Summary — HB 1378 (North Dakota): Payment of Interest on Escrow Accounts for Residential Mortgages
Status
- Introduced: November 18, 2024
- Legislative outcome: Second reading — failed to pass (yeas 14, nays 78)
Purpose and intent
- Require lenders/servicers to pay interest on qualifying escrow accounts tied to residential mortgages, establish minimum interest and disclosure rules, create enforcement authority and penalties, and set effective/application dates.
Key provisions (substantive changes)
- New statutory sections added to chapter 47‑10.2 and amendment to section 47‑10.2‑01 (definitions).
- Definitions: clarifies “borrower,” “escrow account,” “escrow funds,” “interest rate,” “lender” (excludes ND Housing Finance Agency), “servicer,” and “surplus amount” (≥ $50 from annual escrow analysis, excluding any required escrow cushion).
- Eligibility: lenders must pay interest on escrow accounts that (a) maintain a minimum average balance of $500, (b) have been in existence at least three months, and (c) are active accounts.
- Interest rate standard:
- Rate must be based on prevailing market rates for a savings or similar deposit product.
- Minimum annual rate: 0.5% (one-half percent).
- Rate adjustments must track comparable market changes and may not disproportionately favor the lender.
- Lenders must use a transparent formula to determine the rate and disclose the applied rate and, if applicable, the deposit product type tied to the escrow account.
- (Committee language) Lenders must notify borrowers at least 30 days before applying a rate change.
- Disclosure & opt‑out:
- Mortgage agreements and periodic statements must explain escrow management, interest rates, and how interest is credited.
- Borrowers may opt out only if the mortgage explicitly allows it and the borrower agrees to forfeit interest in exchange for a reduced mortgage rate or other benefit.
- Enforcement & penalties:
- Department of Financial Institutions (DFI) designated to enforce the chapter.
- Lenders must submit annual reports to DFI summarizing interest credited, rates applied, and number of borrowers affected.
- Failure to pay interest on eligible accounts exposes a lender to a civil penalty set by DFI and possible suspension of business operations in the state until compliance.
- Borrowers denied interest are entitled to unpaid interest plus additional penalty interest not to exceed 10% of the unpaid interest for each year of nonpayment.
- Application/effective dates:
- Applies to escrow accounts created after the Act’s effective date.
- For existing escrow accounts, required interest payments would begin January 1, 2026.
Who would be affected
- Primary: lenders and servicers (banks, mortgage companies, credit unions) that hold residential mortgage escrow accounts in North Dakota.
- Secondary: residential mortgage borrowers who maintain escrow accounts with eligible balances (≥ $500).
- Oversight: North Dakota Department of Financial Institutions (enforcement, reporting, penalties).
Potential impacts
- Borrowers with qualifying escrow accounts gain a statutory right to modest interest (minimum 0.5% annually) and greater disclosure.
- Lenders will incur administrative and reporting responsibilities and potential compliance costs; possible operational risk if found noncompliant (penalties, suspension).
- The bill as drafted balances borrower protections (minimum payment, disclosure, remedies) with lender flexibility to tie rates to market products.
Notes
- Several other unrelated HB1378 bills exist in other states (different topics); this summary addresses the North Dakota version described above.
- Because the measure failed to pass on second reading (yeas 14 / nays 78), it did not become law in its current form.
