The intent behind Issue No. 22 of the FTC Notice to revise the Funeral Rule has us a little perplexed. Funeral providers may charge a lower basic services fee for direct cremations and immediate burials. Issue 22 seems to be asking whether funeral providers must disclose when they do not have a lower basic service fee for direct cremation or immediate burials. The issue is suggesting that these two services should set out that limited viewings or visitations are involved. It seems that consumer advocates have found some funeral providers that include their basic service fee in these two categories, and that consumers should be afforded more warning that the provider is not reducing the basic service fee when the law allows for that.
For this post we are focused on Issues 18 through 21of the FTC’s Notice to revise the Funeral Rule. With these issues the FTC is responding to consumer advocates assertions that the GPL does not adequately disclose incidental costs associated with direct cremations or immediate burials. With regard to immediate burials, advocates do not believe consumers are adequately warned that the cemetery will have its own charges (such as interment fees, endowed care and a vault). With regard to direct cremations, the issues ask whether funeral providers must list possible costs such as an urn or delivery costs.
It would seem intuitive that consumers would ask the funeral provider what is or is not included. But the consumer advocate is suggesting that as on line shopping expands, consumers will make decisions based on the information posted on the funeral provider’s website. But the reality is that a very small percentage of funeral arrangements are made wholly online. If any disclosure is needed for this situation it should be that additional costs may be associated with either direct cremations and immediate burials, and consumers should speak with their funeral provider before finalizing their decisions.
The FTC’s second area of concern for Funeral Rule revisions is titled Crematory Fees and Additional Costs. For this post, we are going to look at Issues 16 and 17. Funeral consumer advocates are focused on the fact that many funeral homes do not own their own crematory and therefore outsource that service to a trade crematory. The consumer advocates want funeral homes to be required to disclose what they pay for crematory services. The intent here is to show what type of markup the funeral home charges on direct cremation arrangements (and other cremation arrangements). While these two issues do not reference trade embalming, we can see the advocates pushing for similar disclosures when embalming is also outsourced.
While there may be merit in a disclosure that a funeral provider must outsource cremation services, a requirement to post the crematory fee or a range of fees will be problematic. This would require funeral providers to update the price list not only for their own changes but also when each third party crematory changes their charges. In some service areas, funeral providers use multiple trade crematories. Their preference may depend on quality of service, prices and work load.
These two issues seem motivated by advocates’ desire to drill down in to GPLs to show mark ups in all cremation prices. While the issues are cloaked in ‘a discovery of direct cremation prices’, once the 3rd party crematory fee is disclosed assertions can be made about all of the provider’s cremation pricing. This goes deeper than the Funeral Rule’s intent. We think that consumers have a legitimate interest in knowing if 3rd party crematories are used, and who they are. Consumers would want to know of the quality of services provided by such entities.
With Issues No. 10 through 15 of the FTC’s Funeral Rule notice, the agency begins inquiries on how to ensure the online shopper has access to all of the funeral home’s price lists before making any selections. Would it be sufficient to require the funeral home’s website to provide links for downloading the GPL (and casket price list and the outer burial container price list), or should the rule require the funeral home to email the prices lists? The FTC is pondering whether online availability of the price lists is sufficient. We could see where the FTC may be leaning towards a requirement that email delivery be used, with the funeral home being required to maintain copies of the email transmissions as proof of compliance.
If the FTC should opt for email delivery and confirmation, it would seem burdensome to also require posting of price lists in a downloadable format. It would seem that the burden should be on the shopper to make a request for the price lists by providing their name, address and valid email address. To reduce the burden on the funeral home, the email delivery requirement would apply only to residents within their service area.
As discussed in our prior post, the FTC’s rulemaking notice for amending the Funeral Rule requests public comment on 40 Issues. Those 40 issues are grouped by the FTC in the following 7 categories of potential amendments:
- Electronic price disclosure – whether and how funeral providers should be required to display or distribute price information online or through electronic media
- Cremation-related fees disclosure – whether funeral providers should be required to disclose on the general price list third party crematory or other fees
- Limited exceptions to the basic service fee – whether the Rule’s requirements regarding reduced basic services fees should be amended
- New alternative disposal methods – whether the Rule should be amended to account for new forms of disposition
- Amendment of the mandatory embalming disclosure – whether the Rule’s embalming disclosure requirements should be amended
- Improvement of price list readability – whether the Rule should be changed to improve the readability of the price lists
- Effect on historically underserved communities – whether changes should be made to the Rule to avoid negatively impacting underserved communities.
