American Express to pay $8m fine over inappropriate targeting of co-branded David Jones credit cards

American Express Australia (Amex) has been ordered to pay an $8 million penalty by the Federal Court for failing to adequately assess and review its target markets for a line of co-branded credit cards with retailer David Jones in 2022.

The Australian Securities and Investments Commission (ASIC) took Amex to court alleging it had become aware of issues that would require a review of its target market determination (TMD) for the cards, which specifies who a credit card is appropriate for and how it is distributed.

Specifically, the corporate watchdog alleged that by February 2022 Amex had become 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.

ASIC also alleged that Amex knew some consumers were confused about whether they had applied for a loyalty card or a credit card - a circumstance that would warrant a review, yet the cards continued to be issued until 5 July 2022.

"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," ASIC's deputy chair Sarah Court said at the time.

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

In the Federal Court, Justice Jackman determined that Amex ought to have known high cancelled application rates reasonably suggested that the TMDs for the cards were no longer appropriate, and that it failed to stop issuing the cards when it had not reviewed the TWDs.

The judge said 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, going beyond being a mere "cost of doing business".

"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," Justice Jackman said.

The court also noted that those at Amex “responsible for monitoring the TMDs were not aware of their obligations, and those who were aware of the relevant facts and circumstances failed to take action in respect of those matters”.

"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's deputy chair Sarah Court said after the ruling.

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.

The court found that Amex breached its design and distribution obligations as a credit card issuer from 25 May 2022 to 5 July 2022.

Amex admitted the contraventions and jointly submitted the penalties sought by ASIC were appropriate.

"Under the settlement, American Express Australia has agreed to pay an $8 million (AUD) penalty and acknowledged it should have acted sooner to review the Target Market Determination (TMD) for the David Jones credit cards given the high number of incomplete, withdrawn or cancelled applications from people who had applied for these cards at David Jones stores," an American Express spokesperson said.

"American Express has a long-standing commitment to maintaining customers’ trust by delivering products and services with transparency. The company cooperated with ASIC throughout this process and has made enhancements to its compliance program to ensure it is meeting the Design and Distribution Obligations. 

"American Express Australia stopped acquiring new David Jones American Express customers in July 2022 and announced the end of its co-brand card issuing relationship with David Jones in January 2023. American Express Australia no longer acquires any card members through third-party face-to-face sales channels."

Amex was also ordered to pay ASIC’s cost of the proceedings.