FTC Staff Comment Before the California Assembly Concerning the FTCs Experience in the Regulation of the Funeral Industry

V910023
PREPARED STATEMENT
OF
GERALD WRIGHT
COMMISSION AUTHORIZED
ATTORNEY, 	SAN 	FRANCISCO REGIONAL OFFICE
FEDERAL TRADE 	COMMISSION
BEFORE 	THE
ASSEMBLY COMMITTEE 	ON
CONSUMER PROTECTION, 	GOVERNMENTAL EFFICIENCY
AND ECONOMIC 	DEVELOPMENT
CALIFORNIA LEGISLATURE
OCTOBER 	17, 	1991
Madam Chairman 	and members 	of 	the 	Committee: 	I 	am 	pleased 	to
appear 	before you 	today 	to 	discuss 	the 	Federal 	Trade 	Commission's
role 	and 	experience 	in 	the 	regulation of 	the 	funeral 	industry.
My name 	is 	Gerald Wright. 	I 	am 	an 	attorney with 	the 	San
Francisco 	Regional 	Office 	of 	the 	Federal 	Trade 	Commission, 	and 	am
primarily responsible 	for 	the 	FTC's 	work 	relating 	to 	the 	its
Funeral 	Rule 	in 	this 	region. 	The views 	expressed 	are 	not
necessarily those 	of 	the 	Commission 	or 	any 	individual
Commissioner.
The 	FTC 	is 	an 	independent 	regulatory 	agency 	that 	reports 	to
Congress 	on 	its 	actions. 	The 	Commission 	is 	headed by 	five
Commissioners, 	nominated by 	the 	President 	and confirmed by 	the
United 	States 	Senate.
The 	FTC 	enforces 	a 	variety 	of 	federal 	antitrust 	and consumer
protection 	laws. 	The 	Commission 	seeks 	to 	ensure 	that 	the
nation's 	markets 	function 	competitively and 	are 	free 	of 	undue
restrictions. 	The 	Commission 	also 	works 	to 	enhance 	the 	smooth
operation of 	the 	marketplace 	by eliminating 	acts 	or 	practices
that 	are 	unfair 	or 	deceptive. 	In 	general, 	the 	Commission's
efforts 	in 	fulfilling 	its 	mission 	to 	prevent 	unfairness 	and
deception 	are 	directed 	to 	stopping 	actions 	that 	threaten
consumers' 	opportunities 	to 	exercise 	informed 	choice. 	The
Commission 	carries 	out 	its 	responsibilities 	primarily through 	law
enforcement, 	rulemaking, 	consumer education, 	and 	coordination
with 	state 	and 	local 	law enforcement 	agencies ..
The 	FTC has 	a 	staff 	of 	over 	900 	persons, 	located 	in
Washington, 	D.C., 	and 	in 	10 	regional 	offices. 	In California, 	the
Commission maintains 	regional 	offices 	in both 	San 	Francisco 	and
Los 	Angeles.

In your 	invitation 	to 	me 	to 	testify 	today, 	you 	asked 	that 	I
address 	the 	question of 	"the degree 	to 	which consumers 	needing
funeral 	services 	are 	subjected 	to 	unfair business 	practices."
The 	FTC's 	experience 	in 	this 	field 	derives 	primarily 	from 	the
adoption, 	enforcement 	and 	evaluation of 	the 	FTC's 	Funeral 	Rule.
This 	regulation, 	among 	other 	things, 	requires 	funeral 	homes 	to
give 	consumers 	usable 	information 	about 	prices 	in person or 	over
the 	telephone, 	to 	"unbundle" 	goods 	and 	services 	offered, 	and 	to
give 	consumers 	written disclosures 	designed 	to 	counteract 	common
misunderstandings 	and misrepresentations 	about 	funeral 	purchases.
In promulgating the 	Funeral 	Rule, 	the 	Commission observed
that:
While 	the 	arrangement of 	a 	funeral 	is 	clearly 	an
important 	financial 	transaction 	for 	consumers, 	it 	is 	a
unique 	transaction, 	one whose 	characteristics 	reduce
the 	ability of 	consumers 	to 	make 	careful, 	informed
purchase decisions ....
