|
BEFORE
THE
Comments
of the
_________________________________________________
COMMENTS OF THE _________________________________________________ I. INTRODUCTION The National Funeral Directors Association ("NFDA") submits the following comments to the Federal Trade Commission regarding the review of the Trade Regulation Rule on Funeral Industry Practices ("Funeral Rule'). These comments are being submitted in accordance with the April 30, 1999 request for comments issued by the Federal Trade Commission. NFDA is the nation's largest funeral service organization. It has over 13,000 members ranging in size from small family-owned funeral homes to large publicly-held corporations. In its role as the national representative of the funeral profession, NFDA has been actively involved in all facets of the FTC's development and implementation of the Funeral Rule. During the original rulemakings and the first review, NFDA voiced its opposition to the Funeral Rule. It has always been NFDA's position that regulation of the funeral profession should remain with the states and should not have been exercised at the federal level. Nevertheless, the Funeral Rule was promulgated in 1982, became effective in 1984, and has been in place for 15 years. During that time period, members of the funeral profession have incorporated the requirements of the Funeral Rule in their day-to-day operations. Consumers, when dealing with funeral directors, have been afforded the protections and informational benefits provided by the Funeral Rule. In these Comments, NFDA strongly supports retention and strengthening of the Funeral Rule in order to protect all funeral consumers. When the Funeral Rule was developed over 25 years ago, funeral goods and services were primarily sold only by funeral directors, and therefore, the scope of the Funeral Rule was limited by the Commission to the sellers of funeral goods and services. However, since that time, the Funeral Rule and the 1994 amendments to the Funeral Rule that banned casket handling fees have encouraged non-traditional sellers to enter the market. When consumers deal with these sellers they receive none of the protections afforded by the Funeral Rule. It is, therefore, necessary to update the Funeral Rule so it reflects the realities of the current marketplace and not the marketplace that existed 25 years ago. In addition to advocating the strengthening of the Funeral Rule to protect all funeral consumers, NFDA is requesting the Commission to modify certain requirements of the Funeral Rule that can result in insensitive treatment of survivors and that present compliance problems for funeral directors. We are also asking the Commission to reject certain proposals that will unduly restrict the funeral director's ability to compete in the marketplace. For the convenience of the Commission and the FTC Staff, we have listed below the primary objectives of NFDA in this review proceeding. Across from each objective, NFDA has indicated which of the questions discussed in these Comments address our particular objectives. Objectives 1. Strengthen the Funeral Rule to Cover All Sellers of Funeral Goods or Services 2. Modify the General Price List Distribution Requirements 3. Oppose any Restrictions on the Right of Funeral Homes to Offer Discounts and Incentives to Consumers 4. Oppose any Modification or Elimination of the Non-Declinable Basic Service Fee 5. Delete the Graveside Funeral Service from the Definition of Immediate Burial 6. Obtain Guidance on the Handling of Third Party Merchandise 7. Obtain Acknowledgement in the Funeral Rule that Funeral Providers may Require the Purchase of Certain Funeral Goods and Services as a "Practical Necessity" 8. Modify the Wording of the Non-Declinable Basic Service Fee Mandatory Disclosure 9. Modify the Cash Advance Provision to Exclude Rebates and Volume Discounts as Mark-Ups on Cash Advance Items Questions ... II. COMMENTS
NFDA strongly supports the retention and strengthening of the Funeral Rule so that all funeral consumers may benefit from its basic protections and safeguards. While the Funeral Rule may not have provided all of the benefits that the Commission predicted in the 1982 Statement of Basis and Purpose, it has provided to consumers who deal with funeral directors the following:
It can be argued that the Funeral Rule is not necessary because the overwhelming majority of funeral providers would provide consumers these benefits even in the Funeral Rule was rescinded. NFDA believes that argument misses the mark. The value of the Funeral Rule is that it provides legally enforceable rights and safeguards that must be adhered to and compiled with by all funeral providers. Therefore, every funeral consumer who deals with a funeral provider has legal entitlement to the benefits offered by the Rule. Unfortunately, while every consumer who buys funeral goods and services from a funeral provider is entitled to the protections of the Funeral Rule, no such safeguards are given to consumers who purchase funeral goods or services from third party sellers not subject to the Rule. It is somewhat ironic that a new segment of sellers has entered the funeral marketplace primarily as a result of the Funeral Rule, yet when consumers deal with that segment they are provided none of the protections of the Funeral Rule. Of course, like all government regulations, the Funeral Rule imposes compliance costs. However, these are costs that those who sell in the funeral marketplace should be expected to bear in order to provide basic safeguards to the consumers they serve. In supporting the retention and strengthening of the Funeral Rule to protect all consumers, members of NFDA accept the compliance cost of the Funeral Rule as the price of protecting the funeral consumer in the marketplace.
To those consumers who purchase funeral goods or services from funeral directors, no additional changes are required to increase the benefits of the Funeral Rule. The Rule is providing a set of legal safeguards guaranteeing timely receipt of price information, protection against misrepresentations and compelled purchases of unwanted items, and the right to use third party merchandise without any restriction, penalty or fee. However, in order to insure that every consumer of funeral goods and services enjoys these benefits and protections, it is necessary to modify the definitions of "funeral provider" and "funeral services". There are tens of thousands of consumers purchasing funeral goods and services from sellers who are not subject to the Rule because they do not sell "funeral goods" and "funeral services". Likewise, many consumers buy from sellers who escape the coverage of the Rule because they do not offer both funeral ceremonies and the care of the body as is required to be selling "funeral services". Strengthening the Rule to cover all sellers of funeral goods or funeral services will not only benefit consumers who purchase goods and services from non-traditional sellers, it will also benefit consumers who deal with funeral directors. The Commission and the FTC Staff have often stated their belief that the pro-competitive and informational benefits of the Rule will increase as more consumers become aware of the Rule and their rights under the Rule. By expanding the protections and benefits of the Rule to all consumers and by prohibiting restrictions and handling charges imposed by all sellers, the FTC would increase the benefits of the Rule to all purchasers. Regarding the issue of the cost that will be imposed on non-traditional sellers if the Rule is strengthened, the FTC Staff has always found that compliance costs with the Rule are minimal and do not significantly raise business costs for funeral providers. (1) NFDA sees no reason the same will not be true for non-traditional providers. Therefore, the strengthening of the Rule to cover all transactions involving funeral goods or funeral services will impose little cost for sellers.
There are four different types of compliance costs or burdens the Rule has placed upon funeral providers. The first two, the actual monetary costs of compliance and the regulatory burdens imposed by governmental oversight, have been accepted by funeral directors as the price that must be paid to guarantee all consumers who deal with funeral directors basic safeguards and protections. NFDA's support for the retention of the Funeral Rule testifies to the funeral profession's acceptance of the compliance costs and regulatory burdens required to insure consumer protection in the marketplace. There are two other sources of compliance costs and burdens that the NFDA does not accept and is requesting the Commission to remedy. As detailed in our Comments to Questions 17 and 21, several of the Rule's requirements should be modified to clear up compliance issues that funeral directors face on a daily basis. These include vague and overly broad requirements governing who is covered by the Funeral Rule, distribution of the general price list, mark-ups on cash advance items, graveside services being included in immediate burial packages, and the receipt and handling of third party merchandise. Rather than duplicate discussion of these issues, NFDA will address each of them in its Comments to Questions 17 and/or 21. The other burden placed on funeral directors by the Funeral Rule is the competitive disadvantage that the Rule places funeral homes in vis-à-vis non-traditional sellers not covered by the Rule. Funeral homes and non-traditional sellers compete in the sale of caskets, vaults, urns, cremation services and funeral ceremonies. There is also limited competition in the sale of monuments and installation services. Unlike funeral directors, cemeteries and other non-traditional sellers may compel consumers to purchase unwanted items or impose handling fees without violating the Funeral Rule. Since funeral directors cannot use tying restrictions and handling charges to compete, the are at a competitive disadvantage. Funeral directors are not advocating that the Commission relieve their regulatory burdens by allowing them to compel the purchase of unwanted items or to impose handling fees. Obviously, these practices cause injury to funeral consumers. Rather, we are asking the Commission to protect all consumers and level the competitive playing field by outlawing handling fees and tying restrictions by all sellers, not just funeral directors. The removal of this unfair burden on the funeral director's ability to compete will increase consumer choice and insure that no segment of the industry benefits from the arbitrary application of government regulations. On the issue of whether the Funeral Rule has benefited funeral providers, many of NFDA members have reported that the Rule compelled them to focus more on costs recovery of all goods and services. In that respect, it has made them better businessmen and businesswomen. It has also helped them explain to consumers the cost of all of the different components of the funeral, thereby giving families a greater understanding of the fees they are paying. In addition, the Rule has accelerated the shift to the pricing structure that places greater emphasis on professional services rather than the sale of merchandise. Many consultants to the funeral profession believe this trend provides long-range benefits to funeral homes. Despite the cost of compliance, the Funeral Rule also benefits funeral homes by emphasizing the need for continuous staff training and education. Efforts to maintain compliance levels reinforce the professionalism of the funeral home staff by reminding them of the right of funeral consumers to the timely receipt of detailed and itemized price information.
In response to Questions 17, 21, 22, 23 and 28, NFDA discusses the changes to the Funeral Rule that will reduce compliance burdens and expand the benefits of the Rule to all consumers. None of the modifications we are advocating will limit in any respect the benefits that the Rule provides to consumers. On the contrary, the changes requested by NFDA will extend the benefits of the Funeral Rule to all consumers of funeral goods or services.
