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.