Under 	any 	circumstances, 	giving careful
consideration 	to 	financial 	matters 	while 	arranging 	a
funeral 	would be 	difficult. 	This 	difficulty 	is
exacerbated, 	however, 	by 	several 	practices 	used by
funeral 	providers 	which 	limit 	the 	consumer's 	ability 	to
make 	informed, 	independent 	choices. 	(47 	Fed. 	Reg. 	p.
42260, 	September 	24, 	1982)
The 	Rule 	absolutely prohibits 	several 	past 	industry
practices 	that 	the 	Commission 	identified 	as 	making 	funeral
purchases 	difficult 	for 	consumers. 	These 	are:
1) 	failing 	to 	furnish 	itemized 	price 	information 	to
funeral 	consumers;
2) 	requiring consumers 	to 	purchase 	items 	they do 	not
desire 	to 	buy; 	and
3) 	embalming deceased human 	remains 	for 	a 	fee 	without
prior 	authorization.
With 	respect 	to 	other 	practices, 	the 	Rule 	prohibits
misrepresentations. 	The 	Rule 	provides 	that 	it 	is 	a 	deceptive
practice 	for 	funeral 	providers 	to misrepresent:
1) 	requirements 	for 	embalming, 	cremations, 	and 	grave
vaults 	or 	grave 	liners;
2) 	legal 	and cemetery 	requirements;
3) 	preservation and protection capabilities 	of 	funeral
goods 	and 	services; 	and
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4) 	cash 	advance 	charges 	for 	items 	arranged 	for 	by 	the
funeral 	provider on 	the 	consumer's 	behalf.
To 	prevent 	the 	above 	practices, 	and 	to 	correct 	consumers'
misimpressions, 	the 	Rule 	requires 	funeral 	homes 	to 	take 	the
following 	affirmative 	steps:
1) 	affirmatively disclose 	to 	telephone 	callers 	who 	inquire
about 	funeral 	"terms, 	prices 	or 	conditions" 	that 	price
information 	is 	available 	over the 	telephone, 	and
disclose 	specific 	price 	information over 	the 	telephone
to 	persons 	who 	call 	and 	request 	it;
2) 	disclose 	written price 	information by means 	of 	a
general 	price 	list 	("GPL"), 	casket 	price 	list 	("CPL"),
and 	an outer 	burial 	container price 	list 	("OBCPL") 	to
persons 	who 	inquire 	in person 	about 	funeral
arrangements 	or the 	prices 	of 	funeral 	goods 	and
services;
3) 	give 	purchasers 	a 	written 	statement, 	after 	they 	have
selected 	funeral 	goods 	and 	services, 	containing 	the
price 	for 	each of 	the 	items 	selected, 	the 	total 	price
for 	the 	funeral 	arrangements 	selected, 	price 	estimates
or 	actual 	costs, 	if 	known, 	for 	cash 	advance 	items, 	and
any 	legal, 	cemetery or 	crematory 	requirements 	that
compel 	the 	purchase of 	any 	items 	or 	services 	for 	the
particular 	funeral;
4) 	make 	truthful 	representations 	about 	legal 	and 	other
requirements 	that 	compel 	the 	purchase 	of 	particular
items 	or 	services;
5) 	allow consumers 	to 	select 	and purchase 	only those 	goods
and 	services 	they 	desire 	(instead of 	offering 	goods 	and
services 	only 	in predetermined packages);
6) 	seek express 	approval 	before 	embalming 	the 	deceased 	for
a 	fee;
7) 	make 	only 	truthful 	representations 	about 	the
preservative 	and protective value 	of 	funeral 	goods 	and
services;
8) 	disclose 	that 	they charge 	a 	fee 	for 	obtaining 	cash
advance 	items, 	if 	that 	is 	the 	case; 	and
9) 	make 	unfinished wood boxes 	or 	alternative 	containers
available 	for 	direct 	cremation, 	if 	the 	provider 	offers
direct 	cremation.
