Bank of America Escrow Interest Dispute Gets Supreme Court Look

The US Supreme Court will consider whether states can force banks to pay interest on mortgage escrow accounts.

In an order Friday, the justices agreed to hear a case involving Bank of America challenging New York’s escrow interest law. Thirteen states, including California, have this law on the books to protect borrowers.

New York requires banks to pay at least 2% interest on escrow accounts that hold the extra money borrowers pay to cover property taxes and insurance.

The Supreme Court is being asked if the laws apply to national banks or whether they are preempted by the National Bank Act. It’s an issue the US Chamber of Commerce said is “critical to the U.S. financial system,” in a brief to the court.

Three New Yorkers, who purchased homes with mortgages from Bank of America, are urging the court to overturn the US Court of Appeals for the Second Circuit’s ruling that held the National Bank Act preempts New York’s escrow interest law. The case stems from a lawsuit the borrowers brought against Bank of America after it refused to pay the 2% interest.

Flagstar Bank FSB has also asked the court to hear its appeal of a Ninth Circuit ruling that went the other way. But the justices have not yet said it they will take or reject that case.

The appeals court said California’s law is not preempted by the bank act, which Flagstar argues was enacted to create a uniform banking system that’s insulated from what it calls “intrusive state regulation.”

New York borrowers told the justices that Flagstar’s case is flawed because it’s a federally chartered savings association governed by the Home Owners’ Loan Act, not the bank act.

The cases are Cantero v. Bank of America, U.S., No. 22-529