Legislative & Regulatory Update

North Dakota HB 1378 forces credit unions to pay interest on escrow accounts, increasing costs, limiting market flexibility, and burdening consumers.

By John Alexander, DakCU Director of Legislative & Regulatory Affairs

​HB 1378: A Costly Mandate Credit Unions Can’t Afford to Ignore
A storm is brewing in North Dakota’s legislative halls, and its name is House Bill 1378. At first glance, it might seem like a simple consumer protection measure—requiring lenders to pay interest on escrow accounts for residential mortgages. But dig a little deeper, and you’ll find a bill that threatens to burden credit unions, small lenders, and consumers alike with rigid mandates and costly new regulations.

HB 1378 has already passed committee and is heading to the House floor. If it becomes law, it will force credit unions, banks, and mortgage lenders to pay a minimum annual interest rate of 0.5% on escrow accounts. That may sound reasonable, but consider this: that rate could exceed what some national banks currently offer on regular savings accounts.

The Competitive Market Should Decide—Not Lawmakers
In a free market, financial institutions set deposit interest rates based on competition, economic conditions, and member needs. HB 1378 removes that flexibility, dictating a one-size-fits-all interest rate for escrow accounts regardless of market realities. If this mandate were applied across all deposit products, what would stop legislators from setting rates on checking or savings accounts next?

Moreover, the bill expands the role of government regulators by imposing new enforcement duties on the North Dakota Department of Financial Institutions. That’s an unnecessary strain on both taxpayers and state resources—all to enforce a mandate that isn’t needed in the first place.

Credit Unions Caught in the Crosshairs
Perhaps most concerning is a last-minute amendment that explicitly includes credit unions in this new interest payment requirement. This means member-owned institutions—already working to provide affordable mortgage options—will be forced to comply with costly new requirements that benefit few while burdening many.

Unlike big banks, credit unions don’t exist to generate profits for shareholders. They return earnings to members through better rates, lower fees, and personalized service. But HB 1378 will force them to divert resources away from member benefits to comply with an unnecessary government mandate.

Adding another layer of uncertainty, a recent Supreme Court ruling on June 4, 2024, cast doubt on state laws like HB 1378. The Court didn’t rule whether these laws are valid or invalid—but it made clear that national banks can challenge them if they significantly interfere with their business.

This means HB 1378 could face legal challenges before it even takes effect. While larger institutions may have the resources to fight such cases in court, smaller community banks and credit unions could be left to bear the brunt of legal uncertainty and regulatory confusion.

The Bottom Line: HB 1378 is a Bad Deal for North Dakota
Mandating interest payments on escrow accounts won’t meaningfully help consumers, but it will impose new costs on credit unions and community banks—costs that will likely be passed on to borrowers in the form of higher fees and fewer lending options.

North Dakota has long prided itself on limited government intervention and a strong, competitive financial market. HB 1378 flies in the face of both principles, adding needless red tape where it isn’t warranted.

We strongly oppose this bill and urge lawmakers to reconsider its impact before it’s too late. Credit unions exist to serve their members—not to comply with unnecessary and costly mandates.

​Stay Connected
For more information or to share your perspectives, feel free to contact me.