The corporate regulator is taking legal action against American Express for the way it distributed a David Jones credit card which many customers mistook for a loyalty card.

The Australian Securities and Investments Commission (ASIC) has launched its first penalty case in the Federal Court against American Express Australia Limited, alleging it breached its obligations to properly target suitable customers.

The case is set to test new consumer protection laws which flip the onus of responsibility from customers having to read the fine print to finance providers having to ensure their product suits customer needs.

Instead of targeting appropriate customers, Amex allegedly distributed its David Jones credit card to all customers. It allegedly failed to change its approach even after many customers cancelled the card after discovering it wasn’t a loyalty card and that a charge was involved.

ASIC deputy chair Sarah Court said new consumer protection laws known as “design and distribution” obligations had been in place since October last year.

“They really do represent a fundamental shift in consumer protection in financial services and we, within ASIC in the course of the last 12 months, are starting to appreciate just how significant the change is,” she said.

The changes mean it is no longer up to consumers to wade through product disclosure statements and read all the fine print to determine if a financial product is right for them. Court said the new laws had shifted that onus onto the suppliers of credit cards and other financial services to ensure they were marketed and distributed to appropriate customers.

“These new design and distribution obligations flip that model and instead put the onus on the issuer or the distributor of financial products to make sure that their products are only sold to, or distributed to, the consumers that they are appropriate for,” she said. “In this case, American Express Australia has to clearly turn its mind to who this product is appropriate for.”