Oregon v. OCC Challenges Rules Preempting State Interest-on-Escrow Laws
OCC Rules Target 14 State Laws Requiring Interest on Escrow Accounts
The states of Oregon, New York, California, Connecticut, Maine, Maryland, Massachusetts, Minnesota, Rhode Island, and Vermont sued the Office of the Comptroller of the Currency on August 11, 2026, alleging that two final rules issued by the agency on May 15, 2026, unlawfully preempt state laws requiring banks to pay interest on mortgage escrow accounts. The complaint, filed as State of Oregon et al. v. Office of the Comptroller of the Currency et al. (3:26-cv-01672-SI), names the OCC and Comptroller of the Currency Jonathan V. Gould as defendants.
The OCC’s Preemption Rule (91 Fed. Reg. 29350) and Escrow Powers Rule (91 Fed. Reg. 29340) took effect on June 18, 2026. The Preemption Rule purports to preempt 14 state interest-on-escrow laws, including those in California, New York, and Oregon, on the grounds that they interfere with national banks’ “flexibility” to set escrow terms. The Escrow Powers Rule asserts that national banks have exclusive authority to establish escrow accounts and determine compensation. The complaint brings five causes of action against the defendants: (1) the rules exceed the OCC’s rulemaking authority under the Administrative Procedure Act (APA), 5 U.S.C. § 706(2)(C); (2) the rules fail to comply with Dodd-Frank’s substantive preemption requirements, 12 U.S.C. §§ 5301–5641; (3) the rules contradict the Supreme Court’s holding in Cantero v. Bank of America, requiring individualized preemption analysis; (4) the rules fail to comply with Dodd-Frank’s procedural preemption requirements; and (5) the rules are arbitrary and capricious under the APA, 5 U.S.C. § 706(2)(A) (Compl. ¶¶1-5).
State Laws Require Interest Rates Ranging From $0 to 50% of Treasury Bill Rate
The complaint identifies 14 state laws targeted by the OCC’s Preemption Rule, which the agency issued on May 15, 2026, and published in the Federal Register on May 19, 2026 (91 Fed. Reg. 29350). California law mandates a minimum 2% interest rate on escrow accounts (Cal. Civ. Code § 2954.8), while Maine requires banks to pay 50% of the one-year Treasury Bill rate (9-B Me. Rev. Stat. Ann. § 429). New York’s law sets a 2% minimum (N.Y. Gen. Oblig. Law § 5-601), and Minnesota’s law requires a 3% minimum for pre-1996 loans (Minn. Stat. Ann. § 47.20, subd. 9(a)). Oregon’s statute ties the rate to the U.S. Treasury bill auction rate, which has resulted in a potential interest rate of $0 in certain years (Compl. ¶34, ¶84). Connecticut and Rhode Island’s interest rates have fallen below 1% as of 2026, while Oregon’s current discount rate stands at 2.61% (ORS 86.245(2)) (Compl. ¶34).
The complaint alleges that these laws address long-standing abuses in the mortgage market. As of 2016, 80% of all mortgages and 88% of mortgages held by borrowers with credit scores below 620 included escrow accounts, according to the complaint (Compl. ¶34). The states argue that their interest-on-escrow laws align with the Real Estate Settlement Procedures Act (RESPA), which limits escrow deposits to estimated taxes and insurance plus a one-sixth cushion and requires annual statements (Compl. ¶36). RESPA defers to state laws providing greater consumer protection, including interest-on-escrow statutes (Compl. ¶37). The complaint asserts that these state laws prevent banks from obtaining “interest-free loans” from consumers, as banks historically used escrow deposits to earn revenue (Compl. ¶35).
The OCC’s Preemption Rule, however, declares these state laws preempted on the grounds that they interfere with national banks’ “flexibility” to set escrow terms. The rule analyzes only New York’s law, concluding it restricts banks’ ability to determine escrow terms, and deems 13 other state laws "substantively equivalent" to New York’s without further analysis (Compl. ¶81-82). The Preemption Rule targets laws in California, Connecticut, Guam, Maine, Maryland, Massachusetts, Minnesota, Oregon, Rhode Island, the U.S. Virgin Islands, Utah, Vermont, Wisconsin, and New York (Compl. ¶84). The complaint alleges that the OCC’s approach contradicts the Supreme Court’s holding in Cantero (Compl. ¶88).
