Trip Almost Ruined Over Credit Card

Question: I’ve enclosed a copy of a letter that I have written to American Express in which I make the charge that the company’s stated policy of having no individual credit limit is untrue and that, as a result, as a new card holder I was both embarrassed and inconvenienced.

Shortly after I received my American Express card earlier this year, I made arrangements for a three-week vacation to Italy, and I was treated like a deadbeat. My application said AmEx would conduct a credit check, but it didn’t say they would track me down when I reached some secret credit limit because my charge history was too new to form an opinion.

Since I was leaving the country the following day, I submitted to American Express and authorized my bank to verify that my balance would cover the airline charges. But I also vowed that when I got back (which I just did) I would do whatever I could to force AmEx to state up front what its “no credit limit” policy really means.

I wonder what the company would have done if I had left for my three-week vacation before AmEx had had a chance to call me. Would they have told the clerk in the store on Via Veneto that my card is invalid?

It seems to me that if American Express is so worried that new card holders might not pay their second bill (yes, I did pay my first), they should do a better credit investigation in the first place and not issue a card. But to submit a new customer to this humiliation for no reason--when they haven’t even asked for payment--begs for action.--E.J.

Answer: In the light of your experience, there’s no way in the world that American Express is going to convince you that, sure enough, there is no dollar limit on the credit available to its card holders. But that, flatly, is still the stand the company takes, and it’s the principal difference between the AmEx card and the bank card--where a dollar ceiling is specified.

A spokeswoman for the New York-based company sympathizes with you and agrees wholeheartedly that you should have been able to charge your airline tickets no matter what the dollar amount involved was. “The big advantage in the card is being able to use it without worrying about some sort of ceiling,” she said. (And, incidentally, you don’t actually say in so many words, but the implication is there that you did indeed put the tickets on your American Express card once the bank verified your balance.)

But, she also admitted that there are occasional delays when an amount charged is “outside the individual’s spending pattern.” This isn’t a dollar limit, she insists, but if an individual, for the first year of his membership with AmEx, has averaged card spending of about $200 a month, and then, suddenly, the card is used for a $15,000 package tour around the world, there may legitimately be a question raised.

Information on Resources

“Just because it’s not in the individual’s spending pattern,” she added, “certainly doesn’t mean that it won’t be routinely OKd. But it may simply require a little more information on his resources. And, of course, we want to make sure that the card is being used by the person authorized to use it--that’s for his own protection.”

Even on those occasions when checking is called for, she added, “90% of these are approved in 60 seconds,” and in no sense is it a reflection on anyone’s credit worthiness.

“What we have, once a card member is approved, is a bond of mutual trust between us, and this gets stronger every year.”

And, the longer you hold the card and the longer both your spending and paying habits become familiar to American Express, the less and less likely any purchase is going to run into even a 60-second delay.

To be quite candid with you, and without taking sides, I personally feel that you were, charitably, wildly optimistic to think that you could lay out a three-week Italian vacation on your American Express card--on the basis of one month’s membership experience with the company--without having a few questions asked. I wouldn’t have approved it myself without checking you out a little.

And speaking of “bonds of mutual trust,” please bear in mind that there isn’t a bank in town that will credit a $50 out-of-state check to your account until it’s had 10 days to clear. Do you find that equally humiliating?

Q: I was in Las Vegas recently and saw something that started me thinking, but I haven’t been able to find anyone who might clarify it for me. One night, at one of the crap tables, a high roller was having one of those runs of luck that everybody dreams of: He couldn’t do anything wrong and the black ($100) chips were piled up around him ankle-deep. At a rough guess there were at least $40,000 or $50,000 worth of chips there.

So, being a practical type, I started wondering about this man’s winning and the Internal Revenue Service and how the IRS keeps track of this sort of thing. A friend with whom I discussed it says it is his understanding that the Las Vegas casinos are required to get the name, address and Social Security number of anybody who cashes in more than $600 in chips, and this is then reported directly to the IRS by the casino. That seems fairly logical to me except that it overlooks something pretty important: Chips being cashed in aren’t necessarily the same thing as “winnings.” How could someone cashing in $600 worth of chips ever prove that it actually cost him $800 to get $600 in chips?

