Effects Test

Your brother grabs your hand, hitting you repeatedly in the face. "Why are you hitting yourself? Why are you hitting yourself?" Then you finish after mom screams, "WTF are you doing?" and she looks at your red right cheek.

Yes, you can see the effects. She tests with her finger and when you wince, the weekend is dead for your brother.

In fact, the Effects Test derives from the Equal Credit Opportunity Act, which demands that lenders or creditors give every gender, race, religion, sexual preference, etc. an equal opportunity to gain credit. Amex cannot only print cards for rich, white men. The difficult part in creating an Effects Test revolves around how to financially define "equal." A standardized set of metrics had to be created, such that "racial gerrymandering," i.e. those living in, say, African American neighborhoods, weren't then targeted to not be given credit purely because of their zip code.

Adding complexity to the notion, lenders don't want to loan money and not be paid back their hard-earned principal, let alone the opportunity cost of the interest they would gain from lending to "safe" borrowers. So...requiring lenders to lend, but not forcing them to make loans they don't want to make...is a difficult tightrope, which defines the series of questions behind the Effects Test.