OCC Rules Contradict Supreme Court’s 2024 Decision and Dodd-Frank Requirements, States Allege
The complaint alleges that the OCC’s rules directly contradict the Supreme Court’s 2024 decision in Cantero v. Bank of America, which vacated a Second Circuit ruling that had applied a preemption test to New York’s interest-on-escrow law. The Supreme Court held that preemption under the National Bank Act requires an individualized analysis of whether a state law “prevents or significantly interferes” with a national bank’s powers (Compl. ¶69). The complaint cites the Supreme Court’s holding that state laws are preempted only if they "prevent or significantly interfere" with a national bank’s exercise of its powers, quoting Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25 (1996) (Compl. ¶55). The complaint further alleges that the OCC’s rules “preempt virtually all state laws that regulate national banks,” a position the Supreme Court explicitly rejected in Cantero (Compl. ¶15).
The Ninth Circuit has twice upheld California’s interest-on-escrow law against preemption challenges, most recently in a 2025 decision issued after the Supreme Court’s 2024 ruling. The complaint cites the 2025 decision, Kivett v. Flagstar Bank, as evidence that the OCC’s Preemption Rule is inconsistent with judicial precedent (Compl. ¶70). The Ninth Circuit reaffirmed its earlier holding in Lusnak v. Bank of America, 883 F.3d 1185 (9th Cir. 2018), which found that California’s law does not prevent or significantly interfere with national bank powers, consistent with Dodd-Frank’s requirements (Compl. ¶67).
The complaint also alleges that the OCC’s rules violate Dodd-Frank’s procedural requirements for preemption determinations. Dodd-Frank codified the “significant interference” test from Barnett Bank and required the OCC to make preemption determinations on a case-by-case basis, with consultation from the Consumer Financial Protection Bureau (Compl. ¶61). The complaint alleges that the OCC failed to comply with these requirements, stating that the agency “failed to conduct a case-by-case preemption analysis” and incorrectly declared state laws “substantively equivalent” without evidence (Compl. ¶90). Dodd-Frank also requires the OCC to provide “substantial evidence” on the record to support preemption findings, a standard the complaint alleges the OCC did not meet (Compl. ¶62). Instead, the complaint asserts that the OCC relied on unsupported claims that state laws would increase fees or reduce lending, citing the agency’s statement that national banks need “flexibility” to adapt to local circumstances or risk higher prices and reduced lending (Compl. ¶74, ¶78, ¶104). The complaint quotes the OCC’s assertion that “[c]odifying these Federal powers makes clear that those State laws also directly conflict with a Federal regulation,” a position the states allege lacks factual support (91 Fed. Reg. at 29341) (Compl. ¶76).
The complaint further alleges that the OCC’s rules contradict Congress’s intent in enacting Dodd-Frank. The Financial Crisis Inquiry Commission, formed in 2007 following the housing market collapse, released a report in 2011 linking OCC preemption to mortgage abuses. The report found that OCC preemption “prevented adequate protection for borrowers and weakening constraints on this segment of the mortgage market” (Compl. ¶57). The complaint alleges that Dodd-Frank was enacted in 2010 to address these abuses and placed strict limits on the OCC’s preemption power, including the requirement for individualized analysis and “substantial evidence” (Compl. ¶13, ¶62). The complaint states that Congress “overrode OCC rules aimed at gutting state lending protections and adopted statutory limits on the OCC’s preemptive power” (Compl. ¶2).
