Funeral-Related Industries: Complaints and State Laws Vary, and FTC Could
Better Manage the Funeral Rule (Letter Report, 09/23/1999,
GAO/GGD-99-156).
Comprehensive information on consumer complaints about the funeral
industry is unavailable. One reason is that consumers can complain to
various organizations about funeral-related issues and can lodge the
same complaint with more than one organization. Another reason is that
no one organization or combination of organizations collects and
compiles all complaints into a single database. Although organizations
GAO contacted were able to provide some data, the number of complaints
about the funeral industry was generally low compared to complaints
about other types of consumer issues. Among the reasons these
organizations gave for the relatively low number of complaints was the
personal or emotional component of the death care situation. The Federal
Trade Commission's (FTC) Funeral Rule requires that funeral providers
give consumers accurate, itemized price information and other
disclosures about funeral goods and services. During the last five
years, FTC has taken steps, including distributing compliance guides and
working with the funeral home industry, to promote compliance with the
rule. FTC maintains that compliance among providers covered by the rule
has risen "substantially" over the years. However, FTC lacks a
systematic or structured process for measuring funeral homes'
compliance. A GAO analysis of a limited sample of funeral homes found
that compliance was indeed high for the rule's core requirement--giving
consumers itemized price lists early in their meetings with funeral home
staff--and somewhat lower for the rule's other elements. However, it
appears that FTC did not always act against funeral homes that may have
violated the rule and did not always document the reason. GAO also
reviewed the approaches used by five states--California, Florida,
Maryland, New York, and Texas--to protect consumers who deal with
funeral homes and cemeteries and make preneed arrangements. Differences
were most notable concerning the five states' regulatory structures and
the requirements that these states place on death care providers.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GGD-99-156
TITLE: Funeral-Related Industries: Complaints and State Laws
Vary, and FTC Could Better Manage the Funeral Rule
DATE: 09/23/1999
SUBJECT: Noncompliance
Consumer protection
Sales
Data collection
Surveys
IDENTIFIER: FTC Funeral Rule
California
Florida
Maryland
New York
Texas
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United States General Accounting Office
GAO
Report to Congressional Requesters
September 1999
GAO/GGD-99-156
FUNERAL-RELATED INDUSTRIES
Complaints and State Laws Vary, and FTC Could
Better Manage the Funeral Rule
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Contents
Page 301 GAO/GGD-99-156 Funeral-Related Industries
Letter 1
Appendix I 34
FTC's Funeral Rule
Appendix II 40
Objectives, Scope, and
Methodology
Appendix III 46
FTC Funeral Home Sweeps
Appendix IV 47
Information on Funeral
Homes and Cemeteries in
Selected States
Funeral Homes 47
Cemeteries 52
Appendix V 59
Information on Preneed
Arrangements in the
Selected States
Preneed Arrangements 59
Regulation of Preneed Arrangements in 60
the Five Selected States
Appendix VI 67
Agency Comments
Appendix VII 72
GAO Contacts and Staff
Acknowledgments
Tables Table 1: Average Cost of Most Commonly 4
Selected Funeral Items, as of January
1997
Table 2: Number of Complaints to BBB 11
regarding Death Care-Related Goods
and Services for Fiscal Year 1997
Table 3: Results of FTC Funeral Home 18
Sweeps for FY 1997 and FY
1998-Provision of GPL
Table 4: Results of FTC Funeral Home 18
Sweeps for FY 1997 and FY
1998-Provision of Proper
Representations
Table 5: Results of FTC Funeral Home 19
Sweeps for FY 1997 and FY
1998-Identifying Information on GPL
and Selected Disclosures
Table 6: Results of FTC Funeral Home 20
Sweeps for FY 1997 and FY 1998-Extent
of FTC Enforcement Actions Against
Funeral Homes That Had One or More
Potential Violations
Table III.1: Number and Location of 46
Funeral Homes FTC Test-Shopped by
Date of Sweep
Table IV.1: California Funeral 47
Homes-Regulation, Oversight, and
Consumer Information
Table IV.2: Florida Funeral 48
Homes-Regulation, Oversight, and
Consumer Information
Table IV.3: Maryland Funeral 49
Homes-Regulation, Oversight, and
Consumer Information
Table IV.4: New York Funeral 50
Homes-Regulation, Oversight, and
Consumer Information
Table IV.5: Texas Funeral 51
Homes-Regulation, Oversight, and
Consumer Information
Table IV.6: California 52
Cemeteries-Regulation, Oversight, and
Consumer Information
Table IV.7: Florida 54
Cemeteries-Regulation, Oversight, and
Consumer Information
Table IV.8: Maryland 55
Cemeteries-Regulation, Oversight, and
Consumer Information
Table IV.9: New York 56
Cemeteries-Regulation, Oversight, and
Consumer Information
Table IV.10: Texas 57
Cemeteries-Regulation, Oversight, and
Consumer Information
Table V.1: California Regulation of 60
Preneed Arrangements
Table V.2: Florida Regulation of 62
Preneed Arrangements
Table V.3: Maryland Regulation of 63
Preneed Arrangements
Table V.4: New York Regulation of 64
Preneed Arrangements
Table V.5: Texas Regulation of Preneed 65
Arrangements
Figures Figure 1: Percent Change in CPI From 5
Previous Year for Funeral Expenses
Compared With CPI for All Items From
1990 Through 1998
Abbreviations
BBB Better Business Bureau
BLS Bureau of Labor Statistics
CCSC Cemetery Consumer Service Council
CFP Cemetery and Funeral Programs
CIS Consumer Information System
CPI Consumer Price Index
DCI data collection instrument
DLLR Department of Labor, Licensing, and
Regulation
FAMSA Funeral and Memorial Society of America
FDIC Federal Deposit Insurance Corporation
FROP Funeral Rule Offenders Program
FSCAP Funeral Service Consumer Assistance
Program
FTC Federal Trade Commission
GPL general price list
NFDA National Funeral Directors Association
B-281214
Page 28 GAO/GGD-99-156 Funeral-Related Industries
B-281214
September 23, 1999
The Honorable Charles Grassley, Chairman
The Honorable John B. Breaux, Ranking Minority
Member
Special Committee on Aging
United States Senate
The Honorable Susan M. Collins, Chairman
The Honorable Carl Levin, Ranking Minority Member
Permanent Subcommittee on Investigations
Committee on Governmental Affairs
United States Senate
This report responds to your request that we
examine various issues involving consumers'
dealings with funeral-related or death care
industries, which include businesses that provide
funeral and cemetery goods or services. You
expressed concern about consumers who may be faced
with unneeded or inflated expenses or unfair or
deceptive sales practices at a time when they are
highly vulnerable-after the death of a loved one.
You further stated that recent media accounts have
focused on the need for consumers to approach
death care transactions with considerable caution,
especially because these purchases can be some of
the most costly and emotionally difficult
financial transactions a consumer can make.
As agreed with your offices, our objectives were
to (1) describe the availability of information on
the nature and extent of consumer complaints about
death care industries, (2) describe and assess the
Federal Trade Commission's (FTC) efforts to ensure
compliance with its Funeral Rule, and (3) provide
information on selected state governments' roles
in protecting consumers in their death care
transactions. The selected states were California,
Florida, Maryland, New York, and Texas (see our
scope and methodology section for a discussion of
our selection criteria). We focused on
transactions concerning funeral homes; cemeteries;
and preplanned and prepaid funeral arrangements,
commonly known as preneed arrangements.
Results in Brief
Comprehensive information on consumer
complaints that would indicate the overall nature
and extent of problems that consumers experienced
with various aspects of death care industries was
not available for a variety of reasons. One reason
is that consumers can complain to a variety of
organizations about death care issues and can
lodge the same complaint to more than one
organization. Another reason is that no single
organization or combination of organizations
collects and compiles all complaints into one
database. Also, each organization can have its own
way of compiling and maintaining complaint
information, which would confound efforts to
compile and analyze aggregate complaint data.
Although the organizations we contacted were able
to provide some data, the number of complaints
about death care was generally low compared to
complaints about other categories of consumer
issues. Among the reasons these organizations gave
for the relatively low number of complaints was
the personal or emotional component of the death
care situation.
FTC's Funeral Rule requires that funeral
providers give consumers accurate, itemized price
information and various other disclosures about
funeral goods and services. Over the last 5 years,
FTC has taken steps, including distributing
compliance guides and working with the funeral
home industry, to promote compliance with the
Funeral Rule. FTC took these steps because it was
concerned about what it perceived as a relatively
low level of compliance (about one-third) among
funeral homes in the late 1980s.
FTC maintains that compliance among providers
covered by the Rule has increased "substantially"
over the years. However, FTC does not have a
systematic or structured process for measuring
funeral homes' compliance so that overall
conclusions can be drawn about their actual
compliance with the Rule. FTC's efforts to measure
compliance have been limited to narrowly scoped
test-shopping sweeps in selected areas-that is,
they are not representative of the universe of
funeral providers and do not cover all elements of
the Rule. We analyzed the available records of
funeral homes FTC test-shopped in fiscal years
1997 and 1998. Our analysis indicated that among
the limited sample of homes visited, compliance
indeed was high for the Funeral Rule's core
requirement--giving consumers itemized price lists
early in their meetings with funeral home staff--
and somewhat lower for other elements of the Rule
we reviewed. However, from the records we
reviewed, it appears that FTC did not always take
enforcement action against funeral homes that
potentially violated the Rule and did not always
document the reason. For example, according to its
records, in fiscal years 1997 and 1998, FTC did
not take action in over half the instances in
which funeral homes had one or more potential
Funeral Rule violations. According to FTC, one of
the primary reasons it may not have taken action
was because it exercised prosecutorial discretion.
When records indicated that FTC took action on a
potential Rule violation, we were not always able
to determine why. In addition, FTC's letters to
the funeral homes in violation did not always
provide the reason FTC took action, a practice
that is suggested in FTC guidance on responding to
a violation. We are making recommendations
concerning these issues near the end of this
report.