Twenty-seven years ago, the FTC commenced the investigation that ultimately led to the 1982 promulgation of the Funeral Rule. Because the FTC was in the forefront of funeral price disclosure regulation and because it adopted such a comprehensive scheme of price disclosure and consumer protection measures, most states simply ceded this area of regulation to the federal government. For this reason, very few states have adopted laws or regulations that conflict with the Funeral Rule. There are, however, exceptions. Laws and regulations in both New York State and the City of New York require funeral directors to print two sets of nearly identical mandatory disclosures on the funeral home's price lists. The result is a confusing and lengthy price list that provides little value to consumers. While most states have avoided the adoption of conflicting laws and regulations with the Funeral Rule, less than half of the states have incorporated the Funeral Rule into their law. The reluctance of states to enact state "Funeral Rules" is probably due to the realization by state governments that the FTC has pre-empted this area of regulation. When the Funeral Rule was promulgated by the Commission, it recognized that price disclosure regulation by the states would have "significant benefits over regulation at the federal level." (2) Because states were the traditional source of funeral industry regulation and licensing, governance by state officials allocates all regulation to one level of government, thereby saving resources and simplifying compliance obligations for funeral directors. Moreover, the FTC recognized that state regulators would be better able than the FTC to keep abreast of non-compliance in local areas. (3) To encourage state regulation in this area, the FTC added § 453.9 to the Funeral Rule. That section permits states to apply for full or partial exemption from the requirements of the Funeral Rule. Unfortunately, in the 15 year history of the Funeral Rule, only Arizona has obtained a partial exemption from the Funeral Rule. NFDA recommends that that the FTC revisit its substantive and procedural requirements for granting exemptions to states. By consulting with State Attorney Generals, the FTC may be able to jointly develop with states a model for Funeral Rule exemption. If the Commission were to actively encourage states to adopt the Funeral Rule into state law and to apply for exemptions, we believe the track record for states incorporating the Funeral Rule into state law would improve significantly. In addition, NFDA recommends that the Commission re-evaluate its standards for granting an exemption. Since the FTC has pre-empted regulation in this area, it is unrealistic to expect the state to show a history of aggressive enforcement in order to obtain an exemption. The Commission may want to look at conditional exemptions where the exemption is lost by the state if it does not adequately enforce state price disclosure laws after the exemption is granted by the FTC. The Commission may also want to simplify and speed up its exemption application process in order to encourage states to apply. NFDA believes states have been dissuaded from even considering exemptions because of the lengthy and frustrating results of the exemption applications submitted by the States of Texas and New York. (6) Since the Rule was issued, what effects, if any, have changes in relevant technology or economic conditions had on the Rule? While there have certainly been changes in technological and economic conditions that have impacted the funeral industry since the Funeral Rule was issued in 1984, NFDA does not believe that any of them have had an impact upon the Rule itself. However, as outlined below, some of the changes have helped to promote objectives that the Funeral Rule also sought to achieve. (b) The Internet. In the past several years, the Internet has become a significant source of information for consumers. There are already several deathcare websites, such as Funeralnet.com, Plan4ever.com, Buycaskets.com, and EBurial.com, that offer consumers information on funeral goods and services, funeral prices and options, and locations of funeral homes and cemeteries. New entities are certain to come on-line in the near future as the Internet revolution rolls on. Individual funeral homes have also flocked to the Internet to develop their own websites. NFDA estimates that at least several hundred funeral homes currently have websites. Many of them offer detailed information on funeral ceremonies, cremation options, merchandise, services, and prices. While there is no data yet on the extent to which consumers will use the Internet for deathcare information or to select providers, there is no doubt that funeral providers are in position to assist those consumers who use the Internet to seek deathcare information. (c) Consolidation. The most significant economic factor that has impacted the funeral industry since 1984 has been the acquisition activities of several publicly-traded consolidators such as Service Corporation International, The Loewen Group Inc., Stewart Enterprises, Inc., Carriage Funeral Services, Inc. and others. It is currently estimated that approximately 13% of the nation's 22,000 funeral homes have been purchased by acquisition companies in the past 15 years. Acquisition companies often employ very active preneed marketing programs. Using telemarketers and sales counselors working out of funeral homes, cemeteries, or combination offices, they can flood a market with preneed sales materials and information. These efforts, in turn, spur independent funeral directors to increase their preneed marketing in the area. The result, of course, is the consumer receiving information on funeral goods, services, options and prices. (d) Third Party Sellers. An emerging economic trend that has impacted the funeral industry is the increased sales activities of third party sellers. The extent of this impact is not yet known. Nevertheless, spurred on by the FTC's 1994 amendments to the Funeral Rule that prohibited casket handling fees, third party sellers have set up businesses in retail outlets, cemeteries, and over the Internet. One of the results of third party sellers is an increased emphasis on price advertising. As new entries into the market, third party sellers usually rely upon price advertisements to lure consumers. Funeral directors may respond with advertising and increased preneed marketing efforts. The end result is a further increase in information about funeral goods and prices being provided to the consumer. (d) Increase in Cremation. The level of cremation continues to increase in many areas of the country. Oftentimes, interest in cremation will lead consumers to explore other options when purchasing funeral goods and services. The increase in cremation also provides lower cost providers an easier method by which to enter the marketplace. (7) What significant burdens or costs, if any, including costs of compliance, has the Rule imposed on small funeral providers subject to its requirements?
(8) To what extent are the burdens or costs that the Rule imposes on small funeral providers similar to those small funeral providers would incur under standard and prudent business practices? (9) What changes, if any, should be made to the Rule to reduce the burdens or costs imposed on small funeral providers?
The three questions posed above by the FTC concern the impact of the Funeral Rule on small funeral providers. NFDA does not believe that there is a significant difference between smaller funeral homes and larger funeral homes when gauging the regulatory burdens or compliance costs of the Funeral Rule. Although large operators may be able to bear compliance costs easier than small operators, the difference would not be significant. What is important is for the FTC to understand that, despite consolidation, the funeral industry is primarily comprised of thousands of small businesses. (4) In NFDA's 1999 General Price List Survey (5), 64% of the survey respondents reported they owned only one funeral home facility and 22% owned two facilities. Respondents reported their average number of full time employees at less than four and part-time employees at 3.5. Clearly, small businesses continue to dominate the funeral industry. When the FTC requests information on the impact on the Funeral Rule on small operators, it is actually requesting information on the majority of the businesses in the industry. The funeral profession remains one of the last industries in the United States where small family-owned businesses are still predominant. Therefore, when NFDA discusses the regulatory burdens and compliance costs of the Funeral Rule throughout these Comments, it is primarily from the view of the small funeral home operators who make up the lion's share of the industry. This is not to say, however, that large funeral home operators are not adversely impacted by the same regulatory burdens and compliance costs as small operators. Although Service Corporation International has not supported NFDA's recommendation to broaden the coverage of the Rule over all services, (6) it does support all of NFDA's other recommendations. Large operators have reported that they have also struggled with the general price list distribution requirements and third party merchandise issues. Approval of the modifications requested in NFDA's Comments will ease compliance burdens and costs on all funeral operators, large and small. (1) How, if at all, has the Rule affected the relative number of consumers who contact more than one funeral home before deciding which one to use? After the FTC announced the review of the Funeral Rule on April 30, 1999, NFDA prepared a survey questionnaire of its membership to address some of the Commission's inquiries. A copy of the survey questionnaire and the reported responses are found in Exhibit A to NFDA's Comments. The survey will hereinafter be referred to as the "NFDA Membership Survey". The NFDA Membership Survey was faxed to 7,700 NFDA members with 900 surveys not deliverable because of fax transmission problems and 200 responses rejected because they were improperly completed. NFDA received 3,436 properly completed survey responses for an effective response rate of 52.1% (after deducting non-delivered and improperly completed surveys). This is an excellent response rate. The first two survey questions asked funeral directors whether they had observed an increase in telephone and in-person shoppers in the past five (5) years. In the case of telephone shoppers, 64.4% of the funeral directors reported increased shopping activity, with 43.3% noting a modest increase and a 21.1% finding a substantial increase in consumers telephoning the funeral home. On the issue of shoppers visiting the funeral home, nearly 55% reported an increase, with 11.1% recording a substantial increase and 43.8% a modest increase. Clearly, in the past five (5) years there has been an increase in the number of shoppers telephoning and visiting funeral home for price information. It is not clear that the Funeral Rule has had a direct impact in spurring the increase in the level of shoppers. More likely, aggressive preneed marketing efforts by large funeral companies and the use of price advertisements by low-cost and traditional funeral providers have fueled much of the activity. As detailed earlier, the publicly-owned funeral home conglomerates employ large-scale and highly visible preneed marketing operations. Faced with this competition, independent funeral homes have often responded by stepping up their own preneed marketing efforts. Consumers who receive telephone solicitation and direct mail preneed marketing literature may be persuaded to telephone and/or visit one or more funeral homes to obtain information. Consumer advocacy groups and the media are also partially responsible for the increase in shoppers. In the past five (5) years, television, magazines and newspapers have all focused on the consolidation in the funeral industry. These broadcast and articles frequently urge consumers to comparison shop by noting price differential between various funeral homes. They also cite the Funeral Rule as granting consumers full access to price information. In summary, NFDA's Membership Survey has shown an increase in telephone and in-person shoppers at funeral homes. The survey does not disclose, however, the reasons behind the increase. While the Funeral Rule probably has played at least an indirect role in the increase, it is more probable that aggressive preneed marketing efforts and increased media attention on the industry has had a more direct impact. (11) How, if at all, has the Rule benefited consumers by:
(a) NFDA does not believe that the distribution of price information in any way alerts consumers to the importance of price information or plays a role in the selection of a provider. While the Rule does insure that those consumers who wish to use price as a factor in choosing a funeral provider have full access to price information, it has not been the experience of our members that the distribution of a general price list to a consumer will, by itself, spur comparison shopping. Consumers who wish to price shop have made that decision long before they receive a general price list. Likewise, consumers who select a funeral home based on non-price factors are not spurred to price shop once they receive the general price list. If price is important to a consumer in the selection of a funeral home, the consumer will obtain price information over the telephone or by visiting the funeral home prior to choosing a provider. If price is not a decisive factor (either because they are already familiar with the funeral home's prices or because non-price factors are more important), they will not seek price information. (b) Although the overwhelming majority of consumers have already decided on the overall type of funeral and disposition they want prior to the commencement of funeral arrangements with the funeral director, price lists do assist some consumers in selecting individual items and options. To those consumers who use the price lists, they can be a valuable tool in the selection of caskets, vaults and service options. (c)(d)(e) NFDA has no empirical data by which to measure how the Rule has benefited consumers by protecting them against injurious misrepresentations, unauthorized embalming or forced purchases of unwanted items. It is not possible to determine the extent to which those subject to the Rule would have engaged in any of these practices had the Rule not been in effect. What can be determined, however, is the fact that the Rule does prohibit these practices and in so doing, provides basic protections and safeguards to consumers. On that basis alone, it has provided benefits to consumers. (12) How have prices changed (in total and for specific funeral goods and services) since the Rule was amended in 1994? To what extent, if at all, are these changes attributable to the Rule? In February, 1994, NFDA randomly selected a sample of 1,568 funeral homes from its membership. NFDA mailed each funeral home a survey requesting demographic and price information. The funeral homes were asked to report prices from their price lists that were effective as of January 1, 1994. From the surveys that were sent, 774 usable questionnaires were returned for a high response rate of 49.4% ("1994 GPL Survey"). The latest NFDA GPL Survey was published in July, 1999. The 2,600 funeral homes randomly selected from NFDA's membership received the survey instrument in March, 1999. They were asked to report price information from the funeral home's price lists that were effective on January 1, 1999. A total of 829 questionnaires were returned for a response rate of 32% ("1999 GPL Survey"). Set forth below is a comparison of funeral price information as reported in NFDA's 1994 GPL Survey and 1999 GPL Survey. Table I shows those items (other than the casket and vault) which more than 50% of the survey respondents reported that consumers selected more than half the time. In Table II, NFDA reports the findings on the prices of caskets and vaults. Table III shows price comparisons of a typical funeral that includes an 18 gauge casket and a 12 gauge vault. Finally, Table IV compares price changes for alternative services. I. FUNERAL SERVICES
II. FUNERAL GOODS
III. FUNERAL SERVICES, 18 GA CASKET & 12 GA VAULT
IV. ALTERNATE SERVICES
There are a number of possible factors that may have led to this pattern of price increases. First, the ban on casket handling fees in 1994 may have encouraged more funeral homes to shift cost recovery from merchandise to services. Consultants to the funeral industry have long advised funeral directors to emphasize services instead of merchandise. The ban on casket handling fees and the Commission's recommendation to funeral homes to shift overhead recovery to the non-declinable professional fee (8) undoubtedly spurred many funeral homes to increase service fees while keeping casket prices stable. Competition from third party casket sellers may also have been a factor that restrained increases in casket and vault prices. Certainly, for those funeral homes facing price competition in the sale of caskets and vaults, it would make economic sense to forego casket price increases or lower casket prices in order to compete for sales. Instead of seeking revenue enhancement from merchandise sales, funeral directors increased service fees to maintain profit levels. There may have been other factors unrelated to the Funeral Rule that led to this divergent pattern of price increases. In the economy as a whole, price increases in the service sector have outstripped increases experienced by the commodities sector. Therefore, the funeral industry may simply reflect the price trends experienced by the economy as a whole. Regarding overall prices for funeral goods and services, Table III shows a 16.5% increase over the past five years for a typical funeral with an 18 gauge casket and a 20 gauge vault. This increase is consistent with the Consumer Price Index - All Urban Consumer which reports a 17.7% increase in overall consumer prices from January, 1994 through December, 1998. Therefore, the price of funeral goods and services has neither outstripped nor lagged behind the general inflation rate of the economy on the whole over the past five years. (13) Have the relative prevalence of: (a) ground burials; (b) cremations; (c) above-ground entombment; or (d) other dispositions, increased or decreased since the Rule was amended in 1994? To what extent, if at all, has the Rule influenced these changes? As indicated in the table below, cremation figures supplied by the Cremation Association of North America (CANA) continue to show a steady increase in the cremation level. CREMATION LEVEL
In fact, in a recent article appearing in the July 27, 1999 edition of the Deathcare Business Advisor, CANA identified the following key trends as impacting the cremation rate:
CANA did not cite the Funeral Rule as having any impact in the increased cremation rate. This would be consistent with CANA's position during the first Funeral Rule review when Jack Springer, the Executive Director of CANA, indicated that he did not believe the Rule had contributed to the rise in cremation. (10) Therefore, while the cremation level has increased over the past five years from 19.78% to 23.26%, it does not appear that the Funeral Rule contributed to that increase. NFDA does not have any data on other forms of disposition such as above-ground entombment or burial at sea. However, it is doubtful that the Funeral Rule would have had any impact on the levels of these forms of disposition. (14) How, if at all, since the Rule was amended in 1994, have the following factors changed?
