ASIC takes civil penalty action against American Express Australia

ASIC has commenced proceedings in the Federal Court against American Express Australia Limited (Amex), in ASIC’s first civil penalty case alleging breaches of design and distribution obligations.

The case concerns two credit cards issued by Amex that were co-branded with retailer David Jones (the credit cards). Under the design and distribution obligations, Amex was required to make a target market determination (TMD) describing who the credit cards would be appropriate for and how the cards should be distributed.

The design and distribution obligations also require credit card issuers to review credit card TMDs if they become aware of an event or circumstance indicating the TMD is no longer appropriate.

ASIC’s case has two components. First, ASIC alleges that the TMDs issued by Amex did not limit distribution to people looking to make purchases on credit with a card that earned points or other benefits.

Second, ASIC alleges that by February 2022:

  • Amex was aware that the cancellation rates for consumers who applied for the credit cards in David Jones stores were high, and significantly higher than cancellation rates for credit cards applied for online; and
  • Amex knew some consumers were confused about whether they had applied for a loyalty card or a credit card and that this was a circumstance that indicated the TMDs were not appropriate and required Amex to review the TMD and stop issuing the credit cards. ASIC claims that despite this, Amex continued to issue the credit cards until 5 July 2022.

Deputy Chair Sarah Court said ‘The design and distribution obligations embed a consumer-centric approach for the issuers and distributors of financial products. Product providers must monitor and review whether consumers are receiving products consistent with their needs and cannot bring a ‘set-and-forget mindset’ to product governance. It is critical that providers respond to poor outcomes they identify by making changes.’

‘ASIC has now taken multiple actions under the design and distribution regime, including issuing over 20 interim stop orders. This regime turned a new page in the regulation of financial products in Australia and is intended to deliver better outcomes for consumers. It is a priority for ASIC to maximise these increased protections and see the long-term benefits of the DDO regime realised’ concluded Ms Court.

ASIC is seeking declarations and pecuniary penalties from the Court.

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