One of the weaknesses of Chapter 436, Missouri’s preneed law, is that it provides the State Board few enforcement powers beyond disciplining the preneed seller’s license.  There are plenty of examples of preneed sellers obstructing the State Board’s efforts to obtain preneed records.  At least one resorted to litigation as a delay tactic.  The prospect of having their license put on probation has not been much of a deterrent to some sellers.  Sellers were prepared to play a waiting game with the State Board for a settlement agreement offering a few years of probation.  SB 32 looks to remedy that by providing the State Board the teeth to impose financial penalties on the seller with serious financial deficiencies.

For the seller that obstructs the State Board audit functions, the bill would authorize the Board to require the seller to reimburse the Board’s audit expenses to the Preneed Audit Fund. 

The State Board may also require a seller to pay missing preneed funds back into their trust. 

And third, the State Board may fine a seller up to $10,000, which would be contributed to the Preneed Audit Fund.

With this post we will examine the new “Preneed Audit Fund” that SB32 proposes to create.  Missouri funeral homes are already quite familiar with the state contract fee that was authorized in 2009 by Senate Bill No. 1.  Per that law, the State Board began charging a fee on each preneed contract sold.  That contract fee was created for the sole purpose of funding the State Board’s preneed examination functions.  The fee amount was set by regulation and the State Board initially set the fee at $36.  There were some who thought that NPS had killed off preneed and sales would crater.  But that did not prove to be the case.  The contract fee generated substantial revenues for the State Board, and after a few years the Board lowered the fees charged on licenses issued to funeral directors, embalmers and establishments.  The contract fees were eventually reduced to $25, with more reductions in license fees.  Thirteen years later, the contract fee accounts for most of the State Board’s revenue, but there is very little in preneed protection being provided to the Missouri consumer.

So, SB32 will require the contract fee be deposited to the new “Preneed Audit Fund”, over which the state treasurer controls the purse strings.  The Fund can only be used to reimburse the State Board or the Department of Commerce and Insurance for expenses incurred in a preneed audit, examination or inspection.  The Fund could not be used for expenses such as establishment inspections or discipline proceedings on licenses other than seller, provider or preneed agent.

With our next few posts we will dive deeper into SB32, the Missouri preneed legislation intended to provide the State Board a new audit direction and some new enforcement tools.  Our first issue will be the change in course on preneed audits. 

The bill would amend section 436.470 by adding the following new section:

3.  The board’s financial examination guidelines shall include processes and procedures for determining adequacy of funding of sellers’ preneed obligations, compliance of seller’s handling of consumer funds with this chapter, and compliance of trustees’ administration of preneed trusts with this chapter.

The preneed seller shall provide the following items for each financial examination:

(1)        A listing of all preneed contracts sold during the requested period;

(2)        A listing of all outstanding preneed contracts;

(3)        A listing of all preneed contracts cancelled or transferred during the requested period;

(4)        A report from each financial institution and insurance company utilized by the seller that shows as of the examination date each active consumer name, account number, start date, contract purchase price, amount received, amount on deposit, the account fair market value or insurance death benefit;

(5)        Copies of preneed contract forms currently being used;

(6)        A copy of the trust agreement(s) with the trustee(s); 

(7)        A copy of all agreements with providers or preneed agents;

(8)        Trustee transaction statements for periods designated by the board’s financial examiners or department of commerce and insurance designee; and

(9)        Any other report or document related to the administration of the seller’s preneed trust that may be requested

The introductory paragraph establishes that State Board audit procedures are to focus on three things: 1) the adequacy of the seller’s preneed funding, 2) the seller’s handling of consumer funds, and 3) the trustee’s administration of seller trusts. 

With regard to the adequacy of the seller’s preneed funding, the State Board will need either trust statements or insurance in force statements.  This will involve a comparison of the trust assets’ fair market value to the cost to perform the seller’s outstanding preneed contracts.  None of that argument about comparing trust cost basis to the refund obligation if all contracts canceled on the same day. 

With regard to the seller’s handling of consumer funds, the State Board needs either trust transaction statements or insurance company reports that reflect when the seller deposited consumer funds.  The State Board needs to confirm sellers are depositing all consumer funds within 60 days of their receipt.

Third, the State Board will need trustee statements to determine fiduciary compliance with the distribution of origination fees, sales expense fees, trust expenses, cancellation distributions, performance distributions and any other seller distributions.  When trustees make excess income distributions under the prior law, is there documentation to confirm the compliance of that distribution?  Are trust expense distributions for administrative services provided by a firm independent of the seller?  How are performance and cancellation distributions computed?  How are sales expense and origination fees computed?

