ASIC hits Amex with legal action over ‘confusing’ DJs credit cards
American Express is facing allegations from the corporate regulator that credit cards it designed with retailer David Jones confused consumers who thought they were loyalty cards and breached new post-Hayne Royal Commission laws created to make financial products easier to understand for consumers.
In the first legal action under new design and distribution obligations, the Australian Securities and Investments Commission alleges Amex knew, or should have known that two credit cards – the David Jones American Express Card and the David Jones American Express Platinum Card – were not appropriately flagged under new regulations as it kept receiving complaints from customers who signed up to the cards.
Amex is facing legal action brought by ASIC. istock
ASIC alleges Amex breached ‘design and distribution obligations’ which came into effect in October 2021 where financial product issuers are required to make a so-called target market determination, which must describe the type of clients a product is made for, outline any conditions and restrictions, and specify events which would trigger a need to reassess the determination. In essence, financial product providers need to make sure how they sell, and who they sell to, are appropriate and consumers are fully informed.
ASIC deputy chair Sarah Court said the new obligations have “shifted the dial fundamentally from an imposition on the consumer to be carefully reading the fine print of a product disclosure statement and wading through what can be quite complex documents to fully inform themselves about things.”
The obligations apply to all financial products, and ASIC has issued more than 20 stop orders over products it does not believe are flagged well enough.
Ms Court said there were two major elements to ASIC’s case against Amex. The filing was only made against Amex, and not David Jones.
“The first is that in relation to the distribution of these credit cards, which were effectively sold, or promoted, signed up for in store, at the counter while you’re buying your coffee machine your clothes, you’re then offered ‘oh, would you like to sign up for this card?’ So our evidence is that a number of people thought that they were just signing up for a loyalty card as we’re all prompted to do almost every time you do a retail transaction these days,” Mr Court said.
The allegation is that Amex did not have appropriate measures in place to make sure people signing up for the cards actually wanted a credit card.
Amex was aware of high cancellation rates for credit cards applied for in David Jones stores since October 2020, ASIC alleges, noting between October 2020 and October 2021, cards applied for instore had monthly cancellation rates of between 37 per cent and 59 per cent for the DJs Amex card, and between 31 per cent and 61 per cent for the DJs Amex Platinum. Over the time period, the cancellation rates for both cards exceeded 80 per cent, ASIC said.
According to the corporate regulator’s filing in the Federal Court, the DJs Amex card and the DJs Amex Platinum card had cancellation rates of between 10 per cent and 29 per cent, and 11 per cent and 32 per cent respectively when the cards were applied for online.
“The second part of the case that is of particularly concern to us is American Express was on notice of this deficiency. They had really high cancellation rates. They knew they were getting complaints from people who said ‘I didn’t mean to apply for a credit card, I didn’t know what was going on here’, and that despite having that clear information, American Express failed to remedy the distribution arrangements it had in place.”
Amex said: “American Express takes any allegations made by ASIC seriously and will continue to cooperate with ASIC in relation to this matter.”
David Jones declined to comment.