The five selected states differed in their
approaches to protecting consumers who deal with
funeral homes and cemeteries and make preneed
arrangements. Differences were most notable
concerning the (1) regulatory structure of the
five states and (2) requirements that these states
placed on death care providers. However, the five
states also had similarities in their approaches
to protecting consumers who engage in death care
transactions. For example, the five states all had
licensing and minimum education requirements that
funeral providers were required to meet. Each of
the states also had laws and regulations that
required funeral providers to disclose price and
other information to consumers similar to the
requirements of FTC's Funeral Rule.
Background
Each year, American consumers arrange more
than 2 million funerals at a total cost of
billions of dollars. During 1997, according to
Conning & Company, an insurance industry
publications and research firm,1 almost 27,000
funeral service providers, such as funeral homes
and crematories, had sales revenue of about $10
billion. The National Funeral Directors
Association (NFDA) reported that in 1997, the
average adult funeral cost about $5,500, including
casket and vault. Table 1 shows NFDA data on the
average cost for the most commonly selected
funeral items as of January 1997.
Table 1: Average Cost of Most Commonly Selected
Funeral Items, as of January 1997
Most commonly selected items Average
costa
Nondeclinable professional service $1,079
charges
Embalming 370
Other preparation (e.g., cosmetology, 133
hair)
Visitation/viewing 305
Funeral at funeral home 326
Transfer of remains to funeral home 134
Hearse (local) 161
Service car/van 81
Acknowledgment cards 19
Subtotal $2,607
Casket, 18-gauge steel, sealer, velvet 2,176
interior
Subtotal with casket $4,783
Vault, asphalt-coated concrete, sealer 761
Total with casket and vault $5,544b
Note: Figures do not add due to rounding.
aAccording to NFDA, the data on average cost of
most commonly selected items are based on figures
from its members' general price lists as of
January 1997. NFDA's data were collected from 564
questionnaire responses out of a total random
sample of 1,500 NFDA members.
bThe prices listed by NFDA do not include cemetery
charges, such as grave space, opening/closing
grave, crypts/mausoleum, monument, or marker
because these items are usually not purchased
through the funeral home. NFDA included the cost
of a vault for reference even though, according to
NFDA, some funeral homes offer vaults and others
do not.
Source: National Funeral Directors Association.
NFDA also maintains some data on the cost of
final disposition, such as burial and cremation.
For example, in 1997, according to NFDA, the cost
of an individual grave space ranged from about
$150 to over $1,900, and the cost of opening and
closing the grave ranged from $125 to $750 for
nonovertime work. In addition, according to NFDA,
the cost of cremation ranged from $75 to $395; a
bronze urn to hold cremated remains cost from $230
to $1,800; and in-ground placement of an urn
ranged from $450 to $1,250. Although the variety
of choices and the range of costs make it
difficult to precisely estimate the cost of a
typical funeral and burial, AARP2 estimated the
cost in 1998 to be about $8,000 and as much as
$10,000 in some markets. Furthermore, AARP
reported that the cost of funeral and burial
arrangements is increasing. In fact, according to
data collected by the Bureau of Labor Statistics
(BLS), funeral expenses have grown faster than the
rate of inflation. Figure 1 shows the extent to
which funeral expenses have exceeded the rate of
inflation, as indicated by the consumer price
index (CPI), since 1990.
Figure 1: Percent Change in CPI From Previous Year
for Funeral Expenses Compared With CPI for All
Items From 1990 Through 1998
Source: Historical CPI for all Urban Consumers (U.
S. city average) by commodity and service group
and detailed expenditure categories, CPI Detailed
Report, March 1999, BLS, Department of Labor.
FTC has a major role in protecting consumers
during death care transactions. The FTC Act
declares unfair or deceptive acts or practices to
be unlawful when they affect commerce.3 Under its
authority to promulgate rules, FTC has issued a
trade rule entitled Funeral Industry
Practices-more commonly called the Funeral Rule.4
The Funeral Rule was designed to (1) ensure that
consumers receive the information necessary to
make informed purchasing decisions and (2) lower
existing barriers to price competition in the
market for funeral goods and services.
The Funeral Rule, which became fully effective in
April 1984, declares it an unfair or deceptive act
or practice for funeral providers to (1) fail to
furnish accurate price information to funeral
consumers, (2) require consumers to purchase items
they do not want to buy, and (3) embalm deceased
human remains for a fee without authorization. The
Rule further declares it a deceptive practice for
funeral providers to make certain
misrepresentations, such as that embalming is
required by law when it is not, that caskets must
be used for cremation, or that funeral goods and
services have certain preservation and protection
capabilities. To prevent those practices,
providers of funeral goods and services are to,
among other things, (1) give detailed printed
information about prices, including certain legal
disclosures, to consumers who inquire about
funeral arrangements; (2) allow consumers to
select only those goods and services they desire
(rather than offering goods and services only in
predetermined packages); and (3) seek express
approval before embalming the deceased for a fee.
Since the Funeral Rule's inception, it was amended
once in 1994. In April 1999, FTC announced that it
was beginning to review the Funeral Rule to
determine if it should be further amended,
maintained as is, or repealed.5 Appendix I
contains a copy of the Funeral Rule that was in
effect as of July 1999.
State and local governments also have a role in
regulating and overseeing funeral homes and
cemeteries. Commercial cemeteries are regulated
primarily at the state or local level.6 According
to a 1998 book on making funeral arrangements,7
funeral homes and cemeteries are regulated by
state boards as well as other agencies, including
offices of attorneys general and departments of
health and insurance. In addition, the book
points out that licensing and minimum education
requirements for funeral directors and embalmers
differ from state to state. State laws also are
the primary source of regulation over preneed
funeral contracts. According to a 1996 law journal
article, although every state, with the exception
of Alabama and the District of Columbia, has
enacted some sort of regulatory action to oversee
preneed contracts, the laws vary from state to
state.8 Examples of areas of differences in state
statutes include the funding options available to
consumers, limitations on where proceeds from
preneed funeral contracts may be invested, and the
percentage of preneed sales proceeds required to
be placed in trust.
One of the major changes in the nature of death
care industries is the increase in preneed
contracts. Conning & Company estimated that the
preneed funeral market, including preneed trust
deposits and preneed insurance contracts, amounted
to over $21 billion in 1996. Another change,
according to FTC, is that cemeteries and casket
retailers are now competing with traditional
funeral providers, such as funeral homes, in the
sales of caskets and other funeral goods and
services. At the same time, an NFDA official said
that there has been a movement away from
independent family-owned funeral homes and a
movement toward corporate or publicly owned homes.
And according to reports in the media, there is a
growing incidence of funeral homes and cemeteries
being owned by the same few organizations.
Scope and Methodology
To meet our objectives, we did our work primarily
at FTC in Washington, D.C., and Dallas, TX; and at
state funeral and cemetery regulatory offices in
five states-California, Florida, Maryland, New
York, and Texas. As agreed with your offices, we
focused our efforts on five states because of time
and staffing constraints. We selected California,
Florida, New York, and Texas because these states
had the highest number of deaths of all 50 states
in 1998. We selected Maryland because it recently
had established a state regulatory agency with
oversight responsibility for all but certain
religious nonprofit cemeteries and because of
Maryland's close proximity to our headquarters. In
addition, we interviewed selected national
representatives of industry trade and regulatory
associations and consumer advocacy groups that
deal with death care issues (see app. II for the
organizations of the representatives and officials
we spoke with). From each of these organizations
we collected and reviewed available documents on
such matters as issues affecting death care
industries and consumers, sales and revenues of
death care providers and average costs of death
care goods and services, and federal and state
regulatory issues. We also did a literature and
Internet search for information on issues
affecting death care industries and consumers and
reviewed pertinent books, magazines, trade
publications, and periodicals regarding consumer
concerns with related death care industries. We
did our work between July 1998 and July 1999, in
accordance with generally accepted government
auditing standards. Appendix II discusses our
objectives, scope, and methodology in more detail.
We requested comments on a draft of this report
from FTC's Chairman. FTC's comments are discussed
near the end of this letter and are reprinted as
appendix VI. We also contacted responsible
officials from the regulatory bodies in the five
states to verify the information on regulation,
oversight, and consumer information in this
report. We made technical changes as appropriate.
Comprehensive Information on Death Care Complaints
Was Not Available
Comprehensive information on consumer complaints
that would indicate the overall nature and extent
of problems that consumers experienced with
various aspects of death care industries was not
available for a number of reasons. One reason is
that consumers can complain to a variety of
organizations about death care issues and can
complain to more than one organization about the
same incident. Another reason is that no single
organization or combination of organizations
collects and compiles all complaints into one
database. Also, each organization can have its
own way of compiling and maintaining complaint
information, which would confound efforts to
compile and analyze aggregate complaint data.
Although the organizations we contacted were able
to provide some data, the number of complaints
about death care was generally low compared to
complaints about other categories of consumer
issues. Among the reasons these organizations gave
for the relatively low number of complaints was
the personal or emotional component of the death
care situation.
Consumers Can Complain to a Number of
Organizations
Consumers can complain to a number of
organizations about death care issues-from FTC at
the federal level, to funeral licensing boards at
the state level, to local consumer groups. Thus,
it is difficult to determine the universe of
organizations accepting complaints. In addition,
consumers can lodge the same complaint to more
than one of these organizations. For example,
although consumers can lodge a complaint with FTC,
intervening in individual disputes is not
something FTC does. Instead, FTC refers consumers
to other organizations for complaint resolution.
Thus, FTC officials said that a single complaint
could be contained in the files of multiple
organizations. At the state level, consumers may
complain to a variety of organizations. For
example, in Texas, a consumer may complain to the
state's office of the Attorney General and also to
regulators responsible for any particular aspect
of the death care industry, such as the Texas
Department of Banking, which is responsible for
regulating cemeteries and preneed funeral
arrangements; or the Texas Funeral Service
Commission, which is responsible for regulating
funeral providers.
