Final Committal Texas problems With Pre-Paid Funeral Services and other tales of mishandled, misrepresented, or overpriced funeral and burial services A report prepared by Consumers Union SWRO October 2000 available in pdf format

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EXECUTIVE SUMMARY Consumers Union SWRO reviewed nearly 300 consumer complaints related to funeral services (filed from Jan. 1998 to Dec. 1999) and found a pattern of problems in the sale of funeral services, as well as problems with the enforcement of existing laws. In Texas, the funeral services industry comes under the jurisdiction of four different state agencies, a fragmented bureaucracy that leaves citizens without a clear advocate. A single complaint can raise issues that must be addressed by two or more different bureaucracies. Each of these agencies has different policies and procedures with respect to complaints, and interagency cooperation is poor even after three of the agencies signed a mutual cooperation agreement in 1993. Almost 15 percent of complaints were sent to the wrong state agency or are beyond the purview of any agency. Sometimes the elderly are victimized by unscrupulous salesmen who have clearly violated existing consumer protection laws. Although several state agencies handle such consumer problems, consumers who have been defrauded do not necessarily get their money back. More than 14 percent of all complaints relate to services provided by funeral homes, including mishandled bodies, damaged or incorrect coffins and failure to file a death certificate in a timely manner. These complaints fall under the jurisdiction of the Funeral Service Commission. An additional seven percent of consumers complained about the price, particularly the high cost of the non-declinable “Basic Services” fee, which covers overhead and can range from a few hundred dollars to more than $2,000. The Federal Funeral Rule permits the fee, but does not specify the “non-declinable” services it covers. Consumers struggle to understand the pricing scheme and work out an affordable funeral. Thirteen percent of complaints related to monument companies, which require a substantial downpayment to fill the customized orders. When they do not place the gravestone as promised, consumers can experience frustration trying to get a refund. Unfortunately, laws protecting a consumers money when prepaying for funeral services do not apply to monument purchases. Seven percent of complaints related to cemeteries--including run down cemetery conditions and misplaced bodies. The Department of Banking maintains complaint files for only one year, so this number understates the proportion of complaints that are actually filed about cemetery services. The largest category of complaints, representing almost a third, relate to preneed arrangements. Consumers often purchase their funeral in advance (“preneed”) because the funeral home guarantees the delivery of a funeral service many years in the future at today’s prices. But, insurance backed preneed contracts sometimes lock-in today’s prices by requiring the buyer to pay substantially more over time than the cost of today’s funeral, and refunds can be small. Nearly 20 percent of complaints related to requests for refunds on cancelled or changed preneed policies. Although most preneed arrangements are designed like savings plans, to allow consumers to save for their future, state law allows the funeral home to keep a substantial portion of the early payments. So if a consumer changes his or her mind, the refund may be minimal. And refunds for preneed contracts funded by insurance polices are even smaller because consumers only recieve the “cash surrender value” of the policy. Further, preneed contracts lock families into a single arrangement with a particular funeral company. Once a preneed policy is written, any changes to the funeral arrangement itself (called “partial cancellation” in most contracts) can void the contract or create problems accessing benefits. In some cases, consumers may find that a portion of their funeral arrangement is purchased on a standard pre-need contract while another portion (the cemetery plot, monument, “opening and closing” the grave, or an outer burial container) is purchased on a retail installment contract with a finance charge. According to one major company’s Sales Counselor Sales Guide for cemetery sales, preneed interment services and recording fees are subject to finance charges “except in states that do not allow finance charges to be imposed on undelivered services.” Texas allows such charges. Many items required at a funeral are not typically part of preneed contracts, including interment charges, flowers, vaults and more. When the funeral home charges families for services that were not covered, family members start looking for the interest from a trust account. Unfortunately, under current law the interest will not be used to cover services not included in the original contract, even if it is more than enough to cover price inflation on the covered items. The funeral home may keep the excess interest, and families often pay taxes on interest they never see. Other states have passed reforms to their funeral laws to curb some of the worst abuses in the preneed and at-need markets, including prohibitions on finance charges for preneed contracts and fair refund policies for both funeral and cemetery contracts. California created a single state agency to ensure fair regulation of all aspects of the funeral including cemetery practices, while Georgia now requires funeral homes, cemeteries and casket companies to meet the same regulations, and regulates preneed monument sales. New York State prohibits insurance backed preneed contracts, and many states require funeral homes and cemeteries to place in trust all the money a consumer pays in to a preneed contract. California sets a small administrative fee and consumers can get their money back with interest. RECOMMENDATIONS Consolidate funeral regulation into a single agency designed to assure regulation of all funeral services, preneed services and both preneed and at-need monument sales. The agency should provide accessible consumer information regarding complaints, inspections, and prices. Reform preneed laws to ensure consumer value for the money invested and contract portability Give consumers a 30 day cancellation period for all preneed contracts. Prohibit preneed contracts backed by insurance policies where premium payments exceed the face amount of the policy. Guarantee consumers who cancel a preneed contract after 30 days a full refund of all payments plus interest, less a nominal administrative fee, since no services have been provided. Require minimum cash surrender values for insurance backed contracts to be equivalent to refunds available from a trust-backed preneed contract. Standardize preneed contracts. Require this standard contract to provide for reasonable consumer modification of funeral services at need without penalty. Require all preneed contracts to be fully transferable, including both principal and interest earned over time. Restore previous Texas prohibition against finance charges for the time purchase of funeral-related products and services that will not be delivered at the time of purchase. Require insurance companies to pay any benefits in excess of the cost of the funeral at time of death to the deceased’s estate or a named beneficiary other than the funeral home.