Effects Test


DEFINITION of 'Effects Test'

A method used in order to assess the discriminatory impact of credit policies. The statutory basis is the Equal Credit Opportunity Act which prohibits credit denials on the basis of marital status, national origin, age or whether applicants are receiving public assistance, as well as the Fair Housing Act.

BREAKING DOWN 'Effects Test'

The effects test is most frequently applied in evaluating the fairness credit scoring systems and alternative mortgages, such as graduated payment mortgages, where future income is considered.

  1. Equal Credit Opportunity Act - ...

    A regulation created by the U.S. government that states that ...
  2. Credit Scoring

    A statistical analysis performed by lenders and financial institutions ...
  3. Subprime Credit

    General term for borrowings of subprime debt, or loans made to ...
  4. Federal Trade Commission - FTC

    An independent federal agency whose main goals are to protect ...
  5. Price Discrimination

    A pricing strategy that charges customers different prices for ...
  6. FHA Loan

    A mortgage issued by federally qualified lenders and insured ...
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