The MBA’s Fair Lending Challenge to New Jersey
Sep 07, 2026
Without restating all of my fair lending priors (which you can find in Musing #92 Disparate Impact’s Demise), in a footnote to a recent Musing about the Fair Housing Act’s “robust causality” standard I stated, “It would be enormously helpful to fair lending jurisprudence and mortgage compliance management if the issue of disparate impact under the Fair Housing Act were to be revisited by SCOTUS …, but the right vehicle(s) and driver(s) remain elusive.” [1] Well, just before the Labor Day weekend, the Mortgage Bankers Association (MBA) filed a lawsuit challenging New Jersey’s no-win 2025 Rules Pertaining to Disparate Impact Discrimination.
It’s not the Ides of March
Unfortunately, now all I can hear in my head[2] is the 1970 power hit song Vehicle by the (one hit wonder?) band Ides of March,[3] and you’ll be subjected to that ear worm as its lyrics work thier way from my head into this post. But is this lawsuit really a good “vehicle” to eliminate DI’s abuses in fair lending and will the MBA as “driver” for the case “take you anywhere you want to go”?
Moreover, it is extremely notable that MBA is represented in this case by a “friendly stranger in a black sedan”; the Pacific Legal Foundation (PLF). Readers may recall that PLF is the conservative/libertarian public interest law firm that also represented the owner of Townstone Financial, enabling Mr. Sturner to challenge the government’s fair lending overreach without having the kind of extraordinary financial means to pay legal fees that would bankrupt most small businesses when going up against the government. PLF doesn’t get involved in a case unless it expects to win and the case will have a broad impact on the individual liberty and property rights-focused policies PLF supports.
Vehicle or not, it’s still Musing-worthy
As I discuss below, with the MBA’s Constitutional Equal Protection premised attack on the New Jersey Rule as articulated by PLF, the case clearly can be seen as some sort of “vehicle” to reconcile the Constitution against DI’s worst jurisprudential applications. That said, “great God in Heaven!” [4], without even prognosticating on the merits, it is a long way from the Supreme Court, having just been filed in New Jersey Federal District Court (2 levels below SCOTUS) with likely years of appeals and legal process before it could ever reach SCOTUS. A settlement with New Jersey, however, would change nothing in fair lending jurisprudence, so it is critical that the case result in a judicially determined outcome for it to carry any value for the industry.
Regardless of the MBA’s lawsuit’s “vehicle” status, “by now I’m sure you know” that this salvo against New Jersey’s DI rule is Musing-worthy. So, as we approach the MBA’s Compliance and Risk Management conference in Washington DC later this month where this will be a hot topic of discussin (and other speaking engagements at fall conferences),[5] I’m going “hop inside that car” and provide my thoughts.[6]
New Jersey ignored Inclusive Communities’ safeguards
To be clear, MBA isn’t going after the entire idea that disparate impact itself violates Equal Protection under the law with this case. While preserving its right to do just that at later date, footnote #3 to the MBA’s Complaint explicitly states, “MBA does not contend in this action that disparate impact liability is unlawful in all its forms; it contends that the Rule discards the safeguards that make such liability permissible”.[7]
Thus, the MBA lawsuit frames its arguments as seeking to enjoin New Jersey from enforcing a rule that fails to comply with the “robust causality” and Equal Protection standard established by SCOTUS Justice Kennedy’s 2015 Inclusive Communities opinion.[8] Kennedy grounded these safeguards in the Constitution itself (not just the Fair Housing Act), warning that without them “there is a danger that potential defendants may adopt racial quotas—[9]a circumstance that itself raises serious constitutional concerns.” 576 U.S. 519, 544–45
Putting my own spin on it, the MBA’s lawsuit identifies the following concerns with New Jersey’s Rule that violate Equal Protection[10] and/or the robust causality standard articulated in Inclusive Communities:[11]
· The Rule lets “achieving diversity” itself justify a lending decision. Inclusive Communities gave businesses leeway to defend a challenged practice by showing it serves a valid, race-neutral interest. New Jersey inverted that safeguard by making an interest in “increasing access for underrepresented groups“ a permissible justification in itself. That seems to invite the kind of racial quotas expressly questioned in Kennedy’s opinion.
· The Rule shifts the burden and standard of proof on alternatives. Kennedy’s decision required any fair lending plaintiff to identify an equally effective, less discriminatory alternative. New Jersey instead requires the lender to prove no such alternative exists at all (dropping the “equally effective” idea entirely). That’s a virtually impossible and classic “disprove the negative” task that doesn’t consider cost, speed, or effectiveness. Essentially, New Jersey places race conscious outcomes above all other business considerations.
· The Rule doesn’t require “robust causality” at all. Inclusive Communities insisted a plaintiff show the business’s own specific policy caused the disparity, so lenders wouldn’t be liable for disparities they didn’t create. As was the case with Biden-era redlining enforcement actions, New Jersey’s Rule permits claims built on indirect statistics without any requirement that the disparity be statistically significant, locally valid, or causal of anything.
