The Township of Mount Holly, New Jersey, and a local citizens’ group are seeking to settle a dispute now before the U.S. Supreme Court that threatens to undercut the Obama administration’s crackdown on alleged discrimination in lending.

“The parties are currently engaged in settlement discussions to attempt to resolve the matter,” M. James Maley, Jr., counsel to the township, wrote in a June 26 letter.

Maley said both sides want a 25-day extension of an Aug. 1 deadline for a brief to the court arguing the township’s case, a filing that sets in motion other deadlines. That request was granted, according to the Supreme Court website.

The justices on June 17 agreed to consider an appeal by Mount Holly, which is fighting a U.S. Fair Housing Act lawsuit filed by residents over the demolition of a predominantly minority neighborhood. The town says the residents must prove an intent to discriminate, not just that the project has a disproportionate effect on minorities.

The case will test a legal theory, known as “disparate impact,” that the Obama administration has repeatedly invoked in lawsuits against banks over housing and auto loans. Bank of America Corp., Wells Fargo & Co. and SunTrust Banks Inc. have agreed to pay at least $480 million to settle claims since December 2011.

A regulator created by the 2010 Dodd-Frank financial regulatory overhaul, the Consumer Financial Protection Bureau, has embraced the same legal theory.

St. Paul Case

The Supreme Court had agreed to consider the disparate-impact issue during its 2011-2012 term, in a case involving St. Paul, Minnesota. The city dropped its appeal in February, scuttling the case.

Congressional Republicans have accused the Obama administration of improperly inducing St. Paul to drop the case, to avert a Supreme Court decision limiting the Fair Housing Act, by promising to stay out of an unrelated fraud suit against the city. They have also raised the issue in the debate over confirming Tom Perez, head of the Justice Department’s civil-rights division, to be Obama’s next secretary of labor.