TRENTON, N.J. — The Mortgage Bankers Association has filed a federal lawsuit challenging New Jersey’s disparate-impact discrimination rules, arguing they place mortgage lenders and other businesses in an unconstitutional bind by potentially penalizing race-neutral practices while pressuring companies to consider race to avoid liability.
The lawsuit was filed Sept. 3 in U.S. District Court for the District of New Jersey against Attorney General Jennifer Davenport and Yolanda Melville, director of the state’s Division on Civil Rights, according to federal court records. MBA is seeking to have the regulations struck down and to prevent state officials from enforcing them.
The case challenges rules adopted by the Division on Civil Rights in December 2025 under the New Jersey Law Against Discrimination.
Disparate-impact liability allows a policy or practice to be challenged when it disproportionately harms members of a protected group even if the policy is neutral on its face and there was no intent to discriminate.
New Jersey says its regulations clarify existing protections under state law and provide businesses, housing providers and others with clearer standards for determining when a neutral practice may constitute unlawful discrimination.
MBA contends the rules go considerably further.
MBA Says Rules Create a ‘Double-Bind’
MBA argues that New Jersey’s standards could expose mortgage lenders to discrimination claims based on ordinary underwriting and pricing practices involving such factors as credit history and income.
Under the regulations, a challenged practice that produces a disparate impact generally must be necessary to achieve a substantial, legitimate and nondiscriminatory interest, and there must not be a less discriminatory alternative that would accomplish that interest.
MBA contends that framework strips away safeguards intended to prevent disparate-impact liability from effectively requiring businesses to engage in racial balancing.
The association argues that lenders could find themselves in a legal “double-bind”: A lender using the same underwriting criteria regardless of race could face disparate-impact liability if the resulting lending outcomes differ among protected groups, while changing decisions based on race to eliminate those disparities could conflict with federal anti-discrimination laws.
‘Cannot Punish Businesses’
“The government cannot punish businesses for treating people as individuals,” Wilson Freeman, an attorney with Pacific Legal Foundation, which is representing MBA, said in announcing the lawsuit.
MBA represents more than 2,000 companies in the real estate finance industry, including more than 60 based in New Jersey, according to the lawsuit.
The association contends lenders operating in the state will incur ongoing costs analyzing underwriting, pricing and servicing practices for statistical disparities that could expose them to enforcement actions or litigation. Multistate lenders also could have to adopt different compliance practices for New Jersey, MBA argues.
Supreme Court Decision at Center of Challenge
A significant part of MBA’s challenge rests on the U.S. Supreme Court’s 2015 decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project.
The Supreme Court held that disparate-impact claims can be brought under the federal Fair Housing Act but identified safeguards intended to prevent businesses from being held responsible for racial disparities they did not create and to avoid injecting racial considerations into decision-making.
MBA argues New Jersey’s rules eliminate or weaken several of those safeguards.
The lawsuit contends, among other things, that the state’s rules allow disparities to be established using broader demographic information rather than data limited to a lender’s actual applicants and do not require disparities to meet an adequate threshold of statistical significance.
MBA also challenges how the rules allocate responsibility for demonstrating whether a less discriminatory alternative exists.
The association argues the result conflicts with federal law and violates constitutional equal-protection guarantees.
New Jersey Says Rules Protect Against Discrimination
New Jersey officials have characterized the regulations differently.
When the rules were adopted, the Attorney General’s Office said they codified existing case law rather than creating new liability and were intended to clarify how disparate-impact claims are evaluated under the state’s Law Against Discrimination.
The rules apply beyond mortgage lending to employment, housing, public accommodations, financial lending and contracting.
Barriers Without Intent
State officials have said seemingly neutral policies can create discriminatory barriers even without discriminatory intent.
As one example, New Jersey has pointed to a housing provider that automatically rejects applicants with credit scores below 600. Under the state’s framework, an alternative could involve individually evaluating applicants using their broader credit histories and other information bearing on their ability to pay.
The Attorney General’s Office said when adopting the rules that they provide businesses and other regulated entities with greater clarity about their obligations while protecting residents from policies that disproportionately harm protected groups.
New Jersey has also stepped up enforcement of housing discrimination laws this year. Davenport said in April that the state would use its enforcement authority to address discrimination and expand access to housing, including through efforts involving mortgage redlining.
MBA Seeks to Block Enforcement
MBA’s lawsuit asserts claims under the Equal Protection Clause and federal law and asks the court to invalidate the regulations and prohibit their enforcement.
Alternatively, the association is seeking to block portions of the rules as they apply to housing and home lending.
