The Australian Securities and Investments Commission (ASIC) has launched its first court action seeking civil penalties over alleged breaches of design and distribution obligations (DDO).

The Federal Court proceedings against American Express Australia (Amex) allege target market determination failings for two credit cards co-branded with retailer David Jones, with some consumers “confused about whether they had applied for a loyalty card or a credit card”.

The DDO laws took effect in October last year amid a suite of reforms, including anti-hawking rules and a deferred sales model for add-on insurance. ASIC allowed a period to bed down the implementation before this year warning financial services firms that it was moving to a focus on compliance.

“ASIC has now taken multiple actions under the design and distribution regime, including issuing over 20 interim stop orders,” Deputy Chair Sarah Court said today.

“This regime turned a new page in the regulation of financial products in Australia and is intended to deliver better outcomes for consumers. It is a priority for ASIC to maximise these increased protections and see the long-term benefits of the DDO regime realised.”

The DDO regime requires firms to provide target market determinations that outline the class of consumers a product is likely to be appropriate for, matters relevant to distribution and triggers that would spark a review.

In the Amex case, ASIC alleges that the TMD didn’t limit distribution to people looking to make purchases on credit with a card that earned points or other benefits.

ASIC says Amex was aware by February that cancellation rates for consumers who applied in store were significantly higher than for online applications, with some people confused about whether they had applied for a loyalty or credit card. Despite this, the cards continued to be issued until July 5, it says.

“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,” Ms Chester said. “It is critical that providers respond to poor outcomes they identify by making changes.”

ASIC says the DDO laws shift the focus of financial services regulation away from a disclosure mindset to a consumer-centric and outcomes-focused approach to designing and distributing products. The rules require effective governance across the life cycle of products, it says.

American Express said in a statement today that it “takes any allegations made by ASIC seriously and will continue to cooperate with ASIC in relation to this matter”.