Although it may not be apparent from the press release or the final Decision And Order, the FTC proceeding against the Missouri State Board of Embalmers and Funeral Directors has restraint of trade implications for future efforts to regulate the preneed transaction. 

The focus of the FTC inquiry was on the State Board’s lawsuit against an individual who sold caskets. The State Board’s proceedings indicate that the individual did more than sell caskets. While it was never the State Board’s intent to preclude non-licensed entities from selling caskets, the strategy taken by the Board’s attorneys relied upon Chapter 333, the law that governs the licensing of embalmers, funeral directors and funeral establishments. Eventually, the matter came to the attention of the FTC, and its focus was on Chapter 333 and the regulations promulgated there under. In Missouri, preneed is regulated under Chapter 436, and the FTC documents made only passing reference to Chapter 436.

Concurrent with the FTC investigation, a cemetery client was struggling with how to comply with the section of Chapter 436 that restricts the entities or individuals that can contract to perform a preneed contract in Missouri (Section 436.015.1):

No person shall perform or agree to perform the obligations of, or be designated as, the provider under a preneed contract unless, at the time of such performance, agreement or designation:

(1) Such person is licensed by the state board as a funeral establishment pursuant to the provisions of section 333.061, RSMo, but such person need not be licensed as a funeral establishment if he is the owner of real estate situated in Missouri which has been formally dedicated for the burial of dead human bodies and the contract only provides for the delivery of one or more grave vaults at a future time and is in compliance with the provisions of chapter 214, RSMo; and

(2) Such person is registered with the state board and files with the state board a written consent authorizing the state board to order an examination and if necessary an audit by the staff of the division of professional registration who are not connected with the board of its books and records which contain information concerning preneed contracts sold for, in behalf of, or in which he is named as provider of the described funeral merchandise or services.

In essence, R.S.Mo. §436.015.1(1) states that no person shall agree to perform the obligations of a preneed contract provider unless such person is licensed by the State Board as a funeral establishment pursuant to the provisions of section 333.061, RSMo. An exception is allowed for cemeteries to provide vaults.

Prior to filing a comment with the FTC, clarification was sought from the State Board that the law was unenforceable. Knowledge that Chapter 436’s ambiguities were already being exploited by preneed sellers, the State Board eventually declined to make an exception for the law.  

In finalizing the proceeding against the State Board, the FTC issued a letter in lieu of revising the Decision and Order.   Though directed at the State Board, the message conveyed is that state law cannot restrict who may sell or deliver a casket, whether it is at-need or preneed. 

One approach to providing better control over the preneed transaction is to license the seller. Preneed abuses warrant tighter control over the transaction, but caution must be exercised with regard to: 1) the restrictions imposed on who can sell preneed (or obtain a preneed license), 2) the definition of the preneed contract, 3) recovery of cost restrictions and 4) contract and/or advertising restrictions. (I will get to the latter  restrictions in upcoming blog entries.)

Ohio walks a fine line with regard to restraint of trade issues through its restrictions on preneed sales. Ohio has claimed that preneed should be limited to licensed funeral directors, and proposed legislation attempts to salvage this approach by limiting the restriction to preneed contracts that include funeral services:

 Sec. 4717.31. (A) Only a funeral director licensed pursuant to this chapter may sell a preneed funeral contract that includes funeral services. Sections 4717.31 to 4717.38 of the Revised Code do not prohibit a person who is not a licensed funeral director from selling funeral goods pursuant to a preneed funeral contract; however, when a seller sells funeral goods pursuant to a preneed funeral contract, that seller shall comply with those sections unless the seller is specifically exempt from compliance under section 4717.38 of the Revised Code.

(The Ohio legislation provisions that relate to preneed and insurance agents warrant discussion in a separate blog entry.)

Restricting the preneed sale to licensed funeral directors has merit, and the support of some consumer advocates. However, this approach has problems other than the restraint of trade issues. 

Beyond the explanation of funeral, cremation and burial issues, preneed involves financial, legal and tax considerations. For states that do not require continuing education, the funeral director has little exposure to the ‘business’ aspects of the transaction.  

The restriction is also difficult to reconcile with the weekly report of funeral directors who have failed to properly handle consumer funds.