Consumers also can register complaints with
nongovernmental organizations, both those that
handle consumer complaints in general and those
that specialize in death care matters. One of the
best-known general consumer complaint
organizations is the Better Business Bureau (BBB),
which accepts complaints and can intervene on
behalf of consumers through its local bureaus. One
specialized organization that accepts complaints
only about death care is the Funeral Service
Consumer Assistance Program (FSCAP), which
provides consumer information, problem-solving
resources, and recommendations for action
concerning funeral services. According to FSCAP,
it attempts to work with consumers to resolve
their concerns, but if it cannot, FSCAP officials
refer them to the appropriate state or local
government agency. Another specialized
organization, the Cemetery Consumer Service
Council (CCSC), assists consumers in matters
involving private cemeteries and memorial parks.
According to CCSC, consumer complaints it receives
at its national office are forwarded to the
appropriate state CCSC representative for
investigation and action.9 CCSC reports that its
state representatives resolve many complaints by
telephone and then notify the consumer. At the
local level, organizations such as the Syracuse
Memorial Society will respond to complaints about
death care industries.
No Single Organization or Combination of
Organizations Collects and Compiles All Complaints
Regardless of how many organizations accept
complaints, no single organization or combination
of organizations collects and compiles all
complaints. Even if data from all of the
organizations that accept complaints could be
collected and compiled, because of differences in
the way complaints are recorded, there is no
assurance that the aggregate number of complaints
would be accurate-that is, not overstated or
understated-or that the nature of complaints would
be recorded. This is because the various
organizations and agencies that accept complaints
have their own approaches for compiling and
maintaining complaint information, often in
dissimilar formats that do not lend themselves to
systematic compilation or analysis.
For example, in the selected states we visited, we
found that most of the states (California,
Maryland, New York, and Texas) used a manual
process, rather than an automated one, for
recording and filing death care complaints. This
manual process made it difficult to retrieve
aggregate data. For example, before 1998, in
Maryland, complaints for cemeteries were filed
with complaints about other licensed businesses,
such as beauty shops. For the one state, Florida,
that used an automated system for complaints,
detailed information about the nature of
complaints was not recorded.
In addition, not all organizations that
accept complaints record information on the nature
of complaints, only whether a complaint was
lodged. For example, BBB headquarters, which
compiles all BBB data on consumer complaints, does
not have information in its database on the nature
of those complaints, only information on the
number of complaints by industry category. The
reason for this, according to a BBB official, is
that local bureaus of the BBB give headquarters
statistics only on the aggregate number of
complaints. Only the bureaus have details on the
nature of those complaints. For that information,
one would have to contact each local BBB office,
which may or may not have the information
available for a given year.
Available Data Indicate a Range of Concerns, but
Most Organizations Stated There Were Few
Complaints
Although we were unable to identify the
overall nature and extent of consumers' problems
with various aspects of death care industries,
available complaint data indicated a range of
consumers' concerns. These concerns ranged from
cemeteries' failure to mow or trim grass to
funeral homes' efforts to dissuade customers from
using caskets sold by parties other than
themselves. Although the range of complaints was
broad, we did not find large numbers of complaints
at FTC, nongovernmental organizations, and
selected state agencies. Generally across all of
the types of organizations we contacted, most
officials and representatives said that they
received few complaints about death care. Reasons
provided for the low number of complaints included
the personal or emotional component of the death
care situation and the fact that consumers may
have been satisfied with the goods and services
received.
For example, for fiscal year 1998, FTC's internal
consumer complaint database, the Consumer
Information System (CIS), contained 46,091
consumer complaints, 152 of which were on the
subject of death care (0.33 percent). FTC staff
assessed these complaints and determined that 58
involved potential violations of the Funeral Rule;
the remaining 94 concerned other issues, such as
rude service, contractual disputes, and cemetery
and preneed complaints. Our analysis of CIS data
for specific complaints consumers made to FTC in
fiscal year 1998 includes the following as
examples of the broad range of complaints
received:
� A California consumer used the Internet to
complain that a preneed trust for the entire cost
of a funeral was purchased in 1977, yet additional
fees of $1,026 were added when the trust was
executed in 1998.
� A Michigan consumer complained by mail that a
funeral home's fees were combined rather than
being displayed as separate line items as required
by FTC's Funeral Rule.
� A New Jersey woman complained by telephone
that she was a victim of deceptive practices. The
complainant reported that her mother was embalmed
without permission and that the funeral home
claimed that communicable disease laws prevented
the use of a rental casket; her inquiry to the
state mortuary board revealed that there were no
such laws.
� A California consumer complained by telephone
that a funeral home was going to charge an
additional $470 for the use of a casket not
purchased directly from the home.
� An Iowa consumer complained by mail that the
casket delivered by a funeral home was not the
model specified in the preneed agreement and that
this funeral home regularly attempted to get
customers to pay more for caskets.
The BBB received 453 complaints about death care
goods and services for calendar year 1997, the
most recent year for which BBB headquarters had
data. Table 2 shows the area of death care goods
and services about which consumers complained and
the number of complaints BBB received.
Table 2: Number of Complaints to BBB regarding
Death Care-Related Goods and Services for Fiscal
Year 1997
Area of death care Number of complaints
Funeral-related services 255
Funeral directors 169
Monuments/memorials 22
Cremation services 4
Cemeteries 3
Total 453
Note: Because we did not contact local BBBs and
BBB headquarters has data in its database only on
the number of death care complaints, we could not
provide information on the nature of these
complaints.
Source: BBB data.
When comparing 1997 BBB inquiry and complaint
data for death care to such data for other types
of businesses, there were about one-third fewer
total complaints for death care than there were
for barber and beauty shops (654). The data
indicate that BBB received far fewer complaints
about death care than about automotive repair
(15,551).10 Data were not available that would
permit adjustment of these comparisons to a per-
transaction basis. That is, although there were
far fewer consumer transactions concerning death
care industries than concerning barber and beauty
shops or automotive repair shops, we cannot make a
proportional assessment of the complaints.
In the selected states, consumer complaint data
from each state were not available for us to
review. For example, the California Public
Interest Research Group stated that the California
Department of Consumer Affairs received 603
complaints about cemeteries and 384 complaints
about funeral homes for fiscal year 1995/1996.
However, officials from both organizations said
the complaint data were not available to confirm
those numbers. In general, if they collected
complaints, state-level organizations were either
(1) only able to provide statistics about them and
not detailed information on the nature or extent
of complaints or (2) did not want to furnish such
information because of confidentiality concerns.
In our discussions with state agency officials and
our review of available documents provided,
officials generally stated that they received few
complaints about death care.
Reasons Consumers May Not Complain
Clearly consumers may not complain about the goods
and services they receive from death care
providers because they are satisfied. However,
there are also factors that might inhibit
complaints. Officials from organizations at all
levels told us that consumers often did not report
problems because of the emotional component of
death care or because they did not want to dwell
on negative occurrences about the death of a loved
one. One FTC official said that although he was
not aware of any study to support it, anecdotally,
consumers tended not to complain because of
embarrassment or ignorance. In addition, a
representative of a consumer group in Texas said
that consumers are sometimes reluctant to complain
because they know they have overpaid for death
care services and do not want to reveal their
mistakes to others. A BBB representative said that
consumers might believe that death care is a
personal matter rather than a consumer matter.
Therefore, consumers may not think to complain the
same way they would about a defective washing
machine or automobile. Similarly, AARP officials
said that AARP members are generally not inclined
to report personal problems they have experienced
with death care and that for this reason
complaints are not considered to be a good measure
of customer satisfaction. Further, users of
preneed arrangements may leave no one in a
position to complain.
Also, consumers may not be aware of the FTC
Funeral Rule and states' laws relating to death
care industries. Without knowing about the Funeral
Rule and the laws, consumers may not know they
have the right to complain. FTC officials said
that they believe that consumers are not
comparison-shopping when they enter into funeral
transactions and that the lack of comparison-
shopping could be related to the lack of consumer
information about FTC and its Funeral Rule. Thus,
if consumers do not get price lists from funeral
homes or cemeteries when they are supposed to,
they probably do not know that they are entitled
to such lists.
Finally, in a 1978 report on funeral industry
practices, FTC stated that consumer complaints
generally do not provide a complete gauge of
consumer problems.11 The report also stated that
even at the time the Funeral Rule was proposed and
under consideration, the number of consumer
complaints filed against funeral directors was
modest. Despite the low number of complaints, FTC
was able to promulgate the Funeral Rule because,
among other things, it believed that
"the emotional trauma of bereavement, the lack of
information, and time pressures place the consumer
at an enormous disadvantage in making funeral
arrangements. These conditions mean that the
funeral consumer lacks much of the information and
freedom of choice available in most other consumer
transactions."
FTC's Efforts to Promote Compliance Include
Distributing Guidelines, Test-Shopping, and
Working With Funeral Home Industry
Over the last 5 years, FTC has taken steps,
including distributing compliance guides and
working with the funeral home industry, to promote
compliance with the Funeral Rule. FTC took these
steps because it was concerned about what it
perceived as a relatively low level of compliance.
For the late 1980s, FTC reported that only about
one-third (36 percent) of funeral providers
complied with two key requirements of the Funeral
Rule-giving consumers a general price list (GPL)
and an itemized final statement of goods and
services selected. FTC based this compliance rate
on a study it did in 1987 during a review of the
Funeral Rule. To conduct its study, FTC questioned
selected consumers who had arranged funerals in
the past 18 months about their experiences with
the funeral homes and what was done by the homes
to comply with the Rule.
During the early years after the Funeral Rule
became effective, FTC's enforcement of the Rule
was complaint-based. FTC filed 41 civil penalty
cases from 1984 through 1994 that were based on
investigations of complaints received about
individual funeral providers.12 Because of the
perceived low compliance rate based on the 1987
study results it reported and the small number of
funeral providers FTC was able to investigate in
10 years, FTC adopted a new approach to try to
ensure funeral provider compliance.
