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ASIC takes first-ever DDO civil penalty action in case against Amex
The Australian Securities and Investments Commission (ASIC) has commenced proceedings in the Federal Court in its first civil penalty case alleging breaches of design and distribution obligations (DDO) against American Express Australia Limited (Amex).
Jess Feyder
The two credit cards concerned in the case were issued by Amex and co-branded with David Jones.
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Under the DDO, Amex was required to make a target market determination (TMD) describing who the credit cards would be appropriate for and how they should be distributed. The DDO also requires credit card issues to review TMDs if they become aware of an event or circumstance indicating the TMD is no longer appropriate.
ASIC’s case has two parts — firstly, 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.
Secondly, 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 — significantly higher than cancellation rates for credit cards applied for online.
ASIC also alleges that 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.
The regulator claims that despite these signs, Amex continued to issue the credit cards until 5 July 2022.
ASIC’s deputy chair, Sarah Court, commented: “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.
“The design and distribution obligations embed a consumer-centric approach for the issuers and distributors of financial products.”
“ASIC has now taken multiple actions under the design and distribution regime, including issuing over 20 interim stop orders,” Ms Court continued.
“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.”
ASIC said that it is now seeking declarations and pecuniary penalties from the court.