(a) Funeral Provider Information. NFDA does not have precise figures on the number, size and type of funeral providers in the industry. It is believed by NFDA that the number of funeral homes in the country is approximately 22,000. It is very possible that the number of funeral homes has decreased slightly over the past five years due to consolidation in the industry. The NFDA's GPL Surveys taken from our members during 1993 through 1999 (reporting 1998 data) appear to indicate that funeral homes are performing more funeral services per firm. Respondents in the survey provided the following figures when asked how many funeral services they performed per year: FUNERAL SERVICES PERFORMED
(b) Entry Into Industry. Entry for new funeral homes into the marketplace has always been somewhat difficult because funeral consumers generally select a funeral home based upon prior experience with the funeral home and personal knowledge of the funeral director. Entry into the market is also complicated by strict zoning regulations, waste discharge permits, and the high cost of constructing funeral home facilities. In urban areas with a transient population or with a population of relocated retirees, a new funeral home may be able to make a much quicker and more successful entry into the market by aggressive price advertising. It appears that price advertising is more effective when the population does not have a history of prior experience with funeral homes in the area. With respect to the entry level of non-traditional providers, there has been a general increase in direct disposition companies and third party merchandise sellers. NFDA does not have any empirical data on the number of the non-traditional providers or their success in market. (c) Non-Traditional Entrants. As indicated in previous responses, there has been a general increase in non-traditional entities in the deathcare industry. This growth has been spurred by a number of factors including the increase in preneed planning, the consolidation of funeral homes and cemeteries by large corporations, the ban on casket handling fees that accelerated the growth of third party merchandise sellers, and the emergence of the Internet. The primary difference between traditional funeral providers and the non-traditional entrants into the industry is the lack of government regulation over the latter group. In most states, no special license is required to sell funeral merchandise. In addition, many states do not require any type of license or registration in order to sell funeral goods on a preneed basis. As a result, there are a multitude of new businesses selling funeral goods to consumers on an at-need and preneed basis with no government regulation whatsoever. (d) Consolidation. Consolidation by the publicly-traded acquisition companies and other regional funeral companies continues to be a dominant trend in the industry. While the pace of acquisitions has slowed with The Loewen Group Inc.'s bankruptcy, there is no reason to believe that the trend toward consolidation has ended. Most industry experts estimate that the publicly-traded acquisition companies now own 13% of the funeral homes in the country and provide up to 25% of the funeral services to the public. (e) Profits. NFDA does not track the profits of our members or the funeral industry. However, Federated Funeral Directors of America ("FFDA"), an independent business which provides accounting services for over 1,500 funeral homes, provided the following figures on the percentage of profits its members earned on an average adult funeral: PERCENTAGE OF PROFIT FROM AVERAGE
ADULT
In its response to Question 13, NFDA noted the increase in cremation levels, but showed that it was attributable to factors other than the Funeral Rule. Therefore, it is unlikely that the Funeral Rule has had much of an impact on the cremation industry. What is unclear is the impact of the Funeral Rule on individual crematories. There is no evidence that NFDA is aware of that shows how many crematories are subject to the Rule and how many are not. The determination of whether a crematory is or is not subject to the Funeral Rule turns upon the fuzzy and imprecise definition of "funeral services" in the Funeral Rule. In order to be covered by the Rule, an entity must sell both funeral goods and funeral services. Funeral services are defined as services which may be used to:
In order to sell "funeral services", it is necessary that an entity be involved in both the care and preparation of deceased human bodies and the arrangement or supervision of funeral ceremonies or the final disposition. (11) By so defining "funeral services", the FTC was able to exempt most cemeteries from the Rule despite the fact that many of them sell funeral goods and funeral ceremonies to the public. (12) The problem that arises for crematories is defining what actions involve care and preparation of the body for disposition. If a crematory accepts a body directly from the public and simply places the body in an alternative container prior to cremation, does it sell "funeral services"? If instead the crematory requires the consumer to place the body in an alternative container prior to taking possession of the encased body, it is now outside the scope of the Funeral Rule because it is not selling "funeral services"? Certainly, there is no logical rationale for providing a consumer the protections of the Funeral Rule if the crematory places the body in the container, but denying that consumer those protections if he places the body in the container. As discussed throughout NFDA's Comments, the restrictive definitions found in the current Funeral Rule arbitrarily provide some consumers with Funeral Rule protection while depriving others of that protection. For example, assume a cemetery operates a crematory which accepts dead bodies directly from the public. Since presumably the cemetery is selling funeral services when it accepts the body and prepares it for cremation, it is subject to the Funeral Rule. If that cemetery were to require a consumer to purchase an urn vault only from the cemetery in order to have the cremated remains interred in the cemetery, it would violate the handling fee ban of the Funeral Rule. However, if the cemetery elected not to accept bodies directly from the public, it would not be subject to the Funeral Rule since it would not be selling funeral services. Therefore, when it required a consumer to purchase an urn vault only from the cemetery as a condition of interring the cremated remains, the cemetery would not be in violation of the Funeral Rule. What could possibly be the rationale for allowing some cemeteries to impose handling fees and prohibiting others from imposing handling fees based solely upon whether they prepare bodies for cremation. The definitions that the FTC developed 20 years ago when the death care industry was fairly compartmentalized simply do not serve the interests of consumers today as segments of the death care industry blend and cross-over. The definitions employed by the FTC in the Funeral Rule must be updated to fit the market as it now exists, not as it existed a generation ago. (16) To what extent are providers of funeral goods and services complying with the Rule overall, and with each of its component requirements? From every indication, it appears that compliance with the requirements of the Funeral Rule by funeral providers is very high. The Funeral Rule sweeps conducted by the FTC and state authorities have found an aggregate compliance level at 90% for the cornerstone of the Rule -- the distribution of the General Price List to consumers. The FTC has been encouraged by the findings of the sweeps as compliance levels have remained high. Although the Funeral Rule has been in effect for 15 years, NFDA, its state associations and other funeral associations have continually offered new educational initiatives to maintain and improve the high compliance level. The publication of a revised FTC Funeral Rule manual, convention seminars, publication of numerous magazine and newsletter articles, the production and dissemination of video training tapes and on-line learning seminars, the offering of a compliance review service for members' price lists and contract forms, and the development and publication of third party casket guidelines are just some of the tools NFDA has employed to educate and re-educate our members on the requirements of the Funeral Rule. (17) What difficulties, if any, are providers of funeral goods and services experiencing in complying with the Rule? Even though the Funeral Rule has been in place for 15 years, funeral directors are still confronting compliance problems on a daily basis. Each year, NFDA fields hundreds of telephone inquiries from funeral directors who are confused by the requirements of the Funeral Rule. Although NFDA is able to resolve many of these issues, there are a number of gray areas for which there are no definitive answers. To ease compliance burdens and to resolve uncertainty in several of the Rule's directives, NFDA has set out below the issues we would request the FTC to address either by modifying the Funeral Rule or by issuing another set of compliance guidelines. The compliance problems our members confront and the modifications NFDA requests are as follows:
Both large and small operators have found that combination operations - - where a funeral home and cemetery are owned by the same company - - provide a huge competitive advantage. Preneed sales counselors employed by the companies are able to sell funeral goods and services, cemetery goods and services, or both on behalf of the two operations. In other cases, the two operations may employ different sales counselors with an agreement to mutually refer customers back and forth. There are probably over a 1,000 combination operations in the deathcare industry today. They will range from true combination operations where a funeral home facility is located on cemetery grounds and the operations are interchangeable, to the situation where an independent funeral home manages the local cemetery and does some cross-selling to cemetery customers. In between are any number of different combination arrangements. Complicating the situation is the blurring of the distinction between funeral goods and services and cemetery goods and services. Funeral homes and cemeteries will both sell caskets, vaults, graveside funeral ceremonies, funeral ceremonies in chapels, memorial services, cremation services, urns, markers and memorialization services and products. It is impossible to determine when a consumer is purchasing a funeral good or service as opposed to a cemetery good or service. Moreover, with the blending of funeral home and cemetery operations across the country, it is also very difficult to determine whether the consumer is purchasing goods and services from a funeral home operation or from a cemetery operation. This blurring and blending of funeral and cemetery businesses poses a compliance dilemma for funeral providers and an enforcement nightmare for the FTC. In the 1985 FTC Staff Compliance Guidelines, the FTC indicated that a cemetery which operated a funeral home was covered by the Rule. (13) However, according to the Guidelines, "when consumers inquire solely in person about cemetery goods from the cemetery and do not inquire about funeral arrangements or the prices of funeral goods and services," the cemetery/funeral home combination does not have to comply with the Rule. (14) The distinction the FTC Staff Guidelines attempted to draw in describing who is subject to the Rule has been rendered meaningless in today's death-care marketplace. If a seller has multiple funeral home and cemetery operations, all of which sell caskets, vaults and funeral ceremonies, and each of which assists the others in cross-marketing, how is the seller to determine which operation is or is not a "funeral provider". In addition, there is no bright line by which sellers or the Commission are able to determine whether a consumer is purchasing "funeral goods and services" and opposed to "cemetery goods and services". The solution to the compliance dilemma is obvious - - update the Rule to meet the realities of the marketplace. Insure that the consumer who purchases a vault, casket or funeral ceremony is provided the protection of the Funeral Rule no matter what label is applied to the seller offering those goods and services. The Commission would close numerous loopholes and solve a multitude of compliance dilemmas by altering the definition of "funeral provider" and "funeral services" to read as follows:
(b) Distribution of the General Price List. NFDA's response to Question 21 sets forth in detail why funeral directors are seeking a modification of Section 453.2(b)(4)(i)(a) governing when a general price list must be given to a consumer. The primary reason for the requested modification is to eliminate the insensitive and offensive treatment that some families have had to endure because general price lists must be foisted on them during inappropriate times. The general price list distribution requirements also present significant compliance problems for funeral directors. This issue is not new to the FTC since NFDA raised it during the first Funeral Rule review. During that proceeding, we pointed out that the wording of Section 453.2(b)(4)(i)(A) caused considerable uncertainty for funeral directors. For example, according to a literal reading of Section 453.2(b)(4)(i)(A), a general price list had to be given at any place and at any time a funeral director was involved in a "discussion" of funeral goods, funeral services, or prices. This meant that if a family member mentioned during the removal of a body that the family might want a funeral ceremony on a certain day, the funeral director had to immediately present a general price list to the family member. Similarly, if a person attending a visitation or a funeral ceremony asked a question about funeral goods or services, a general price list had to be presented. During the review of the Funeral Rule, the FTC responded that the funeral industry had misinterpreted the general price list distribution requirements. On page 160 of the June, 1990 Final Staff Report, it indicated that the FTC Staff Guidelines only require the funeral director to provide a general price list if the funeral director is willing to make arrangements with the inquiring consumer. In other words, if the funeral director chose not to enter into funeral arrangements at that time, the Rule did not require a general price list to be presented. To clear up this and other compliance issues, the FTC Staff proposed several revisions to Section 453.2(b)(4)(i) (A) during the first Funeral Rule review. Among the suggested changes was a revision to the section which would have provided for general price list distribution only upon an inquiry about price or the selection of funeral goods or services. (16) Since this language tracked the 1985 FTC Compliance Guidelines, NFDA believed the compliance problem had been solved. Unfortunately, the solution disappeared when the Staff reversed itself in the May 21, 1991 Final Staff Recommendations. (17) It returned to the original Rule's general price list distribution requirement which was predicated on any "discussion" of funeral goods, funeral services, overall funeral arrangements or prices. Again, funeral directors were torn in two directions with the actual language of the Funeral Rule compelling price list distribution whenever there was any "discussion", while the FTC Staff Compliance Guidelines directed distribution only if the funeral director was willing to enter into the selection of funeral goods and services. The confusion on this issue also extended to the Statement of Basis and Purpose issued by the FTC following the first review of the Funeral Rule. After first stating that any "discussions" of funeral goods and services would trigger distribution of the general price list, the Commission later indicated that a general price list would need to be distributed only if providers "are willing to commit consumers to financial obligations at that time by making arrangements." (18) To clear up this dilemma, NFDA urges the FTC to adopt the revised Section 453.2(b)(4)(i)(A) set forth below. This revision is based upon the Staff's recommendations contained in the June, 1990 Final Staff Report issued during the first Funeral Rule Review and provides as follows.
