Assembly committee advances bill to require interest on insurance escrow payouts for wildfire-damaged homes

The Assembly Banking and Finance Committee voted to refer Assembly Bill 493 to the Assembly Appropriations Committee after testimony that the bill would require lenders to pay interest on post-loss insurance payouts held in escrow for mortgage loans.

Assemblymember Harbidian, the bill’s author, told the committee that current California law requires lenders to pay interest on certain escrow funds, such as property tax escrows, but excludes post-loss insurance payouts. “That hurts wildfire survivors,” Harbidian said, arguing the change would give homeowners “more money to rebuild their homes and their lives.” He clarified at the chair’s request that the bill would apply only to insurance payouts that remain in escrow on or after the act’s effective date and would not require interest on funds disbursed before that date.

Robert Harel, executive director of the Consumer Federation of California, urged support and drew on his prior experience at the Department of Insurance to describe the scale and timeline of wildfire recovery. “This 2% is not a lot to be getting on interest, especially given the past couple 3 years,” Harel said, adding that rebuilding after major fires can take years and that even modest interest helps homeowners decide whether to rebuild or relocate.

Indira McDonald, speaking for the Bankers Association, said the association was not opposing the bill but raised technical concerns. She noted a current prohibition in the California Residential Mortgage Lending Act on servicers holding certain escrow accounts in interest-bearing accounts and said the association sought alignment between the new requirement and that statute. “We would like to align this new requirement with the California Residential Mortgage Lending Act,” McDonald said, and indicated the association had discussed the issue with the author and the governor’s office.

Committee members expressed support for addressing the issue quickly given the multi-year timeline homeowners face after major fires. The chair called the roll and the clerk recorded individual aye votes from members who responded: Valencia (aye), Lehi (aye), Chen (aye), Dixon (aye), Fong (aye), Krell (aye), Michelle Rodriguez (aye), and Blanca Rubio (aye). The clerk first announced the bill had seven recorded votes at one point during the roll call; the staff later confirmed the measure carried out of committee with eight votes. The committee’s official action was recorded as "do pass and refer to the Committee on Appropriations."

No formal amendments were offered during the hearing; committee staff and the author noted a clarification limiting the bill’s effect to payouts remaining in escrow on or after the statute’s effective date. The hearing included two witnesses offering on-the-record positions: Harel in support and McDonald noting industry concerns and a willingness to work with the author.

The bill now goes to the Assembly Appropriations Committee for further consideration.