The Supreme Court has given homeowners another chance to compel Bank of America and other large banks to pay interest on mortgage escrow accounts. On Thursday, the court unanimously overturned an appeals court ruling that had favored Bank of America, which has been refusing to pay interest on the money it collects from borrowers to cover their insurance and property tax bills.
In the state of New York, banks are legally required to pay 2% interest on escrowed funds. Thirteen other states have similar laws in place, including California, Connecticut, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, Oregon, Rhode Island, Utah, Vermont, and Wisconsin.
Initially, a federal judge had ruled in favor of the borrowers. However, the federal appeals court in New York granted Bank of America’s request to dismiss the suits, arguing that the federal law governing national banks does not permit state-by-state regulation of this nature.
Justice Brett Kavanaugh, who wrote the opinion for the Supreme Court, stated that the appeals court had failed to perform the nuanced analysis required by federal law and previous Supreme Court decisions to determine whether a state law must give way to a federal statute. Kavanaugh specifically noted that the Dodd-Frank Act, which was enacted in the wake of the 2008 financial crisis, made it clear that not all state banking laws are preempted by federal legislation.
Jonathan Taylor, the attorney who argued the case on behalf of the homeowners, described the decision as a victory for consumers in an email. He stated that the ruling “vindicates Congress’ determination in Dodd-Frank to rein in the kind of aggressive preemption of state consumer-financial laws that helped lead to the financial crisis.”
The decision by the Supreme Court has significant implications for homeowners across the country, particularly those in states with laws requiring banks to pay interest on escrowed funds. By sending the case back to the lower courts for further consideration, the Supreme Court has opened the door for homeowners to potentially recover the interest they are owed on their mortgage escrow accounts.
Moreover, this ruling serves as a reminder of the importance of state-level consumer protection laws and the role they play in safeguarding the financial interests of homeowners. The Dodd-Frank Act, which aimed to prevent another financial crisis like the one experienced in 2008, recognized the significance of these state laws and sought to limit the ability of federal legislation to preempt them.
As the case progresses through the lower courts, it will be closely watched by homeowners, consumer advocates, and the banking industry alike.
The outcome could have far-reaching consequences for the way banks handle mortgage escrow accounts and the interest they are required to pay on these funds.
The Associated Press contributed to this article.