Background: A crane rises at a construction site for a new housing development in San Francisco, July 18, 2025. (AP Photo/Jeff Chiu, File). Inset left: New York Attorney General Letitia James attends a press briefing in New York, NY on Aug. 11, 2026. (Photo by Lev Radin/Sipa USA)(Sipa via AP Images). Inset right: President Donald Trump listens during a briefing with the media, Friday, June 27, 2025, at the White House in Washington (AP Photo/Jacquelyn Martin).
New York Attorney General Letitia James and other states have sued the Trump administration over its “unlawful” rules that purportedly protect the interests of national banks over homeowners.
The 27-page complaint led by James and Oregon Attorney General Dan Rayfield says they are trying to “preserve their role in protecting consumers from predatory practices, including practices engaged in by national banks” regulated by the U.S. Office of the Comptroller of the Currency (OCC).
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The case largely boils down to matters of state and federal power, and traces recent U.S. housing history. As the attorneys general recount, 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 the OCC, which regulates the banks, “to circumvent or otherwise limit state laws aimed at protecting borrowers and other consumers.”
For nearly 100 years, mortgage lenders have required borrowers to make monthly payments into escrow accounts — essentially a place to make sure certain payments such as property taxes are made, the complaint goes on. “However, lenders often required significantly larger deposits than necessary,” allowing them to profit from homeowners’ money, the states say.
In order to “address these abuses,” the states filing the complaint have required lenders — mostly banks — “to pay borrowers modest amounts of interest on funds held in escrow (interest-on-escrow laws).” The states maintain that the Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in 2010 in response to the housing crisis, solidified that states have preeminence over the federal government on this matter.
In two rules issued this spring, the states argue, the Trump administration has sought to override this.
James — in a press release announcing the lawsuit — put it simply: “In May 2026, OCC issued two new rules to prevent state escrow interest laws from applying to national banks and federal savings associations, threatening the interest payments that help homeowners pay their bills.” The states say these new rules “violate the law by exceeding critical limits that Congress placed on OCC’s ability to preempt state consumer protection laws in the wake of the 2008 financial crisis.”
The complaint claims that the OCC’s latest rule, while purporting to care about banks’ “flexibility,” showcases “no substantive effort to identify or demonstrate any ongoing interference with national banks’ operations of escrow accounts,” shares “no evidence nor identifies any market disruptions,” and, “critically, it makes no effort to explain” how the rule “will protect consumers from abuse.”
“Instead, it exists solely as a pretext to manufacture a conflict between this new federal rule and state interest-on-escrow laws,” the states go on. They seek a court order declaring the rules illegal and preventing them from being enacted.
“At a time when homeownership is more expensive than ever, the Trump administration is trying to make it even more costly with these unlawful rules,” James said in a statement. “Big banks and mortgage lenders should not be able to force homeowners to lock away significant amounts of money without paying interest. For decades, New York has prevented lenders from taking advantage of homeowners, and my office is taking action to defend our laws.”
The other states joining New York and Oregon in the lawsuit are California, Connecticut, Maine, Maryland, Massachusetts, Minnesota, Rhode Island and Vermont.
Law&Crime reached out to the OCC for comment on the lawsuit.
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