With regard to the category “Electronic Price Disclosures”, the FTC dedicates the attached 15 Issues. For purposes of this post, we want to focus on the issue of whether the Funeral Rule should require funeral providers to post their general price list on their website, or provide their GPL by some other electronic means.
The FTC acknowledges that not all funeral homes maintain a website. Some rely upon other forms of social media like Facebook. The FTC seems to be expressing concern that funeral homes may eliminate their website if the Funeral Rule would force the posting of GPLs. The FTC also acknowledges that some forms of social media do not lend themselves to the posting of GLPs. So, the FTC is asking in the various Issues whether funeral homes should be required to provide their GPL by electronic means such as by Fax or Email. A Consumer Federation of America case study suggests that California funeral homes were found to be very responsive to requests for GPLs by email.
It would not seem burdensome on the industry if the Funeral Rule required funeral homes to email the GPL within 24 hours of a request by any person residing within the service area. The request should identify the person, include a representation that he/she (or the person for whom services are sought) resides in the funeral homes service area, and provides a valid email address.
By a posting made November 1, the Federal Trade Commission gave formal notice of its intent to revise the Funeral Rule and opened a 60 day comment period. The notice is quite lengthy and signals that that the FTC wants major revisions to the Funeral Rule that go well beyond whether to require the posting of prices on websites. Forty (40) issues are outlined for possible change.
The notice summarizes the FTC actions leading up to the decision to revise the Funeral Rule beginning February 14, 2020. The FTC concluded that review with an October 20, 2022 meeting that allowed for comments from the public and from the funeral industry. From the FTC’s summarization of comments, the agency obviously found many industry comments disingenuous.
A popular industry response to the funeral rule has been to decry its focus on funeral homes and demand the rule’s expansion to cemeteries and preneed sellers. The FTC declined to move in that direction by suggesting no proof was provided of unfair or deceptive practices by cemeteries.
Some industry commentators urged the FTC to open the “state exemption” provision and simplify that process. The Funeral Rule’s state exemption provision allows a state agency to exempt its state’s funeral homes from FTC oversight by proving that state agency provides greater consumer protections than the FTC. The FTC shot this down, advising that “States have had and continue to have an option to apply for an exemption to Section 453.9, if they are interested in doing so, and the Commission will evaluate all such applications.” (We have not found any evidence that the FTC has ever granted such an exemption. Having sued Missouri and Virginia for Funeral Rule violations, the FTC may have little confidence in state oversight of the Funeral Rule.)
In outlining the 40 issues, the FTC frequently asks questions that signal the direction that it is leaning. These questions offer the funeral industry an opportunity to provide thoughtful input that might actually influence the FTC’s direction. We will use our next posts to frame issues in more detail. The industry has until January 3, 2023 to file comments.
When the MFT’s previous preneed exam was making news during the summer of 2015, reorganization plans were being filed for the Wisconsin Master Trust and the California Master Trust. As we reported in “Association Master Trusts: De Facto Trustees”, each reorganization plan sought to eliminate the association’s de facto trustee relationship that had led to misuse and mismanagement of millions of dollars of preneed consumer funds. The receiver appointed for the Wisconsin Master Trust did not mince words:
The Trust was hemorrhaging from the costs it was incurring. We promptly eliminated between $50,000 and $100,000 per year in administrative costs, $125,000 per year in investment advisor fees and $240,000 per year in payments to the WFDA and its affiliate. We also eliminated a large amount of other fees that did not appear on the Trust’s records but that were built into securities transactions.*
Going back to 2015, MFT declared it had “deep pockets” and could afford to sue to protect its interests and client relationships. With the purchase of the Missouri Preneed Trust, MFT may believe those pockets got deeper. But what about consumers’ interests? Or even funeral home provider interests?
