Credit Cardholder Is Protected Against Fraud

Q: Someone got a hold of my credit card number and used it to charge more than $1,100 worth of merchandise over the phone. When I got the bill, I immediately notified my bank. I have paid all the other charges on the account except for the $1,100. But the bank says I am still responsible for these fraudulent charges. They are threatening to take this money from my savings account at the bank. Can they do this? Can I sue them if they take the money from my savings account? --D.S.

A: The Federal Fair Credit Billing Act makes it clear that victims of credit card loss, theft or fraudulent use are liable for only the first $50 worth of disputed charges made prior to notification of the issuer, says Robin Leonard, an attorney and author specializing in credit matters. "This bank is acting outrageously and improperly," Leonard says of your situation.

According to her book, "Money Troubles: Legal Strategies to Cope with Your Debts," credit cardholders are required to promptly notify their credit card issuer upon the theft or loss of their card. Defining the word promptly, however, may be a bit of an art. In most cases, the cardholder has 30 days after discovering the loss or theft to make the notification. You appear to have met that requirement.

Leonard recommends that you continue to refuse to pay the disputed charges and ask a lawyer to write a letter to your bank outlining your position and legal justification. If the bank dips into your savings account, you can sue.

According to Leonard, if a credit or charge card company violates any provision of the Fair Credit Billing Act, you can recover the damages you incurred, plus double any interest fees you've been assessed, as well as attorney and court costs.

Home Sale Exclusion: Marriage Can Be Costly

Q: I am a 60-year-old widower and own my own home. I am about to remarry a woman who also owns her own home. Neither of us has ever used the one-time $125,000 profit exclusion available to older taxpayers from the sale of our home. If I sell my house before our marriage and use my exclusion, may my new wife use hers after our marriage? --H.S.

A: If you have already used your exemption at the time of your marriage, you and your new wife may not invoke her exclusion during the duration of your marriage. According to the Internal Revenue Code, each individual and each married couple are entitled to just one exclusion. If one spouse has already used his or her exclusion while in another marriage or as a single person, the couple is not entitled to another exclusion--even though the second spouse has never taken advantage of the tax break. However, if both spouses invoke their exclusions prior to their marriage, there is no problem with the IRS.

By the way, if a couple use their exemption and later divorce, neither spouse is entitled to a second exemption even if they remarry an individual who has never taken advantage of the break.

'Market Makers' and Their Role in Trading

Q: I recently bought 300 shares of stock on the NASDAQ market from a full-service broker. I paid slightly more than $86.50 per share. My transaction report indicated that the price included a per-share cost of $85.50, plus a markup of slightly more than $1 per share because the brokerage is a "market maker." I paid no commission. Could you please explain the term "market maker?" --V.H.

A: Market makers are stock brokerages that specialize in buying and selling a particular stock. These dealers generally keep an inventory of those shares in their own account and stand ready to trade it at virtually any time of the ordinary trading day. Every stock traded on the NASDAQ has at least one market maker.

That said, let's explain their role in the operation of the stock exchange. You should think of them as a kind of a central clearinghouse. Their job is to "make the market" for a stock by buying shares that investors want to unload and selling from their inventory when investors want to buy. Throughout the trading day, these dealers are setting the buy and sell price of a particular stock according to whether there are more buy orders or more sell orders for a particular stock. When there are more buyers than sellers, their prices rise; when there are more sellers than buyers, their prices drop.

But even more important than setting prices, market makers are supposed to ensure that the market for a particular stock remains open for all trades. This facet of their job has become more important since the stock market crash of 1987. During the most frantic hours of the Oct. 19, 1987, crash, it was later revealed, many NASDAQ market makers simply folded their tents, refusing to make trades in shares that were in a free-fall. Consequently, investors were unable to unload their shares.

All market makers charge a "markup" for their services, whether or not they choose to identify it as such. In some cases, these charges are not separately identified to the investor, but in most cases the NASDAQ market lists the markup fee. According to a NASDAQ spokesman, brokers who are also the market maker of a particular stock are permitted to charge both a commission and their regular markup. But, as in the case of your broker, they may elect to waive the commission.

Given the complexity of the charges involved, investors should ask their brokers what they are paying for their shares and what part of that price is the specialist's or market maker's markup. Be sure, as well, that you know exactly what you are being charged as a commission.

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