The Federal Court has ordered American Express Australia Limited (Amex) to pay $8 million in penalties for breaching the design and distribution obligations (DDO) in relation to two co-branded credit cards which were primarily distributed to customers in David Jones stores.
The Court found Amex breached the design and distribution obligations as a credit card issuer from 25 May 2022 to 5 July 2022, because Amex:
- ought to have known high cancelled application rates reasonably suggested that the target market determinations (TMDs) for the cards were no longer appropriate; and
- failed to stop issuing the credit cards when it had not reviewed the TMDs.
Deputy Chair Sarah Court said, ‘This is an important decision, because 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.’
Justice Jackman said, 'In addition to an obligation to identify an appropriate target market within a TMD, inherent in this 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 also said, ‘a penalty of this order ensures it has a “sting” sufficient to deter both repetition by American Express and contravention by other providers of financial products, and one that goes beyond being a mere “cost of doing business”.’
The Court also noted that those at Amex “responsible for monitoring the TMDs were not aware of their obligations, and those who were aware of the relevant facts and circumstances failed to take action in respect of those matters”.
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 instore.
Amex admitted the contraventions and jointly submitted the penalties sought by ASIC were appropriate.
Amex was also ordered to pay ASIC’s cost of the proceedings.
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Background
On 5 December 2022, ASIC commenced civil penalty proceedings in the Federal Court against Amex alleging contraventions of DDO relating to two co-branded credit cards, the David Jones American Express Card and the David Jones American Express Platinum Card, that were distributed through David Jones department stores (see 22-338MR).
The DDO regime requires financial product issuers and distributors to develop and maintain effective product governance arrangements across the life cycle of financial products. DDO also requires product issuers and distributors to actively review events and circumstances that may suggest that an existing TMD is no longer appropriate.