July 9, 1999

Secretary, Federal Trade Commission
Room H-159, 600 Pennsylvania Ave., NW
Washington, DC 20580

INTERNET:FUNERAL@ftc.gov.

Re: Proposed Rules, Federal Register: May 5, 1999 (Volume 64, Number 86); 16 CFR Part 453; Request for Comments Concerning Trade Regulation Rule on Funeral Industry Practices

Dear Ladies and Gentlemen:

These comments are presented on behalf of my client, DIRECTORS INVESTMENT GROUP, INC. ("DIG"), Abilene, Texas. DIG and its affiliates manage some 250 funeral homes, primarily in Texas and neighboring States. DIG owns two life insurance companies and a prearranged funeral marketing unit, which is the fastest-growing enterprise of its type in the country today. DIG was founded by funeral directors to serve the public ethically and to assist professional funeral directors in reaching their financial and managerial objectives. DIG and all its subsidiaries and affiliates are privately held, not publicly-traded. We will respond to your questions in the order presented. The abbreviation "N/A" signifies that the question isn't applicable to DIG or we have no comment on it at this time.

(1) Is there a continuing need for the Funeral Rule? No.

(a) What benefits, if any, has the Rule provided to purchasers of funeral goods and services? We know of none. Further, the rule's constitutional legitimacy is suspect under the non-delegation doctrine recently applied by the United States Court of Appeals to strike down the Environmental Protection Agency's air quality attainment rules adopted pursuant to the Clean Air Act. American Trucking Assns. v. EPA, No. 97-1440 (D.C. Cir. May 14, 1999).

(b) Has the Rule imposed costs on purchasers? We suspect it has exacerbated at least their search costs and generated confusion when consumers try to compare competing providers' unbundled itemized pricing with the same providers' respective total prices. In our experience, "unbundling" rarely produces end savings to individual purchasers. This holds true whether one's taste and budget for dining favor McDonald's or The Palm: it's less-costly to order from the menu than a la carte. Why was it ever conceived that funerals would be different? Comparison shopping's only real-world utility occurs when comparing the price of funeral provider A's complete service with funeral provider B's complete service most nearly identical. And even then it may prove less than satisfying because of differences in staff, facilities, or reputation. "Unbundled" pricing stumbles on its own discredited tacit premise that one size fits all in a free country.

(2) What changes, if any, should be made to the Rule to increase the benefits of the Rule to purchasers? The Rule should be repealed in favor of State-level regulation.

(a) How would these changes affect the costs the Rule imposes on the funeral providers subject to its requirements? Neutrally.

(3) What significant burdens or costs, if any, including costs of compliance, has the Rule imposed on funeral providers subject to its requirements? In Texas and in States with similar funeral service laws, probably none of measurable size because the State regulations tend to mirror the Rule.

(a) Has the Rule provided benefits to such funeral providers? None that we're aware of.

(4) What changes, if any, should be made to the Rule to reduce the burdens or costs imposed on funeral providers subject to its requirements? See 2, above.

(a) How would these changes affect the benefits provided by the Rule? N/A.

(5) Does the Rule overlap or conflict with other federal, state, or local laws or regulations? Occasionally with State law, but in our experience the conflict is more pronounced in the pre-need field than at-need.

(6) Since the Rule was issued, what effects, if any, have changes in relevant technology or economic conditions had on the Rule? Technology today permits the sale of caskets and grave liners over the Internet, if one chooses to shop via electronic commerce. In some localities funeral merchandise and burial space are sold by telemarketers. According to NFDA data and dollar figures frequently used in television advertising, average funeral expenses continue to rise at a rate slightly exceeding the CPI inflation rate. You have the price data. Among funeral providers, our experience says that the bulk of the increases this decade have been driven predominantly by rising labor costs, which include wages, entitlement taxes, occupational health, workers' compensation, and employee welfare benefits. We are also seeing greater numbers of funeral purchasers at both the lower and higher ends of the price continuum.

