Trade association challenges New Jersey rule pressuring businesses to discriminate on the basis of race

In December 2025, the New Jersey Division on Civil Rights adopted a rule expanding disparate impact liability. Disparate impact liability holds businesses liable for discrimination if their practices produce results that differ across racial groups, even where the results are completely unintentional.

That is troublesome enough, but New Jersey’s rule goes further. It shifts the burden onto businesses and landlords, requiring them to prove a negative—that no less-discriminatory alternative exists to achieve the company’s goals. Such an open-ended standard essentially gives New Jersey carte blanche to bring enforcement actions against lenders the state decides it doesn’t like.

This puts businesses in an impossible bind. The rule extends to employment, housing, lending, contracting, education, and more. For businesses in the housing and housing finance industries, this rule threatens basic business practices: Simply evaluating whether a customer can repay a loan or make rent payments could subject a business to liability. Under New Jersey’s expansion of disparate impact liability, any statistical gap can trigger liability for the lender, and New Jersey’s test gives them virtually no way to defend their legitimate interests. It leaves businesses with only one reliable way to avoid it: sort customers by race to ensure government-approved outcomes.

In a 2015 case, Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., the U.S. Supreme Court allowed disparate impact claims under federal housing law, but only with strict limitations on those claims, expressly to prevent disparate impact from pressuring businesses to engage in racial balancing: A plaintiff must prove that a specific policy caused a disparity; a business must get a fair chance to defend a legitimate practice; and any remedy must be race-neutral. New Jersey’s rule discards these protections in violation of federal law.

The Mortgage Bankers Association (MBA) is the national trade association of the real estate finance industry, representing more than 2,000 member companies, many of which lend in New Jersey. In addition to lenders, the association represents landlords who now face discrimination liability for considering relevant information like credit score, income, and criminal history when evaluating tenant applications. With the new rule making their ordinary business practices legally suspect, the MBA filed a lawsuit to challenge the regulation, represented free of charge by Pacific Legal Foundation.

New Jersey’s rule reaches employers, landlords, schools, and small businesses across the state. A win would reaffirm a principle that protects every business and every resident of New Jersey: The Constitution guarantees equal treatment under the law.