Regulatory update
American Express ordered to pay $8 million penalty for failing to meet design and distribution obligations
The Federal Court has ordered American Express to pay an $8 million penalty for breaching its design and distribution obligations over its David Jones credit cards.
19 July 2024
Updated October 2026 to reflect current law.
On 19 July 2024, the Federal Court ordered American Express Australia Limited (Amex) to pay an $8 million penalty. The court found Amex breached its design and distribution obligations (DDO) under the Corporations Act 2001 (Cth). Amex was also ordered to pay ASIC’s legal costs.
The Australian Securities and Investments Commission (ASIC) announced the decision. ASIC started the case in December 2022. It was ASIC’s first court case alleging breaches of the DDO.
Key takeaways
- The case involved two co-branded credit cards: the David Jones American Express Card and the David Jones American Express Platinum Card.
- Many people who applied for these cards in David Jones stores later cancelled their applications. Cancellation rates were much higher than for online applications.
- The court found Amex ought reasonably to have known that these high cancellation rates suggested its target market determinations were no longer appropriate.
- Amex kept issuing the cards from 25 May 2022 to 5 July 2022 without reviewing its target market determinations. This breached section 994C(4) of the Corporations Act.
- Amex admitted the breach. The court ordered a penalty of $8 million.
On this page
Why did American Express get a DDO penalty?
The American Express DDO penalty relates to how Amex responded to warning signs about its David Jones credit cards. The cards were sold mainly through David Jones department stores, as well as online.
ASIC alleged that, by February 2022, Amex knew cancellation rates for applications made in store were high, and well above those for online applications. ASIC also alleged that Amex knew some consumers were confused about whether they had applied for a loyalty card or a credit card.
ASIC said these were signs that the cards’ target market determinations (TMDs) were no longer appropriate. Amex should have reviewed them and stopped issuing the cards until it did.
What did the court decide?
Justice Jackman of the Federal Court decided the case in Australian Securities and Investments Commission v American Express Australia Limited [2024] FCA 784.
| Allegation | Outcome |
|---|---|
| Amex kept issuing the cards when it ought reasonably to have known of an event suggesting its TMDs were no longer appropriate (section 994C(4)) | Proven. Amex admitted it. The breach ran from 25 May 2022 to 5 July 2022. |
| Amex failed to take all reasonable steps to make sure David Jones was told to stop distributing the cards (section 994C(5)) | Not proven. The court found this part required actual knowledge of the event, and ASIC had not shown this. |
According to ASIC, the court found that the people responsible for monitoring the TMDs did not know about their obligations. Meanwhile, the people who knew the relevant facts did not act.
Amex and ASIC jointly told the court that an $8 million penalty was appropriate. The court agreed.
What are design and distribution obligations?
The DDO regime is in Part 7.8A of the Corporations Act 2001 (Cth). It started on 5 October 2021. It applies to many financial products, including credit cards.
Under the DDO, a product issuer must make a TMD for each product. A TMD is a document that describes who the product is suitable for, and how it should be distributed.
The issuer must also set review triggers. These are events that suggest the TMD may no longer be appropriate, such as a spike in complaints or cancellations. If such an event happens, the issuer must review the TMD. Until it does, it generally must stop distributing the product.
What did ASIC say about the decision?
ASIC Deputy Chair Sarah Court called it “an important decision”. She said it highlights that issuers and distributors need proper systems to monitor events that suggest a TMD is no longer appropriate.
What can product issuers learn from the Amex case?
- Set clear review triggers. Include measures like cancellation rates, complaints and customer confusion in your TMDs.
- Monitor your data. Have systems that track review trigger data and flag problems quickly.
- Train your people. Make sure staff who monitor TMDs understand the DDO and know what to do when a trigger occurs.
- Connect the dots. Make sure information held by one team (such as sales or operations) reaches the people responsible for DDO compliance.
- Act fast. Once you know, or ought reasonably to know, that a TMD may no longer be appropriate, stop distribution and review it.
- Manage your distributors. If third parties sell your product, make sure you can tell them quickly when to stop.
Frequently asked questions
How much was the American Express DDO penalty?
The Federal Court ordered Amex to pay $8 million, plus ASIC’s costs.
Does the DDO regime apply to credit cards?
Yes. Credit cards and most other consumer credit products are covered by the DDO regime.
What is a target market determination?
A TMD is a document that sets out who a financial product is designed for, any conditions on how it can be sold, and the events that will trigger a review.
Do distributors have DDO obligations too?
Yes. Distributors must also take reasonable steps so that their distribution is consistent with the TMD. They must also report certain information, such as complaints, to the issuer.
Need help with your design and distribution obligations?
Talk to our banking and financial services team
Banking & Financial Services Law
If you issue or distribute financial or credit products, we can help you prepare or review your TMDs, review triggers and monitoring processes. Learn more about our design and distribution obligations services.
We also advise credit card and other credit providers on their compliance obligations. See our consumer credit legal services.
This article is general information only and is not legal advice. It reflects the law and information available at the date of publication. Please contact us for advice about your circumstances.
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