Final Committal Texas problems With Pre-Paid Funeral Services A report prepared by Consumers Union SWRO October 2000 available in pdf format

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The Regulatory Environment The Federal Trade Commission sets minimum standards for the sale of funeral service and merchandise (but not cemeteries), and several agencies share jurisdiction over complaints related to funeral services. The Department of Insurance regulates insurance policies used to finance preneed contracts. The Department of Banking has jurisdiction over most cemeteries and preneed contracts financed by trust funds. The Consumer Credit Commission takes complaints related to preneed merchandise and services purchased on a retail installment contract (see sidebar, p. 11). The Funeral Services Commission regulates funeral homes. The Attorney General handles all consumer complaints that may involve a deceptive trade practice, and is the only agency that takes complaints related to monument companies. This complex system is the source of much confusion for both consumers and agency complaint handlers. While TDI, TDB and FSC have developed a single complaint form for all three agencies, with a paragraph at the top that outlines their respective jurisdictions, complaints routinely wind up at the wrong department. The three agencies adopted a Joint Memorandum of Understanding to address their shared regulation of funeral services in 1993. It outlines how referrals and followup should be handled between departments. Unfortunately, the process is not always followed. Almost nine percent of complaints were classified as non-jurisdictional complaints—meaning they were immediately forwarded to another agency for handling. For many of these cases, the originating department keeps no documentation--no copy of the complaint form, but only the letter of referral. While the JMOU outlines followup procedures for reporting back to the originating agency, this often does not occur. For example, in four cases staff at the Funeral Services Commission attempted to learn the status of cases forwarded to the Department of Banking. They received an answer in only one of these cases, which was that the file had either been lost, or the case was resolved, but the TDB was not sure which. (40) In one of these cases, a consumer wrote first to TDI February 24, 1999. TDI forwarded the case to FSC, March 16. On March 30, the consumer wrote to FSC to try and track down the status of her complaint. On April 23, 1999 the Funeral Department forwarded the complaint to the Banking Department, but also retained it for investigation. The Funeral Department asked the Banking Department to advise when the complaint was resolved. By August 6, 1999, FSC wrote again to Banking to track down this complaint. There was no further documentation in the file. (41) In general, agencies handle complaints using a paper process. Witnesses are rarely contacted. Agencies generally write an initial letter to the company or funeral home, and forward the copy of the company’s answer to the consumer with a closing cover letter. Even this process can take months. Until last fall, many complaints at the FSC remained open for about a year. (42) The FSC has an unusual step in their complaint resolution process that adds unnecessary time. The Commission members must together review and approve the closure of every file. Cases that contain no statutory violations can be closed immediately, but if there is an indication of possible legal issues, the process takes longer. Companies can appeal any determination of a violation in a consumer complaint file. Many consumers still benefit from the process, because agency letters pressure the insurance company or funeral home to respond. TDI, TDB and FSC all have statutory requirements that companies respond to them within a certain period of time. While not all cases are resolved to the satisfaction of the consumer, some consumers get a full or partial refund, or the company otherwise makes a greater effort to work out the problem. The AG’s authority to investigate funeral complaints is especially problematic. The AG is not part of the JMOU among agencies that regulate funeral services, although the agency received more than 130 complaints in 1998 and 1999. Instead, the AG serves as the state’s general consumer protection enforcement agent and treats complaints related to funerals under this umbrella. The AG must be able to demonstrate that a company intentionally misrepresents its product or service. A review of the unresolved complaints from that agency indicate that the AG will sometimes recommend that the consumer seek a private attorney or file an action in small claims court rather than pursue a case itself. Gloria Gonzales of La Pryor paid $700 to a monument company before she discovered that it had closed with no forwarding address. The AG sent at least four letters but received no response from the company. Six months after she filed her complaint, the AG wrote her to say that since it could not reach the company it was closing its file and suggested small claims court. (43) The Funeral Services Commission has the most authority to directly handle consumers complaints, although their authority to handle complaints related to preneed is limited. In conjunction with the Banking Department, the FSC can address problems relating to the actual services of the funeral director and preneed moneys held in trust. The Department of Banking enforces the trust laws through complaint investigations and periodic examinations. The Department of Banking provided very few complaints for our review. This agency may receive fewer complaints than the other agencies. However, TDB also has a policy of destroying complaints older than a year. The Department keeps certain files, where TDB examiners discover more serious violations, like selling preneed policies without a license. According to the files provided, the Department has authority to pursue funeral homes selling preneed without a license, and such complaint investigations have resulted in satisfactory settlements for consumers. (44) The Department also manages a fund—currently totaling more than $800,000—that guarantees funeral services backed by bankrupt preneed trusts. In 1999 Banking seized records and preneed funds from four funeral homes in east and south Texas. (45) However, Banking is not equipped to address complaints when they discover the trust is backed by insurance and don’t always forward these to TDI. (46) While the Texas Department of Insurance has authority to elicit information from companies in response to a consumer’s complaint, the agency has limited authority to address the types of complaints people file about preneed funeral contracts funded by insurance. Texas insurance law does not authorize the department to regulate rates for life insurance, so the Department does not do anything about complaints related to the cost and value of the policy. The department has limited authority over policy forms as well. In 1995, TDI issued draft rules intended to correct a number of problems with preneed funeral policies. The rules required agents to tell consumers if the funeral home would collect excess benefits under the policy, and that the deceased’s family would have to pay taxes on the interest earned under an annuity contract. Further, the rules established a minimum death benefit of at least the total premiums paid in plus 5% interest, and addressed problems with policies that have “graded” or “indexed” death benefits (benefits that increase according to an external index like the Consumer Price Index). (47) The industry responded that TDI had no rulemaking authority over these plans, and the draft rules were never even published. Recommendations: Texas legislators should create a single state agency for the funeral industry to: assure regulation of all funeral services, including preneed services and monuments; provide complete information regarding complaints, inspections, and priceseasily accessible to consumers investigating a company before they invest funds; promptly review consumer complaints and institute appropriate action; retain and analyze records of consumer complaints and identify emerging issues. Provide consumers and policymakers with statistics about funeral and burial services, including the issues identified by consumers as problems. ______ Notes: 40 Funeral Services Commission, Consumer Complaint Files 99-048, 99-114, 99-115, 99-124. 41 Funeral Services Commission, Consumer Complaint File 99-114. 42 Funeral Services Commission, Consumer Complaint Files 99-033, 99-032, 99-030, 99-026, 99-023, 99-021, 99-010, 99-012, 99-015, 99-034, 99-035, 99-043, 99-008, 99-011, 99-005 and more. The Funeral Services Commission has recently hired new complaint investigation staff. The new team had not reviewed many of the complaints currently closed at the time we commenced our study, therefore our analysis reflects the work of the previous staff. 43 Office of the Attorney General, Consumer Complaint File S9810-0045. 44 Department of Banking, Consumer Complaint File 98070058, Anderson Funeral Home, San Antonio, 1998 and 1999. 45 Department of Banking, Special Audits Division, “A Regulatory Update for Sellers of Preneed Funeral Contracts and Licensed Perpetual Care Cemeteries,” December 1999, p. 6. 46 Department of Banking, Consumer Complaint File 1999-31. 47 Texas Department of Insurance, “Rough Draft of Proposed Rules Relating to Life Insurance and Annuity Policies Used to Fund Prepaid Funeral Benefits Contracts,” December 27, 1995.