Attorney General Bonta Opposes Rules That Would Weaken State Consumer Financial Protection Laws

OAKLAND — California Attorney General Rob Bonta joined a bipartisan coalition of 23 attorneys general and a group of state-level bank regulators, including the California Department of Financial Protection and Innovation, in opposing a pair of rules proposed by the Office of the Comptroller of the Currency (OCC) that would preempt state laws that require national banks to pay minimum interest on mortgage-escrow accounts. In states across the country, including California, national banks are required to pay minimum interest on mortgage-escrow accounts to comply with consumer protection laws. These laws are designed to prevent lenders from profiting from interest-free deposits at the borrower’s expense, are consistent with limitations enacted by Congress, and have been found lawful by the U.S. Supreme Court.  

“States play a crucial role in consumer financial protection. California has laws protecting consumers from abusive lending practices by Big Banks, including when it comes to holding money in a mortgage escrow account. Now, the federal government is attempting to preempt these important laws and leave consumers in the dust,” said Attorney General Bonta. “Alongside a bipartisan coalition of attorneys general, I’m standing up for states’ rights to enforce state laws that 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 minimum escrow interest laws are a simple and important consumer protection. Before the escrow interest laws were enacted, some lenders would collect significantly more in escrow 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 minimum escrow interest laws help ensure that borrowers are treated fairly and reduce the incentive for lenders to collect excessive funds in escrow. At least 13 other states have similar laws in place to protect consumers.

In the letter, the attorneys general argue that the OCC’s proposed rules will deprive states of their legitimate, constitutional authority to protect their consumers, including in their interactions with national banks. The attorneys general urge OCC to abandon the proposals because: 

• Congress has never interfered with states’ abilities to mandate minimum interest payments on mortgage-escrow accounts, going back to 1864 when the National Bank Act was passed.
• In the Dodd-Frank Act, Congress has expressly limited the scope of bank preemption to state laws that significantly interfere with bank operations.
• State minimum interest mandates do not significantly interfere with national bank operations and therefore are not preempted.
• They are contrary to law and therefore, unlawful.

In sending the letter, Attorney General Bonta joins the attorneys general of New York, Arizona, Colorado, Connecticut, Delaware, Hawai'i, Illinois, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, North Carolina, Oklahoma, Oregon, Rhode Island, Vermont, Virginia, Washington, the District of Columbia, as well as a group of state-level bank regulators including the California Department of Financial Protection and Innovation.

Attorney General Bonta is committed to protecting consumers from unfair and abusive practices in the financial system. Last month, Attorney General Bonta filed a lawsuit challenging the Consumer Financial Protection Bureau’s (CFPB) Acting Director’s unlawful decision not to fund the agency’s operations, preventing it from performing legally mandated functions. Shortly after taking office, the Trump Administration launched a campaign of destruction and systemic shuttering of the CFPB, threatening catastrophic harm to hardworking families and consumer financial markets nationwide.  

After submitting an amicus brief in the case, in 2024 Attorney General Bonta celebrated the U.S. Supreme Court’s decision in Cantero v. Bank of America after it found that a lower court failed to apply the proper standard for evaluating whether a New York state law that requires mortgage lenders to pay a 2% minimum interest rate on funds held in mortgage escrow accounts is preempted by the National Bank Act. The decision clearly allowed states to enforce state consumer financial protection laws against both state and national banks so long as the state law does not prevent or significantly interfere with the exercise of power by national banks.