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The 	FTC 	Commissioners 	are 	presently considering 	final 	staff
recommendations, 	based upon 	a 	formal 	review 	of 	the 	Rule 	begun 	in
1987. 	The 	Rule 	itself 	calls 	for 	this 	review. 	Interim 	staff
recommendations 	published 	in June, 	1990,1 were 	that 	the-Rule 	be
retained, 	with 	a 	number 	of 	modifications. 	The 	proposed
modifications 	include:
1) 	a 	prohibition on casket-handling 	fees;2 	and
2) 	repeal 	of 	the 	mandatory 	telephone 	affirmative
disclosure 	that 	"price 	information 	is 	available 	over
the 	phone."
The 	Funeral 	Rule 	presently applies 	to 	funeral 	home
operators, 	but 	generally 	not 	to 	cemeteries 	or 	crematories. 	This
is 	because 	retailers 	that 	market 	only cemetery 	plots, 	cremation,
grave 	markers, 	or caskets 	do 	not 	fall 	within 	the 	definitional
ambit 	of 	the 	Rule. 3 However, 	if 	such 	retailers 	choose 	to 	offer
funeral 	goods 	and 	services, 	they 	are 	required 	to comply with 	the
Rule.
Expansion of 	the 	Rule 	to 	cover 	cemeteries 	and crematories
generally 	is 	being considered 	as 	part 	of 	the 	current 	Funeral 	Rule
review 	proceeding. 	However, 	the 	staff 	recommendation 	to 	the
Commission 	is 	that 	coverage 	of 	the 	Rule 	not 	be 	so 	expanded. 	The
staff 	report 	states 	that 	"the evidence 	does 	not 	establish 	that
cemeteries 	and 	crematories 	that 	do 	not 	sell 	funeral 	goods 	are
engaged 	in 	the 	type 	of 	abuses 	addressed 	by 	the 	Rule 	(lack of
price 	disclosure, 	forced 	bundling of 	goods 	and 	services, 	and
misrepresentations 	of 	funeral 	goods 	and 	services)." 	(see 	Staff
Report 	supra, 	p. 	119-120).
See 	"Final 	Staff 	Report 	to 	the 	Federal 	Trade 	Commission
With Proposed Amended Trade Regulation 	Rule," 	June, 	1990.
2 	Casket-handling 	fees 	are 	charges 	(averaging 	$300-$500)
that may be 	imposed on a 	consumer by 	the 	funeral 	home 	handling
the 	arrangements, 	when 	the 	consumer 	has 	purchased 	the 	casket 	from
a 	seller other 	than 	the 	funeral 	home. 	The 	anti-tying provision
of 	the 	Rule 	currently prohibits 	funeral 	homes 	from 	refusing
service 	because 	consumers 	purchase 	caskets 	from 	third-party
sellers, 	but 	the 	Rule 	currently does 	not 	prohibit 	a 	"handling
fee. "
3 	The 	Rule's 	definitions 	of 	funeral 	goods 	and 	funeral
services 	do 	not 	encompass 	goods 	or 	services 	typically 	sold by
cemeteries 	(see 	16 	C.F.R. 	§§453.1(i) 	and 	(k)). 	Furthermore, 	to
be 	a 	"funeral 	provider" 	within 	the 	definition of 	the 	Rule, 	a 	firm
must 	sell 	both 	funeral 	goods 	and 	services 	to 	the 	public 	(see 	16
C.F.R. 	§453.1(j)).
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Apart 	from 	the 	Funeral 	Rule, 	the 	Commission's 	authority 	does
extend 	to 	cemeteries 	and 	crematories, 	if 	they meet 	the
Commission's 	interstate 	jurisdictional 	requirements. 	FTC
activity 	relating 	to 	these 	industries 	has 	been 	limited, 	however.
This 	is 	in keeping with 	the 	FTC's 	general 	policy of 	deferring 	to
state 	and 	local 	regulation of 	firms 	whose economic 	impact 	is
primarily 	intrastate.