(c) Definition of Immediate Burial. Immediate burial, direct cremation, forwarding remains and receiving remains are the four alternative service packages which the funeral home must place on the general price list if it offers them. Each of the packages offers consumers a one-priced service to have the body transported or to have a disposition without requiring the purchase of any rites or ceremonies. (19) However, in the sole case of immediate burial, the FTC included in a footnote in the Statement of Basis and Purpose that a funeral home could include "perhaps a brief graveside service". (20) That notation regarding a graveside service was tracked in the definition of immediate burial found in Section 453.1(k) of the Funeral Rule. That definition now reads as follows:
The compliance problem presented by this definition came to light after the FTC amended the Funeral Rule in 1994 to require funeral homes to separately itemize the use of staff and equipment for graveside services. Now the issue arose as to whether funeral directors should incorporate a graveside funeral ceremony charge into the immediate burial package. Many funeral directors believe this would be unfair pricing since most immediate burial customers do not want a graveside ceremony. By placing the graveside service in the package, the funeral home would be compelling many immediate burial customers to purchase an unwanted item. On the other hand, if the funeral home omitted the graveside service from the package, a consumer could demand it as part of the immediate burial package since it is included in the Funeral Rule definition of an immediate burial. To resolve this dilemma, NFDA would urge the FTC to delete the words "except for a graveside service" from the end of Section 453.1(k). This will eliminate any instances of immediate burial consumers being compelled to pay for graveside services they do not want. (d) Items Required by Practical Necessity. In the January 11, 1994 Statement of Basis and Purpose issued in conjunction with the revised Funeral Rule, the FTC explain that the Funeral Rule prohibits a funeral provider from requiring a consumer to purchase an unwanted item unless the item was required by law or was a "practical necessity." (21) It then cited the example that a funeral director could require the purchase of embalming as a "practical necessity" in the event a consumer wanted several days of viewing. Later in the Statement of Basis and Purpose, the FTC noted that although the basic service fee is the only non-declinable charge permitted, "cemetery or crematory requirements, embalming as a 'practical necessity' or requirements that are 'impossible, impractical or excessively burdensome' may result in 'non-declinable' charges under certain conditions." (22) While the FTC has recognized in the Statement of Basis and Purpose and elsewhere that funeral directors may require the purchase of an item that is a "practical necessity", there is no reference to that fact in the Funeral Rule itself. The Rule does permit a funeral provider to refuse to provide "a combination of goods and services which would be impossible, impractical or excessively burdensome to provide". (23) However, the Rule is silent on whether a funeral director may require the purchase of a certain item as a "practical necessity." This issue arose when some memorial societies filed complaints with the FTC because funeral directors were requiring consumers to positively identify a body prior to cremation. The memorial societies argued that by requiring the consumer to purchase this service, the funeral home was compelling the purchase of a second non-declinable item. NFDA responded by demonstrating that liability concerns had made the positive identification of a body prior to cremation a "practical necessity." (24) Other examples of "practical necessities" can be found. Certainly, requiring embalming for public viewing is a practical necessity. Compelling a consumer to use a casket for a funeral or an alternative container for a cremation would also be practical necessities. A further example would be requiring a family to use a police motorcycle escort for a funeral procession in a high traffic urban area. To formally acknowledge that the Funeral Rule does permit a funeral provider to require the purchase of items that are practical necessities, NFDA would propose that Section 453.4(b)(2)(ii) read as follows:
(e) Handling of Third Party Merchandise. Funeral directors understand that they are required by the Funeral Rule to accept third party merchandise. They also understand and acknowledge that no fee of any kind may be charged with regard to the handling of the third party merchandise. Both of these directives are set forth in the Funeral Rule and the January 11, 1994 Statement of Basis and Purpose. What is not clear are the many other issues regarding third party merchandise. For example, at what point may funeral directors require family members to inspect the merchandise to insure it is in acceptable condition and is the merchandise the consumer purchased. There are also issues regarding when merchandise may be rejected because of health and safety concerns. To assist the funeral director in compliance, NFDA would propose that the Commission direct the FTC Staff to issue compliance guidelines on third party casket issues. NFDA has attached as Exhibit B a copy of its Third Party Merchandise Guidelines which may serve as a starting point on the guidance NFDA is seeking. (f) Cash Advance Items. Section 453.3(f) indicates that it is a deceptive act for funeral directors to fail to disclose mark-ups on cash advance items. According to that section, mark-ups may not only include the funeral director increasing the actual cost of the cash advance, but also the receipt by the funeral director of a rebate, commission, or trade or volume discount that is not subsequently passed on to the funeral consumer. NFDA is requesting the Commission to amend Section 453.3(f)(2) so that rebates and trade or volume discounts are not regarded as mark-ups on cash advance items. Funeral directors often receive these rebates or volume or trade discounts at the end of a year or a billing cycle. Therefore, when any particular cash advance is purchased, funeral directors may be unaware if they will qualify for the future discount or rebate. If the discount or rebate is subsequently received, the funeral home would be required either to refuse the discount or rebate or make a pro-rata distribution of it to all consumers the funeral director has served. The rationale behind the cash advance disclosure is that it would alert consumers when they are being charged for a cash advance item so the consumer could "elect to obtain the items directly and save on the service fee." (25) It is not clear to what extent consumers are actually purchasing cash advance items themselves to avoid mark-ups. However, it is clear that treating rebates and trade and volume discounts a funeral director receives as a mark-up does not assist consumers in any respect. Since consumers would be ineligible to receive those rebates or volume or trade discounts, they do not save money by buying those cash advance items themselves rather than from the funeral home. Since identifying volume and trade discounts and rebates as mark-ups cannot benefit consumers and poses compliance dilemmas for funeral homes, NFDA request that Section 453.3(f)(2) be amended to read as follows:
(18) How has the National Funeral Directors Association's Funeral Rule Offenders Program ("FROP') affected compliance with the Rule, if at all? The Funeral Rule Offender's Program ("FROP"), developed jointly by the FTC and NFDA, serves two compliance objectives. First, it brings funeral homes found to be in violation of the Funeral Rule into compliance through education, training and price list reviews. In most cases where non-compliance has occurred, it is a result of ignorance or mis-interpretation of the actual requirements of the Funeral Rule rather than intentional misconduct. By emphasizing staff training through teleconferences, Funeral Rule compliance manuals, and completion of Funeral Rule compliance examinations, FROP improves the funeral home personnel's understanding of the requirements of the Funeral Rule. FROP also serves as a very visible reminder to funeral home owners and managers that staff training and Funeral Rule compliance must be done on a continuous basis. The Funeral Rule sweeps program and the resulting FROP Program have received extensive coverage in funeral industry publications. This keeps the issue of Funeral Rule compliance at the forefront and encourages owners and managers to redouble training efforts. This deterrent effect of FROP has undoubtedly played an important role in raising compliance levels. (19) Do consumers who receive itemized price information at the inception of the arrangements conference tend to spend less on funerals than those who receive such information later? In order to determine if consumers who receive price information at the inception of the arrangement conference spent less on funerals, NFDA posed the following question in its recent Membership Survey:
The Membership Survey clearly indicates that consumers who receive the general price list at the beginning of the conference and use it during the arrangements do not have lesser funeral expenditures as a result. The fact that consumers do not use the general price list and the other price lists to effect savings on funeral expenditures does not mean that price lists do not have value to funeral consumers. To many consumers who use them, price lists are helpful in the selection of individual goods and services. This especially true with caskets and vaults where there may be multiple products available for sale. (26) Therefore, although the data does not show that consumers use price lists to lower funeral expenditures, they still value the price information received at the arrangement conference. (20) Do consumers who make pre-need arrangements spend less on funerals than those who do not? If so, why? Does receiving price information at the inception of a pre-need arrangements conference contribute to decreasing spending? Does it encourage or facilitate comparison shopping? One of the enduring myths about the at-need funeral consumer is that they are "handicapped" by emotional trauma and time constraints. (27) As a result, they are vulnerable and not capable of making rational purchase decisions. Preneed consumers on the other hand, are free from emotional and temporal pressures. Therefore, it is assumed under this theory that preneed consumers will purchase less costly funerals because they have the opportunity to price shop and do not make decisions clouded by grief and guilt. Although this theory has been repeated numerous times throughout the 25 year history of the FTC rulemakings on the Funeral Rule, the uncontraverted facts have consistently refuted the theory. Surveys of funeral consumers and funeral providers have shown that the funeral expenditures of at-need and preneed consumers are equivalent. In that regard, consider the following:
Clearly, the empirical data proves that the time and emotional pressures confronted by at-need consumers have absolutely no impact on the amount they spend on funerals. This myth about the vulnerable at-need funeral consumer overspending for funerals because of grief and time pressures should be laid to rest once and for all. Question 20 also inquired as to whether preneed consumers who receive price information at the inception of the arrangement conference spend less. As reported in NFDA's Comments to Question 19 above, the receipt of price information at the beginning of the funeral arrangement conference appears to have no impact on funeral expenditures. While the NFDA Survey question on this issue was not limited to preneed consumers only, NFDA has no reason to believe the experience of preneed consumers would be any different than at-need consumers. Funeral directors have generally found that the distribution of price information during the arrangement conference does not encourage or stimulate comparison shopping. Consumers who intend to select a funeral home based solely or partially upon price comparisons already have telephoned or visited the funeral home seeking price information before the arrangement conference. By the time a preneed consumer sits down with a funeral director to make arrangements, the selection of the funeral home has already been made. If that selection was made on the basis of price, the consumer would have already requested and received price information so that they could make comparisons. If the selection was not made on the basis of price, the receipt of price information during the funeral arrangements would have no impact on the selection process. (21) Should the requirement that itemized price lists be given to consumers at the beginning of discussions about funeral arrangements be modified? If so, how? What would be the relative costs and benefits of such a modified provision? NFDA described in response to Question 17 the compliance problems that continue to confront funeral directors regarding distribution of the general price list. The language used in Section 453.2(b)(4)(i)(A) in the original Rule required funeral directors to distribute the general price list upon any "discussion" of funeral goods, funeral services or funeral prices. Unfortunately, there are many times and places a person may commence a discussion with a funeral director about funeral goods or services and have absolutely no intention or desire to select those goods and services. The Staff Compliance Guidelines attempted to apply several common sense limitations to the vague and overly broad terminology of "discussions". For example, the Guidelines indicated that the general price list need not be given to a student who tours the funeral home and begins a "discussion" about embalming with the funeral director. (30) Likewise, the Guidelines advised that a funeral director making a removal would not have to present a general price list to a family member inquiring about the times the funeral home is available for services unless the funeral director was "willing to make arrangements at this time." (31) During the first Funeral Rule review, the funeral industry requested the Commission to delete the references to "discussions" and replace it with "selection." This revision would be consistent with the FTC Staff Compliance Guidelines. The FTC Staff initially agreed with the funeral industry's suggestion and proposed the changes that appear on page 163 of the June, 1990 Final Staff Report. (32) However, the Staff then reversed itself and re-adopted the requirement that any "discussions" of funeral goods, funeral services, overall funeral arrangements, or prices would