The Supreme Court recently ruled in favor of homeowners seeking to compel large banks, including Bank of America, to pay interest on mortgage escrow accounts. The unanimous decision overturned an appeals court ruling that favored Bank of America, which had been withholding interest on funds collected for insurance and property tax payments. New York mandates a 2% interest rate on escrowed funds, and 13 other states have similar laws in place.
Initially, a federal judge ruled in favor of the borrowers, but Bank of America successfully petitioned the federal appeals court in New York to dismiss the suits, citing federal law governing national banks as prohibiting state-specific regulations. However, the Supreme Court, through Justice Brett Kavanaugh's opinion, highlighted the need for a more detailed analysis to determine if state laws should yield to federal statutes.
Kavanaugh pointed out that the Dodd-Frank Act, enacted post-2008 financial crisis, clarified that not all state banking laws are preempted by federal regulations. This decision was seen as a win for consumers by Jonathan Taylor, the homeowners' representative, who emphasized that it upholds Congress' intent in Dodd-Frank to curb aggressive preemption of state consumer-financial laws that contributed to the financial crisis.
Bank of America refrained from immediate comment following the Supreme Court's ruling. The case underscores the ongoing debate over the balance between state and federal regulations in the banking sector and sets a precedent for how such disputes may be resolved in the future.
