The industry says the state's new rule leaves lenders one way out - and federal law bars it
The mortgage industry's national trade group is suing New Jersey to block a new anti-discrimination rule it says would force lenders to weigh race in routine underwriting.
The Mortgage Bankers Association filed the case on September 3, 2026, in federal court in New Jersey. It is suing the state's attorney general and the director of New Jersey's Division on Civil Rights - the officials who administer and enforce the rule - and it wants a judge to throw the rule out and stop the state from applying it. The suit was filed by lawyers from the Pacific Legal Foundation.
At issue is a rule New Jersey's Division on Civil Rights adopted on December 15, 2025. It sets the state's approach to “disparate impact” claims - the idea that a policy can break anti-discrimination law if it lands harder on one racial or other protected group, even when the policy looks neutral and was not meant to discriminate. According to the filing, it is the first full state regulation to spell out disparate impact liability under New Jersey's Law Against Discrimination, and it covers employment, housing, home lending, public accommodations, and contracting.
For mortgage companies, the association says the practical problem is compliance. The suit claims the rule reaches the everyday tools lenders rely on - credit history, income standards, and other underwriting and pricing measures. State officials, the filing says, have flagged credit history, criminal history, and minimum income requirements as practices the rule covers, and have said its provisions on automated decision-making tools apply to lending.
The association's central argument is that New Jersey threw out limits the US Supreme Court set in a 2015 ruling, Inclusive Communities - limits the group says keep disparate impact law from sliding into what it calls unlawful “racial balancing.” Under the rule, the filing claims, someone challenging a lender's policy can point to broad national, state, or census figures rather than the lender's own applicants, and does not have to show the gap is large or statistically meaningful. In housing and home lending, the suit says, the rule also makes the business prove there was no less discriminatory way to reach the same goal - a reversal of how the group says federal law works.
That, the association says, boxes its members in. It argues the surest way to avoid liability under the rule is to make race-conscious choices - which, it says, federal law forbids. The suit points to a line in the rule stating that an “interest in achieving diversity or increasing access for underrepresented or underserved members of a protected class” can, on its own, justify a challenged practice. The Equal Credit Opportunity Act and the Fair Housing Act, the group says, bar creditors from considering race in a credit decision.
The MBA represents more than 2,000 members across real estate finance, over 60 of them based in New Jersey. Every member that lends in the state, it says, must now spend money checking whether its underwriting, pricing and servicing produce uneven results across protected groups that could expose it to a claim under the rule - costs the group calls unrecoverable and ongoing. Lenders that also operate elsewhere may have to run a separate New Jersey rulebook, adding more expense. Members that own and manage rental housing face the same review of how they screen tenants.
The lawsuit makes two claims: that the rule breaks the Constitution's guarantee of equal protection, and that federal law overrides it. The association is asking the court to strike the rule down and block it statewide, or at least to carve out the parts covering housing and home lending.
The allegations have not been tested in court, and no judge has ruled.
