Provides disparate impact based on automated decision system as cause of action for certain consumers.

S4279

SENATE, No. 4279

STATE OF NEW JERSEY

222nd LEGISLATURE

�

INTRODUCED MAY 14, 2026

Sponsored by:

Senator� TROY SINGLETON

District 7 (Burlington)

SYNOPSIS

���� Provides disparate impact based on automated decision
system as cause of action for certain consumers.

CURRENT VERSION OF TEXT

���� As introduced.

��

An Act

concerning the use of artificial intelligence
when screening certain applications and supplementing Title 10 of the New
Jersey Statutes.

����
Be It
Enacted
by the Senate and General Assembly of
the State of New Jersey:

���� 1.��� The Legislature finds and declares that:

���� a.���� Automated and algorithmic decision-making
systems, including artificial intelligence and predictive analytics, are
increasingly used in mortgage lending, credit underwriting, tenant screening,
rental pricing, and real estate related financial determinations.

���� b.��� These systems, while often facially
neutral, may replicate or amplify discriminatory outcomes, including disparate
impacts on protected classes, through data selection, proxy variables, model
structure, or deployment practices.

���� c.���� The
�Law Against Discrimination,� P.L.1945, c.169 (
C.10:5-1 et seq.), prohibits discrimination against
protected classes in housing and lending industries in the State.

���� d.��� The New Jersey Office of the Attorney
General recognized disparate impact discrimination in the housing and lending
spaces in N.J.A.C.13:16-1.1, et seq.

���� e.���� Recent federal actions have reduced or
eliminated disparate impact enforcement under federal housing and credit laws,
increasing the importance of State-level protections.

���� f.���� The Legislature therefore determines that
it is in the public interest to regulate the use of automated decision making
in these areas to:

���� (1)�� ensure transparency, accountability, and
fairness in the use of automated systems affecting access to housing and
credit;

���� (2)�� clarify the application of existing State
civil-rights law to automated systems; and

���� (3)�� preserve innovation while preventing
discriminatory outcomes prohibited under State law.

���� 2.��� As used in this act:

���� �Automated decision system� means
a computational process, including one derived from
machine learning, artificial intelligence, statistical modeling, or data
analytics, that is used in whole or in part, to deny, approve, price, rank, or
condition access to housing, mortgage credit, rental housing, or related
financial services affecting a natural person.

���� �Covered
entity� means a person, lender, housing provider, screening company, creditor,
servicer, insurer, or agent that uses or deploys an automated decision system
in connection with a housing‑related or credit‑related decision
concerning a person in the State.

���� �Disparate
impact� means the result of a policy or practice that actually or predictably
results in a disproportionately negative effect on members of a protected
class.

���� �Protected
class� means
a
n employee who has one or
more characteristics, including race, creed, color, national origin,
nationality, ancestry, age, marital status, civil union status, domestic
partnership status, affectional or sexual orientation, genetic information,
pregnancy, sex, gender identity or expression, disability, or atypical
hereditary cellular or blood trait of any individual, or liability for service
in the armed forces, for which subsection f, g, h, i, or k of section 11 of
P.L.1945, c.169 (C.10:5-12) prohibits discrimination.�

���� 3.��� a.�������� A
covered entity or a covered entity�s agent, third-party vendor, model
developer, or external data source shall not use an automated decision system
in a manner that results in a disparate impact on a protected class.� Use of an
automated decision system in this manner shall constitute a violation of the
�Law Against Discrimination,� P.L.1945, c.169 (
C.10:5-1 et seq.).

���� b.��� An
individual aggrieved by a violation of this act may bring suit in Superior
Court challenging a covered entity or a covered entity�s agent, third-party
vendor, model developer, or external data source�s use of an automated decision
system, and shall demonstrate

a
violation by proving that the use of the automated decision system results in a
disparate impact on a protected class.

���� c.���� A
covered entity shall have an affirmative defense against liability by
demonstrating that:

���� (1)�� the
challenged use is for a substantial, legitimate, nondiscriminatory purpose; and

���� (2)�� no
less discriminatory alternative practice or system is available that would
serve that interest.

���� d.��� A
covered entity is liable for the actions of its agent, third-party vendor,
model developer, or external data source that is found to have used an
automated decision system in a manner that violates the provisions of this act.�

���� 4.��� a.�������� A
covered entity that uses an automated decision system shall, at reasonable
intervals and no less than once every two years, conduct an algorithmic impact assessment
evaluating, in a form and manner as prescribed by the Director of the Division
on Civil Rights in consultation with the Attorney General, whether use of the
system results in a disparate impact on a protected class.

���� b.��� A
covered entity shall maintain a record of algorithmic impact assessments
conducted pursuant to this section and make the record available to inspection
by the Director of the Division on Civil Rights or the Attorney General upon
request.

���� c.���� Nothing
in this section shall require disclosure of proprietary source code or trade
secrets.

���� d.��� The
Division on Civil Rights or the Attorney General may impose a fine of not less
than $5,000 on a covered entity who violates the provisions of this section

���� 5.��� a.�������� A
covered entity shall provide clear notice to an individual when an automated
decision system is used in a housing or credit decision affecting that
individual.

���� b.��� An
individual adversely affected by a decision made by an automated decision
system shall have the right to request meaningful human review of the decision.

���� c.���� The
Division on Civil Rights or the Attorney General may impose a fine of not less
than $5,000 on a covered entity that:

���� (1)
fails to provide requisite notice, pursuant to subjection a of this section, of
the use of an automated decision system in a housing or credit decision; or

���� (2)�� denies
meaningful human review of the decision when requested.

���� 6.��� a.�
All rights, remedies, defenses, and procedures available under the �Law Against
Discrimination,� P.L.1945, c.169 (
C.10:5-1 et seq.)
shall apply to this
act.

���� b.��� In
addition to any existing remedies or penalties provided for by law, a covered
entity that violates the provisions of section 3 of this act shall be subject
to the penalties provided pursuant to section 2 of P.L.1983, c.412
(C.10:5-14.1a), in an amount as determined by the director.

����
7.��� This
act shall take effect 30 days after the date of enactment.

STATEMENT

���� This bill provides individuals
with a way to challenge the use of automated decision systems in the lending
and housing sectors by allowing them to claim the use of the technology results
in a disparate impact on members of a protected class.

���� Artificial intelligence
and predictive analytics are
increasingly common tools used to automate decision making processes in housing
and lending spaces.� There is a risk these systems will perpetuate historic
discrimination in these industries because the data used to train artificial
intelligence systems also reflects these patterns and have a disparate impact
on protected classes. The federal government reduced regulatory oversight to
guard against disparate impacts which causes disservice to consumers as they
may not have the resources to challenge their discrimination claims on
disparate impact grounds.�

���� The bill codifies disparate impact as a cause of
action for consumers in this State by allowing affected customers to file a
challenge in Superior Court.� The bill also provides an affirmative defense for
a covered entity or covered entity�s agent by allowing them to demonstrate the
challenges use is for a substantial, legitimate nondiscriminatory purpose and
no alternative practice is available to further the interest.� The bill also
holds a covered entity liable for the actions of its agent,
third-party vendor, model developer, or external data
source found to be in violation of the bill
.� The bill requires a covered entity to conduct
algorithmic assessments and keep records of the assessments.� The bill also
requires a covered entity provide notice to an individual if an automated
decision system was used to make a determination for them and gives the
individual the right to request human review of the decision.� Violators of the
bill are subject to various penalties established by the bill or provided in the
current law.