ASIC commences first civil court case for alleged DDO breaches

ASIC announced on Tuesday that it has begun proceedings against American Express Australia in its first civil penalty case alleging breaches of design and distribution obligations (DDO).

The case concerns two credit cards issued by Amex and co-branded with David Jones. Under 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.

According to the regulator, DDO also requires 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 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.

It also alleges that 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 the cancellation rates for credit cards applied for online.

“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 credit cards,” the regulator said.

Despite this, ASIC claims that Amex continued to issue credit cards until 5 July 2022.

ASIC deputy chair Sarah Court said that DDO embeds a consumer-centric approach for 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,” she said.

“It is critical that providers respond to poor outcomes they identify by making changes.”

The corporate regulator has taken multiple actions under the design and distribution regime, including issuing more than 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,” said Ms Court.

“It is a priority for ASIC to maximise these increased protections and see the long-term benefits of the DDO regime realised.”

ASIC said that it is seeking declarations and pecuniary penalties from the Federal Court.