On August 11, ten Democratic state attorneys general filed a complaint in the U.S. District Court for the District of Oregon challenging the OCC’s May 19 real estate escrow rule and related preemption determination (previously covered by InfoBytes here), which became effective June 18. The complaint asserts two APA claims, alleging that the OCC exceeded its Dodd-Frank Act preemption authority by creating a national bank power to set escrow-account terms and then using that rule to preempt state laws requiring interest on mortgage escrow balances.

The complaint alleges that the OCC analyzed only New York’s law before deeming 13 other state and territorial laws substantively equivalent, failed to conduct the Dodd-Frank Act’s case-by-case analysis and failed to support the determination with substantial evidence. The complaint also alleges that the OCC did not account for differences in each state law’s interest-rate terms, fee restrictions and covered mortgages, and ignored the U.S. Supreme Court’s instruction that preemption requires a practical assessment of the nature and degree of interference with national bank powers. The states seek a ruling from the court declaring the escrow rule and preemption determination unlawful, vacating and setting them aside, and awarding costs, attorneys’ fees and other relief.