trigger the general price list distribution. Funeral directors were once again faced with the question of whether to comply with the actual language of the Funeral Rule or the common sense interpretations of the FTC Staff Guidelines. While the imprecise language of Section 453.2(b)(4)(i)(A) causes substantial compliance problems for funeral directors, its more detrimental impact is felt by funeral consumers. Because any "discussion" of funeral goods or services triggers the distribution of the general price list, funeral directors are often required to present the general price list to family members during the removal of a body. As determined by the FTC in the first review of the Funeral Rule, the uninvited offering of the general price list during a removal can be awkward and offensive. (33) The Commission also noted that the unsolicited offering of price information over the telephone can seriously offend consumers who are likely to interpret the offering as an indication that the funeral director is concerned with the consumer's ability to afford service. (34) This same misconception arises when funeral directors foist general price lists upon family members during a removal. (35) Consumers are extremely offended by this insensitive and awkward invitation by the funeral director to talk prices as the remains of the decedent are being removed from the hospital, nursing home or private residence. The revision to Section 453.2 (b)(4)(i)(A) originally proposed by the Staff and the similar language NFDA presented in response to Question 17 above, both provide full protection to the consumer. They insure that upon the beginning of any discussion of price by the consumer or the funeral director, the general price list is given. In addition, if the funeral director is willing to commit the consumer to financial obligations during their discussion, then the general price list must be given upon beginning of any discussion of the "selection" of funeral goods, funeral services or the overall type of funeral arrangements. Under the revision, no consumer will make selections of funeral goods, funeral services, or the overall type of funeral arrangements until he or she has been given a general price list. The revisions also clear up the most difficult compliance problem for funeral directors under the Rule. More importantly, the revision will prevent insensitive and inappropriate treatment of family members at the most difficult times of their lives. (22) Should the Commission expand the definition of "funeral provider" in order to bring non-traditional members of the funeral industry within the scope of the Funeral Rule's coverage? Are consumers being harmed by the current limitation of the scope of the Rule's coverage:
There is no question that consumers are being injured because cemeteries and other sellers of funeral goods or services are not subject to the Funeral Rule. In addition, the informational and pro-competitive benefits that the Rule provides are being limited by the fact that the Rule does not protect consumers who purchase funeral goods or services from non-funeral providers. (a) The Cemetery Consumer. When the Funeral Rule investigation began in 1972, it was not in response to a flood of consumer complaints against the profession. In fact, the Commission acknowledged that few consumer complaints had been received. (36) However, because of the unique disadvantages that funeral consumers are under, the FTC believed that they required the protection of the Funeral Rule. One of the primary disadvantages was the fact that consumers were very reluctant to switch to another funeral home once the original funeral home had possession of the body. (37) Therefore, the consumer's discretion and choice was "diminished severally." (38) While funeral consumers may be reluctant to switch funeral homes, for most cemetery consumers a switch is impossible. If a decedent has already purchased a plot in a cemetery, his survivors have no alternatives but to deal with that cemetery. Even if a consumer has not yet purchased a plot, he or she could still be irrevocably tied to a cemetery if the consumer's spouse or other family members are interred there. The consumer in that case would have a very limited choice - - deal with the cemetery or disinter the remains of the consumer's family. The superior bargaining position this gives a cemetery is far greater than that held by a funeral home. It is quite apparent that the cemetery consumer is in an uniquely vulnerable position when negotiating with the cemetery. Clearly, the protections afforded consumers by the Funeral Rule are required for consumers dealing with the cemetery. (b) Informed Consumer Choice. In the original rulemaking and in the first review of the Funeral Rule, the Commission and the FTC Staff found that consumers value and use price information. (39) In fact, in the review of the Funeral Rule, the FTC Staff opined that if the Rule's only benefit was to increase consumer choice, that benefit by itself would justify the Funeral Rule. (40) By expanding the coverage of the Funeral Rule to all funeral consumers, the Commission would greatly increase in informed consumer choice. Every funeral consumer would receive a price list prior to purchasing a funeral good or funeral service. Moreover, because the Funeral Rule does impose a degree of uniformity in price lists, (41) the consumer could easily compare prices between traditional funeral providers and non-traditional sellers. One of the principal benefits of the Funeral Rule identified by the Commission is that it protects consumers from the economic injury they sustained when the purchase unnecessary products because of misrepresentations or lack of information. (42) To remedy that situation, the Rule required mandatory disclosures on price lists explaining that the law does not require the purchase of vaults, that grave liners are available, and that alternative containers may be used for direct cremation. The Rule also prohibited misrepresentations regarding legal, cemetery and crematory requirements or claims regarding protective or preservative qualities of funeral goods and services. Finally, it required a funeral provider to list in writing any legal, cemetery or crematory reasons that compelled a consumer to purchase an item. Every one of these provisions would benefit a consumer purchasing a casket, vault, or other funeral good or service from a non-traditional seller. While the FTC acknowledged in the Funeral Rule that misrepresentations by funeral directors were not widespread, it nonetheless prohibited those false claims and required the mandatory disclosures. (43) In part, the mandatory disclosures were necessary to insure consumers had sufficient information to make an informed choice. Certainly, that same rationale applies to consumers who deal with non-traditional sellers. Unless the Commission finds that consumers who deal with non-traditional sellers are more knowledgeable about laws, regulations and the practical necessities of funeral goods and services than consumers dealing with funeral providers, the informational benefits of the Funeral Rule must be extended to all funeral consumers. (c) Unbundling and Handling Fees. During the review of the Funeral Rule, the FTC Staff stated that the "foundation of consumer choice under the Rule is the right to purchase only those items the consumer wants or needs, and to decline other items." (44) This being the case, the Staff found that the unbundling requirements of Section 453.4 is "the crux of the Rule." (45) The unbundling requirements of the Rule are violated whenever a consumer is compelled to purchase a funeral good or service that he or she did not want or need. Moreover, in the review of the Funeral Rule, the Commission further held that imposing a handling fee of any type upon a consumer who elects to purchase funeral goods and services elsewhere is also a violation of the Rule's unbundling requirements. (46) Therefore, any time a funeral consumer is forced to purchase an unwanted item or is charged a handling fee for using an item purchased elsewhere, the Funeral Rule's unbundling requirements are violated. (47) Do cemeteries compel consumers to purchase funeral goods and services or do they impose handling fees? NFDA inquired about these practices from its members in the NFDA Membership Survey. In response to the question whether the funeral home does business with a cemetery that requires consumers to purchase goods and services only from the cemetery, 49.6% of the funeral homes reported some type of restriction. (48) The levels of restriction were reported as follows:
On the question of handling fees and inspection fees, 21.1% of the respondents reported that cemeteries require handling fees and 8.4% reported some type of inspection fee. (49) Therefore, in nearly 30% of the cases, the cemetery imposes a fee because the consumer has elected to purchase funeral goods and services elsewhere. (50) The NFDA Membership Survey provides clear evidence that a substantial number of cemeteries restrict consumer choice by compelling the purchase of items only from the cemetery and/or imposing handling fees on those consumers who purchase goods and services elsewhere. As found by the Commission, these practices harm consumers and violate the unbundling requirements of the Funeral Rule. To protect consumers against these abuses, the definition of funeral provider must be expanded to cover all sellers of funeral goods and services. (d) Increasing Competition. According to the Commission, the ban on casket handling fees would not only protect consumers from injury, but it would also increase competition in the sale of caskets. (51) The FTC Staff noted that the Rule's anti-tying provisions had already facilitated the entry of third party sellers into the market. (52) It was predicted that the ban on handling fees in conjunction with the anti-tying provisions would lead to any even greater boost to competition. If competition increased because one segment of the market was prohibited from engaging in anti-tying arrangements and imposing handling charges, it follows the competition will increase even greater if all segments of the market are placed under the same restrictions. Placing cemeteries under the Funeral Rule would usher in a host of new competitors in the market offering low cost vaults, vault installation services, monuments, monument installation services, and opening and closing services. Consumers who had plots in a cemetery would no longer be compelled to use that cemetery's services. They would have options that they could take advantage of without having to pay a handling fee or an inspection charge. Cemeteries will undoubtedly argue that handling fees and inspection charges compensate them for actual labor costs. The funeral industry made these same arguments when the Commission banned casket handling fees. The Commission and its Staff believed it would be impossible for the Commission and the courts to delinate which handling fees are acceptable and which are not. (53) The chief proponent of the ban on casket handling fees also rejected the notion that a "reasonable" handling fee could be determined. (54) Cemeteries that can no longer charge handling fees and inspection fees will have to make the same adjustments as funeral homes did. While the Commission acknowledged that the ban on casket handling fees would result in a re-allocation of prices, it held that the increase in competition and the need to insure consumer choice justified the ban. The same logic now requires the Commission to ban all handling fees imposed by any seller of funeral goods or services. (e) Failure of Existing Enforcement. When the issue of expanding the Funeral Rule to cover all sellers of funeral goods and services arose during the first review of the Funeral Rule, the FTC Staff noted that federal case law already prohibited cemeteries from charging clerical fees, road use fees, post-inspection fees and institutional service charges with regard to monument installation. These federal cases, the Staff decided, provided sufficient protection against these abuses. (55) The evidence of NFDA Membership Survey plainly demonstrates that federal case law is not sufficient to protect consumers against cemetery handling charges. It is unrealistic to expect that a consumer will bring an antitrust enforcement action against the cemetery over such charges. Enforcement would be much more effective by an absolute ban on all such handling fees under the Funeral Rule. (f) Cost of Compliance. The Commission and the FTC Staff have noted numerous times that the cost of compliance for funeral providers under the Funeral Rule is minimal. (56) The same should be true for non-traditional sellers when the Rule is extended over them. There should be very little compliance costs, especially in comparison with the huge consumer benefits that will arise from increased competition. (g) Evidence of Prevalence. During the first review of the Funeral Rule, the FTC decided not to extend the protections of the Funeral Rule to consumers who deal with non-traditional providers because it did not see evidence that such abuses were prevalent. However, it was subsequently decided in the case of the Pennsylvania Funeral Directors Association v. FTC, 41 F.2d 3d 81 (3rd Cir. 1994), that the Commission was requiring too stringent of a test. The Third Circuit found that there is "no mandate that a practice be prevalent (i.e. occur in a certain number of transactions) in order for the FTC to adopt a rule regulating its practice." (57) This is especially true if the practice is already prohibited by other laws. (58) Although the NFDA Membership Survey has demonstrated prevalence, that showing is not required. The practice of requiring consumers to purchase funeral goods and services from a seller or imposing handling fees has already been found to be an unfair act and practice by the Federal Trade Commission. This being the case, the decision in Pennsylvania Funeral Directors Association v. FTC, directs that a finding of prevalence is not required. All that is necessary is to show that the practice occurs. The NFDA Membership Survey clearly satisfies this requirement. (h) Update and Strengthen the Funeral Rule. Throughout our comments, NFDA has noted that the Funeral Rule was developed over 20 years ago in a very different market than exists today. It is time to update the Funeral Rule so that it meets the realities of the current funeral marketplace. In order to provide the protection to the Funeral Rule to all funeral consumers, NFDA requests the FTC to revise the definition of funeral provider so that it covers all sellers of funeral goods or services. (23) Should non-traditional providers of funeral goods and services be subject to only certain provisions of the Funeral Rule?