When the MFDEA Preneed Portability video disclosed that expense distributions were being paid from the Missouri Funeral Trust to the association, we thought it was appropriate to revisit prior blog posts about the failures of association master trusts in Illinois, Wisconsin, Minnesota and California. Those state association master trusts were forced to close, to restructure or into receivership when mismanaged by association executives. The MFDEA video suggests to us that MFT funeral providers are raising questions about the costs of the program and whether they can transfer to other preneed programs. Knowing the history of the MFT response to inquiries, we doubt that funeral homes are being provided any useful information.
As we originally discussed in the post “Preneed Trust Shortages: investment management fees”, a state association master trust can provide the ‘critical mass’ required for economies of scale to diversify investments and reduce trust management costs. In theory, as the state master trust grows in size, the association could better negotiate investment and administrative arrangements. However, the reality was very different for those four state master trusts set out above. Association executives turned a blind eye to trust expenses.
Master trust programs should provide to their funeral home providers the following information:
- The name and address of the trustee.
- The master trust’s written investment policy.
- The fees paid to the trustee, fund managers, account administrators and tax preparers.
- The taxes paid by the trust.
- A summary report of the trust’s investment performance and asset description.
- A disclosure of related party transactions (loans, discounts, service agreements, etc.)
- Any sponsorship fee paid the association.
With regard to the Missouri Funeral Trust, the last item is a trick question. For contracts sold after August 28, 2009, Missouri preneed laws restrict what may be distributed from a preneed trust. This is especially true for preneed sellers. If MFT is receiving income distributions from its preneed trust, other Missouri preneed sellers can cry foul. That is why the industry is so interested in what the new State Board does with the pending MFT financial exam.
A few days after Ivana Trump’s burial, we received our first call asking about Missouri law and tax breaks for cemeteries. The first caller had descendants buried on grounds that had been taken over by a golf course, and he was inquiring whether the Missouri golf course could be receiving tax benefits by virtue of his family’s burials. The easy answer was no because Missouri does not provide cemeteries the tax benefits that New Jersey does. But as we explained to that caller, all the speculation about the former president’s motives for burying his ex-wife near the tee box on No. 1 is probably for naught. New Jersey cemetery law is very similar to those states that grant tax benefits to cemeteries (like Kansas) in that to receive the tax exemptions the land must be dedicated for cemetery purposes. That rules out the continued use of the property as a golf course.
News reports were quick to assume that a single burial could satisfy New Jersey law and turn the golf course into a quasi-cemetery and shelter income from the golf course. Reporters suggested that New Jersey law does not impose a required number of burials for the tax exemption. But what the law does require is a dedication of the land for burial purposes. The Trump National Golf Club would have to be re-dedicated as a cemetery, and that would bar revenues from golfing activities.
Missouri’s new State Board will have its first meeting this week, and one week after the State was sued by a former State Board employee. The lawsuit alleges that the Division of Professional Registration usurped State Board authority to fire employees who had defied Division Director warnings to stand down. What we now know through news reports is that the State Board and its staff were pursuing enforcement actions against funeral home establishments and at least one major preneed seller. While the State Board did heed a Division directive about picture taking during funeral home inspections, the staff continued to investigate problem funeral homes and preneed sellers. Obviously this displeased the Division Director who then manipulated the Governor’s Office by seeking the appointment of four State Board members who had agreed to violate the State’s open meeting law and follow the Division’s instructions. In the aftermath, State Board disciplinary proceedings were dismissed or modified without formal Board actions. Those actions were contrary to promises the Legislature had made to preneed consumers with the passage of Senate Bill No.1. Bowing to pressure from Missouri’s Senate, the Governor withdrew the four State Board appointments.
Missouri funeral directors are curious whether the Division will still be pulling State Board strings. They are asking whether the new State Board will reinstate discipline proceedings against the Warrensburg funeral home with licensing issues and preneed problems. What is the status of that preneed audit against a major preneed seller? What has the Division been doing with inspections and audits during the past 7 months?
We are also curious about what the whistleblower lawsuit will turn up through its discovery efforts. Immediately following the termination of the Board staff, the executive director of a major preneed seller suggested to us that the preneed audit supervisor had been included in the firings because he had made derogatory statements to a preneed seller that had been disciplined. That executive director advised that the preneed seller had strong connections to the Governor and that’s how business works in Jeff City. We can’t help but think that those suggestions were a red herring, and that the whistleblower lawsuit will uncover the identity of the troubled preneed seller.