And this brings up another related question: How are winnings in the California lottery that starts this year going to be reported to the IRS? (I think that my and my friend’s ignorance on the procedure in Las Vegas tells you a lot about the luck that we have there.)--C.D.

A: We seem to share the absence of the same problem. Our last big killing in Las Vegas offset our buffet lunch.

Never fear, the IRS has an intense interest in what goes on at the cashier cages in Las Vegas, according to Lowell Langers of the IRS’ public affairs office. And the rules are pretty cut and dried despite some baffling aspects of how some of the figures are determined.

For instance, the general definition of “winnings” entails reducing the amount of the pay-out by the amount of the wager, and if the balance is at least 300 times the amount of the wager, then you’re a winner--and any winning constitutes taxable income. Although, Langers admits: “I don’t really know how you would go about documenting your losses to arrive at this.”

No Withholding

Under this formula, then, any pay-out in excess of this--$50, $100 or what-have-you--is supposed to trigger the filling out of Form 1099-M (for Miscellaneous) with the winner’s name, address and Social Security number. The winner receives a copy and the IRS receives a copy, but there’s no withholding involved.

It’s at $1,000, Langers said, that the IRS not only gets nosier, but grasping as well. If your winnings are $1,000 or more, a W-2G form is required: not only the winner’s name, address, Social Security number and two forms of personal identification (such as driver’s license number), but also a declaration that no other individual has a percentage participation in the winnings. (If there is another participant, then the same information has to be included for him or her).

The casino also deducts 20% of the winnings and remits this and the information to the IRS by Feb. 28--or by Feb. 28 of the following year.

All of this may seem particularly baffling to you if, at some time, you’ve cashed in a few hundred dollars in chips and no one said anything to you about your name, address, Social Security number, Form 1099-M, Form W-2G or anything else. And Langers, wisely, declines to speculate as to why not.

“I guess, sometimes, people get lucky, but the casino is supposed to do this,” she adds. Is there a tacit understanding between the IRS and the casinos that, up to such-and-such a dollar figure, it would be too complicated or controversial to try to apply the 300-times-wager rule? (And would that be where your friend’s figure of $600 comes into play?

Another Factor

There’s another factor, according to Langers, that also gives the $600 figure some credibility: Winnings from slot machines, although technically taxable, are neither reported to the IRS nor withheld by the casinos and, by a funny coincidence, the maximum jackpot on dollar machines--except for the progressive slots--is generally, guess what? $600.)

And, while the IRS, again, doesn’t officially confirm or deny it, it is fairly common knowledge that IRS agents spend a fair amount of time spot-checking, monitoring or just hanging around both the casinos and the tracks.

As far as state lotteries are concerned, Langers says, the IRS simply withholds 20% of any winnings over $5,000, and that’s that.

Again, though, all winnings meeting the 300-times rule are taxable.

Forthcoming Procedure

How California will skim off its share of lottery winnings hasn’t really been spelled out yet, according to Will Bush of the public affairs office of the State Franchise Tax Board, but we can all rest assured that some sort of withholding or, at least, notification procedure will be forthcoming. The state tax rate falls basically in the 1%-to-11% range, unlike Nevada, of course, where there is no state income tax (at least for Nevada citizens). How conscientious the Las Vegas casinos are in helping the other states collect their taxes in Nevada is, again, anybody’s guess, but the consensus is: Not very.

At any rate, it’s highly unlikely that the big winner you watched at the crap table was worrying unduly about his tax situation at the time of the action.

For the Record: In last week’s discussion of Medicare supplemental insurance, the comment was made that under a pilot program being conducted by Medicare involving about 29 health maintenance organizations around the country, the participating HMOs are reimbursed 95% of the monthly Part B deduction ($15.50) from those Medicare patients enrolled with the HMOs.

Not so: they’re reimbursed at the rate of 95% of the average Medicare patient’s monthly medical bill-- which has been determined to be $200 to $250 a month. This has no bearing on the other information given, but is simply to set the record straight.

Don G. Campbell cannot answer mail personally but will respond in this column to consumer questions of general interest. Write to Consumer VIEWS, You section, The Times, Times Mirror Square, Los Angeles 90053.