As we reported in December 2025, New Jersey’s Division on Civil Rights (DCR) adopted what its Attorney General described as the “most comprehensive state-level disparate impact regulations in the country” under the New Jersey Law Against Discrimination (LAD). Those rules, effective December 15, 2025, codify a broad burden-shifting framework for disparate impact claims across housing, lending, employment, public accommodations, and contracting, and include specific guidance on liability arising from the use of artificial intelligence and automated decision-making tools. Now, the Mortgage Bankers Association (MBA) has filed suit to stop them.
Link to The Lawsuit The Lawsuit
On September 3, 2026, the MBA filed a complaint in the U.S. District Court for the District of New Jersey against New Jersey Attorney General Jennifer Davenport and DCR Director Yolanda Melville in their official capacities. The MBA seeks a declaration that the rule violates the Equal Protection Clause of the Fourteenth Amendment and is preempted by federal law, along with an injunction against its enforcement.
Link to The Constitutional Framework The Constitutional Framework
The MBA’s complaint begins with the Supreme Court’s 2015 decision in Texas Department of Housing & Community Affairs v. Inclusive Communities Project, which confirmed that disparate impact claims are cognizable under the Fair Housing Act but emphasized that such liability must be accompanied by meaningful constitutional safeguards. Those safeguards include: a robust causality requirement linking a specific business policy to the observed disparity; leeway for businesses to justify challenged policies by showing they advance a valid interest; and a burden on the challenger to identify an equally effective, less discriminatory alternative. Without these guardrails, the Court warned, disparate impact regimes “inexorably lead” to impermissible racial balancing.
Link to How the New Jersey Rule Goes Further How the New Jersey Rule Goes Further
New Jersey’s rule departs from the federal baseline in several significant respects, and it is precisely those departures that the MBA now argues cross constitutional lines.
- Pre-implementation challenges permitted. The rule extends its reach to policies that have not yet been implemented, permitting challenges to any practice that has been “approved, announced, or otherwise finalized” on the basis that it “will have” a disparate effect.
- Reversed burden on alternatives. As we highlighted in December, the rule shifts the burden of proving the absence of a less discriminatory alternative from the challenger to the business in the housing and housing financial assistance context and requires businesses to supply empirical evidence of the alternatives they considered. The MBA argues this compels lenders to measure and compare the demographic effects of their policy options, which – in the context of race – is itself a form of race-conscious decision-making that federal law forbids.
- Diversity as a justification. The rule expressly provides that an “interest in achieving diversity or increasing access for underrepresented or underserved members of a protected class” may constitute a legitimate interest justifying a challenged practice. The MBA argues this provision directly incentivizes the kind of racial balancing the Supreme Court has repeatedly condemned as “patently unconstitutional.”
Link to The MBA’s Legal Claims The MBA’s Legal Claims
The MBA advances two causes of action. First, it contends the rule violates the Equal Protection Clause by stripping away the constitutional safeguards Inclusive Communities deemed essential and compelling private parties to engage in racial balancing on the state’s behalf; conduct a state cannot accomplish directly and therefore cannot induce private parties to accomplish indirectly.
Second, it argues the rule is preempted by federal law. The Fair Housing Act expressly invalidates any state law that “purports to require or permit” conduct that would constitute a discriminatory housing practice. 42 U.S.C. § 3615. Because the only reliable path to compliance with the New Jersey rule runs through race-conscious policymaking, which the Equal Credit Opportunity Act, Regulation B, and the Fair Housing Act each independently forbid, the MBA argues that simultaneous compliance with state and federal law is impossible.
Of note, although the MBA requests that the rule be invalidated in its entirety, the MBA’s complaint focuses exclusively on the rule’s application in the context of disparate impacts on the basis of race. The complaint does not expressly advance an argument that the rule is invalid insofar as it applies to other characteristics protected by New Jersey’s LAD, and applications of the rule in those other contexts may not be subject to the same level of constitutional scrutiny as applications of the rule in the context of racial discrimination.
Troutman Pepper Locke will continue monitoring this litigation and providing updates as the case develops.