By Al Barbarino

Law360 (May 4, 2021, 5:53 PM EDT) -- A group of landlords is suing the Consumer Financial Protection Bureau over a new disclosure rule that aims to inform tenants of their protections from eviction during the COVID-19 outbreak, claiming that the rule violates the landlords' First Amendment rights by requiring them to lie.

The CFPB's new interim final rule, effective Monday, requires that debt collectors and attorneys working for landlords provide "clear and conspicuous" written notice to tenants about their eviction protections under a September 2020 moratorium on evictions ordered by the U.S. Centers for Disease Control and Prevention.

But attorneys for the New Civil Liberties Alliance argued in a lawsuit filed Monday that the CFPB's interim final rule induces "false speech," disregards prior cases that found the CDC moratorium invalid and that the moratorium is no longer needed as vaccinations increase and pandemic conditions improve.

The complaint asks the court to "enjoin this CFPB policy, declare it unlawful, and set it aside." 

"This rushed and sloppy rule is just a political statement masquerading as the law," added Caleb Kruckenberg, litigation counsel with the NCLA, in a statement.

Kruckenberg told Law360 on Tuesday that the CFPB is unlawfully mandating that landlords "inform their tenants falsely that they fall under the protections of the moratorium, that they don't have to pay the rent, and that they can't be evicted."

The lawsuit comes after the CFPB said on Monday it had put the nation's largest multifamily housing landlords on notice regarding their obligations to comply with the temporary moratorium.

The NCLA is representing Tennessee-based landlord The Property Management Connection, the Virginia-based National Association of Residential Property Managers and the Louisiana-based real estate attorney Gordon J. Schoeffler.

The complaint notes that the CDC's original eviction moratorium order was "successfully challenged" twice in the Sixth Circuit, where some of the plaintiffs reside.

The District Court for the Western District of Tennessee held — in Tiger Lily LLC et al. v. HUD et al. — that the eviction freeze was beyond the scope of CDC's power and unenforceable in the Western District of Tennessee.

And in Skyworks Ltd. v. CDC , the District Court for the Northern District of Ohio "determine[d] that the [order] exceeded the agency's statutory authority," the NCLA said. 

"My clients have to mislead the tenants into thinking there is a moratorium that doesn't apply to them," Kruckenberg said.

"The CFPB rule does not acknowledge any of the cases that have invalidated the eviction moratorium, and CFPB has asserted again and again that the moratorium is valid," he added in an email. "CFPB therefore believes that the moratorium applies for all of the tenants who owe rent to our clients."

The CFPB's rule does note that landlords' attorneys and debt collectors don't need to notify particular tenants of the CDC order if they have "knowledge that the consumer is not eligible for protection."

In that case, "there is likely no deception or unfairness to cure, no consumer benefit from receiving a disclosure about the order, and no reason to cause debt collectors to incur the expense of providing such a disclosure," the rule states.

But Kruckenberg said that stipulation is problematic because it "requires our clients to hope that they will have a defense to liability down the line if they choose not to comply with the CFPB rule."

The rule also sends "contradictory signals," he argued, noting that how the rule later states that nothing "prohibits a debt collector from providing the disclosure to a consumer even if the consumer might not reasonably be eligible to be a covered person."

"In other words, CFPB says that a property owner is always justified in telling a tenant that the moratorium protects them, even if that's untrue, but if they don't provide the disclosure then they are liable unless they can show it doesn't apply," Kruckenberg said.

Monday's CFPB letter reminded landlords that the federal protections are in place "to keep people in their homes and stop the spread of COVID-19."

But the conditions due to the pandemic have vastly improved, the complaint argues. More than 42% of the American population has been vaccinated and 29% of the country is fully vaccinated, all "concentrated among the most vulnerable," the complaint states, citing CDC data.

"The pretense is that it's a public health problem for people to go to housing court," Kruckenberg said. "But as this goes on longer and longer that pretense is really hard to keep up for the agency. ... It's just not the case anymore that it's dangerous for people to go to housing court."

The CFPB did not immediately respond to requests for comment. 

Counsel information for the CFPB was not available.

The plaintiffs in the case are represented by John J. Vecchione and Caleb Kruckenberg of the New Civil Liberties Alliance and Ben M. Rose of RoseFirm PLLC. 

The case is The Property Management Connection et al. v. The Consumer Financial Protection Bureau et al., case number 3:21-cv-00359, in the U.S. District Court for the Middle District of Tennessee, Nashville Division. 

--Editing by Andrew Cohen.

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