American Express has been hit with an $8 million (US$5.4 million) fine after failing to ensure customers were suitable for two co-branded David Jones credit cards
The development is a win for the Australian Securities and Investments Commission (ASIC) in the first case it launched over what are known as design and distribution obligations (DDO).
The American Express co-branded David Jones credit cards were offered from August 2008 until July 2022 when the firm pulled the financial products.
While the cards could be sourced online, 80 to 90 percent of all cards issued were handed out by retail staff in person at David Jones premises.
In its Federal Court lawsuit, ASIC said high cancellation rates of the David Jones cards showed the firm had not met its obligations to ensure they were appropriate for consumers.
“This is an important decision, because it highlights the requirement for issuers and distributors of financial products to customers to have in place adequate systems to monitor events and circumstances that suggest a target market determination is no longer appropriate,” ASIC deputy chair Sarah Court said on July 19.
Initially contesting the allegations, in March, American Express admitted contravening the Corporations Act and agreed to a proposed $8 million penalty.
On July 19, Justice Ian Jackman approved this amount.
The judge found by May 2022 American Express ought to have known the documents describing the target market appropriate for the David Jones cards were insufficient.
“The DDO regime is consumer-focused and, as with other sections of the Act, is intended to ensure that consumers receive appropriate financial products,” Justice Jackman wrote.
“Any penalty needs to be sufficient to deter other product issuers and distributors from contravening the DDO provisions of the Act.”
Because American Express continued issuing inappropriate cards to customers after May 2022, this exposed those consumers to potential harm, the judge said.
While noting the size of the company, including a $460 million (US$308 million) revenue in the 2022 calendar year, Justice Jackman found the proposed penalty was appropriate.
“A penalty of this order ensures it has a ’sting‘ sufficient to deter both repetition by American Express and contravention by other providers of financial products, and one that goes beyond being a mere ’cost of doing business’,” he wrote.
An American Express spokeswoman confirmed the penalty.
“American Express has a long-standing commitment to maintaining customers’ trust by delivering products and services with transparency,” she said.
“The company co-operated with ASIC throughout this process and has made enhancements to its compliance program to ensure it is meeting the design and distribution obligations.”
The firm has also been ordered to pay $200,000 (US$134,000) to ASIC for its legal costs.