(7) What significant burdens or costs, if any, including costs of compliance, has the Rule imposed on small funeral providers subject to its requirements? See 3, above.

(a) How do these burdens or costs differ from those imposed on larger funeral providers subject to the Rule's requirements? Individual providers lack scale, which means they must absorb all their costs directly or associate in order to gain some of the advantages of centralized management. They lack the means to redistribute operating costs throughout a branched enterprise. But this is no different from what has occurred with any number of other American businesses, trades, and professions -- e.g., banking, retailing, health care, and law.

(8) To what extent are the burdens or costs that the Rule imposes on small funeral providers similar to those that small funeral providers would incur under standard and prudent business practices? Assuming a typical system of State regulation, we would expect to see little difference.

(9) What changes, if any, should be made to the Rule to reduce the burdens or costs imposed on small funeral providers? See 2, above.

(a) How would these changes affect the benefits of the Rule? See below.

(b) Would such changes adversely affect the competitive position of larger funeral providers? There is no reason to expect that to occur. It is no more sensible to suppose that this Rule influences a large interstate or multinational funeral enterprise's expansion strategy than to suppose that the Glass-Stegall Act influenced Travelers' and CitiCorp's decision to consolidate. Obviously it made no difference, and to those parties even the current Bank Holding Company Act's restrictions on banking-insurance affiliation represented merely a risk worth taking. Large funeral provider strategy relies on expansion of market share through acquisitions. With the exception of pre-need, there is no market to "grow," as with consumer goods, credit, or entertainment. Large branched, centrally-controlled funeral enterprises will continue to expand with or without this Rule. That being the case, who is closer to the public affected by the activity, State funeral service regulators or the federal government?

(10) 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? In our experience, little if any. Most consumers still choose a funeral provider on the basis of its facilities and its reputation in the community.

(11) How, if at all, has the Rule benefitted consumers by:

(a) Alerting consumers to the importance of price information and ensuring that they obtain such information at the critical point of choosing a provider? Little, if at all.

(b) Providing information about different purchase options? Same.

(c) Protecting consumers from injurious misrepresentations? Same.

(d) Requiring authorization prior to embalming? Same.

(e) Prohibiting providers from conditioning the purchase of a wanted item on the purchase of an unwanted item? Same.

(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? Average funeral (and cemetery-cremation) prices have risen slightly every year. Providers' labor costs have increased more than any other element in the pricing mix. Next comes the cost of burial-mausoleum space. The market for caskets and burial vaults has never been more competitive at the wholesale level than it is presently, and this has tended to mitigate funeral price increases to the public.

(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? Ground burials have held steady, before and after 1994. Cremations have increased. Above-ground entombment has held steady with the caveat that, in certain urban markets, sales of "lawn crypts" and smaller spaces for cremation-urn enclosures are growing as land suitable for cemetery development becomes scarce. We lack experience with "other dispositions." This question would be more appropriately addressed to the United States Navy. To what extent, if at all, has the Rule influenced these changes? None that we're aware of.

(14) How, if at all, since the Rule was amended in 1994, have the following factors changed?

(a) The number, size, and type of providers of funeral goods and services in the industry? Retail casket gallery-venue enterprises have emerged in strip malls and via the Internet.

(b) The ability of new providers, both traditional and non-traditional, to enter the industry? We know of no evidence that the Rule has had an effect either way.

(c) What types of non-traditional entrants have appeared in the industry, and how are they different from traditional providers? See (a), above. We have not seen an increase in the number of "memorial societies."

(d) Mergers and other types of consolidation in the funeral industry? This, of course, is where the major activity continues to unfold. The Rule has little, if any, influence on these corporate decisions.

(e) Profits of funeral industry members? Well-managed, professional funeral providers continue to report positive earnings even as the "death rate" has declined in the near term. The growing number of Americans living longer may be expected to test the industry's capacity in the early years of the 21st century.

(15) How, if at all, has the Rule affected the cremation industry? We know of no effect. Should the Rule be amended to include within its scope unfair and deceptive practices by crematories, if any? Yes, if the Rule itself is preserved.