To strengthen the Funeral Rule to cover all sellers of funeral goods or funeral services, NFDA would recommend the following three changes to the wording of the present Funeral Rule:
To reflect the fact that the Funeral Rule would cover any seller who engages in selling or offering to sell either funeral goods or funeral services, the term "funeral provider" should be changed to "seller". In addition, the conjunction "and" should be changed to "or" so that any sale of funeral goods or funeral services would be subject to the Rule. Thus, Section 453.1(i) would read as follows:
In addition to changing the definition of "funeral provider" to "seller", the term "seller" would be used throughout the Funeral Rule wherever the term "funeral provider" now appears. (b) Funeral Services. In order to exclude cemeteries from coverage under the Funeral Rule, the FTC originally placed a very restrictive definition on "funeral services". (59) Section 453.1(j) states that funeral services cover only services involving both the caring and preparation of bodies and supervision of the funeral ceremony or other disposition. If the Funeral Rule is strengthen to cover all sellers, the restrictive definition applied to "funeral services" should be expanded. The conjunction "and" should be changed to "or" so that funeral services encompass any service involving the care and preparation of the body or the conducting of funeral ceremonies or the final disposition. (c) Statement of Funeral Goods and Services Selected. Section 453.2(B)(5)(i) requires an itemized written statement to be given to each person "who arranges a funeral or other disposition of human remains at the conclusion of the discussion of arrangements." Since funeral goods and services can be purchased from sellers other than funeral homes, this provision should be revised to require an itemized written statement to be given to each person "who arranges the purchase of funeral goods or funeral services at the conclusion of the discussion of arrangements." With the three changes set forth above, the Funeral Rule can be expanded to cover all sellers of funeral goods or funeral services. While some provisions of the Funeral Rule will not apply to every seller, this is how the Funeral Rule currently operates. For example, crematories and direct disposers who sell funeral goods and services are currently subject to the Rule. However, since they do not offer embalming, they do not list an embalming fee or the mandatory disclosure regarding embalming on the general price list. They are also not required to list any other funeral goods or services on the general price list which they do not offer. Because certain provisions of the Funeral Rule only apply if the seller offers particular funeral goods or services, it will not be very difficult for non-traditional sellers to comply with the Rule. Those who sell caskets will require a casket price list and those offering vaults will need an outer burial container price list. If any of the other 16 funeral goods or services covered by the Rule are offered, a general price list would have to be prepared. Statements of Funeral Goods and Services Selected will need to be provided at the conclusion of any purchase arrangement. In addition, all sellers would have to comply with the prohibitions against misrepresentation, tying arrangements and handling fees. (24) Does the prohibition on more than one-declinable fee reduce barriers to competition and increase consumer choice?
The prohibition on more than one non-declinable fee has been very effective in insuring that consumers can select only those items which they want and decline those items which they do not desire to buy. As a result of this prohibition and the related ban on handling fees, funeral consumers enjoy unfettered discretion in their purchase decisions. The prohibition against a second non-declinable fee or any type of handling fee or surcharge has also spurred competition in the sale of funeral merchandise since it requires funeral homes to accept and service (without a fee) any merchandise that is sold by their competitors. By requiring funeral directors to handle all third party merchandise without imposing any fee or restrictions, the Funeral Rule has given third party sellers unprecedented access into the funeral market and stimulated competition in funeral merchandise sales. Funeral homes, which may not access handling fees and which must now deal with new competition from cemeteries, retail casket stores and Internet casket dealers, face a whole range of new burdens and costs. Nevertheless, funeral directors are not requesting a repeal on the casket handling fee ban. They are not seeking protection against competition in the sale of funeral goods and services. They are only demanding that all of the competitors in the market play under the same set of rules. By placing every seller of funeral goods or services under the Funeral Rule, all handling fees would be eliminated. Cemeteries could no longer charge road use taxes, monument installation inspection fees, vault handling charges, or other surcharges. They would also be prohibited from requiring consumers to purchase burial and urn vaults, monuments, or installation services from the cemetery. Obviously, the elimination of these fees and restrictions will open up greater competition and give consumers dealing with cemeteries the same unfettered discretion they now enjoy when dealing with a funeral home. When the casket handling fee ban was proposed five years ago, funeral directors explained that servicing third party merchandise does require additional costs to arrange the receipt of the merchandise, inspect it, arrange to have the family inspect and improve it, and set it up in the funeral home. The FTC Staff dismissed that claim finding that no "actual services" are performed by the funeral home. (60) Moreover, because it would be impossible to distinguish when a casket handling fee was for actual services as opposed to a penalty, the FTC Staff recommended a blanket prohibition on all handling fees. (61) The same logic should be applied to cemetery handling fees, inspection fees and road use taxes. In the American Cemetery Association's Survey presented during the first Funeral Rule review, 74% of cemeteries admitted they impose inspection fees when third party dealers install monuments. (62) There is certainly no more labor extended to inspect a monument installation than there is to arrange the delivery of a third party casket, have personnel available to receive and inspect the casket, arrange and be present when the family inspects the casket, and set the casket up in the funeral home. Funeral directors are requesting the Commission to even the playing field for every competitor in the market. Having stimulated competition in casket sales five years ago by banning funeral home handling charges, stimulate competition in vaults and monument sales now by banning cemetery handling fees. Having given consumers protection against funeral homes requiring the purchase of unwanted funeral goods and services 15 years ago, provide the same protections now for consumers who purchase goods and services from cemeteries. Place every seller under the Funeral Rule and competition will flourish, the consumer will benefit, and no segment of the industry will be unfairly penalized by the arbitrary and unequal application of the Funeral Rule. (25) What new fees, prices, goods or services have emerged in the sale of funeral goods and services, since the Rule was amended in 1994? There has been a growing realization among those in the funeral industry that survivors value personalized services and memorialization. Funeral directors are striving to meet and exceed consumer expectations by offering new products and services that assist survivors in planning ceremonies and memorials that are personal and meaningful. Some of those new products and service options include the following:
Funeral professionals anticipate that the range of new products, options and services will continue to expand to meet the growing demand of funeral consumers for meaningful and personal ceremonies and memorialization. (26) Have the 1994 amendments been effective in prohibiting casket handling fees? If so, what benefits or costs have resulted from these amendments? The 1994 amendments have been completely effective in eliminating casket handling fees charged by funeral homes. Since those amendments took place, NFDA has taken an active role in educating its members not to charge any type of handling fee, set-up fee, inspection fee, or other type of charge with regard to third party merchandise. We believe that those funeral homes that had handling fees prior to 1994 promptly responded by eliminating all such fees when the amendments took effect. The benefits of the casket handling fee ban have certainly been enjoyed by third party suppliers of caskets and other funeral goods. Cemeteries, retail stores and Internet suppliers are able to sell caskets and other funeral merchandise which funeral directors are obligated to receive and service without being able to charge any type of fee. Clearly, the Funeral Rule has had an impact in spurring the development of third party sellers that now compete with funeral homes. Whether consumers who use third party merchandise also receive benefits is open to question. NFDA is not aware of any survey or other analysis showing cost savings or the level of satisfaction among consumers of third party merchandise. Nevertheless, it is apparent that some consumers have elected to purchase and use third party merchandise in lieu of merchandise sold by funeral homes. Therefore, consumer choice, one of the goals of the Funeral Rule, has been enhanced. Although some funeral directors have lost revenues due to third party merchandise, it is apparent that those funeral directors facing competition readily adjust pricing and advertising strategies to effectively compete against third party sellers. Consultants to the industry have advised funeral directors for sometime to shift cost recovery from merchandise to services. The increase in third party sellers has encouraged this trend as funeral directors reallocate pricing from caskets and vaults to service fees. Other funeral directors have offered package discounts and other incentives to encourage consumers to purchase caskets from funeral homes. Funeral homes have also employed advertising and stepped-up preneed marketing in an effort to make consumers aware of quality differences that may exist between merchandise offered by funeral homes and third party sellers. As noted throughout NFDA's Comments, the most significant burden that funeral directors now face as a result of third party merchandise is the lack of direction on what actions funeral directors may or may not take in receiving and handling this merchandise. NFDA reiterates its request that the Funeral Rule be amended to address these concerns or that the Commission direct the FTC Staff to issue compliance guidelines on these issues. (27) How widespread is it for funeral providers to offer substantial discounts on funeral packages that include a casket from the funeral home?
Question No. 6 in the NFDA Membership Survey asked whether the respondent funeral homes offered any type of discount to families who purchased a casket from the funeral home. Approximately 14% of the funeral homes indicated that some type of discount is given while 86% indicated that no discount was offered. Funeral homes were then asked to identify the amount of the discount. The 293 responses NFDA received are listed in Attachment B to the Membership Survey. They indicate an average discount of $366.00. Over 80% of the respondents reported that the discount offered to consumers as an incentive to purchase a casket from the funeral home was not more than $500.00. It is not clear from the survey whether the discounts given to consumers who purchase a casket from the funeral home were tied to the purchase of a package. Some funeral homes do offer package discounts in order to encourage consumers to purchase caskets from the funeral home. However, other funeral homes encourage casket sales by offering discounts on the overall funeral bill if a casket is purchased from the funeral home. Still others provide merchandise credits toward the purchase of a casket if the family selects a package from the funeral home. The Commission inquires as to whether such discounts restrict consumer choice. The obvious answer is that such discounts increase, rather than decrease, consumer choice. A funeral home that offers a discount package is giving the consumer the choice of selecting the itemized goods and services on the general price list or obtaining a savings by choosing the pre-determined package. (64) The choice is up to the consumer. It is apparent that consumers who elect not to purchase a discounted package may pay more than consumers who choose the package. This fact was recognized by the Commission in the original rulemaking when it stated as follows:
The use of discounted packages to encourage consumers to purchase caskets from the funeral home was an issue during the first review of the Funeral Rule. At that time, the Pre-Arrangement Association of America requested the Commission to ban any discounts tied to the purchase of a casket or vault. The FTC Staff and the Commission rejected that proposal, noting that it would eliminate savings to consumers: "The staff concludes that its proposed amendments [banning casket handling fees] would preserve the integrity of the Rule's 'unbundling' and price disclosure requirements without preventing funeral directors from encouraging consumers to purchase caskets through an offer to discount the price of caskets or services, or both. To require otherwise would place the Commission in the questionable position of challenging legitimate efforts to provide funeral goods and services to consumers at a lower cost." (66) Simply because a consumer is unable to take advantage of a discount does not mean his choice is being restricted. This was explained at length by the U.S. Court of Appeals when it compared casket handling fees with discount packages that are tied to the purchase of a casket: "On the other hand, the FTC distinguishes direct casket handling fees from offering discounts to people who buy caskets from the funeral home. The former is an anti-competitive penalty (the fee) and the latter is a method used to deal with competition from third party casket sellers which is pro-competitive. The fee essentially requires the consumers to buy their caskets from funeral homes, or pay for it anyway. The other methods (e.g., discounts) represents a way to encourage consumers to buy their caskets from funeral homes. As the FTC points out, the purpose of the ban is not to prevent funeral service providers from recouping overhead costs or making a profit. Rather, the purpose is to encourage consumers to exercise choice in the marketplace, especially with the entrance of third party competitors, and to prevent funeral homes from effectively prohibiting that choice. The injury that casket handling fees cause is not measured in terms of the dollar amounts the consumer pays, but in terms of prohibiting the consumer from choosing where he or she buys the casket. Therefore, the fact that people who buy caskets from third parties may end up realizing a smaller savings as a result of not obtaining a discount at the funeral home does not mean they are still being injured." (67) While the FTC Staff sanctioned the use of package discounts as a pro-competitive way funeral directors can compete with third party sellers, it noted that enforcement issues may arise if sham discounts were being utilized to deny consumer choice. (68) However, the potential for misuse cannot serve as a basis for depriving funeral providers of their right to encourage casket sales by the use of pro-competitive discounts that increase rather than restrict consumer choice. (69) If the FTC believes that one or more funeral homes are restricting funeral consumers' choices through the use of sham discounts, it should deal with them on a case-by-case basis. Certainly, there is no basis (legal or economic) by which the FTC could ban or restrict the legitimate offering of package discounts by funeral homes that encourage consumers to purchase caskets from the funeral home. As the FTC Staff recognized in 1994, such a ban would be put the Commission in the "questionable position" of depriving consumers of price savings. (70) Nearly every retail operation in the United States offers some type of volume or package discount to consumers. Automobile companies routinely offer packages to encourage consumers to purchase options. If the consumer wants one of the options in the package but not others, he must make a value choice of whether to forego the discount in order to purchase those options he wants, or to purchase the entire package in order to receive the discount. In a very narrow sense, the fact that the consumer cannot select only that part of the discount package he wants does "restrict" his choice. However, when one realizes that the package is an option that is in addition to the itemized selections, it is clear that the discount package increases consumer choice. Without the package, the consumer's only option is itemized selections and no savings. With the package, the choices increase between itemized selection and the package option. If the package option requires the purchase of a casket the consumer wants to purchase elsewhere, it is his choice to forego the discounted package option. (28) Should the requirements for a General Price List be modified? If so, how?