According to FTC, it mailed more than 18,000
compliance guides to "virtually every member" of
the funeral home industry throughout the nation in
June 1994. Beginning in October 1994, FTC
initiated a test-shopping Rule enforcement
approach, called "sweeps," targeting funeral homes
in a particular region, state, or city. Under this
approach, FTC sent FTC staff, state investigators
(such as those from offices of state attorneys
general), or other volunteers (such as members of
AARP) posing as consumers to test-shop a funeral
home--by simulating a funeral transaction--and
determine whether the funeral home was complying
with the Rule. An FTC official said that FTC did
not investigate individual complaints about a
funeral home unless a complaint was made about a
home in an area that FTC had already targeted for
test-shopping.
According to FTC, the sweeps methodology was
initially designed to quickly raise the overall
compliance level with the Funeral Rule's core
requirement: giving consumers an itemized GPL
early in their meetings with funeral home staff.
FTC officials said they believed the sweeps
methodology was a more effective law enforcement
tool than conducting traditional investigations
because FTC could leverage its resources to make a
bigger impact by test-shopping more funeral homes.
Thus, according to FTC officials, there was a
greater likelihood that noncompliance with the
Rule would be detected.
In September 1995, NFDA proposed sponsoring a
nonlitigation alternative to civil penalty actions
for Rule violations when test-shopping revealed
that funeral homes failed to provide the GPL and
other price lists required by the Rule (i.e., for
caskets and outer burial containers). This
proposal, which was approved in modified form and
implemented by FTC in 1996, was called the Funeral
Rule Offenders Program (FROP). Among other things,
violators of the Funeral Rule could have been
offered the FROP option. Those who chose to enroll
in FROP would agree to make voluntary payments to
the U.S. Treasury equal to 0.8 percent of average
annual gross sales and participate in training
organized by NFDA that was designed to teach them
how to comply with the Rule. According to FTC, the
sweeps and FROP were expected to deter funeral
homes from violating the Rule because (1) Rule
violations were more likely to be detected and (2)
violations required payments that were substantial
enough to be treated as more than the mere cost of
doing business as well as 5 years of compliance
training and monitoring.
Although sweeps focused solely on whether a
funeral home provided a GPL, by fiscal year 1997,
the sweeps methodology had evolved so that
additional violations were considered when FTC was
making the decision about whether to offer FROP to
a funeral home. In addition by fiscal year 1997,
the official in each FTC region coordinating the
test-shopping was to review the GPL to ensure that
it contained the disclosures and other
requirements. From October 1994 to September 1998,
FTC test-shopped 958 funeral homes, or 4.3 percent
of the 22,300 funeral homes in the United States
(see app. III for information on the number of
sweeps and funeral homes shopped by state and
city).
In addition, FTC has taken steps to educate
consumers and funeral industry providers about the
Funeral Rule. These steps include the publication
and distribution of Funeral Rule consumer
brochures and speaking engagements before consumer
and industry groups.
Despite Its Efforts, FTC Cannot Measure
Industrywide Compliance With Funeral Rule
FTC maintains that compliance among providers
covered by the Rule has increased "substantially"
over the years. However, FTC does not have a
systematic or structured process for measuring
funeral homes' compliance so that overall
conclusions can be drawn about the effectiveness
of its enforcement efforts. FTC's efforts to
measure compliance have been limited to narrowly
scoped test-shopping sweeps in selected areas.
These sweeps were not representative of the
universe of funeral providers and have not covered
all elements of the Funeral Rule. We analyzed the
available records of funeral homes FTC test-
shopped in fiscal years 1997 and 1998. Our
analysis indicated that among the limited sample
of homes visited, compliance indeed was high for
the Funeral Rule's core requirement--giving
consumers itemized price lists early in their
meetings with funeral home staff--and somewhat
lower for other elements of the Rule we reviewed.
However, it appears that FTC did not always take
action on funeral homes that potentially violated
the Rule. According to FTC, one of the primary
reasons it may not have taken action was because
it exercised prosecutorial discretion.
FTC Reported Substantial Increase in Funeral Rule
Compliance but Has Not Developed a Systematic Way
for Determining Compliance
FTC has reported a substantial increase in
Funeral Rule compliance among funeral providers
from 1987, when FTC conducted its study, to 1998,
the most recent year for which FTC provided
compliance data. According to FTC, since the
inception of FROP, funeral home test-shopping has
demonstrated that compliance among funeral homes
has substantially increased. FTC press releases
and documents that FTC provided during our review
indicate that test-shopping has demonstrated that
compliance with the Funeral Rule was as high as 90
percent during fiscal years 1997 and 1998.
However, although FTC has reported a substantial
improvement in Funeral Rule compliance, FTC's
approach for measuring changes in the levels of
compliance is somewhat problematic. This is
because (1) FTC's current approach is not
comparable to the approach used to derive its
baseline level of compliance, (2) compliance is
not measured in a systematic way using a
statistically valid sample of the universe of
funeral providers, and (3) FTC's reported
compliance figures deal solely with what FTC
considered the core requirement and does not
measure compliance with other elements of the
Rule.
Our review of available documents and our
discussions with FTC officials showed that FTC
could not substantiate whether compliance has
increased since the inception of the Rule. The
methodology of FTC's 1987 study, which FTC used to
report a compliance rate of 36 percent,13 differs
from that of the post-1994 test-shopping, which it
used to report a compliance rate of 90 percent for
fiscal year 1997. The two methodologies are not
comparable, and the elements of the Funeral Rule
tested were not the same. The methodology of the
1987 study involved interviewers querying
consumers who had arranged a funeral during the 18
months preceding the inquiry about whether they
were shown a GPL and provided an itemized final
statement of goods and services. It seems likely
that at least some respondents who may have been
grieving and in emotional distress would not
remember whether or not they had been shown a GPL
or provided an itemized statement of goods and
services selected.14 The Funeral Rule requires
that consumers be given a GPL rather than shown
one. The more recent sweeps methodology assesses
whether consumers were given a GPL. Thus, the
behavior being measured by FTC's baseline study
and the more recent sweeps methodology is
different. Further, the more recent sweeps
methodology does not assess whether consumers
received an itemized statement of goods and
services.
Because of the differences in methodologies
and measures used to reach the reported compliance
rates, any increase reported by FTC cannot be
substantiated. In fact, the sweeps methodology,
while retaining a strong focus on whether a GPL is
given, has evolved in such a manner that it would
be difficult to confirm a pattern of change and
compliance resulting from sweeps from year to
year.
Also, FTC's selection of test-shopping sites
cannot be considered representative of funeral
providers nationwide. According to FTC, the goal
of Funeral Rule sweeps is to increase funeral
homes' compliance with the Funeral Rule and to
deter noncompliance. We could not assess whether
these goals were being met, nor could FTC, given
the test-shopping samples and the scope of the
sweeps. To undertake its sweeps, FTC did not
select a representative sample of funeral homes to
test-shop. For example, FTC did not test-shop
funeral homes in New England in either fiscal year
1997 or fiscal year 1998, the period for which we
reviewed FTC data. In addition, in fiscal year
1998, although FTC test-shopped funeral homes in
the West, Midwest, and Southwest, Florida was the
only state in which homes were test-shopped on the
East Coast. According to FTC, the factors it
considers in selecting sites for conducting sweeps
include whether resources are available in FTC
regional offices and whether resources are
available at the respective offices of state
attorneys general or AARP for partnering with FTC
to carry out sweeps.
Although the Funeral Rule applies to all providers
of funeral goods and services, including certain
cemeteries, FTC has test-shopped only funeral
homes. According to FTC officials, they have not
identified the number of cemeteries that are
covered by the Funeral Rule or performed any
sweeps at cemeteries to date.15 Therefore, FTC has
neither identified the universe of providers of
funeral goods and services that are to comply with
the Rule nor tested such providers' compliance.
Without knowing which providers are subject to the
Funeral Rule, FTC cannot select a representative
sample to determine an accurate compliance rate.
FTC's reported compliance figures for recent years
refer only to compliance with what FTC considers
to be the core Funeral Rule requirement-giving
consumers itemized price lists early in their
meetings with funeral home staff. Although sweeps
in fiscal years 1997 and 1998 collected data
concerning other elements, such as
misrepresentations and disclosures, FTC has
confined its reporting of compliance to the core
requirement.
Our Analysis Indicated That Compliance Was High
Among Test-Shopped Homes for GPLs, but FTC Did Not
Always Act on Potential Rule Violations
Our analysis of FTC records on 22 funeral home
sweeps covering a total of 596 funeral homes for
fiscal years 1997 and 1998 indicated that
compliance with certain elements of the Funeral
Rule ranged from 79 to 99 percent, depending on
the element tested. However, it appears that FTC
did not always take action on funeral homes that
potentially violated the Rule. Available records
did not always enable us to determine the reasons
FTC did or did not take action when potential
Funeral Rule violations occurred. However, FTC
officials told us that the agency may not have
taken action for a number of reasons, including
prosecutorial discretion, lack of staff resources,
and the evolving nature of the sweeps program.
Our analysis of FTC records for funeral home
sweeps for fiscal years 1997 and 1998 showed that
for the items we examined, compliance was high at
the funeral homes shopped. For example, most of
the homes FTC test-shopped provided a GPL at the
appropriate time during the discussion of the
funeral transaction, and very few homes engaged in
verbal misrepresentations of the goods and
services consumers were required to purchase.
Table 3 shows the results of our review of FTC's
records regarding the provision of the GPL at the
required time for fiscal years 1997 and 1998.
Table 3: Results of FTC Funeral Home Sweeps for FY
1997 and FY 1998-Provision of GPL
Fiscal year 1997 Fiscal year
1998
Results Number Percent Number Percent
Total available 256 100% 304 100%
filesa
GPL provided on 221 86 277 91
time
GPL provided late 35 14 27 9
or not at all
aDuring FY 1997 and 1998, FTC test-shopped 292 and
304 funeral homes, respectively. FTC did not have
files available for 36 of the homes shopped for FY
1997. In addition, although FTC had files for 256
and 304 of the homes that were shopped for FY 1997
and FY 1998, respectively, 33 of the FY 1997 files
and 58 of the FY 1998 files did not contain the
GPLs that shoppers were to have obtained.