(16) To what extent are providers of funeral goods and services complying with the Rule overall, and with each of its component requirements? Professional, State-licensed and regulated funeral providers as a whole are complying admirably. In our experience certain fringe operators will shortly pose the most serious compliance problems -- the casket gallery-venue retailers in particular.

(17) What difficulties, if any, are providers of funeral goods and services experiencing in complying with the Rule? Dealing with bureaucracy at both the Federal and State levels. Some States, too, have created difficulties in meeting at least the tenor, if not the explicit text, of the Rule's expectations when the funeral is sold under a pre-need contract. Texas, for example, persists in refusing to allow inclusion of non-guaranteed price items (generally of a cash-advance nature) in prepaid funeral contracts, the form of which must be approved by the State in order to be sold. The resulting "sticker shock" when the time of need arrives is unfair to pre-need purchasers and their surviving families.

(18) How has the National Funeral Directors Association's Funeral Rule Offenders Program (``FROP'') affected compliance with the Rule, if at all? It's probably the most effective program NFDA operates.

(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? Not in our experience.

(20) Do consumers who make pre-need arrangements spend less on funerals than those who do not? Frequently yes. If so, why? By definition, the purchaser is locking in today's price for most of the goods and services that will be required in the indeterminate future, chiefly the largest-ticket items. The near-certainty of some amount of future price inflation creates instant savings. Those savings can be multiplied when a pre-need contract is funded through life insurance. The critical ingredient in a life insurance-funded pre-need plan, of course, is an insurable purchaser. The policy's proceeds are normally adequate to retire any unpaid balance even though the pre-need purchaser hasn't paid the full contract price by the time of death. Does receiving price information at the inception of a pre-need arrangements conference contribute to decreased spending? Not in our experience. Does it encourage or facilitate comparison shopping? In price-competitive communities, yes.

(21) Should the requirement that itemized price lists be given to consumers at the beginning of discussions about funeral arrangements be modified? See 2, above; otherwise no. If so, how? What would be the relative costs and benefits of such a modified provision? N/A.

(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? Yes, if the Rule itself is preserved. Are consumers being harmed by the current limitation on the scope of the Rule's coverage? Not in our experience.

(a) What definition should be used to delineate those entities and individuals subject to the Funeral Rule? The casket gallery-venue retailers need to be covered either by the Rule or by State law -- preferably State pre-need law because what those retailers are actually selling (in competition with licensed, regulated providers) is prepaid funeral merchandise. Yet in most jurisdictions they are subject to minimal, if any, regulation of their experience, character, fitness, or financial solvency.

(b) What are the costs and benefits of broader definitions? We're traditional providers so we adapted to the Rule years ago. A broader definition wouldn't affect us. Others will have to speak to this.

(23) Should non-traditional providers of funeral goods and services be subject to only certain provisions of the Funeral Rule? If the Rule itself is preserved, then EVERY party engaged in the business of selling funeral services or merchandise should be subject to every part of the Rule that addresses the party's activities -- functional regulation, as it were. If the Rule didn't exist, we would expect State law to reach the same end.

(a) If so, to which provisions should they be subject? See above.

(24) Does the prohibition on more than one non-declinable fee reduce barriers to competition and increase consumer choice? We're unable to see any difference.

(a) Has this prohibition been effective to ensure that consumers can choose and pay for only the individual goods and services that they desire? No, because the general price list serves that purpose.

(b) Has this prohibition been effective to protect consumers' right to decline unwanted goods and services? Again no.

(c) What are the benefits conferred upon consumers or competition by this prohibition? We know of none.

(d) What costs or other burdens has this provision imposed upon providers of funeral goods and services? As a practical matter the provision is pointless. A funeral provider's charge to perform a funeral service is just that. Consumers want to know what that charge will be, not a variety of prices for the same thing. Every professional funeral director respects that or he/she won't survive in the business.

