American Express Australia Fined $8 Million for Design & Distribution Violations

The Federal Court of Australia has ordered American Express Australia Limited (Amex) to pay an $8 million penalty for breaching design and distribution obligations (DDO) related to two co-branded credit cards primarily distributed in David Jones stores.

The Court found that Amex violated its obligations as a credit card issuer between May 25 and July 5, 2022. The company failed to recognize that high cancelled application rates indicated their target market determinations (TMDs) were no longer appropriate. Additionally, Amex continued issuing credit cards without reviewing the TMDs as required.

Deputy Chair Sarah Court of the Australian Securities and Investments Commission (ASIC) emphasized the importance of this decision, stating it underscores the need for financial product issuers and distributors to maintain adequate systems for monitoring circumstances that may render a target market determination inappropriate.

Justice Jackman, presiding over the case, noted that the penalty was designed to have a "sting" sufficient to deter both Amex and other financial product providers from future contraventions, ensuring it goes beyond being a mere "cost of doing business."

The Court also highlighted a lack of awareness among Amex staff responsible for monitoring TMDs about their obligations, while those aware of relevant facts failed to take appropriate action.

While ASIC successfully pursued these charges, it was unsuccessful in alleging that Amex contravened section 994C(5) of the Corporations Act by failing to inform David Jones to cease in-store distribution of the credit cards.

Amex admitted to the contraventions and agreed that the penalties sought by ASIC were appropriate. In addition to the fine, the company was ordered to pay ASIC's legal costs.

This ruling serves as a stark reminder to financial institutions about the importance of adhering to design and distribution obligations, particularly in monitoring and adjusting their product offerings based on market responses and consumer behavior.

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