According to FTC officials, these GPLs were not
available because two regions did not keep them.
Source: GAO analysis of FTC records.
FTC records also are to document whether the
funeral home made misrepresentations about whether
embalming was required or certain items must be
purchased, depending on the type of funeral. Our
analysis of FTC's records showed that most funeral
homes did not make misrepresentations to the test-
shopper. Table 4 shows the results of our review
of FTC's records concerning representations about
embalming and items consumers were required to buy
for fiscal years 1997 and 1998.
Table 4: Results of FTC Funeral Home Sweeps for FY
1997 and FY 1998-Provision of Proper
Representations
Fiscal year Fiscal year
1997 1998
Results Number Percen Number Percent
t
No misrepresentations 252 98% 300 99%
occurred
Misrepresentations 4 2 4 1
occurred
Source: GAO analysis of FTC records.
We also examined FTC records to test whether
funeral homes provided identifying information and
disclosures on the GPL as required by the Funeral
Rule. We reviewed the GPLs that FTC made available
to us to determine whether funeral homes included
(1) the requisite identifying information, such as
the address and telephone number of the funeral
home and the effective date of the GPL; and (2)
selected disclosures required by the Rule. We
selected three of the six disclosures that the
Funeral Rule requires a funeral home to put on its
GPL and other price lists to focus on. These
disclosures were a consumer's right to purchase
only goods and services desired; proper
representation about whether embalming is required
by the state or municipality; and, if the funeral
home offers cremation, a consumer's right to an
alternative container to a casket for cremation.
Our analysis showed that most funeral homes
included identifying information and the selected
disclosures. Table 5 shows the extent to which the
identifying information and the three selected
disclosures were on the GPLs from sweeps conducted
from fiscal years 1997 and 1998.
Table 5: Results of FTC Funeral Home Sweeps for FY
1997 and FY 1998-Identifying Information on GPL
and Selected Disclosures
Fiscal year Fiscal Year
1997 1998
Results Number Percent Number Percent
Total GPLs examined 223 100% 246 100%
Identifying 199 89 235 96
information on GPL
Identifying 24 11 11 4
information not on
GPL
Selected disclosure 181 81 195 79
statements on GPL
Selected disclosure 42 19 51 21
statements not on
GPL
Note: We tested for three of six disclosures that
are required to be on the GPL-a consumer's right
to purchase only goods and services desired;
proper representation about whether embalming is
required by the state or municipality; and, if the
funeral home offers cremation, a consumer's right
to an alternative container to a casket for
cremation.
Source: GAO analysis of FTC records.
It Appears That FTC Did Not Always Act on
Potential Violations Identified During Funeral
Home Sweeps or Document Reasons
We also analyzed the extent to which FTC took
action on funeral homes for which potential
violations were identified during sweeps for
fiscal years 1997 and 1998. We found that FTC did
not always (1) take action when potential
violations occurred or (2) document the reasons
for its actions.
Once FTC staff have noted that a Funeral Rule
violation has occurred, they can determine the
appropriate response or action according to the
severity of the violation. One possible
enforcement action is a letter that notifies the
funeral home that it is not in compliance with the
Rule, including a warning that future
noncompliance could result in a monetary penalty;
another is a written offer for the funeral home to
enter FROP as an alternative to a law enforcement
proceeding; and a third is a full law enforcement
proceeding based on the determination that the
funeral home has committed gross violations. Our
analysis showed that in some cases FTC did not use
any of these options when test-shopping disclosed
potential violations. Specifically, according to
its records, in fiscal years 1997 and 1998, FTC
did not take action in more than half the
instances in which funeral homes had one or more
potential Funeral Rule violations. Table 6 shows
the extent to which FTC did or did not take
enforcement action on such homes as noted during
our review of FTC records on sweeps carried out in
fiscal years 1997 and 1998.
Table 6: Results of FTC Funeral Home Sweeps for FY
1997 and FY 1998-Extent of FTC Enforcement Actions
Against Funeral Homes That Had One or More
Potential Violations
Fiscal year Fiscal year
1997 1998
Homes with potential Number Percent Number Percent
violations
FTC took action 38 43% 26 33%
FTC took no action 50 57 54 68
Total 88 100 80 100
Note 1: Potential violations comprise the
following categories: GPL provided late or not at
all; verbal misrepresentations; missing
identifying information; and missing disclosure
statements (i.e., a consumer's right to purchase
only goods and services desired, proper
representation about whether embalming was
required by the state or municipality, and a
consumer's right to an alternative container to a
casket for cremation). More than one violation
may have occurred at a single funeral home.
Note 2: For fiscal year 1997, individual
categories of potential violations for which FTC
took no action ranged from 17 to 75 percent. For
fiscal year 1998, the range was 33 to 82 percent.
We are not identifying the percentages for
individual categories in order to protect
information FTC deemed to be confidential law
enforcement information.
Note 3: Percentages do not total 100 due to
rounding.
Source: GAO analysis of FTC records.
Because other factors could influence FTC's
decision to pursue a case, an indication in its
records of a potential violation does not
necessarily mean that FTC would be expected to
take an enforcement action. However, available
records did not always allow us to identify the
specific reasons FTC did not act on potential
violations of the Funeral Rule. When records
indicated that FTC took action on a potential Rule
violation, we were not always able to determine
why. In addition, FTC's letters to the funeral
homes in violation did not always provide the
reason FTC took action, a practice that is
suggested in FTC guidance on responding to a
violation.
FTC headquarters officials told us that they
were uncertain as to the exact reasons why
regional staff did not act on individual potential
violations. However, FTC's Funeral Rule
Coordinator and the Assistant Director for
Marketing Practices told us that there are
numerous reasons FTC would not take action against
a funeral home, even though the documentation on
the home may indicate that a violation occurred.
For instance, the Funeral Rule Coordinator said
that the FTC official reviewing the test-shopping
record may have asked further questions of the
test-shopper and determined that the Rule had not
really been violated. She and the Assistant
Director stated that they were uncertain why that
information was not documented.
FTC officials also told us that another
reason an action may not have been taken is that
FTC staff have discretion as to whether they
should pursue a potential violation on the basis
of the likelihood that FTC staff can make a solid
case. In comments on a draft of this report, FTC's
Chairman also stated that FTC can exercise
prosecutorial discretion when deciding to take
action on any individual case. During our review,
FTC officials pointed out that FTC policy is to
pursue full enforcement actions only if there is
sufficient evidence to file the matter in federal
court. These officials also told us that they did
not believe that some types of violations,
particularly those for missing identifying
information, warranted any type of action because,
in isolation, they were not considered
substantive. Nonetheless, the officials
acknowledged that such violations as those
involving missing disclosures would probably
warrant a compliance letter, and they could not
explain why such a letter had not been sent in
certain cases. They acknowledged that a more
consistent procedure for use of compliance letters
was needed.
FTC headquarters officials also told us that
FTC staff may not have taken action or documented
the reasons because the sweeps program is still
evolving. They said that during the early sweeps,
such as those conducted during 1995, FTC sweeps
focused on the key requirement of the Rule-having
a GPL and giving it at the right time. By fiscal
year 1996, FTC staff also started to examine
whether two other lists-the outer burial container
list and the casket price list-were provided to
test-shoppers. And by fiscal year 1997, test-
shoppers were instructed to also gather
information on misrepresentations about embalming
and required purchases during the funeral
consultation. Also in that year, FTC regional
offices were instructed to review GPLs to ensure
that the required disclosures were included.
However, given the sweeps methodology, FTC cannot
determine whether funeral homes were complying
with certain elements of the Funeral Rule, such as
accuracy of prices and the provision of a
statement of goods and services selected.
In fact, FTC's guidance for conducting sweeps
instructs FTC regional staff to consult with the
Funeral Rule Coordinator in the Division of
Marketing Practices at FTC headquarters in making
determinations about such things as a GPL being in
compliance with the Rule or the timing of the
presentation of the GPL. According to the
guidance, FTC's Funeral Rule Coordinator is to
maintain records regarding these determinations so
that they may be instructive in subsequent sweeps
and cases. The guidance also points out that
advising the Funeral Rule Coordinator about
actions, such as sending a compliance letter,
"will allow the development of a consistent
response to these violations."
FTC headquarters officials acknowledged that they
had not done an analysis of the documentation on
sweeps as we had. They said that when regions are
doing sweeps, staff from the Division of Marketing
Practices hold conference calls with regional
staff to discuss issues that arise during the
sweeps. FTC also provided documentation that
indicated such communication between headquarters
and regions occurred. However, FTC headquarters
officials said that headquarters staff viewed
Funeral Rule sweeps as primarily a regional
program and assumed that regional offices would be
consistent in their implementation of the program
based on the training provided. FTC was unable to
provide evidence of historical, systematic
documentation of sweeps decisionmaking and
results. The lack of such documentation could
indicate weak internal controls over the Funeral
Rule program. Among other things, such controls
are to help ensure that the objectives of the
program are achieved.
Selected States Varied in Their Approaches to
Protecting Consumers Who Arrange Death Care
The five selected states differed in their
approaches to protecting consumers who deal with
funeral homes and cemeteries and make preneed
arrangements. Differences were most notable
concerning the (1) regulatory structure of the
five states and (2) requirements that these states
placed on death care providers. However, the five
states also had similarities in their approaches
to protecting consumers who engage in death care
transactions. For example, the five states all had
licensing and minimum education requirements that
funeral providers were required to meet. Each of
the states also had laws and regulations that
required funeral providers to disclose price and
other information to consumers similar to the
requirements of FTC's Funeral Rule. Appendix IV
contains additional information on the selected
states' laws and regulations and the oversight of
funeral homes and cemeteries.
