$8m penalty for Amex over David Jones credit cards

American Express has been ordered to pay an $8 million fine for credit cards sold in David Jones stores in the Australian Securities and Investments Commission’s first case on design and distribution obligations.

The Federal Court ordered American Express (Amex) to pay the $8 million in penalties for breaching design and distribution obligations (DDO) in relation to two co-branded credit cards distributed by retail staff within David Jones stores between May and June 2022.

It was the first time the Australian Securities and Investments Commission’s (ASIC) DDO was run in court, which requires issuers to review its target market determination (TMD) and determine who a credit card is appropriate for and how it is distributed.

ASIC alleged red flags were raised when Amex became aware the cancellation rates for those who applied in-store were significantly higher than the cancellation rates for online applications.

Despite the alleged confusion from customers as to whether they received loyalty cards or credit cards, ASIC claimed Amex failed to stop issuing the cards and did not review the TMDs.

Justice Ian Jackman found Amex should have known the cancellation cards warranted a review of the TMDs.

“In addition to an obligation to identify an appropriate market within a TMD, inherent in the consumer-centric approach is a requirement for financial product issuers and distributors to actively review events and circumstances that may suggest that an existing TMD is no longer appropriate,” Justice Jackman said.

He added that those in Amex responsible for monitoring TMDs “were not aware of their obligations”, and those who were aware “failed to take action in respect” of the relevant facts and circumstances.

Referring to the DDO, Justice Jackman said the penalty needed to be sufficient to deter other product issuers.

“The DDO regime is consumer-focused and, as with other sections of the [ASIC] Act, is intended to ensure that consumers receive appropriate financial products,” Justice Jackman said.

In response to the order, ASIC deputy chair Sarah Court said it was an “important decision”.

“It highlights the requirement for issuers and distributors of financial products to customers to have in place adequate systems to monitor events and circumstances that suggest a target market determination is no longer appropriate,” Court said.

ASIC was unsuccessful in its allegation Amex contravened s994C(5) of the Corporations Act by failing to take all reasonable steps to ensure David Jones was informed it must not continue distributing the credit cards in-store.

Amex has been ordered to pay ASIC $200,000 in legal costs.