COVID-19 Resource Center

COVID-19 Fallout: The Pandemic’s Effects on Consumer Class Action Litigation Against Financial Institutions and Debt Collectors

June 9, 2020Article

The COVID-19 pandemic has created unprecedented disruptions and challenges for businesses across the country. Unfortunately it has not spared financial institutions and debt collectors, most of whom were already navigating a veritable minefield of federal and state consumer protection laws. Now, the ongoing pandemic has created even more costly traps and pitfalls for businesses struggling to stay afloat in these uncharted waters. 

Nearly three months into the crisis, class actions seeking to remedy consumers’ losses during the pandemic seem to be rapidly multiplying. Although financial institutions and debt collectors who lend or collect money are no strangers to class action litigation, plaintiffs are now bringing class actions aimed at preventing foreclosures and impeding the ability for companies to collect monies owed. While the specific factual circumstances underlying some of these claims are as novel as the virus that caused them, the types of claims being asserted are just the latest attempt to bring new class actions against companies who lend and collect money. 

Current COVID-19 Class Action Litigation Against Loan Servicers

Given the hordes of Americans facing unemployment, we anticipate that litigation concerning loan servicing will continue to rise. In March 2020, a class action lawsuit was filed in West Virginia against Bank of America on behalf of a putative class of homeowners facing foreclosure.[1] The suit specifically seeks injunctive relief to stop foreclosures by Bank of America during the pandemic. According to the plaintiffs, “it is inappropriate to conduct non-judicial foreclosure sales because the public auctions cannot be conducted consistent with the principles of an appropriate time, place and manner of a commercially reasonable public auction, as required under West Virginia law and the parties’ contracts.” Both the contract on the bank’s loans and West Virginia law provide that any foreclosure sale has to be conducted at a public auction. The plaintiffs claim that these requirements cannot be met during the COVID-19 pandemic. The plaintiffs also allege that because citizens are asked to self-quarantine and practice social distancing, commercial sales of foreclosed homes cannot meet commercially reasonable standards.

Since the case was filed against Bank of America, the federal government has announced steps to halt foreclosures on government-backed mortgages. But, like the mortgages provided by Bank of America, many Americans do not have government-backed mortgages. Thus, suits similar to the West Virginia suit could proliferate on behalf of citizens of other states and against other mortgage providers. Since public auctions are a condition precedent to foreclosure, if the West Virginia plaintiffs are successful at obtaining an injunction, it is possible – and likely – that other loan holders will seek similar injunctions for anything that must be sold at public auction including cars, boats, recreational vehicles and more.

Student loans are another area of increasing class action litigation given the enormous number of Americans with student loan debt. In March 2020, a group of Minnesota plaintiffs filed a putative class action against Northstar Education Finance Inc., d/b/a Total Higher Education, alleging that Northstar unlawfully suspended an interest rate-reducing repayment bonus program citing only “changes in economic conditions” as the reason for the suspension.[2] The Northstar plaintiffs allege that this violates not only their loan agreements, but also a previous settlement agreement. They also allege that suspending the program is a deceptive business practice because the suspension of the repayment bonus allegedly increased the interest rates on their loans.

The suit against Northstar involves many questions of law, including whether the putative class members have actually sustained damages and, if so, what those damages are. It is likely that complaints alleging actions and damages similar to those alleged against Northstar will follow.

What Businesses Can Do to Avoid Class Actions During this Time

The impact of COVID-19 on business operations, consumer activity, and economic forecasts has made it clear that the class action filings to date are only an early indication of what is to come. Based on current trends, we anticipate a heightened risk of class actions against loan servicers and debt collectors. 

Although the COVID-19 pandemic is still unfolding, the number class actions related to the virus continue to rise. Indeed, as discussed here, the pandemic has already sparked a flurry of litigation activity. Despite unprecedented court closures and changing procedural rules, COVID-19 class actions have steadily increased and will likely expand across industries, jurisdictions, and areas of law. Tens of millions of individuals have filed for unemployment during this time, and lawsuits will ensue to recoup these losses.

No amount of social distancing can insulate companies from the threat of class action litigation caused by the pandemic. Instead, businesses should review their insurance policies and the conditions of service and lending contracts for the purpose of determining whether they have the ability to proceed with conditions precedent (e.g. foreclosure sales or public auctions). Given the uncertain legal landscape in this area, businesses should stay on top of the pandemic-related class action trends and, wherever possible, get ahead of or try to prevent the additional strain of a class action by being very clear about the terms of their agreements.

Authors: Jenny DeFrancisco (Associate, New York) Editor: S. Christopher Collier (Senior Partner, Atlanta)

Hawkins Parnell & Young's national litigation team is helping businesses across the United States navigate unprecedented legal challenges arising from the COVID-19 pandemic. Visit our COVID-19 Resource Center for the latest insights and guidance.

[1] Shuff v. Bank of America, No. 5:20-cv-00184 (S.D. W. Va., Mar. 16, 2020).

[2] Oksenendler v. Northstar Education Finance, Inc., Case No. 20-cv-00805 (D. Minn., Mar. 26, 2020).