Funeral Homes
The selected states had various approaches for
regulating funeral homes. For example, in three of
the states (Florida, Maryland, and Texas)
regulatory agencies with responsibilities for
funeral homes were governed by a board or a
commission made up of industry practitioners and
consumer representatives. In the other two states
(California and New York), the industry was
regulated by a government agency but not by a
board or a commission.16 Another difference among
the states was their approach to inspections of
funeral homes. Two of the states (Florida and
Maryland) required that all funeral homes within
the state be inspected on an annual basis. In
Maryland, for example, inspections included
reviews of required price lists, a completed
funeral services contract, a preneed contract
form, and funeral home facilities. Texas law
required biennial inspections of funeral homes.17
California and New York did not have an annual
inspection requirement and took a more complaint-
driven approach to conducting inspections.
The five states also had some key differences
among their requirements for funeral providers
that affected consumers. For example, two of the
states (California and Texas) required that
funeral directors make available to consumers a
state-produced brochure answering commonly asked
questions concerning death care, including
information on where to send complaints. Maryland
and New York have produced consumer brochures but
had no requirement that funeral homes make them
available to consumers. Florida did not produce a
brochure.
Similarities also existed among the five states'
regulatory approaches. For example, the five
states all had licensing requirements for funeral
directors and embalmers and minimum education
requirements that these funeral providers were
required to meet. In addition to FTC's Funeral
Rule, each of the states had state requirements
similar to those of the Rule. For example, each
state (1) required that funeral directors provide
an itemized price list to consumers; and (2)
prohibited funeral directors from making
misrepresentations, including falsely representing
that embalming is required by law.
Cemeteries
The five states also differed in their approaches
to regulation and oversight of those cemeteries
within their jurisdictions, such as nonreligious,
for-profit cemeteries (see app. IV for details on
cemeteries covered by the selected states). For
example, in Maryland the office with regulatory
responsibility for cemeteries was administered by
a single individual with the authority to perform
the numerous functions of the office. In New York,
cemeteries were regulated by a board consisting of
the Secretary of State, the Attorney General, and
the Commissioner of Health. The selected states
also differed in terms of the requirements and
restrictions placed on cemeteries, including
restrictions on what goods and services cemeteries
could sell. In addition, New York was unique among
the five states in that it required that
cemeteries under its jurisdiction be operated on a
not-for-profit basis.
In each of the selected states, the state
regulatory agencies responsible for cemeteries had
jurisdiction over only a fraction of the total
number of cemeteries in the state because certain
types of cemeteries, such as religious and
municipal cemeteries, were exempt from state
regulation. Oversight of cemeteries is conducted
primarily at the state or local level. FTC's
Funeral Rule applies only to certain cemeteries
that sell both funeral goods and services.
Preneed Arrangements
The selected states also differed in their
treatment of preplanned, prepaid funeral
transactions, which are commonly called preneed
arrangements and are regulated by state law.
Although each of the five states had promulgated
some sort of regulation of preneed contracts, the
laws varied widely. Differences in the states'
statutes included the percentage of preneed sales
proceeds that each state required to be placed in
trust and limitations on where proceeds from
preneed contracts may be invested. In addition,
two of the five states (Florida and Texas)
required sellers of preneed contracts to pay a fee
to a state consumer protection fund for every
preneed contract they sold. The purpose of such a
fund is to compensate consumers for situations in
which sellers of preneed contracts are later
unable to perform the terms of the contract.
Appendix V contains additional information on
preneed arrangements in general and in the
selected states.
Conclusions
Our review found that although some data on
problems that consumers experienced with various
aspects of death care were available,
comprehensive information on consumer complaints
that would indicate the overall nature and extent
of such problems was not. The organizations we
contacted generally stated that the number of
complaints about death care was low compared to
other consumer issues. Among the reasons these
organizations gave for the relatively low number
of complaints included the personal or emotional
nature of the death care situation.
State and federal governments have laws and
regulations to protect consumers in arranging
death care transactions. For the five states we
focused on, we found differences in their
regulatory structures for death care providers and
in their requirements for those providers; we also
found similarities, including licensing and
minimum education requirements for funeral
providers. In addition, all five states had laws
and regulations that required funeral providers to
disclose price and other information to consumers,
similar to the requirements of FTC's Funeral Rule.
At the federal level, FTC's Funeral Rule was
designed to protect consumers when arranging death
care transactions. FTC has taken steps, including
distributing compliance guides to funeral homes
and working with the funeral home industry,
intended to ensure compliance with the Funeral
Rule. However, FTC cannot, with any reasonable
assurance, report that there is high nationwide
compliance with the Rule or a substantial increase
in compliance compared to a decade ago, because
FTC does not have a systematic or structured
process for measuring funeral homes' compliance so
that overall conclusions can be drawn about their
actual compliance with the Rule and the
effectiveness of FTC's enforcement strategies.
FTC's efforts to measure compliance have been
limited to narrowly scoped test-shopping sweeps in
selected areas-that is, they are not
representative of the universe of funeral
providers and do not cover all elements of the
Rule. We did not do an analysis on the resources
needed for FTC to establish a nationwide
compliance rate. However, a more strategic
selection of sites and a more systematic approach
to conducting sweeps and analyzing results could
provide more convincing evidence of the overall
level of compliance with the Funeral Rule.
Although our work indicated that indeed
compliance was high among funeral homes that FTC
test-shopped in fiscal years 1997 and 1998 for the
three elements of the Funeral Rule we reviewed, it
appears that FTC did not always take enforcement
action against funeral homes that potentially
violated the Rule and did not always document the
reasons. When records indicated that FTC took
action on a potential Rule violation, we were not
always able to determine why. In addition, FTC's
letters to the funeral homes in violation did not
always provide the reason FTC took action, a
practice that is suggested in FTC guidance on
responding to a violation.
Just as any agency's management is
responsible for ensuring its agency's compliance
with laws and regulations, it also is responsible
for establishing effective internal controls. In
the case of the Funeral Rule, FTC promulgated the
Rule and is responsible for establishing effective
internal controls for ensuring consistency in its
(1) determinations of whether violations of the
Rule's requirements occurred and (2) documentation
on the specific reasons FTC did or did not act on
such violations. Although FTC had guidance on how
determinations regarding violations were to be
made, the guidance was not followed consistently,
as evidenced by the lack of documentation
explaining whether and why FTC took action for
some potential violations and not others.
Recommendations to the FTC Chairman
To help assess the overall effectiveness of FTC's
Funeral Rule enforcement strategy, we recommend
that the Chairman of FTC (1) review possible
approaches to determine the most cost-effective
means for FTC to conduct sweeps that would result
in both a more convincing sample of funeral
providers and a broader analysis of the various
requirements of the Funeral Rule and (2) develop
and implement a plan for carrying out such an
approach in a systematic manner.
To ensure that FTC can consistently (1) determine
whether violations of the Rule's requirements
occurred and (2) document the specific reasons FTC
did or did not act on such violations, we
recommend that the Chairman of FTC train FTC staff
on the specific standards needed for a consistent
and acceptable level of documentation.
Agency Comments and Our Evaluation
We received written comments on a draft of
this report from the FTC Commissioners in a letter
dated August 25, 1999 (see app. VI). These
comments are contained in a letter signed by the
Chairman of FTC, by the direction of the
Commission, and in a dissenting statement by one
of FTC's Commissioners. According to the
Chairman's letter, the Commission voted 3 to 1 to
issue this response. The dissenting statement
reflected the views of the one commissioner who
voted against submitting the response.
FTC did not specifically comment on our
recommendations. However, the letter signed by
the Chairman discussed three points under separate
headings: (1) "Test Methodology" for measuring
funeral providers' compliance with FTC's Funeral
Rule, (2) enforcement practices, and (3) other
comments. Under the first heading of test
methodology, the Chairman's letter stated that the
report "incorrectly suggests that the FTC cannot
document a nationwide increase in compliance with
the core requirement of the Funeral Rule and that
[FTC has] tested compliance in 'narrowly scoped
test-shopping sweeps.'" As we have stated in the
report, we believe that because of the differences
among the methodologies and the elements FTC used
in the 1980s and in the 1990s to measure
compliance with the Funeral Rule, the assessed
methodologies do not yield results that are
comparable. Therefore, any increase in compliance
reported by FTC cannot be substantiated. Also,
although FTC has test-shopped 958 funeral homes in
its 32 sweeps of 22 states and the District of
Columbia over a 4-year period,18 FTC selected these
sites and the homes to be shopped on the basis of
the availability of resources from FTC regional
offices and offices of partnering organizations,
not as an appropriate sample from which to assess
compliance. Indeed, FTC has not identified the
universe of providers of funeral goods and
services that are to comply with the Rule. Thus,
we do not believe that FTC is positioned to draw
overall conclusions about actual compliance with
the Rule. As we recommended, FTC would benefit
from an approach that used a more convincing
sample of funeral providers for conducting sweeps
and a broader analysis of Funeral Rule
requirements.
Under the second heading of enforcement
practices, the Chairman's letter stated that the
report correctly notes that FTC has "not pursued
every potential violation of each provision of the
Rule." The Chairman's letter continues to state
that "merely focusing on quantity of prosecutions
does not present an accurate picture of the impact
of the Commission's activities." We do not find
fault with the statement in the Chairman's letter
that "the decision to take action in any
individual case is the result of the exercise of
prosecutorial discretion, which is no different
from the sort of decisionmaking and resource
allocation in which all law enforcement agencies
must engage." However, in FTC's case, it did not
take action on more than half of all funeral homes
identified in sweeps for fiscal years 1997 and
1998 as having potential Funeral Rule violations.
As the one dissenting Commissioner pointed out in
his statement, the proportion of all the potential
violations for which FTC did not act is worthy of
review to "confirm that they are not likely to
cause substantial consumer injury." Because
available records did not always allow us to
identify the specific reasons FTC did or did not
act on potential violations of the Funeral Rule,
we could not determine the impact of such inaction
on consumers.