States Allege OCC Rules Are Arbitrary and Capricious, Lack Factual Basis
The complaint alleges that the OCC’s rules are arbitrary and capricious under the Administrative Procedure Act, because they lack a reasonable basis and fail to consider the harm to consumers. The complaint states that the OCC’s rules “lack factual basis [and] rely on unsupported speculation” (Compl. ¶104). The complaint alleges that the OCC’s claim that state laws would increase fees or reduce lending is “unsupported by any evidence,” and that the OCC “cited no studies, data, or analysis” to justify its position (Compl. ¶78). The complaint quotes the APA’s standard for arbitrary and capricious agency action, stating, “An agency action qualifies as arbitrary or capricious if it is not reasonable and reasonably explained” (Compl. ¶103).
The complaint alleges that the OCC’s Preemption Rule deems state laws preempted if they “interfere with a national bank’s effectiveness or efficiency in exercising its Federal power,” a standard the states argue is contrary to Barnett Bank and Cantero (91 Fed. Reg. at 29354) (Compl. ¶87).
The complaint seeks a declaratory judgment that the OCC’s rules are unlawful, an order vacating and setting aside both rules, and an award of costs, reasonable attorneys’ fees, and expenses. The states allege that they have sovereign standing to challenge the rules because the OCC’s actions “directly interfere with their sovereign authority to regulate consumer financial protection within their borders” (Compl. ¶93). The complaint states that the OCC’s rules “harm the financial interests of their residents” by depriving them of interest payments on escrow accounts, which can amount to thousands of dollars annually for borrowers (Compl. ¶93). The complaint alleges that state interest-on-escrow laws result in borrowers recouping significant sums, and that the OCC’s rules would eliminate these benefits (Compl. ¶93).
The OCC’s final rules were issued on May 15, 2026, following notices of proposed rulemaking published on December 30, 2025. The rules took effect on June 18, 2026, and the complaint was filed on August 11, 2026 (Compl. ¶¶1-7).
The allegations described here are taken from the filing and remain unproven; no responsive pleading is reflected in the source document.
David Brunk is a civil litigation attorney. He can be reached at david@newmanbrunk.com.
From the Complaint Public Court Record
Page 1 - COMPLAINT Department of Justice 100 SW Market Street Portland, OR 97201 9716731880 / Fax: 9716735000 DAN RAYFIELD Attorney General LEANNE HARTMANN #257503 BRIAN SIMMONDS MARSHALL #196129 JOSEPH PLATT #262461 Senior Assistant Attorneys General GALEN KNOWLES #T26051501, WSBA 59644 Assistant Attorney General Oregon Department of Justice 100 SW Market Street Portland, OR 97201 Telephone: (971) 673-1880 Fax: (971) 673-5000 Email: Leanne.Hartmann@doj.oregon.gov Brian.S.Marshall@doj.oregon.gov Joseph.Platt@doj.oregon.gov Galen.Knowles@doj.oregon.gov Attorneys for the State of Oregon [Additional counsel to appear on signature page] IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON PORTLAND DIVISION STATE OF OREGON; STATE OF NEW YORK; STATE OF CALIFORNIA; STATE OF CONNECTICUT; STATE OF MAINE; STATE OF MARYLAND; COMMONWEALTH OF MASSACHUSETTS; STATE OF MINNESOTA; STATE OF RHODE ISLAND; STATE OF VERMONT, Plaintiffs, v. OFFICE OF THE COMPTROLLER OF THE CURRENCY and JONATHAN V. GOULD, in his official capacity as Comptroller of the Currency, Defendants. Case No.________________ COMPLAINT 3:26-cv-1672
Page 2 - COMPLAINT Department of Justice 100 SW Market Street Portland, OR 97201 9716731880 / Fax: 9716735000 I. INTRODUCTION 1. In the United States’ federalist system, states are the vanguard of consumer protection, enacting laws prohibiting unfair, deceptive, or abusive practices, preventing usurious consumer lending, operating licensing regimes governing numerous consumer finance markets, and adopting new statutory and legislative frameworks to address risks posed to consumers. 2. Both Congress and the courts have repeatedly acted to preserve states’ central role in protecting consumers, including enacting legislation to block attempts by national banks and their prudential regulator, the Office of the Comptroller of the Currency (OCC), to circumvent or
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