The Australian Securities and Investments Commission (ASIC) has sued American Express alleging credit cards were issued and distributed to customers without ensuring they are understood. The Australian securities regulator alleged in a lawsuit that AmEx was aware that two of its credit cards co-branded with retailer David Jones would raise confusion amongst customers.

As per information provided by Reuters, the company knew that the customers would not be able to discern whether they had applied for a loyalty card or a credit card, and that it failed to have distribution limited to customers who were looking for a card that earns points and other benefits. Card design and distribution obligations and ASIC’s allegations As per design and distribution obligations, AmEx had the requirement of creating a target market determination (TMD) to describe who would the credit cards be appropriate for and the way in which they should be distributed. Furthermore, these obligations also required issuers to have credit card TMDs reviewed, should they become aware of a circumstance that indicates said TMD is no longer appropriate.

Based on the allegations released in a statement by ASIC, the card payment service provider was aware that the cancellation rates amongst consumers who applied for credit cards in David Jones outlets were significantly higher in comparison with the cancellation rates of credit cards that had been applied for online. Furthermore, ASIC alleged that by February 2022, AmEx was aware that part of their consumers was confused on whether they had applied for a loyalty card or credit card, and as per ASIC’s statement, this circumstance indicated that the TMDs were not appropriate. AmEx was required to review the TMD and stop the card issuance, with ASIC claiming that despite this, AmEx carried on with the credit card issuance up until July 2022.

In a first-of-its-kind lawsuit, the regulation seeks court penalty on AmEx and compliance with obligations issued in 2021 that demand firms to design financial products and bring full awareness to customers when it comes to the features of said products. Additionally, the demand and distribution obligations require companies not only to design financial products that meet the customers’ needs, but also to have their products distributed in a more targeted manner. ASIC Deputy Chair Sarah Court advised in the regulator’s statement that the obligations related to design and distribution embed a consumer-centric approach for financial products’ issuers and distributors.

Furthermore, the ASIC spokesperson stated that ‘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’. As per the regulator’s statement, ASIC is now seeking declarations and pecuniary penalties from the court. .