Banking and Finance Law Daily Wrap Up, COMMUNITY DEVELOPMENT—New Jersey proposes new disparate impact discrimination rule, (Jun 4, 2024)

By Sherri M. Schroeder, J.D.

The proposed rule describes and clarifies the prohibitions against such discrimination under the New Jersey Law Against Discrimination and provides examples of policies and practices that may result in a disparate impact.

New Jersey Attorney General Matthew J. Platkin and the New Jersey Division on Civil Rights have announced a proposed rule describing and clarifying the prohibitions against disparate impact discrimination under the New Jersey Law Against Discrimination (LAD). The proposed rule clarifies the legal standard for disparate impact discrimination and the burdens of proof in such claims in the housing, financial lending, employment, places of public accommodation, and contracting contexts. The proposed rule largely codifies existing state and federal case law and provides examples of policies and practices that may result in a disparate impact on members of a protected class under the LAD.

LAD. New Jersey’s LAD prohibits conduct that expressly treats people differently based on their membership in a protected class and policies or practices that have a negative effect on members of a protected class. Under the LAD, even policies or practices that are neutral on their face and that do not single out a protected class for different treatment may violate the LAD if they have a disparate impact on protected class members.

Proposed rule. The proposed rule is intended to clarify that the LAD prohibits practices or policies that result in a disproportionately negative effect on members of a protected class, even if such practices or policies are not intended to discriminate, unless it is shown that such are necessary to achieve a substantial, legitimate, nondiscriminatory interest and there is no less discriminatory, equally effective alternative that would achieve the same interest. The proposed new rule provides the standard for determining whether a practice or policy is unlawfully discriminatory, and the burden-shifting framework applied to the standard for disparate impact claims arising in specific contexts. The proposed rule covers how liability for disparate impact may apply to many examples of policies and practices.

Subchapter 4 of the proposed new rule contains the proposed language applicable in the housing and housing financial assistance contexts. The new rule proposes a burden-shifting framework that places the burden of showing that there is not a less discriminatory, equally effective alternative means of achieving the housing provider’s or lender’s substantial, legitimate, nondiscriminatory interest on the respondent at the final stage of the burden-shifting test. If the complainant meets the burden of showing the practice or policy results in a disparate impact on members of a protected class, the respondent has the burden of showing that the challenged practice or policy is necessary to achieve a substantial, legitimate, nondiscriminatory interest and that there is not a less discriminatory, equally effective alternative means of achieving that interest. To meets its burden of showing that there is not a less discriminatory, equally effective alternative means, the respondent may, but is not required to, identify what policy or practice options it considered and how and why it decided to select the policy or practice it chose.

According to the proposed rule, this framework aligns with how New Jersey courts and the New Jersey Division of Civil Rights have applied disparate impact liability in this context. Placing the burden on the respondent to prove no less discriminatory alternatives exist is appropriate “in light of the particularly stark information asymmetry between housing providers and victims of housing discrimination, as housing providers are far more likely to have access to information about the challenged practice or policy, their interests, what potential alternative practices or policies are available, and whether an alternative could serve their interests while having less discriminatory effects,” according to the introductory text to the rule. The proposed rule’s introductory text also notes that the increased use of tenant screening reports and online platforms in housing sale and rental markets have made it especially difficult for complainants to access information about specific housing providers’ policies and practices, and that there is a “particularly significant imbalance” in access to legal representation in housing cases, as landlords have legal representation in 90 percent of housing cases involving eviction, while less than 10 percent of renters have legal representation in such cases.

In the housing and housing financial assistance contexts, some of the examples of policies and practices that may have an unlawful disparate impact on a protected class include the following: minimum income requirements, financial standards, or income standards that have a disparate impact on people seeking to pay rent with forms of government low-income rental assistance; excluding applicants based on criminal or credit history; automatically refusing all rental housing applicants who have no credit score or a score below a minimum threshold; or requiring a renter or buyer to violate or forgo a sincerely held religious practice or observance. The proposed rule also makes it clear that the rule would apply to the practices and policies of real estate brokers, agents, salespersons, property management, and lending institutions. For lending institutions, this includes making available or unavailable the provision of housing financial assistance, establishing financial assistance terms or conditions, and the creation and application of criteria requirements, procedures, or standards for the review and approval of real estate transactions, with the noted exception of evaluations of an applicant’s consumer credit history where required for a federal loan product or formula or practices or policies that enforce federal guidelines.

Comments. The proposed rule is subject to a 60-day comment period. All comments on the proposed rule are due on or before Aug. 2, 2024.

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