On September 3, a national mortgage trade association filed a lawsuit in the U.S. District Court for the District of New Jersey challenging the state’s disparate impact rules under the New Jersey Law Against Discrimination. The complaint alleges that the rules violate the Equal Protection Clause if the Fourteenth Amendment and are preempted by the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA).
The New Jersey Division on Civil Rights adopted the rules in 2025 to establish standards for disparate impact claims under the LAD, including claims involving housing and housing financial assistance. The rules provide that a facially neutral practice may violate the LAD if it actually or predictably results in a disproportionately negative effect on members of a protected class, subject to specified defenses.
The complaint challenges several features of that framework, alleging that the rules:
- Relax causation requirements. The trade association alleges that a challenger may rely on national, state, or local statistics, demographic or census data, survey data, and other evidence without establishing that a lender’s particular policy caused a disparity among its own customers.
- Shift the burden for less discriminatory alternatives. In housing and housing financial assistance matters, covered entities must demonstrate that no less discriminatory alternative would achieve their substantial, legitimate, nondiscriminatory interest.
- Reach lending and servicing practices. The rules apply to decisions involving the availability and terms of housing financial assistance, loan servicing, and standards used to evaluate real estate-related transactions.
- Permit challenges to prospective practices. A policy that has been approved, announced, or finalized may be challenged based on allegations that it will produce a disproportionate effect even before implementation.
The trade association seeks declaratory and injunctive relief barring enforcement of the rules or, alternatively, their housing and housing financial assistance provisions.
Putting It Into Practice: The lawsuit follows New Jersey’s adoption of its disparate impact rules (previously discussed here), and comes as federal and state approaches to disparate impact continue to diverge (previously discussed here). Mortgage lenders operating in New Jersey should monitor the litigation and continue evaluating underwriting, pricing, servicing, and other policies for compliance with applicable state requirements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
[View Source]
