David Jones-branded credit cards issued by American Express were not only unsuitable but also confused people into thinking they were loyalty cards, ASIC has claimed.
In a lawsuit filed in the Federal Court Tuesday, the Australian Securities and Investments Commission is seeking penalties from Amex, claiming the firm failed to ensure its credit cards were appropriate for those who applied for them.
The case is the first to be filed over breaches of design and distribution obligations. It targets conduct relating to the David Jones American Express Card and the David Jones American Express Platinum Card from October 2021 to July this year.
ASIC deputy chair Sarah Court said these obligations forced companies issuing financial products to take a "consumer-centric approach" through what is known as a target market determination.
"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."
By February 2022, Amex knew cancellation rates for those who applied for David Jones credit cards in store exceeded 80 per cent, significantly higher than rates online.
In critical assessments, Amex acknowledge that "attrition was (its) achilles heel" and that the cards were not fit for purpose but did not update or amend the eligibility conditions, ASIC claimed.
Some individuals were also "confused" about whether they had applied for a credit card or loyalty card, the financial watchdog continued.
This conduct "exposed consumers who took out the cards to the risk that they obtained a financial product that was not appropriate to their needs and objectives," ASIC wrote in court documents.
Between 80 and 90 per cent of these cards were issued within David Jones stores with applications processed through staff-operated iPads.
"(This) was a circumstance that indicated the TMDs were not appropriate and required Amex to review the TMD and stop issuing the credit cards. ASIC claims that despite this, Amex continued to issue the credit cards until 5 July 2022," ASIC said.
Ms Court said the financial regulator had taken multiple separate actions regarding these obligations, including more than 20 interim stop orders preventing a firm from issuing its financial products temporarily.
"This regime turned a new page in the regulation of financial products in Australia and is intended to deliver better outcomes for consumers," she said.
"It is a priority for ASIC to maximise these increased protections and see the long-term benefits of the (design and distribution obligations) regime realised."
In a statement, a company spokesperson responded to the lawsuit saying "American Express takes any allegations made by ASIC seriously and will continue to co-operate with ASIC in relation to this matter."
