The Mortgage Bankers Association (MBA) recently filed a lawsuit in the U.S. district court for the district of New Jersey challenging the disparate impact rules adopted by the state.

In December 2025, the New Jersey Division on Civil Rights (DCR) adopted Rules Pertaining to Disparate Impact Discrimination under the New Jersey Law Against Discrimination. In a press release announcing the adoption of the Rules, then New Jersey Attorney General Matthew J. Platkin and the DCR stated that the “DCR has adopted landmark new rules that codify the prohibition against disparate impact discrimination under the New Jersey Law Against Discrimination (LAD), the oldest and strongest state civil rights law in the country.” In addition to housing financial assistance, the Rules apply to employment, housing, places of public accommodation, and contracting. In connection with housing financial assistance, the LAD prohibits discrimination on the basis of race, creed, color, national origin, ancestry, marital status, civil union status, domestic partnership status, pregnancy or breastfeeding, sex, gender identity or expression, affectional or sexual orientation, disability, liability for service in the Armed Forces of the United States, familial status or nationality.

Addressing the Trump Administration’s efforts to roll back disparate impact liability, which we have addressed extensively, including here, here, here, and here, the press release provides that “[t]he rules adopted today confirm that New Jersey’s civil rights laws continue to prohibit disparate impact discrimination – notwithstanding the Trump Administration’s unprecedented attempts to dismantle disparate impact standards at the federal level. Not only are those federal attempts to roll back disparate impact liability standards inconsistent with existing federal law, but they cannot and do not change the standards applicable under state law—standards that today’s landmark rules now codify in New Jersey.”

While it is asserted in the press release that the Rules “codify existing case law,” the MBA asserts in its complaint that the Rules are inconsistent not only with existing federal case law, but also the Equal Protection Clause of the U.S. Constitution and federal statutes. A key theme of the MBA’s position is that the U.S. Supreme Court “has permitted disparate impact liability only in conjunction with certain safeguards,” and that, citing the Court’s Texas Dep’t of Hous. & Cmty. Affs. v. Inclusive Communities Project, Inc., in the absence of such safeguards disparate impact regimes “inexorably lead” to serious constitutional concerns. In the Inclusive Communities case decided in 2015, the Supreme Court held that disparate impact claims may be brought under the federal Fair Housing Act, subject to safeguards to avoid constitutional issues. Citing Inclusive Communities, the complaint provides that “[t]hese safeguards include: a robust requirement that a challenger identify a specific policy of the business that caused the disparity; leeway for businesses to defend their nondiscriminatory policies on the grounds that they advance ‘valid’ interest[s];’ and a challenger’s burden to identify an alternative that serves those interests as effectively.” The complaint asserts that the Rules lack the applicable safeguards and, thus, are not consistent with federal law.

The complaint asserts that under the Rules, “a facially neutral practice adopted with no discriminatory intent violates the LAD if it ‘actually or predictably results in a disproportionately negative effect on members of a protected class,’ even if the effect is neither substantial nor statistically significant, and even if the practice has not yet been implemented, unless the covered entity carries a demanding burden of justification,” and that “a challenger need not show that the covered entity’s policy caused a disparity among the entity’s own applicants or customers, or within any relevant qualified population. Instead, disparate impact may be established with ‘[n]ational, State, and local statistics,’ ‘[d]emographic or census data,’ ‘[s]urvey data,’ and other aggregate material, supplemented by anecdotal evidence.”

The Rule also asserts that once a covered entity establishes that a practice that is challenged under the Rules is “necessary” to achieve a “substantial, legitimate, nondiscriminatory interest,” in the housing and housing financial assistance context the covered entity would then have to demonstrate “that there is not a less discriminatory alternative means of achieving the substantial, legitimate, nondiscriminatory interest.” Thus, the Rules place on the entity, and not the challenger of a practice, the burden to establish that there is no less discriminatory means to achieve the intended interest to be served by a practice. In short, the entity must prove a negative.

Significantly, the complaint asserts that under the Rules an “interest in achieving diversity or increasing access for underrepresented or underserved members of a protected class” may itself supply the substantial, legitimate, nondiscriminatory interest that justifies a challenged practice. Based on this provision, the complaint asserts that the Rules have “blessed race-conscious activity,” which is prohibited by federal law.

Addressing the impact of the Rules on the MBA and MBA members, the complaint asserts that:

• MBA members underwrite loans using facially neutral criteria that measure credit risk and the cost of originating and servicing a loan and that under the Rules every MBA member that lends in New Jersey must immediately spend resources assessing their underwriting, pricing, servicing, and other policies to determine whether any produces a statistical disparity that could expose them to liability under the Rules, and that these costs are unrecoverable and ongoing.
• MBA’s lender members operating in New Jersey and other states may be required to adopt policies for New Jersey mortgages that differ from the policies used in other states. These members will incur operational costs implementing separate policies in separate states.
• MBA members that own, operate, and manage residential rental housing choose tenants using a variety of standard practices to evaluate potential tenants, including criminal history, income, and credit history (in all cases, consistent with other state and federal law), and also have policies on pets and occupancy limitations. Under the requirements of the Rules regarding how such members choose tenants, the members must immediately spend resources assessing these and other policies to determine whether any produces a statistical disparity that could expose them to liability under the Rules, and that these costs are unrecoverable and ongoing.
• MBA’s core service to its members involves compliance assistance, member working groups, and guidance on new regulatory requirements. The Rules undermine these services and make it impossible for MBA to provide clear guidance to its members on what the law requires.

In its request for relief the MBA seeks:

• A declaration that the Rules violate the Equal Protection Clause of the Fourteenth Amendment to the U.S. Constitution.
• A declaration that the Rules are preempted by federal law, including the Fair Housing Act and the Equal Credit Opportunity Act.
• A permanent injunction against the New Jersey Attorney General and DCR, their agents, and their successors from enforcing the Rules.
• In the alternative, a declaration that the Rules’ housing and housing financial assistance provisions are invalid and a permanent injunction against the enforcement of the provisions.