(a) Private Viewing, Donation to Medical Science, and Rental Caskets. The Funeral Rule currently requires funeral homes to itemize 16 funeral goods and services. This means that if a funeral home offers these goods and services, they must appear on the general price list with an itemized price. Since the Funeral Rule requires the 16 goods and services to have a disclosed price associated with each of them, a funeral home may not offer any of them as complimentary items. (71) Most funeral homes offer more than 16 goods and services on the general price list. Of course, since funeral homes wish to sell funeral goods and services to consumers, it makes sense that they will list those items on the general price list. (72) Therefore, it is really not necessary to mandate that funeral homes list items on the general price list since they will list them anyway in order to sell them. With regard to body donations to medical science and rental caskets, NFDA is uncertain how many funeral homes currently offer these services or products. Donation of a body to medical science is usually offered only by a funeral home that has a medical school within its service area. With regard to rental caskets, in areas of the country where the cremation rate is low, rental caskets are typically not offered. In addition, some funeral homes have elected to discontinue offering rental caskets after encountering problems with them or low consumer demand for the service. The FTC has recognized in the past that it does not wish to further complicate the general price list by adding items to it. (73) NFDA shares that concern. Moreover, since it is highly probable that a majority of funeral homes in the country do not offer rental caskets or body donation services, there would seem to be little reason to further complicate the Funeral Rule's general price list requirements by adding these items. This is especially true since we have no reason to suspect that funeral homes which currently offer these services do not list them on the general price list or casket price list. An additional concern arises on the issue of adding a private viewing of an unembalmed body as one of the items that must be separately itemized. Funeral directors are well aware that they cannot refuse a family's request to view an unembalmed body. (74) If a family who does not want a public viewing or visitation requests a private viewing of the body, it is oftentimes provided as a complimentary service. If, however, the funeral home was required to list that service on the general price list, a price will have to be assigned to it. Thus, funeral consumers who used to receive this service without charge will now have to pay for it. (75) NFDA is opposed to the addition of private viewing, body donation, and rental caskets to the list of goods and services that must be separately itemized on the general price list. Given that there are dozens of other goods and services that are now offered by some funeral homes but are not on the list of itemized goods and services, NFDA fears that the mandatory list could easily grow to 30 or more items if other parties request the FTC to add items. (b) Crematory Fees. The Funeral Rule does not currently require funeral homes to include the fee charged by the crematory as part of the price of the direct cremation packages. (76) Since most funeral homes do not own crematories, they use independent crematories owned by cemeteries, other funeral homes or third parties. As a result, they do not control the prices charged by the crematory and may be unable to adjust their direct cremation prices to meet price changes made by the crematory. In areas where the cremation rate is high, a funeral home may utilize two or three crematories depending upon current prices charged by the crematories, time constraints, and availability. In addition, some crematories will charge different rates depending upon the size of the body. Therefore, it is not possible for many funeral homes to be able to accurately incorporate the crematory fee into their general price list on a timely basis. This is why many funeral directors do not include the crematory fee in the direct cremation packages. While NFDA believes that funeral homes do inform consumers that the crematory fee will be added to the direct cremation package price, we would agree that some uniformity on this matter may be desirable. NFDA would propose that the following language be added to the end of Section 453.3(b)(2):
(c) Mandatory Disclosure for the Non-Declinable Basic Service Fee. Section 453.2(b)(4)(iii)(C)(1) prescribes the mandatory disclosure that must accompany the non-declinable basic service fee of the funeral director and staff. That disclosure provides as follows:
Many funeral homes' fees for direct cremation, immediate burial, forwarding remains and receiving remains are less than the amount they charge for the basic service fee of the funeral director and staff. Because of this pricing differential, the second sentence of the mandatory disclosure is misleading because it informs consumers that the basic service fee has been incorporated into the charges for direct cremation, immediate burial, forwarding remains, and receiving remains. Funeral directors have also been confused by the language of the mandatory disclosure. Some funeral homes believe that they must charge more for direct cremation, immediate burial, forwarding remains and receiving remains than they do for the basic service fee because the entire basic service fee has to be incorporated into these package services. They are surprised to learn that they have the option to include only a portion of their basic service fee into the price of these alternative services. (77) To clear up this confusion and to provide a mandatory disclosure for consumers that is not misleading, NFDA would recommend that the following sentence be added to the end of Section 453.2(b)(4)(iii)(C)(1):
(d) Non-Declinable Basic Service Fee. Although none of the 30 questions posed by the Commission in its April 30, 1999 Request for Comments discussed the proposal of the Funeral and Memorial Societies of America ("FAMSA") to eliminate the non-declinable basic service fee, that proposal was discussed in the introduction to the FTC's Request for Comments. Because of the important nature of the non-declinable basic service fee to the entire workings of the Funeral Rule, NFDA is taking this opportunity to voice its strong opposition to any elimination or modification of the non-declinable nature of that fee. The Funeral Rule is designed to permit funeral homes to have one non-declinable fee. (78) The Commission recognized during the original rulemaking that regardless of the combination of goods and services a consumer selects, the very process of selection itself will involve use of the funeral provider's services. (79) Therefore, the FTC crafted the non-declinable basic service fee. However, to protect the consumer against being compelled to purchase unwanted items, the FTC has allowed only the basic service fee to be non-declinable; all other items may be declined by the consumer. The Commission's Staff has recognized that the non-declinable basic service fee strikes a balance between allowing a funeral home to recover overhead costs and assuring consumers unfettered discretion in their purchase decisions. (80) Indeed, it was primarily on the basis of the funeral home's right to use the non-declinable basic service fee to recover overhead costs that the FTC concluded that consumers should have the right to use third party merchandise without paying a handling fee. (81) From a practical standpoint, it is virtually impossible to eliminate the non-declinable nature of the basic service fee. As the Commission acknowledged, as soon as the consumer selects any combination of goods and services, they are using the basic services of the funeral director and staff. How could a consumer select goods and services and still be able to "decline" the basic services of the funeral director? For many years, NFDA urged the Commission to permit a basic facilities charge to enable funeral homes to recover overhead. The FTC has always refused to sanction that fee and has instead urged funeral homes to place their overhead charges in the basic service fee. The funeral profession has followed this directive and allocated its pricing structure accordingly. To now permit consumers to "decline" payment of overhead would turn the design of the Funeral Rule on its head. In the first review of the Funeral Rule, the FTC clarified that the basic service fee is to include only those items provided in nearly every funeral or disposition. (82) Those clarifying amendments have been very helpful and there is no indication that funeral homes are including items in the basic service fee that should be declinable. The concept is working. NFDA urges the FTC not to eliminate or modify the non-declinable nature of the basic service fee. The balance struck by the Funeral Rule between the funeral home's ability to recover costs and the right of the consumer to select those goods and services they wish would be thrown out of kilter by any such modification. (29) The Rule applies to both pre-need and at-need funeral arrangements. Should pre-need and at-need consumers be treated differently? If so, why?
The NFDA strongly opposes any proposal that would exempt preneed sales from coverage under the Funeral Rule. The Funeral Rule provides a set of basic guarantees - - that detailed and itemized price information will be provided to consumers prior to selection of goods and services, that consumers will be given the right to select only those goods and services which they want, and that consumers will have sufficient information so that they do not make an uninformed decision due to misconceptions regarding legal, cemetery or crematory requirements. NFDA sees no logic in depriving consumers of those rights when they purchase on a preneed basis as opposed to an at-need basis. Exemption of preneed sales under the Funeral Rule would also present an insurmountable enforcement dilemma for the FTC. If a shopper visits or telephones a funeral home seeking price information and the funeral director refused to provide it, the enforcement issue would arise as to whether the consumer identified himself as an at-need or preneed shopper. It is doubtful that the FTC would want to place consumers in the position of having to identify themselves as at-need shoppers in order to obtain the protections of the Funeral Rule. In the May 28, 1991 Final Staff Recommendations to the Commission during the first Funeral Rule review, the FTC Staff indicated that one of the benefits of the Funeral Rule is that it enabled memorial societies, journalists and other non-industry entities to gather and publish comparative price data. (83) This benefit exists because the Funeral Rule requires the disclosure of price information by the funeral home to any person who requests it. Certainly, if only an at-need consumer is entitled by law to this information, the ability of non-industry entities to gather and published price data would be jeopardized. The proposal to exempt preneed sales apparently grew out of the comments of the American Cemetery-Mortuary Council in the first review of the Funeral Rule. (84) That group argued that since preneed consumers are not under the emotional trauma and time pressures of at-need purchasers, they do not require the Rules protection that corrects the "handicapped position" of at-need consumers. As shown in NFDA's response to Question 20, all of the pre- and post-Funeral Rule empirical data shows that the emotional trauma and time pressures associated with at-need funeral arrangements have absolutely no impact whatsoever on the funeral expenditures of at-need consumers. Preneed consumers, who are not under time or emotional pressure, spend the same amounts on funerals as at-need consumers. While the Funeral Rule can be justified on the basis of providing all funeral consumers with a set of basic rights and guarantees, it cannot be justified on the premise that at-need consumers need special protection because of emotional trauma and time pressure. There is simply no evidence to sustain that myth. NFDA has urged the FTC through its Comments to afford every consumer who purchases funeral goods or services the basic protections afforded by the Funeral Rule. We also urge the Commission not to restrict the protections afforded by the Funeral Rule only to consumers who purchase at-need or only to those consumers who deal exclusively with a funeral director. In other words, the Commission should not look at who the consumer is or who the seller is in determining whether the Funeral Rule should apply. Instead, the FTC should look at what the transaction involves. If the transaction involves the sale of funeral goods or funeral services, the Rule should apply regardless of who is selling and who is buying. (30) Are there widespread unfair or deceptive practices occurring with respect to the pre-arrangement of and pre-payment for funerals by consumers? What are those practices? How could these practices be remedied? Are these remedies within the Commission's authority and jurisdiction? Would the benefits to consumers likely to result from such remedies outweigh the likely costs to funeral providers or other industry members? When it promulgated the Funeral Rule in 1982 after a rulemaking that lasted a decade, the FTC pre-empted state regulation of funeral price disclosures. Ever since, states have hesitated to enact laws and regulations governing funeral price disclosure because of the comprehensive nature of the Funeral Rule. With regard to the pre-arrangement and pre-payment of funeral goods and services by consumers, the opposite has taken place. As the preneed industry has grown and developed, states have enacted trusting laws, guaranty fund requirements, consumer revocation and portability rights, licensing and registration requirements, bonding requirements, consumer disclosure requirements, and restrictions on over-reaching and high-pressure sales solicitations. Forty nine states currently have preneed laws and/or regulations in place. Given that these statutes and regulations have been enacted at different times over the past 30 years, there are some substantial differences in how states choose to regulate the preneed industry. While every state requires some degree of trusting, states have chosen additional consumer protection methods such as guaranty funds, bonding requirements, cancellation rights and portability provisions, etc. As preneed laws are updated and amended, the trend is to add more consumer protection measures and adopt additional safeguards on preneed funds and insurance policies. (85) NFDA has no basis upon which to conclude that states are not effectively regulating the preneed activities of funeral homes, cemeteries, preneed insurance agents, and other preneed sellers. When unfair or deceptive practices do arise, states have responded by enacting and enforcing more comprehensive laws and regulations. When it enacted the Funeral Rule in 1982, the FTC acknowledged that state regulations would have been preferable to federal regulation. However, because states had not regulated funeral price disclosure, the FTC felt compelled to promulgate the Funeral Rule. (86) With regard to preneed arrangements and funding, the states have acted and have filled the regulatory void. Moreover, states continue to refine and enhance regulation of the preneed industry through the enactment of new preneed laws or the amendment of existing ones. State preneed laws regulate areas that have traditionally been the domain of states: professional licensing and registration, insurance, trust law, and contract rights and obligations. As the FTC recognized, compliance burdens are simplified by maintaining regulation on one level rather than splitting regulation between state and federal officials. State officials are also in better position to enforce preneed laws since preneed sales are done on a local level. (87) Given that states have regulated preneed contracts, funding and insurance, and continue to refine and improve their preneed statutes and regulations, NFDA believes that the FTC should recognized state jurisdiction and authority over the preneed industry and not pursue federal regulations in this area. III. CONCLUSION NFDA extends its appreciation to the Commission for being provided this opportunity to share its comments on the Funeral Rule review. In these Comments, we have urged the FTC to strengthen the Funeral Rule so it protects all funeral consumers. Unless the Rule is updated to meet the realities of the funeral marketplace as it now exists, the Rule's effectiveness will be restricted and many funeral consumers will be deprived of its protections. Respectfully submitted, KEPLEY, GILLIGAN & EYRICH August 10, 1999 By: _______________________________________ Endnotes: 1. June, 1990 Final Staff
Report at 103; May 28, 1991 Final Staff Recommendations at 11.