Finally under the third heading of other
comments, the Chairman's letter stated that "we
believe that GAO fairly points out that some
improvements are needed in the Funeral Rule
program's record keeping." According to the
Chairman's letter, FTC officials have said that a
review of FTC staff's procedures has begun. We
applaud FTC's efforts to review its procedures and
believe that FTC's acknowledgement of needed
improvements to the program's recordkeeping is an
appropriate first step in establishing effective
internal controls over the Funeral Rule program.
By taking this step and training staff as we
recommended, FTC should be better positioned to
ensure consistency in its (1) determinations of
whether violations of the Rule's requirements
occurred and (2) documentation of the specific
reasons it did or did not act on such violations.
Furthermore, we believe that these efforts may
better position FTC to more effectively manage the
Funeral Rule program and systematically analyze
the extent to which certain Rule violations have
the potential for substantial consumer injury.
In his dissenting statement, the one
Commissioner who voted against submitting the
response agreed with many of the points made by
his colleagues, including that the decision to not
take action on individual cases appears to have
resulted from the exercise of prosecutorial
discretion. However, he stated he did not believe
the response appropriately addressed the concerns
raised in our draft report. Among other things, he
said that (1) FTC should take great care to avoid
stating or implying that it is in a position to
conclude that a statistically valid nationwide
projection of compliance can be made, and (2) a
careful analysis of the concerns raised in the
draft would have better served the public interest
to confirm his suspicions that FTC does not have
any substantial enforcement problems.
As arranged with your offices, unless you
publicly announce its contents earlier, we plan no
further distribution of this report until 30 days
from the date of this letter. At that time, we
will send copies of this report to the Honorable
Robert Pitofsky, Chairman of the Federal Trade
Commission; Judd Gregg, Chairman, and Ernest F.
Hollings, Ranking Minority Member, of the
Subcommittee on Commerce, Justice, State, the
Judiciary, and Related Agencies, Senate
Appropriations Committee; John Ashcroft, Chairman,
and Richard H. Bryan, Ranking Minority Member,
Subcommittee on Consumer Affairs, Foreign Commerce
and Tourism, Senate Committee on Science,
Commerce, and Transportation; Harold Rogers,
Chairman, and Jose E. Serrano, Ranking Minority
Member, of the Subcommittee on Commerce, Justice,
State, the Judiciary, and Related Agencies of the
House Appropriations Committee; and W.J. Tauzin,
Chairman, and Edward J. Markey, Ranking Minority
Member, Subcommittee on Telecommunications, Trade
and Consumer Protection, House Committee on
Commerce. We will also make copies available to
other interested parties upon request.
Please contact me or John F. Mortin on (202)
512-8676 if you or your staff have questions.
Major contributors to this report are acknowledged
in appendix VII.
Laurie E. Ekstrand
Associate Director
Federal Management
and Workforce Issues
_______________________________
1Preneed Insurance: A Business to Die For? 1998,
Conning & Company (Hartford: 1998).
2AARP was formerly known as the American
Association of Retired Persons.
315 U.S.C. 45.
4FTC's authority to issue rules is set forth at 15
U.S.C. 57a(a) and 15 U.S.C. 46(g). The Funeral
Rule is set forth at 16 C.F.R. Part 453.
5FTC is currently soliciting the views and
suggestions of interested parties, and FTC staff
hope to have the entire rule review process
completed within 2 years.
6Religious, municipal, and fraternal cemeteries
are usually exempt from the various state
regulations that govern commercial cemeteries.
7Lisa Carlson, Caring for the Dead: Your Final Act
of Love (Hinesburg, VT: Upper Access Inc., 1998).
8Judith A. Frank, "Preneed Funeral Plans: The Case
for Uniformity," The Elder Law Journal, Spring
(1996).
9When no state CCSC exists, the national office is
to work with the state cemetery board or similar
state government agency to assist the consumer.
10According to BBB data, complaints about
automotive repairs comprised complaints about
repairs to the following: body and paint; brakes,
shocks, and mufflers; electrical service; rebuilt
and exchanged engines; mechanicals (except
transmissions); radiators and air conditioning;
tires and retreads; transmissions; wheel
alignments; and windshields or glass.
11Funeral Industry Practices, FTC, Final Staff
Report (Washington, D.C.: 1978).
12 FTC filed eight additional cases from 1995
through 1996 as a result of investigations
performed earlier.
13When FTC makes comparisons between current
compliance rates and past rates, it cites the 36
percent as the baseline, which combines results
related to a consumer being shown the GPL as well
as receiving an itemized statement of goods and
services. In relation to the GPL alone, the 1987
study shows that 67.9 percent of respondents said
that they were shown a GPL. Of those, 23.2
percent said they received it at or near the
beginning of the discussion with funeral home
personnel-the point at which the Funeral Rule
requires the GPL be provided.
14According to FTC, this statement allows consumers
to evaluate their selections and make any desired
changes. It is to be provided to the consumer at
the end of the arrangement discussion.
15According to FTC, some proportion of all
cemeteries provides funeral goods and services but
may still be outside FTC's jurisdiction as
nonprofit organizations.
16New York's Bureau of Funeral Directing, which
regulates funeral homes, has an advisory board.
17As of September 1, 1999, Texas law requires that
inspections be conducted annually.
18The letter signed by the Chairman cites table
III.1 in Appendix III and points out that "the
Commission has conducted 32 sweeps in 24 states."
In fact, table III.I and FTC's source document
lists 22 states and the District of Columbia.
Appendix I
FTC's Funeral Rule
Page 39 GAO/GGD-99-156 Funeral-Related Industries
Source: COMPLYING WITH THE FUNERAL RULE: A
Business Guide Produced by the Federal Trade
Commission, August 1995; pp. 45-50.
Appendix II
Objectives, Scope, and Methodology
Page 41 GAO/GGD-99-156 Funeral-Related Industries
Our objectives were to (1) describe the
availability of information on the nature and
extent of consumer complaints about the death care
industry, (2) describe and assess the Federal
Trade Commission's (FTC) efforts to ensure
compliance with its Funeral Rule, and (3) provide
information on selected state governments' roles
in protecting consumers in their transactions with
the death care industry. We did our work primarily
at FTC in Washington, D.C., and Dallas, TX; and at
state funeral and cemetery regulatory offices in
five states-California, Florida, Maryland, New
York, and Texas. We selected California, Florida,
New York, and Texas because these states had the
highest number of deaths of all 50 states in 1998.
We selected Maryland because it had recently
established a state regulatory agency with
oversight responsibility for all but certain
religious nonprofit cemeteries and because of
Maryland's close proximity to our headquarters
office. As agreed with your staff, we focused our
efforts on these five states because of time and
staffing constraints. Once we selected the states,
we concentrated our efforts at the agencies that
we identified as those most likely to have
responsibility for consumer-related death care
matters in their respective states.
In addition, we interviewed representatives of
selected national, state, and local industry trade
and regulatory associations and consumer advocacy
groups that deal with death care issues. Although
we recognize that there are numerous organizations
that are involved in one or many components of
death care, we judgmentally selected the
organizations to contact because of time
constraints, staff availability, and travel costs.
Although regulatory bodies may exist in each of
the selected states for monuments, crematories,
and other funeral industries, we focused our
efforts on regulatory bodies for funeral homes,
cemeteries, and preneed arrangements. In
consideration of these factors, in addition to the
state agencies responsible for death care
oversight and regulation, we met with
representatives of various industry and consumer
groups. At the national level, we contacted the
following organizations: AARP; the Better Business
Bureau (BBB); the Cremation Association of North
America; the Funeral and Memorial Society of
America (FAMSA); the International Cemetery and
Funeral Association; the National Alliance of Life
Insurance Companies; the National Association of
Attorneys General; the National Association of
Insurance Commissioners; the National Funeral
Directors Association (NFDA); the North American
Cemetery Regulators Association; the Insurance and
Research Publications Division of Conning &
Company; and the editor of Preneed Perspective.
At the state level, we contacted the following
organizations by state:
� California-State Offices: Office of the
Attorney General, California Department of
Justice; Cemetery and Funeral Programs, California
Department of Consumer Affairs; and California
Department of Insurance.
Consumer Groups and Industry Representatives:
California Public Interest Research Group;
Forest Lawn Memorial Parks and Mortuary;
Association Resource Center, a management
company for the California Funeral Directors
Association.
� Florida-State Offices: Bureau of Life and
Health Insurer Solvency and Market Conduct Review,
Division of Insurer Services, Florida Department
of Insurance; Bureau of Funeral and Cemetery
Services, Division of Finance, Office of the
Comptroller; Board of Funeral Directors and
Embalmers, Division of Professions, Florida
Department of Business and Professional
Regulation; Office of the Attorney General.
Consumer Groups and Industry Representatives:
Florida Funeral and Memorial Society; Florida
Funeral Directors Association.
� Maryland-State Offices: State Board of
Morticians, Department of Health & Mental Hygiene;
Office of Cemetery Oversight, Division of
Occupational and Professional Licensing,
Department of Labor, Licensing, and Regulation;
Office of the Attorney General; Life and Health
Section, Maryland Insurance Administration.
Consumer Groups and Industry Representatives:
Memorial Society of Maryland; Maryland State
Funeral Directors Association; Loudon Park
Funeral Home and Cemetery.
� New York-State Offices: Division of
Cemeteries, State of New York Department of State;
Bureau of Funeral Directing, State of New York
Department of Health; Office of the Attorney
General.
Consumer Groups and Industry Representatives:
Memorial Society of Hudson-Mohawk Region, the
Rochester Memorial Society, and the Syracuse
Memorial Society; L. F. Sloane Consulting Group
(a cemetery representative); New York Funeral
Directors Association.
� Texas-State Offices: Texas Funeral Service
Commission; Special Audits Division, Texas
Department of Banking; Texas Department of
Insurance; Office of the Attorney General.
