Citizens Bank Owes Interest on Escrow Payments, Class Action Claims

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A Rhode Island resident alleges he’s paid tens of thousands of dollars into a Citizens Bank escrow account without receiving interest on those payments as required by state law. 

The 14-page breach-of-contract case alleges Citizens Bank has violated a provision of Rhode Island law that requires a mortgage lender making a loan secured by “an owner-occupied residential property of one to four living units” to pay interest on funds that are received from the individual in advance for tax and insurance and held by Citizens in an escrow account until payment is due. 

Per the lawsuit, the plaintiff purchased a single-family residence in Cranston in July 2011 and entered into a mortgage agreement with Citizens. Since that time, the plaintiff has been required to make monthly payments to Citizens for the pre-payment of property taxes and insurance, which are held in an escrow account, in addition to regular monthly principal payments and interest, the case says. 

In the time since the plaintiff has paid funds into an escrow account, Citizens has not paid the man the appropriate interest or any interest whatsoever, the suit alleges. 

Citizens Bank maintains escrow accounts for customers, sometimes as a condition of the loans it extends, the suit explains. With these accounts, Citizens will collect from a borrower the projected amount they will owe for taxes and insurance on the mortgaged property in addition to “cushion” amounts to the extent allowed under the Real Estate Settlement and Procedures Act, according to the case.  

Because the money paid into an escrow account is the property of the borrower, Rhode Island law requires all mortgage investing institutions pay interest on these funds, the case says. New York, Connecticut, Massachusetts, New Hampshire and Vermont also have similar statutes requiring financial institutions to pay interest on borrowers’ escrow funds, according to the complaint.

The lawsuit looks to represent all Citizens Bank customers (or those of its subsidiaries) in Connecticut, Massachusetts, New Hampshire, New York, Rhode Island and Vermont who “(i) entered into a loan with Defendant that was secured by a mortgage loan subject to the respective State Escrow Laws of the customer; (ii) paid monies into an escrow account, held by Defendant, to cover the projected amount owed in taxes, insurance and other matters relating to the property securing the loan; and (iii) received from Defendant less than the amount of interest owed under the law of the state in which the property was located.”

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