In Australian Securities and Investments Commission v American Express Australia Limited [2024] FCA 784 the Federal Court of Australia ordered American Express to pay a penalty of $8 million for failing to meet its design and distribution obligations plus ASIC’s costs of $200,000. Background.

On 19 February 2008, American Express and David Jones, together with David Jones Financial Services Ltd, entered into an agreement pursuant to which co-branded DJs credit cards were made available to retail consumers.

The DJs Amex Card was offered to customers between August 2008 and 5 July 2022, and the DJs Amex Platinum Card was offered to customers between September 2012 and 5 July 2022:

The Court found Amex breached the design and distribution obligations as a credit card issuer under section 994C(4) of the Corporations Act 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.

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.

Justice Jackman concluded:

“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…..

American Express was aware that among the reasons for customers opting not to complete the application process or requesting to cancel their Card application was that some customers did not understand that they were applying for a credit card with an annual fee…

the contravention arose from American Express’s failure to implement adequate systems to ensure compliance with the DDO scheme and to equip their staff to understand and act in accordance with the company’s obligations under Part 7.8A of the Act. Accordingly, this is not a matter in which senior management were directly involved in a deliberate contravention of the Act. Nonetheless, the Director of the David Jones Alliance was aware of the DDO and the review triggers under the TMDs, and also attended the meetings of the Cancellations Working Group, and was aware of the high cancelled application rates for the DJs Cards. Accordingly, in addition to the overall organisational failures within American Express, it is relevant that the person responsible for the David Jones Alliance also failed to pay attention to the regulatory requirements under the DDO and American Express did not have in place sufficient checks to ensure that it was able to comply with its obligations.”

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