Effects Test

Method of assessing the discriminatory impact of supposedly neutral credit policies. In general, the effects test works this way: a person who alleges illegal discrimination need only establish a prima facie case by showing that the action in question has a disproportionately discriminant effect on a member of a protected class, and therefore is discriminatory in effect. The statutory basis of the effects test is theEqual Credit Opportunity Act which prohibits credit denials on the basis of marital status, national origin, age, or whether applicants are receiving public assistance, and also the Fair Housing Act. The effects test is most frequently applied in evaluating the fairness of statistically based Credit Scoring systems and alternative mortgages, such as graduated payment mortgages, where future income is considered.