Your Escrow Paid You 2 Percent in 14 States. On June 18 It Started Paying Nothing.

If you own a home in one of 14 states or territories and a national bank services your mortgage, your escrow account stopped paying you interest on June 18. No bill passed. A federal regulator decided it, and your bank keeps the money.

Escrow is the pot your servicer collects each month to pay your property taxes and homeowners insurance. Your money, parked with the bank, sometimes for most of a year before the bills come due.

Fourteen states and territories decided a long time ago that a bank sitting on your cash should pay you something for it. New York’s law says the servicer must credit the account “with dividends or interest at a rate of not less than two per centum per year.” California’s says “the interest on such amounts shall be at the rate of at least 2 percent simple interest per annum.” Connecticut, Maine, Maryland, Massachusetts, Minnesota, Oregon, Rhode Island, Utah, Vermont, Wisconsin, Guam, and the U.S. Virgin Islands have their own versions.

On May 15 the Office of the Comptroller of the Currency issued a determination saying federal law preempts all of them for the banks it regulates. It published on May 19 and took effect June 18.

Now read the second half of what the OCC cleared. The determination covers state laws limiting a bank’s flexibility to decide whether to pay interest on escrow funds “or assess fees in connection with such accounts.” Both halves. So the bank holds your money for free, and the state rule that stopped it from charging you for the account went out with the same stroke.

The interest itself is not life-changing. Take a house with $9,000 a year in taxes and insurance running through escrow. The balance rises and falls, but call the average $3,000. Two percent on that is $60 a year. Small. It was also yours, guaranteed by your state, and now it isn’t.

Ten states sued on August 11 in federal court in Oregon: Oregon, New York, California, Connecticut, Maine, Maryland, Massachusetts, Minnesota, Rhode Island, and Vermont. They argue the OCC blew past the limits Dodd-Frank put on national bank preemption and broke the Administrative Procedure Act getting there. That fight will take years. Your escrow statement won’t.

So do three things.

Pull your annual escrow statement. Your servicer has to send one within 30 days of the end of your escrow computation year, after running an analysis. Find the interest credit line. If it went to zero after June, this is why.

Then check who actually holds your loan. The OCC only regulates national banks and federal savings associations. A state-chartered bank or a credit union is still bound by your state’s law. Ask your servicer which it is and get the answer in writing.

Last, go after the bigger number instead. Regulation X caps the cushion your servicer can sit on at “no greater than one-sixth” of what the account pays out in a year, which is two months. Your servicer set that figure using last year’s tax bill and last year’s insurance premium. If either one has come down since, the pile is bigger than it needs to be and nobody at the bank is in a hurry to tell you. Ask for an escrow analysis. Clawing back $1,200 of overage beats a year of 2 percent, and you can run what that does to your payment before you call. Our mortgages hub has the rest, including why the escrow line keeps climbing even when your rate never moves.

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