Applying Federal Antitrust Law to Banking Services—Noninterest-Bearing Mortgage Escrow Accounts

It is reasonable that lenders should require mortgage escrow accounts on high loan-to-value mortgages, for lenders are extending a significant amount of credit. Since a house is often the single most valuable purchase ever made by a family, that house is often the only asset of sufficient value to secure the loan. Therefore, the lender will want assurances that the value of the house will be maintained. Mortgage escrow accounts help provide that assurance by protecting against tax liens and accidental damage. But noninterest-bearing mortgage escrow accounts have recently come under fire from consumer advocates. The complaint is that the accounts, aside from protecting the mortgagee-lender's security, also provide a hidden profit to the mortgagee at the mortgagor-borrower's expense. At least thirty-two suits have recently been filed, in both state and federal courts, attacking mortgage escrow accounts. One of the possibilities for attacking noninterest-bearing mortgage escrow accounts is the federal antitrust law. The mortgage market is an oligopoly in which antitrust violations are quite likely. Antitrust law is not the only possible solution to this problem. It may be that lending institutions will offer interest on mortgage escrow accounts simply for public relations purposes. Federal legislation is another possibility. There are also possibilities of relief under state law, such as unjust enrichment, unconscionability, and statutory limitations on interest rates. But perhaps the most promising state law possibility is breach of common law trust. This comment will only consider whether noninterest-bearing mortgage escrow accounts violate the federal antitrust laws. There are basically two aspects to that issue. The first is whether mortgagees are immune from any antitrust scrutiny because of federal policies which encourage or require mortgage escrow accounts. The second aspect is whether the accounts actually violate the antitrust laws either as a conspiracy to fix prices or as an illegal tying arrangement.