MBA also raised a preemption/Supremacy Clause arguments under the Fair Housing Act and Reg. B, but I’m going to save those issues for a future Musing as developments in this case proceed.
The Driver
When drafting that footnote mentioned at the top of this post, I had hoped that the “driver”[12] for a “vehicle” challenging DI would be unlike every previous fair lending defendant that settled with the government when faced with the dire cost benefit analysis of continuing litigation expense and reputational harm in fighting fair lending cases. Given the millions of dollars at stake and the reality of prudent corporate governance, succumbing to the temptation to settle for a less costly (Consent Order) result over a substantive victory that can impair profitability is the usually the rational choice.
Specifically, I had in mind for a “driver” a company fully capable of putting up a good fight and known for challenging government overreach, such as Rocket Mortgage and its leader Dan Gilbert or perhaps Chase’s Jamie Dimon (although Dimon doesn’t control Chase in the way Gilbert controls Rocket). So, I had (tongue in cheek) in that same footnote dared fair lending enforcers to take on someone their own size like Rocket or Chase. But MBA might even be a better substitute plaintiff because, with the benefit of PLF’s support to limit legal expense, MBA doesn’t have the same “rational actor/profit motive” that a private plaintiff would, and so isn’t subject to the same settlement pressures, enabling MBA to hold out for the substantive ruling so needed by fair lending jurisprudence.
Nevertheless, the reason to prefer a particular company over a trade association “driver” plaintiff is that it is easier to establish legal standing to object to a law when a law is enforced against a specific company than for a trade association to assert the claim on behalf of its members without any specific harm yet incurred.[13] Still, while legal standing challenges will likely need to be overcome for the MBA’s case to continue (MBA has asserted plausible grounds for such standing[14]), having PLF in their corner ensures that MBA does not need to worry quite as much about legal expense in pursuing the case to finality and has less temptation to settling to mitigate overwhelming legal cost avoidance and/or reputational harm.
Gratitude for MBA action
The lawsuit reflects a more aggressive advocacy posture from MBA’s leadership about the meaning of “fairness” in lending. Personally, I appreciate both MBA’s substantive legal arguments as well as the choice to file a lawsuit to pursue its objectives. In fact, this is precisely the kind of advocacy I encouraged last year in observing a new advocacy climate in Washington DC. I am glad MBA is taking the lead on this issue, and I am grateful for PLF’s support which should enable MBA to pursue this to a conclusion without pressure to settle before resolving the doctrinal issues.
[1] A “vehicle” in litigation refers to a particular case chosen or structured specifically because its facts present the most favorable posture for persuading a court to overturn, narrow, or establish a legal precedent. Typically, the lawsuit is less about the parties than about the doctrine in question.
[2] Sorry for the ear worm, but you have to admit that the horn section riffs in “Vehicle” are totally epic!
[3] Ides frontman and guitarist Jim Peterik went on to achieve major commercial success later in the decade by co-founding the rock band Survivor and co-writing the hit anthem “Eye of the Tiger“. There’s another ear worm for ya’.
[4] A fitting last earworm inducing reference to Vehicle for this post to bring it to a conclusion.
[5] I’ll be speaking at RESPRO on September 16 and the MBA’s Compliance and Risk Management conference on September 27. I also hope to see many of you at the MBA Annual Convention & Conference in Chicago, Oct. 11-14.
[6] As usual for these posts, this is not to be taken as legal advice and no attorney client relationship is hereby created. Just enjoy reading my long form takes on the issues presented and get your legal counsel privately elsewhere (or from me with an engagement).
[7] This is similar to the approach taken in the American Banker’s Association white paper issued last year that called Biden era redlining enforcement’s application of disparate impact unconstitutional but didn’t directly call for DI to be declared unconstitutional entirely.
[8] MBA’s constitutional challenge is somewhat oddly built on treating the Inclusive Communities precedent as sound when it is likely that the current SCOTUS justices would overturn that decision in 2026. I addressed my priors on whole DI question in Edition #92 referenced at the top of this post.
[9] I note that Justice Kennedy used the em dash in his original 2015 opinion which clearly predates the overuse of em dashes by LLM generated text so don’t @me. You can look it up yourself!
[10] Of course, MBA’s Equal Protection claim(s) don’t rest on MBA’s members being classified by race, but rather on MBA members being pressured to classify others by race: one step removed from the doctrine’s traditional posture.
[11] State law can be more expansive in its constitutional rights interpretations, but it cannot provide less protection to anyone than federal law requires via the Supremacy clause.
[12] I’m done with the “Vehicle” lyric references, but there was a brief temptation here to get carried away with another hit 1970s era one-hit wonder song: “Driver’s Seat” by Sniff ‘n’ The Tears. Thankfully, I resisted.
[13] To be clear, I’m not saying that MBA has or doesn’t have standing to bring this case. It is likely, however, that New Jersey will raise legal standing to sue as a defense and MBA and PLF will need to overcome those challenges.
[14] I have not analyzed the legal standing issues in any detail, only offered my off the top of my head thoughts.