WASHINGTON — The Supreme Court on Thursday gave homeowners another chance to force Bank of America and other big banks to pay interest on mortgage escrow accounts.
The court unanimously rejected an appeals court ruling in favor of Bank of America, which refused to pay interest on money it collects to pay borrowers’ insurance and tax bills land. New York requires banks to pay 2% interest on escrow funds.
Thirteen other states have similar laws: California, Connecticut, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, Oregon, Rhode Island, Utah, Vermont and Wisconsin.
A federal judge initially ruled in favor of the borrowers, but the New York federal appeals court granted Bank of America’s request to dismiss the lawsuits, arguing that federal law governing national banks does not permit such state-by-state regulations.
Justice Brett Kavanaugh wrote on behalf of the Supreme Court that the appeals court had failed to perform the type of nuanced analysis required by federal law and previous Supreme Court decisions to determine whether a state law had to give way to federal law.
In particular, Kavanaugh noted that the Dodd-Frank Act, enacted after the 2008 financial crisis, made it clear that not all state banking laws are preempted.
Jonathan Taylor, who championed the landlords’ cause, said in an email that the decision is a victory for consumers because it “vindicates Congress’s determination in the Dodd-Frank case to curb the type of aggressive preemption of laws policies on consumption and finance that helped lead to the financial crisis.
Bank of America did not immediately comment on the decision.
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