2. Statement of Basis and Purpose, 47 Fed. Reg. at 42289
(September 24, 1982).
3. Id.
4. 87% of the nation's 22,000 funeral homes are owned and
operated by individuals, partnerships and private corporations.
5. The 1999 GPL Survey was sent to a randomly selected
sample of 2,600 funeral homes. A total of 829 questionnaires were
returned.
6. None of the other publicly -traded companies have voiced
any opposition to NFDA's recommendation to strengthen the Funeral Rule
by having it cover all seller s of funeral goods or services.
7. In the 1994 survey, NFDA did not ask for the fee for
the funeral ceremony. This number is from the 1995 survey, thereby
understating the price increase in the funeral ceremony.
8. Statement of Basis and Purpose, 59 Fed. Reg. at 1604
(January 11, 1994). The professional fee has jumped 43.6% since January
1, 1994.
9. The same conclusion was reached in 1987 by the FTC's
Bureau of Economics. Dr. Daniel in his report noted that the upward
trend in cremation began in the early 1970's before the Rule was
promulgated and the trend did not become more pronounced from 1984
through 1987. Daniels Report at p. 10, n. 16.
10. J. Springer, Tr. Vol. II at 329, 349 - 50.
11. Staff Compliance Guidelines, 50 Fed. Reg. at 28063
(July 9, 1985).
12. See Statement of Basis and Purpose, 47 Fed. Reg. at
42285 (September 24, 1982)
13. 50 Fed. Reg at 28063, Illustration 7 (July 9, 1985).
14. Id. 15.
NFDA recommends in our Comments to Question 22 that
the term "funeral provider" be changed to "seller".
16. June, 1990 Final Staff Report at 163.
17. May 28, 1991 Final Staff Recommendations at 46. 18.
59 Fed. Reg. at 1607 (January 11, 1994).
19. Statement of Basis and Purpose, 47 Fed. Reg. 42285
(September 24, 1982).
20. Id. at 42 285.
21. 59 Fed. Reg. at 1602 - 03 (January 11, 1994).
22. Id. at 1608, n. 162.
23. 16 CFR § 453.4(b)(2)(ii).
24. A number of states have adopted CANA's Model Cremation
Law which requires positive identification to a body prior to cremation.
Because of several large verdicts against funeral homes that have been
involved in the cremation of a mis-identified body, funeral homes in all
states are advised to require positive identification of the body prior
to cremation.
25. 47 Fed. Reg. at 42295 (September 24, 1982).
26. The FTC Staff recognized that if the Rule's only
benefit was to increase "informed consumer choice", that by
itself would justify retention of the Rule. June, 1990 Final Staff
Report at 106 -107.
27. Statement of Basis and Purpose, 47 Fed. Reg. 42265-66
(September 24, 1982).
28. Statement of R. Starks, HX - 41, Ex. D in Funeral Rule
Review
29. Statement of Dr. T. Daniels, HX 124 at 34 - 35, 41 in
Funeral Rule Review.
30. 50 Fed. Reg. 28070, Illustration No. 3 (July 9, 1985).
31. Id. at 28071, Illustration No. 17.
32. The Staff's proposal provided in relevant part as
follows:
"(i) Give a printed or typewritten price list for retention to
persons who inquire in person about the prices or the selection
of funeral goods or funeral services. The funeral provider must offer
the list upon beginning discussion either of prices or of the selection
of any funeral goods or funeral services, including the overall type of
funeral service or disposition, whichever discussion occurs first.
(Emphasis supplied)."
33. Statement of Basis and Purpose, 59 Fed. Reg. at 1607
(January 11, 1994).
34. Id. at 1593, 1601.
35. See testimony of M. Nilsen, TR Vol. III, 1432-37; W.
Hocker, Tr. Vol. III, 402 - 03; F. Hunter, Tr. Vol. II, 605 - 06; T.
Simms, Tr. Vol. II, 448 - 453, 473 - 74.
36. Statement of Basis and Purpose, 47 Fed. Reg. 42261, n.
1 (September 24, 1982).
37. Id. at 42279.
38. Id.
39. Statement of Basis and Purpose, 47 Fed. Reg. 42269
(September 24, 1982); June, 1990 Final Staff Report at 103.
40. June, 1990 Final Staff Report at 106 - 07.
41. Id. at 170.
42. Statement of Basis and Purpose, 47 Fed. Reg. 42295
(September 24, 1982).
43. Id. at 42278.
44. June, 1990 Final Staff Report at 204.
45. Id. at 205.
46. Statement of Basis and Purpose, 59 Fed. Reg. at 1601 -
05 & n. 140, (January 11, 1994).
47. Id. at 1604; June, 1990 Final Staff Report at 9.
48. See Exhibit A, Question 7.
49. Id., Question 9.
50. In the American Cemetery Association's own survey of
its cemetery members, 74% of the respondents reported charging
inspection fees when a consumer utilizes an independent dealer to
install a monument. See June, 1990 Final Staff Report at 117.
51. Statement of Basis and Purpose, 59 Fed. Reg. at 1605
(January 11, 1994).
52. June, 1990 Final Staff Report at 5, 104.
53. Id. at 130.
54. Testimony of D. Radavich, Tr. Vol. III, 1064.
55. June, 1990 Final Staff Report at 118; May 28, 1991
Final Staff Recommendations at 17.
56. Statement of Basis and Purpose, 47 Fed. Reg. 42295
(September 24, 1982); Statement of Basis and Purpose, 59 Fed. Reg. 1597
(January 11, 1994); June, 1990 Final Staff Report at 103.
57. 41 F. 3d at 87.
58. Id.
59. Statement of Basis and Purpose, 47 Fed. Reg. at 42285
(September 24, 1982).
60. June, 1990 Final Staff Report at 130.
61. Id.
62. See Id. at 117.
63. Donations of some type occur in approximately 7% of
deaths. Organ and tissue donation groups are striving for a donation
rate of 20%.
64. From NFDA's GPL Surveys, it appears that approximately
25% of funeral homes offer some type of discounted package. Since only
14% of funeral homes offer incentives to purchase a casket, it is clear
that many discounted packages are not tied to a purchase of a casket
from the funeral home.
65. 47 Fed. Reg. at 42298 (September 24, 1982)
66. May 28, 1991 Final Staff Recommendations at 39.
67. Pennsylvania Funeral Directors Assn. v. FTC, 41 F.3d
81, 90 (3rd Cir. 1994).
68. May 28, 1991 Final Staff Recommendations, p. 39, n. 76.
A funeral home that employed a sham discount to restrict consumer choice
would open itself up to an enforcement action under Section 5 of the FTC
Act and consumer protection laws of most states.
69. The FTC acknowledged in the original Statement of Basis
and Purpose that there are always risks that unethical providers could
misuse provisions of the Funeral Rule. Any such misuse should be dealt
with on a case-by-case basis. See 47 Fed. Reg. at 42274 (September 24,
1982).
70. May 28, 1991 Final Staff Recommendations at 39.
71. May 28, 1991 Final Staff Recommendations at 22.
72. If a funeral home does not wish to offer a particular
good or service, including any of the 16 goods and service which must be
itemized, it is not required to list it on the general price list. FTC
Staff Compliance Guidelines, 50 Fed. Reg. at 28067 (July 9, 1985).
73. May 28, 1991 Final Staff Recommendations at 24.
74. See FTC Staff Compliance Guidelines, 50 Fed. Reg. at
28073, Illustration No. 6 (July 9, 1985).
75. The same situation developed with acknowledgement
cards. When the original Rule listed them as one of the 17 goods and
services that had to be itemized, funeral directors had to charge for
the cards rather than giving them away. When the Amended Funeral Rule
deleted acknowledgement cards from the list of goods and services that
had to be itemized, many funeral homes again provided them as
complimentary items.
76. In Footnote 5 to the April 30, 1999 Request for
Comments, the FTC suggests that it may "deceptive" for funeral
providers not to include the crematory fee into the direct cremation
packages because the definition of "direct cremation" includes
the heating process which incorporates human remains. NFDA would point
out that many ceremonies and dispositions involve fees of third parties
that are not included in the funeral home's charges. For example,
although "immediate burial" is defined as disposition of human
remains by burial, funeral homes do not incorporate cemetery fees and
charges as part of their immediate burial packages. There is nothing
deceptive about not including the charges of an independent crematory in
the package price for direct cremation.
77. Part of the confusion may derive from the fact that
funeral directors have been advised not to charge different
non-declinable basic service fees depending upon the type of funeral
services the consumer selects.
78. Statement of Basis and Purpose, 59 Fed. Reg. at 1605
(January 11, 1994).
79. Statement of Basis and Purpose, 47 Fed. Reg. at 42282
(September 24, 1982).
80. May 28, 1991 Final Staff Recommendations at 15.
81. Statement of Basis and Purpose, 59 Fed. Reg. at 1605
(January 11, 1994); June, 1990 Final Staff Report at 131, 168.
82. Id. at 1608 -09.
83. May 28, 1991 Final Staff Recommendations at 9 - 10 and
n.21.
84. See discussion in the Final Staff Report at 224 - 25.
85. In 1998, NFDA undertook an analysis of each state's
preneed statutes and regulations. It is apparent from the analysis that
when states enact new preneed laws or amend existing preneed laws, they
readily "borrow" consumer protection measures and disclosure
requirements from other states' preneed statutes. As a result, preneed
laws that have been enacted or amended in the past 5 years, provide some
of the most comprehensive regulation of the industry.
86. Statement of Basis and Purpose, 47 Fed. Reg. at 42289
(September 24, 1982).
87. Another factor which has a significant impact on the
preneed industry is the interplay of SSI and Medicaid eligibility. Some
experts in the preneed industry estimate that between 30 to 50% of
preneed sales result from individuals prepaying funeral and burial
expenses prior to qualifying for SSI and Medicaid assistance. State law
regarding irrevocable and revocable contracts balances the need to
protect consumer funds while still permitting them to qualify for SSI
and Medicaid benefits. |