Oregon and nine other states argue that the OCC unlawfully preempted state interest-on-escrow laws, that Oregon is a proper venue, and that their challenge to the agency’s authority should proceed. The court expects to rule on the OCC’s motions by November 20.
Ten states challenging the Office of the Comptroller of the Currency’s (OCC) mortgage interest-on-escrow rules have opposed the agency’s motion to dismiss or transfer the case. They argue that the rules cause a present sovereign injury, venue is proper in Oregon, and their complaint adequately challenges the OCC’s authority to adopt the Escrow Powers Rule.
The states filed their opposition papers on October 19. They must respond to the OCC’s separate motion for a partial stay by October 23. The OCC’s replies are due November 2 and 6, respectively, and Judge Michael H. Simon expects to rule on both motions by November 20. If the motions are denied, the court expects the OCC to lodge the administrative record by December 9.
The rules and the states’ claims
Oregon, New York, California, Connecticut, Maine, Maryland, Massachusetts, Minnesota, Rhode Island, and Vermont sued August 11, 2026, over two rules published May 19 and effective June 18.
The Escrow Powers Rule, 12 C.F.R. § 34.3(d), addresses national banks’ authority over mortgage escrow accounts. The Preemption Rule, 12 C.F.R. § 34.7, declares state interest-on-mortgage escrow laws preempted as applied to national banks.
The states assert two claims under the Administrative Procedure Act (APA). They allege that the rules exceed the OCC’s statutory authority, violate required procedures, and are arbitrary and capricious. They contend that the rules evade Dodd-Frank limits requiring the OCC to apply the National Bank Act’s “significant interference” standard, make preemption decisions case by case, and support them with substantial evidence.
The case follows conflicting appellate decisions. The Ninth Circuit rejected preemption of California’s law in Lusnak v. Bank of America, N.A. and Kivett v. Flagstar Bank, FSB. The First Circuit reached a similar result for Rhode Island in Conti v. Citizens Bank, N.A. The Second Circuit, however, held in Cantero v. Bank of America, N.A. that the National Bank Act preempts New York’s law. These petitions remain pending before the Supreme Court.
The OCC’s arguments
The OCC asks the court to dismiss the case or transfer it to the District of Columbia. Its threshold arguments present separate questions about standing, ripeness, traceability, and redressability.
On standing and ripeness, the OCC argues that the states have not identified a present injury because they have not alleged that national banks actually stopped complying with the state mortgage interest-on-escrow laws. In the OCC’s view, a rule’s assertion that state law is preempted does not itself establish an injury unless the states show that the rule has caused a concrete loss of enforcement authority or produced noncompliance.
The OCC also argues that any injury is not fairly traceable to the challenged rules. It relies particularly on the First Circuit opinion in Cantero II, which held that the National Bank Act independently preempts New York’s law. The OCC’s position is that, at least for New York, and potentially for Connecticut and Vermont (which are all in the First Circuit), the states could not obtain meaningful relief from vacating the OCC’s rules if federal law would continue to bar enforcement.
The court therefore must decide whether the states’ alleged loss of authority to enforce their laws is a present sovereign injury, whether the injury is sufficiently connected to the OCC rules rather than to the National Bank Act itself, and whether vacatur would redress the injury. It also must determine whether those questions can be resolved for all ten states together or require a state-by-state analysis.
The OCC separately challenges venue. It argues that Oregon is not a proper forum for the other nine states and that the case should proceed in the District of Columbia, where the agency is headquartered and adopted the rules. The agency’s position is that the states’ individual interests and connections to their own laws do not establish a sufficient basis for litigating the entire consolidated action in Oregon.
Finally, the OCC seeks partial dismissal of the states’ claim that the Escrow Powers Rule exceeds the agency’s authority. It does not, at this stage, seek dismissal of every challenge to the Preemption Rule or of the states’ separate allegation that the rules are arbitrary and capricious.
The states’ response on standing and preemption
The states argue that they need not wait for banks to violate their laws before challenging rules that expressly purport to displace them. They characterize the injury as sovereign: by declaring state requirements unavailable to enforce, the rules allegedly impair the states’ authority to administer and enforce duly enacted mortgage interest-on-escrow requirements.
The states distinguish that injury from an individual consumer’s claim for damages or from a generalized objection to federal policy. They contend that the rules themselves create the conflict by instructing national banks that state requirements are preempted. In their view, requiring proof of actual bank noncompliance would improperly allow the OCC to insulate its preemption determination from review until after state enforcement efforts had already failed.
The states also contend that the two rules operate together. The Escrow Powers Rule asserts federal authority over escrow terms, while the Preemption Rule uses that asserted authority to displace state law. The states argue that vacating either rule could affect the legal framework that currently obstructs enforcement, and that the court should evaluate the rules as related components of the same agency action.