We already know the objections that will be raised against this pivot in direction because they were raised in 2017 when the State Board’s exam committee made recommendations to begin tracking the consumers’ funds.  No, requiring supporting documentation from banks and insurance companies will not be burdensome when the State Board employs sampling when testing for compliance by sellers and trustees.  What we wrote in November 2017 remains true today (Missouri’s Preneed Examination Process: A New Focus)

It would seem that the Missouri Legislature has grown impatient with the funeral industry’s efforts to regulate preneed.  New legislation, Senate Bill No. 32, would establish a two tier approach to preneed oversight.  This law would create a threshold whereby the State Board of Embalmers and Funeral Directors would be required to notify the Department of Commerce and Insurance when examinations find preneed sellers with substantial financial deficiencies or discrepancies.  Once the notification requirement is triggered, the State Board must regularly update the Department with the progress of the examination and the resolution of the seller’s financial deficiencies.  If the Department should become concerned about the Board’s lack of progress or the resolution of funding the deficiency, the Department could designate one of its agencies to either assist the State Board or assume control of the examination.  The bill’s intent seems to want to provide a check and balance to ensure that preneed examinations are done completely, accurately, efficiently and without the appearance of impropriety.

This coming August will be the 14th anniversary of the passage of Senate Bill No. 1.  That law gave the State Board the authority, and obligation, to conduct a preneed examination on each preneed seller once each five years.  By the Legislature’s time table, the State Board should be finishing the second round of examinations and preparing for phase 3.  However, the State Board has yet to adopt examination procedures for tracking consumer payments.  The State Board’s phase 1 and 2 preneed examinations focused on preneed contract compliance.  Those examinations did not seek bank or insurance reports to test for timely deposit of consumer payments.  Nor did the examinations review fiduciary distributions made to preneed sellers.  

In late 2017, I and a handful of preneed sellers began to press the State Board to begin discussions for the phase 2 preneed examinations.  The preneed sellers in favor of new examination procedures were victims of National Prearranged Services.  Some Board members were in favor of a pivot in the direction of preneed examinations, but a majority of the Board members were swayed by certain industry representatives’ recommendation to stay the course.   They suggested it would not be fair to funeral homes if the exam procedures were changed. 

The October 2021 sacking of the State Board and its staff caught the Legislature’s attention.  The 2021 State Board had found problems with the investigative unit from the Division of Professional Registration, and took actions to hire its own investigators.   The termination of the Board’s preneed exam supervisor raised questions whether the Division was protecting a preneed seller.   A year and half has passed and there are no signs that the new State Board has taken actions with regard to preneed sellers known to have serious problems.

The Bill would also introduce new features such as a “Preneed Audit Fund” and State Board authority to either fine preneed sellers or require the repayment of missing consumer funds.   We will explore these new features in a future post.

The current shortage of qualified workers has caught up with the death care industry.  Funeral home owners are finding it difficult to fill open positions.  Salary demands are rising, and industries competing for death care workers can offer perks that funeral homes find difficult to match.   While the death care industry has been notorious for having long hours and low pay, some in the industry instead blame licensing standards.  The Missouri funeral directors association has taken that bait and proposed legislation that would eliminate testing for the licensure of funeral directors and embalmers.  SB348 would instead authorize licensure through apprenticeships.    Missouri is one of those states with low education standards for death care licenses and no continuing education requirements.   So, the legislation would further lower the bar by eliminating testing.  A Missouri FD license would not go very far in assuring employers that an applicant is “qualified”.   The prospective employee’s training would only be as good as the individual that supervised his or her apprenticeship.   This would seem to cement, at least for Missouri, that funeral directing is more a trade than a profession.

Most of industry leaders, including the NFDA, seem resigned to the reality that the Funeral Rule will be amended to require the posting of price lists on funeral home websites in some form or fashion. But the FTC extension of the comment deadline from January 3rd to January 17th indicates the Commission does value input from funeral directors.  Consequently, we recommend that funeral directors take the opportunity to address the issues they may still influence by filing comments with the FTC.

One issue that seems to resonate with both funeral directors and the Commission is the need to define when the obligation to provide a price list is triggered.  One Commissioner provided comments at the end of the October 20th open hearing to state that the FTC staff agreed that the current Rule does not require the price list production until pricing is raised.  Comments from funeral directors about the confusion when disclosure is required should help prompt the FTC to clarify when the GPL must be handed out.

Funeral directors should also offer comments about the need for flexibility in how price lists may be delivered to the on-line shopper.  As we previously posted on our blog, funeral homes should be given the option of providing price lists by electronic deliveries other than posting on a website.  Funeral homes should expect that they will be required to disclose on their websites the availability of price lists by electronic delivery when requests are made by email or telephone calls.  If FTC should take this approach, then funeral homes should expect requirements for when requests must be complied with.  If this type of flexibility is important to you, then we recommend you file a comment with the FTC.

With regard to the disclosure of third party charges such as crematory fees and cemetery interment charges, funeral directors need to comment on the burden this would create when forced to update GPLs multiple times during a year.   

You may follow this hyperlink to file your comments to the propose Funeral Rule changes.