(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? Few, if any. For pre-need contracts, however, it has become more difficult to predict future prices for items such as gravesite opening-closing, obituaries, death certificates, clergy, music, police escort, etc. The Rule could be productively clarified to spell out that these items are authorized to be included in the initial contract on an estimated-price basis, final settlement to occur at time of delivery, IF the purchaser desires to include them.

(26) Have the 1994 amendments been effective in prohibiting casket handling fees? Yes, but reasonable minds may differ over whether credit really belongs the Rule or, more fundamentally, stabilization and competition in wholesale merchandise costs, principally caskets. Like all other consumers in our economy, funeral purchasers are beneficiaries of a decade of rising productivity and moderate inflation. If so, what benefits or costs have resulted from these amendments? N/A.

(27) How widespread is it for funeral providers to offer substantial discounts on funeral packages that include a casket from the funeral home? Very common.

(a) To what extent does such discounting tend to restrict consumers' choices? In our experience it doesn't. The wisest consumers are those who take advantage of added-value discounting. Funeral providers are usually eager to allow attractive discounts because manufacturers and wholesalers compete to support them in volume.

(28) Should the requirement for a General Price List be modified? No. If so, how? N/A.

(a) Are there any new fees, prices, goods or services which should be added to the General Price List requirements? None that we know of.

1. Should the Rule require that the price of private viewing without embalming be included on the General Price List? You'd better check State and local law before you add this. In many cases, for a variety of reasons, it simply isn't feasible or wise.

2. Should the Rule require that the price of donating a body to a medical school be included on the General Price List? No, and it seems the medical schools wouldn't want this, either, as if to become de facto parties-in-interest to donors' funeral arrangements.

3. Are the Rule's requirements (Sec. 453.2(b)(4)(ii)(C)) to disclose on the General Price List the price for direct cremation effective to prevent deception regarding the amount a consumer will pay to have a funeral provider dispose of a body by cremation? In our experience yes. Should the Rule also include an express requirement that the disclosed price of ``direct cremation'' include the actual price to have a body cremated? No, not any more than should the funeral provider be mandated to disclose its wholesale costs for caskets, grave liners, and preparation supplies, or the Chevrolet dealer be mandated to disclose the wholesale price it pays General Motors.

4. Should the Rule require that the price of renting a casket in connection with a cremation be included on the General Price List? No. The GPL (and the law) shouldn't be manipulated to steer consumer choice toward cremation following the use of a rented casket any more than toward burial in a purchased casket.

(b) Are there any fees, prices or services which should be deleted from the General Price List? N/A.

(c) Are there any other revisions that should be made to the current provisions in the General Price List? N/A.

(d) For any change made in response to this question, what, if any, would be the costs and benefits to consumers and to funeral providers? N/A.

(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? We're aware that FTC's counsel has stated that the amended Rule applies to both pre-need and at-need. We've always proceeded accordingly. However, in point of clarification, neither the original nor the amended Rule itself has ever said that. As a matter of sound public policy, we don't think a defensible case can be made for treating pre-needs and at-needs differently. A funeral is a funeral, at least for purposes of price disclosure.

(c) Can a funeral provider readily distinguish between a pre-need and an at-need customer or will this complicate compliance with the Rule? Yes, and the present Rule works adequately for both.

(30) Are there widespread unfair or deceptive practices occurring with respect to the pre-arrangement of and pre-payment for funerals by consumers? No. What are these practices? N/A. How could these practices be remedied? N/A. Are these remedies within the Commission's authority and jurisdiction? Individual complaints -- as in consumer litigation -- wouldn't be. Would the benefits to consumers likely to result from such remedies outweigh the likely costs to funeral providers or other industry members? No. This appears to be another case of the proverbial solution in search of a problem.

We appreciate your consideration of these comments. We would be pleased to have a knowledgeable representative attend your workshop conference upon reasonable notice.

Respectfully submitted,

Brian R. Davis
TX Bar No. 05462500

Attorney for
DIRECTORS INVESTMENT GROUP, INC.
6550 Directors Parkway
Abilene, TX 79606
Voice 915/695-3412
Fax 915/695-7840