Committee advances AB 493 to require interest on post-loss insurance payouts held in escrow

The California State Senate Committee on Banking and Financial Institutions voted to refer Assembly Bill 493 to the Senate Judiciary Committee after committee members recorded seven affirmative votes, advancing a proposal to ensure homeowners receive interest on insurance payouts held in escrow following property loss.

Assemblymember Harbidian told the committee that recent court decisions in California have excluded post-loss insurance payouts from escrow-interest requirements, allowing lenders to retain interest on funds meant for homeowners. "That is a problem," Harbidian said, arguing that the practice "hurts Californians and particularly those recently impacted by the wildfires." AB 493 would eliminate that exemption and require lenders to provide homeowners at least 2% interest on post-loss insurance payments while funds remain in escrow.

The author said the bill was amended to apply to all loans regardless of origination date for post-loss payments made on or after Jan. 1, 2026, and that for properties impacted by the Los Angeles wildfires the bill would also cover payments made in 2025, "as long as those funds are still being held in escrow." Harbidian described the dollar amounts involved as substantial when insurance payouts are held for weeks or months while reconstruction proceeds.

Witnesses included local government and industry representatives. Cesar Diaz spoke for Los Angeles County in support; Sean Bellak spoke for the California Association of Realtors; and Indira McDonald of the California Mortgage Bankers Association said amendments and the analysis addressed conformity concerns related to the Residential Mortgage Lending Act so mortgage banks can hold funds in deposit accounts that accrue interest. The California Bankers Association and Consumer Data Industry Association also described a collaborative negotiation process.

Committee clerks recorded the motion as "due passed to senate judiciary"; later roll calls recorded affirmative votes from Senators Grayson, Nilo, Richardson, Strickland, Cervantes, Hurtado and Limone. The chair placed the bill on call while awaiting absent members before announcing both AB 493 and AB 238 had seven votes and were out of committee.

By removing the exemption for post-loss insurance payouts, AB 493 would change how escrow interest is allocated after disasters and could affect the amount homeowners receive while they rebuild. The bill now moves to Senate Judiciary for legal review.