The 	best 	available 	evidence 	on 	the 	level 	of 	industry
compliance with 	the 	Rule 	comes 	from 	consumer 	surveys 	conducted 	in
1987-88, 	one 	of 	them 	sponsored by 	the 	FTC. 	According 	to 	these
surveys, 	most 	consumers 	reported 	receiving 	an 	itemized 	final
statement 	and the 	price 	information 	that 	consumers 	requested 	over
the 	telephone. 	By comparison, 	compliance with 	the 	general 	price
list 	requirement was 	considerably 	lower. 	Most 	disturbingly, 	the
surveys 	indicated that 	simultaneous 	compliance by 	funeral
providers 	with 	four 	of 	the 	Rule's 	most 	important 	provisions,
including 	the 	general 	price 	list 	requirement, 	was 	only 	31
percent.
Since 	the 	dates 	of 	these 	surveys, 	the 	Commission 	has
obtained civil 	penalties 	from 	21 	funeral 	providers 	for 	violations
of 	the 	Rule. 	Civil 	penalties 	have 	ranged 	from 	$10,000 	to
$100,000. 	A wide 	range 	of 	Funeral 	Rule 	violations 	is 	alleged 	in
these 	matters. 	Most 	frequently, 	the 	complaints 	allege 	failure 	to 	\
give 	or 	show 	consumers 	price 	lists 	complying with 	the 	Rule 	and
failure 	to 	give 	consumers 	statements 	containing the 	required
itemizations 	and 	disclosures 	regarding 	goods 	and 	services
provided. 	A few 	cases 	have 	included allegations 	of 	fraud 	going
beyond violations 	of 	the 	Rule; 	in 	such cases, 	the 	funeral 	homes
allegedly charged consumers 	for 	goods 	or 	services 	that 	were 	not
actually provided. 	In 	several 	cases, 	the 	funeral 	homes 	have 	been
required 	to make 	redress 	to 	consumers.
The 	FTC 	also 	uses 	consumer education 	to 	reduce 	consumer
injury. 	Shortly 	after 	the 	Rule 	was 	issued, 	the 	FTC 	prepared a
public 	service 	announcement 	about 	it. 	In addition, 	the 	FTC 	has
prepared 	an 	informational 	brochure 	for 	consumers 	and 	has 	worked
with 	such organizations 	as 	the American Association of 	Retired
Persons 	to 	inform consumers 	better 	about 	the 	protections 	that 	the
Rule 	provides.
In 	summary, 	the 	FTC 	has 	concentrated 	its 	efforts 	in 	the
funeral 	industry 	on 	preventing the 	unfair 	and 	deceptive
practices 	it 	has 	identified through 	its 	Funeral 	Rule. 	The
experience 	we 	have 	acquired 	through 	enforcing 	the 	Rule 	and
through 	the 	recently-completed 	hearings 	on 	the 	Rule 	indicates
that 	deceptive 	and 	unfair 	practices 	continue 	to 	occur 	in 	the
industry. 	We 	do 	not 	have 	empirical 	data 	on 	the 	current 	level 	of
abuse, 	however. 	We 	anticipate 	that 	as 	industry compliance 	with
the 	Rule 	increases 	and 	as 	consumers 	become 	increasingly
knowledgeable 	about 	the 	use 	of 	price 	information and 	about
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purchase 	options 	available 	from 	providers, 	consumer 	injury will
continue 	to 	abate.
Our 	experiences 	in working with 	the 	California Board of
Funeral 	Directors 	and 	Embalmers, 	and 	the 	California Cemetery
Board, 	have 	been 	limited to 	the 	occasional 	sharing of
information. 	Our 	impression 	is 	that 	these 	boards 	have 	the 	same
basic 	consumer 	protection objectives 	as 	the 	FTC. 	It 	is 	the
Commission's 	general 	policy 	to 	work 	together with 	state
enforcement 	agencies 	wherever 	possible 	in working 	toward 	common
goals.
I 	thank you 	for 	the 	opportunity to 	appear before you 	today.
I 	would be 	happy 	to 	answer 	any 	questions 	you may 	have.
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