When the FTC announced its routine review of the Funeral Rule in 2020, the Funeral Consumer Alliance and about half the country’s state attorney generals responded with complaints about online advertising by the funeral industry.   The criticism of funeral home websites led the FTC to conduct its own research of online advertising.   For a four month period beginning June 2021 (when COVID made travel to a funeral home for planning difficult), the FTC staff visited 200 funeral home websites to judge the complaints by the AGs and the FCA.   That research culminated in a report titled “Shopping for Funeral Services Online” that was released with the notice of the October 20, 2022 FTC meeting on whether to initiate the rulemaking process for amending the Funeral Rule.  That staff report ended with the following statement:

In conclusion, many of the funeral providers reviewed operated websites that offer prospective purchasers a wide range of information, including the providers’  location and how to contact them. In most instances, the websites provided at least some information about some of the goods and services offered. However, in most instances people viewing these websites would have a difficult time determining what prices were charged by a provider or comparing prices between providers. Most of the providers did not include any price information and those that did offer such information typically provided only partial information. Consumers planning funerals would, in almost all instances, need to contact the businesses directly or visit the providers in person to get enough information to make informed price decisions or to compare prices.

Despite advance notice that the FTC focus would be online funeral advertising, few of the industry commentators addressed that issue.  The few that did suggested that states could better regulate online advertising or that the FTC would make matters worse.  We could identify with only one commentator who endorsed the need for addressing online advertising but that the FTC should use caution to not over burden small funeral homes.

The comments of the individual Commissioners following the October 20th hearing were very telling.  Unlike the other FTC matter heard that day, the Commissioners were in agreement of endorsing the staff report and the advance notice of the rulemaking process.  This train is on the tracks and it does appear that the Funeral Rule will be amended to require GPLs be posted on funeral home websites.   While arguments can be made for and against, one aspect of the staff report suggests to us that the FTC will ultimately require online posting of the GPL.  If the FTC requires GPLs to be posted on line, Funeral Rule investigations become an online process for the FTC staff and their enforcement budget will go further. No more of those dreaded Funeral Rule sweeps.  In the near future, the FTC investigator will be just the click of a button away.

The last section of the Funeral Rule notice (Issues 37-40) raises questions whether there are funeral provider practices that disproportionately affect minority communities.  Again, we are not quite sure the intent of the FTC when raising these questions.  Concerns have been raised that FEMA’s COVID-19 funeral assistance did not benefit the minority communities as much as the Biden administration had expected.  Leaders of the National Funeral Directors & Morticians Association have also cited how little of the COVID relief funds have been paid to minority owned funeral homes.  But, these issues do have to do with funeral industry business practices.  The FTC may be providing an opportunity for the minority communities to identify industry business practices that create systemic barriers to competition by minority businesses.   We will learn more after comments are posted to this section of the notice.

The next-to-last section of the Funeral Rule notice (Issues 32-36) deals with what the FTC calls Price List Readability.  This seemed to us as a very nebulous phrase, and so we searched “Price List Readability” in the context of the Consumer Funeral Alliance, and lo and behold, the CFA has guidelines for what it suggests will make a price list legal and easy to use.  The Funeral Director’s Guide is actually helpful to understand the consumer advocate’s criticism of common mistakes made by funeral providers.  From the Guide, the funeral industry can anticipate the recommendations that the FCA will make.

Some of the Guide’s criticism is subjective, and not likely to be picked up by the FTC.  However, examples of overreaching language that implicates statutory requirements could trigger some new form of restrictions by the Funeral Rule.  The Guide is also helpful in showing what is lacking from a sample GPL.

We anticipate this to be one of those issues where the FTC will weigh the FCA’s recommendations and then propose a more definitive set of requirements that may be submitted to the public for comment.   Funeral providers would be advised to give the Guide a review.

Issues 28 through 31 of the FTC Funeral Rule notice concern the embalming disclosure.  Consumer advocates are pressing to have the Funeral Rule be more specific about when state law does or does not require embalming.   For states that require embalming under certain circumstances, consumer advocates want the GPL to reference the state law and set out the circumstances when embalming is required.   Consumer advocates also want funeral providers to disclose whether they possess refrigeration units, and if they do not, advocates want a disclosure about the availability of third party refrigeration and their fees.

Consumer advocates have found that in states without embalming requirements, funeral providers frequently adopt policies regarding when their services will be conditioned upon embalming.  Following the advocate’s recommendation, Issue 30 asks why such policies should not be required to be disclosed.

For funeral providers operating near a state line, the FTC suggests that the provider may be required to disclose the embalming requirements for all states in which it operates.  That seems to beg the question how the FTC will interpret when a funeral home operates in the nearby state.   Take the Kansas City, Missouri funeral home that sees regular business from Kansas City, Kansas.  Does that constitute ‘operating’ in Kansas, and thus disclosure of both states embalming requirements?  Or, does operation in a state require a facility in that state?