Issuers Can Cancel Your Credit Cards at Will
Q: I fell behind on some of my credit cards and this information became a part of my credit report. Now two other companies whose credit cards I hold have canceled my cards. But I wasn’t delinquent on those accounts. Can they do this? Do I have any recourse? --W.J.S.
A: Sadly, you have no legal recourse. If you check the fine print of virtually any of your credit card agreements, you will find that the issuers have the unilateral right to cut off credit if they discover that you are no longer credit-worthy. Why would you suddenly be unworthy of your credit? In this instance, because you fell behind on your payments to another creditor.
Never mind that you’re not in default on the credit cards in question here. “Basically, it’s perfectly legal for them to cancel credit if they get nervous for any reason,” explains Robin Leonard, a San Francisco attorney and author of several books on consumer debt and credit cards. “Being in default on your other credit obligations is certainly one of those reasons.”
Of course, losing your credit cards usually only compounds your credit crunch because you have to come up with the cash to pay off your balance at a time when you are clearly in a cash-flow bind. And, of course, if you fail to pay off your cards, your account will be classified as past due, just as your other accounts were.
Leonard, whose latest book is “Money Troubles: Legal Strategies to Cope With Your Debts” published by Nolo Press, recommends contacting your credit card issuers and pleading for your credit life. Although you have no legal standing, she says you should appeal to the highest ranking official at the store or bank you can find, explaining your situation to them and asking for a chance to show you are a responsible credit risk. If your history with them is unblemished, be sure to point that out.
Leonard even recommends threatening to get everyone you know to boycott the store or bank in question. In other words, you should be prepared to use whatever meager leverage you have to get whatever you can. Sadly, however, it may not be much.
Was Lower Stock Value Legitimate?
Q: A few years ago a company in which I owned stock was acquired by another company and I was cashed out. Although I was told there was no commission paid on the deal, the amount of money I got was 6% lower than the value of the shares I submitted. My broker said his company “couldn’t guarantee that the exchange would be exact.” Should I be satisfied with that answer? This matter still steams me. --M.S.
A: Although we can’t say for sure, your broker probably didn’t take a cut of your proceeds, and even if he did take a commission, there are no rules against it. However, if you were charged a commission and told that you weren’t, you could file a complaint against your broker for untruthful practices.
Let’s take a look at your situation step by step. According to brokers we consulted, most do not charge a commission for handling stock sold as the result of a corporate buyout. This is true whether the stock is held in the client’s name or in the “street name” of the broker. However, none of the stock exchanges prevent their member brokers from charging such a fee.
Now let’s examine why you got 6% less than you expected from the sale of your shares--there could be another reason besides a broker’s commission. (By the way, unless you were selling a very few number of shares, a 6% commission is pretty steep. At a full-service broker, purchasing 100 shares at $20 each would generate a commission of about $75, or 3.75%, and a 100-share block of a stock at $110 per share would generate a charge of about $110, or just 1%.)
One potential reason is that the final buyout price was lower than either you anticipated or than was originally announced.
In some instances, the actual buyout price is set as of a particular date after the acquisition is announced, not the date the transaction is revealed.
Shareholders often become confused when news accounts of the deal include the then-current stock price, believing that is the share price they will receive. Check the final sales price of your shares to be sure you have made the correct calculations as to what you were owed.
Income tax withholding could be another reason you received less than you expected. Unless you had signed a W9 Form for your broker to keep on file, your broker would have automatically withheld a portion of your proceeds for income taxes. Check with your broker to see if you have such a document on file.
Although in this instance your broker would not have broken any rules by charging a commission to handle your sale, if your broker lied to you, you do have some, albeit limited, recourse.
The National Assn. of Securities Dealers handles complaints of unethical and illegal practices by its members. Complaints must be filed in writing and must include as many specific facts and copies of documents supporting the allegations as possible. Mail to the NASD, 300 S. Grand Ave., Suite 1600, Los Angles, Calif. 90071.
The NASD’s authority is limited to disciplining its members for rule infractions; it cannot recover any money on behalf of investors.
For restitution, investors may want to turn to one of several arbitration agencies. The American Arbitration Assn., a nonprofit organization, is among the best-known of these.
For more information about pursuing a restitution claim against a broker, write for the pamphlet titled “Securities Arbitration Rules,” Karen Holt, the American Arbitration Assn., 140 W. 51st St., New York, N.Y. 10020. Enclose a self-addressed, stamped, business-size envelope.