The OCC argues that Cantero II undermines standing for New York, Connecticut, and Vermont because the National Bank Act may independently preempt their laws. The states respond that the other seven states independently have standing, which would permit the court to reach the merits even if it rejects standing for some plaintiffs. They also argue that Cantero II did not resolve the status of Connecticut’s or Vermont’s laws.
As to New York, the states acknowledge that Cantero II held its law preempted under the National Bank Act. They nevertheless argue that the OCC rules create an additional regulatory obstacle. In their view, vacating the rules would remove that obstacle even if the National Bank Act separately limits New York’s enforcement authority.
The court must therefore determine whether the alleged injury depends on the validity of the OCC rules, whether an independent statutory preemption ruling defeats traceability or redressability, and whether the standing inquiry differs among the states based on the text and operation of their laws.
Venue
The states defend Oregon as a proper venue for the consolidated action. They argue that all ten states challenge the same federal rules, assert materially identical APA claims, and seek the same principal relief—vacatur of the rules. Oregon’s participation as a plaintiff, they contend, provides a sufficient connection to the forum for the unified action.
The OCC’s contrary position is that the other states cannot rely solely on Oregon’s presence to establish venue for their own claims. It argues that the states’ separate sovereign interests and local laws should be litigated in their respective home districts or, alternatively, together in the District of Columbia.
The states respond that requiring separate lawsuits would duplicate briefing and risk inconsistent rulings. They also dispute the OCC’s reliance on convenience and witness considerations. Because the case is likely to be resolved on the administrative record, they argue, there should be little or no witness testimony, discovery, or fact development whose convenience would favor transfer.
The states further reject the agency’s forum-shopping argument, noting that several plaintiff states are located in circuits that have rejected preemption of mortgage interest-on-escrow laws. They characterize the choice of Oregon as a legitimate effort to obtain coordinated review of a single federal action, not an attempt to secure an improper substantive advantage.
The court must decide both whether venue is legally proper in Oregon for the consolidated claims and, if so, whether the convenience of the parties and witnesses or the interests of justice nevertheless warrant transfer to the District of Columbia.
The Escrow Powers Rule
On the Escrow Powers Rule, the states argue that the OCC cannot use general rulemaking authority to create a new federal power designed to displace state law, particularly when Dodd-Frank specifically limits the agency’s preemption authority. They contend that Congress required the OCC to satisfy particular standards before preempting state law and that the agency cannot avoid those limits by first defining national banks’ escrow powers broadly and then treating state requirements as inconsistent with those powers.
The states also rely on the Truth in Lending Act’s provisions addressing interest on certain mortgage escrow accounts. They argue that Congress’s specific treatment of mortgage escrow interest, together with Dodd-Frank’s restrictions on OCC preemption, limits the agency’s ability to adopt a rule that effectively authorizes national banks to disregard state requirements.
The OCC’s motion presents a narrower question at this stage: whether the complaint plausibly alleges that the Escrow Powers Rule itself exceeds statutory authority. The agency argues that the states have not identified a legal defect in the rule independent of their broader disagreement with the OCC’s preemption determination. The OCC seeks dismissal of that portion of Count One before the court reviews the administrative record.
The states respond that their allegations are sufficient at the pleading stage and that the legality of the rule depends on the statutory relationship among the National Bank Act, Dodd-Frank, and the Truth in Lending Act. They also argue that the Escrow Powers Rule cannot be separated from the Preemption Rule because the OCC described the two rules as complementary parts of its regulatory approach.
The court must decide whether the complaint identifies a plausible statutory-authority defect in the Escrow Powers Rule, whether the OCC’s general rulemaking authority permits the agency to establish the asserted escrow power, and whether Dodd-Frank or the Truth in Lending Act imposes limits that the rule allegedly circumvents. The court also must determine whether those issues can be resolved on the pleadings or should await review of the administrative record.
The states emphasize that even partial dismissal would leave intact their challenge to the Preemption Rule and their claim that both rules are arbitrary and capricious. Thus, the immediate question is not whether the entire case survives, but which statutory-authority theories may proceed to administrative-record review.
The requested stay and next steps
The OCC separately seeks to pause the case while the Supreme Court considers related petitions involving Cantero, Kivett, and Conti. The states have opposed a delay, citing the lack of a clear Supreme Court timetable and the possibility that those proceedings will not resolve all issues in this APA case. Their formal response to the stay motion is due October 23.
The current schedule is:
- November 2: OCC reply on dismissal or transfer.
- November 6: OCC reply on the partial stay.
- November 20: Court’s anticipated ruling on both motions.
- December 9: Anticipated deadline for the OCC to lodge the administrative record if the motions are denied.
The threshold rulings will determine whether the states can pursue a consolidated challenge in Oregon, whether each state has a redressable injury, and which statutory-authority claims proceed to review of the OCC’s rules. The litigation ultimately will test how far the OCC may go in using rulemaking to preempt state consumer-protection laws governing national banks.
Recent Comments