ASIC sues American Express Australia for lack of TMD on credit cards

Rick Steves

“ASIC has now taken multiple actions under the design and distribution regime, including issuing over 20 interim stop orders. 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 maximize these increased protections and see the long-term benefits of the DDO regime realized.”

The Australian Securities and Investments Commission has taken civil penalty action against American Express Australia in its first court case alleging breaches of design and distribution obligations.

The complaint alleges that two credit cards issued by Amex that were co-branded with retailer David Jones (the credit cards) didn’t follow the regulatory requirements in Australia.

Firms need to specify who the credit cards would be appropriate for

Under the design and distribution obligations, 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.

According to ASIC, 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 credit cards until 5 July 2022.

“The design and distribution obligations embed a consumer-centric approach for the issuers and distributors of financial products. 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”, said ASIC Deputy Chair Sarah Court. “ASIC has now taken multiple actions under the design and distribution regime, including issuing over 20 interim stop orders. 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 maximize these increased protections and see the long-term benefits of the DDO regime realized.”

Target Market Determination is a mandatory public document

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.

ASIC alleges in its action that the David Jones Amex Card and David Jones Amex Platinum Card were co-branded credit cards distributed through David Jones department stores as well as online from August 2008 until July 2022 and September 2012 until July 2022, respectively.

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