On August 29, California enacted AB 493, which mandates that financial institutions holding hazard insurance proceeds in a loss draft account — while property repairs are pending — pay at least 2 percent simple annual interest on those funds. Institutions are barred from imposing any fees or charges that would reduce this interest rate below 2 percent and must credit the interest to the loss draft account either annually or upon account closure, whichever occurs first. The act also permits financial institutions to deposit hazard insurance proceeds into interest-bearing accounts held at federally insured depository institutions, FHL Banks, Fed banks or similar entities. Certain regulatory exceptions apply for accounts that state or federal authorities require to remain noninterest bearing.

The act applies to institutions that make loans or acquire obligations secured by one- to four-family residential properties in California. It took effect immediately as an “urgency statute,” with the interest requirement applying to funds held as of the law’s effective date. The act went into effect immediately.