The Australian Securities and Investments Commission (ASIC) has commenced proceedings in the Federal Court against American Express Australia Limited (Amex), alleging breaches of design and distribution obligations.

The case concerns two credit cards issued by Amex that were co-branded with retailer David Jones. Under the design and distribution obligations (DDO), 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.

ASIC is seeking declarations and monetary penalties from the Court.

DDO requires firms to design financial products that meet the needs of consumers, and to distribute those products in a targeted manner. A TMD is an important requirement under DDO. It is a mandatory public document that sets out the class of consumers a financial product is likely to be appropriate for (target market) and matters relevant to the product’s distribution and review.

ASIC has targeted surveillances underway to check whether product issuers and distributors are complying with DDO. Where firms are not doing the right thing, ASIC can take quick action under DDO to disrupt poor conduct and prevent potential consumer harm.