. The Dodd Frank Act changed the landscape for federal preemption of “consumer financial laws” (see earlier article from our Dodd Frank Survival Guide). Even so, post-Dodd Frank Act OCC regulations support the conclusion that this Maryland law is preempted for national banks and federal savings associations. On March 2, 2018, the United States Court of Appeals for the Ninth Circuit decided that, despite the OCC’s regulation expressly preempting state laws governing escrow accounts, the National Bank Act does not preempt California’s law that requires financial institutions to pay interest on escrow accounts maintained in connection with certain residential mortgage loans. This decision is believed to be the first by a federal appeals court that analyzes the effect of Dodd Frank Act changes to the scope of federal preemption, rejects the OCC’s post-Dodd Frank Act determination on preemption and finds no preemption. The bank defendant in this Ninth Circuit case has until April 13, 2018 to file a request for rehearing. There also could be an opportunity for appeal to the Supreme Court. Maryland is not in the Ninth Circuit, which means this decision has no direct impact on Maryland law. Even so, it is a signal that relying on federal preemption may need some reevaluation. Please contact Margie Corwin if you would like to discuss whether your institution should consider paying interest on Maryland escrow accounts.