Consumer Groups and Industry Representatives:
Austin Memorial and Burial Information Society;
Texas Funeral Directors Association; Greenwood
Funeral Homes and Cemetery.
At each of the nongovernmental organizations we
contacted, we spoke with officials regarding death
care issues and collected and reviewed available
documents and studies on such things as industry
sales and revenues, consumer issues associated
with the sales of death care goods and services,
and consumer-related federal and state regulatory
issues. We also did a literature and Internet
search for information on issues affecting death
care industries and consumers and reviewed
pertinent books, magazines, trade publications,
and periodicals regarding consumer concerns with
those industries.
To describe the availability of information on the
nature and extent of consumer complaints about the
death care industry, we met with FTC officials;
representatives of the aforementioned national
trade, regulatory, and consumer advocacy
organizations; and state regulatory officials in
the five states. At FTC, we reviewed data from
FTC's Consumer Information System (CIS), which
became fully operational in the fall of 1997 and
is FTC's database of consumer complaints,
inquiries, and requests for information. The CIS
database contained a total of about 200 categories
within which consumer complaints were included.
The categories in CIS covered a wide range of
topics, such as (1) creditor debt collection; (2)
home repair; (3) investments; (4) health; and (5)
leases for various products and services, such as
automobiles and furniture. We identified one of
those categories-funeral services-as the one that
could most likely provide us information on
consumers' complaints about death care issues. FTC
provided data from CIS showing 834 records for
fiscal year 1998. We then sorted the records into
individual categories and analyzed the data to
determine the extent and nature of complaints
received by FTC. In addition, at the other
organizations we contacted, we discussed with
officials the extent to which they may have
collected and maintained readily available data on
consumers' problems concerning death care issues
and the types and extent of complaints they
received. We also discussed with them the various
reasons why such information was not readily
available.
To describe and assess FTC's efforts to
ensure compliance with its Funeral Rule, we met
with FTC officials to discuss regulatory
practices, enforcement, and oversight of death
care industries. We also obtained and reviewed
pertinent laws, regulations, and FTC documents
pertaining to the history of FTC's efforts to
promulgate the Rule and enforce compliance. In
addition, we reviewed FTC's manual for initiating,
implementing, and concluding Funeral Rule test-
shopping, sometimes called Funeral Rule sweeps;
and we analyzed FTC records on funeral provider
compliance with the Funeral Rule for fiscal years
1997 and 1998. Specifically, for these fiscal
years, we requested the universe of records (596)
that documented the results of FTC's Funeral Rule
test-shopping efforts at funeral homes in various
locations across the country. FTC could not
provide 36 files because the regional office
performing the sweep did not retain those records
when a test-shopper did not find a problem.
For each of the 560 available files, we used
a standardized data collection instrument (DCI)
that was designed to capture such information as
whether the shopper received a general price list
(GPL) or whether specific misrepresentations were
made about matters like embalming. We also used
the DCI to compile data from the available GPLs
provided by funeral homes during the test-
shopping. FTC could provide price lists for only
469 test-shops. FTC officials could not fully
explain why the GPLs were missing from the records
but stated several possible reasons. According to
FTC officials, in one regional office, an FTC
official used the GPLs from previous test-shopping
experiences to train future test- shoppers. Also,
an FTC official speculated that perhaps other
price lists were missing because the GPL was not
received from the test-shopper, or FTC lost the
GPL from the records. We reviewed the available
GPLs to determine whether identifying information
and disclosures contained on them was required by
the Funeral Rule. The identifying information we
looked for was the name, address, and telephone
number of the funeral home; the caption "General
Price List"; and the effective date of the GPL. We
also reviewed the GPL for three required
disclosure statements:
� "The goods and services shown below are those
we can provide to our customers. You may choose
only the items you desire. However, any funeral
arrangements you select will include a charge for
our basic services and overhead.1 If legal or
other requirements mean you must buy any items you
did not specifically ask for, we will explain the
reason in writing on the statement we provide
describing the funeral goods and services you
selected."
� "Except in certain special cases, embalming
is not required by law. Embalming may be
necessary, however, if you select certain funeral
arrangements, such as a funeral with viewing. If
you do not want embalming, you usually have the
right to choose an arrangement that does not
require you to pay for it such as direct cremation
or immediate burial."2
� "If you want to arrange a direct cremation,
you can use an alternative container. Alternative
containers encase the body and can be made of
materials like fiberboard or composition materials
(with or without an outside covering). The
containers we provide are (specify containers)."3
The Funeral Rule also requires that the GPL
contain other disclosures, such as a casket price
list statement; and requires itemization of prices
for certain goods and services, such as immediate
burial. We did not review individual GPLs for
compliance with these other items because of time
and staffing constraints.
In addition, we used the DCI to record what action
FTC took, if any, in regard to potential Funeral
Rule violations. We then analyzed these data to
determine the number and type of potential Funeral
Rule violations that may have occurred and whether
FTC acted on them. We considered FTC to have taken
action if it had sent a letter (1) to the funeral
home advising the home of noncompliance and
warning that additional action could occur if the
home did not comply in the future, (2) offering
the funeral provider the opportunity to enter
NFDA's Funeral Rule Offender's Program (FROP)
rather than be subject to civil penalty actions,
or (3) notifying the funeral home that it was
beginning full law enforcement proceedings on the
basis of gross violations of the Funeral Rule. We
did not assess the effectiveness of FROP, a
program sponsored by FTC and NFDA.4 We reviewed
the letters FTC sent to the funeral homes in
question, when available, to determine the reason
FTC took action on potential violations.
To provide information on selected state
governments' roles in protecting consumers in
their transactions with the death care industry,
we spoke with officials from the previously
mentioned state agencies that have responsibility
for regulation and oversight of death care in
those states. At these organizations, we collected
pertinent laws, regulations, and documents
covering three areas-funerals, cemeteries, and
preneed funeral arrangements-and analyzed these
laws, regulations, and documents with a focus on
consumer protection issues in each jurisdiction.
We also administered a DCI to discuss regulatory
and consumer protection issues with appropriate
state officials and to ensure that we obtained
consistent information from each of the
organizations. The DCI covered such topics as
preneed funeral and burial arrangements, including
trusts and insurance; at-need funeral and cemetery
arrangements; and consumer affairs and consumer
awareness in the state regarding both preneed and
at-need death care arrangements. We contacted
responsible officials from the regulatory bodies
in the five states to verify information on the
states.
We did our work between July 1998 and July 1999,
in accordance with generally accepted government
auditing standards.
_______________________________
1If customers cannot decline the basic services
fee, the funeral provider must include this
sentence. The provider may add the phrase "and
overhead" after the word "services" in this
sentence if the fee includes the recovery of
overhead costs.
2 The phrase "except in certain special cases"
need not be included in this disclosure if state
or local law in the area(s) where the provider
does business does not require embalming under any
circumstances.
3 We took into account the fact that if the
funeral home does not arrange direct cremations,
this statement does not need to be included on the
GPL.
4FROP, which FTC approved and implemented in 1996,
was designed to penalize Funeral Rule offenders
and educate them about the Rule. Participants
enter the program for 5 years, and not enough time
has lapsed to determine if FROP has been
successful in stemming Funeral Rule violations
among its participants.
Appendix III
FTC Funeral Home Sweeps
Page 46 GAO/GGD-99-156 Funeral-Related Industries
The following table contains information on the 32
sweeps FTC carried out since it began test-
shopping funeral homes to ensure their compliance
with the Funeral Rule and the number of funeral
homes shopped by state and city.
Table III.1: Number and Location of Funeral Homes
FTC Test-Shopped by Date of Sweep
Date State City Number of
funeral
homes test-
shopped
October 1994 FL Tampa 26
December DE Statewide 22
1994
January 1995 TN Nashville 23
February MS Jackson, 18
1995 Yazoo City,
Vicksburg
March 1996 OH Columbus 32
May 1996 CO Denver 26
June 1996 MA Statewidea 40
June 1996 OK OK City 26
July 1996 D.C. Washington 30
September IL Chicago area 119
1996
January 1997 NJ Statewide 35
June 1997 AR Little Rock 21
July 1997 CA San Joseb 11
July 1997 WA Spokane 4
July- CO Pueblo, 22
September Colorado
1997 Springs
August 1997 PA Philadelphia 55
area
August 1997 GA Atlanta 19
August 1997 CA Southern CA 13
August 1997 WA Seattle 17
September TX Fort Worth 23
1997
September IA Statewide 62
1997
September CA East Bay 10
1997
December CA Sacramento 22
1997
January 1998 OK Tulsa 27
May 1998 CA Marin County 8
June 1998 CA Santa Rosa 5
August 1998 MI Detroit, 42
Lansing,
Grand Rapids
August 1998 FL Pinellas, 80
Hillsboro,
Leon
counties
August 1998 UT Salt Lake 32
City
September MN Minneapolis- 55
1998 St.Paul,
Rochester,
Duluth,
Saint Cloud
September NV Las Vegas, 22
1998 Reno, Carson
City
September LA Baton Rouge 11
1998
Total 958
aThis sweep included six cities.
bThis sweep included the South Bay area of CA.
Appendix IV
Information on Funeral Homes and Cemeteries in
Selected States
Page 57 GAO/GGD-99-156 Funeral-Related Industries
This appendix contains information about the
regulation and oversight of funeral homes and
cemeteries in the five selected states-California,
Florida, Maryland, New York, and Texas. It also
discusses state-required information that is to be
provided to consumers about funeral homes and
cemeteries.
Appendix V discusses preneed funeral arrangements
and provides information on the regulation of
preneed arrangements in the selected states.
Funeral Homes
California
The Cemetery and Funeral Programs (CFP) of
the California Department of Consumer Affairs
regulates both the funeral and cemetery industries
in California.
Table IV.1 provides information on the
regulation and oversight of California funeral
homes and shows state requirements regarding
consumer information.
Table IV.1: California Funeral Homes-Regulation,
Oversight, and Consumer Information
Category Yes No Comments
Law or regulation
Licensing requirement for funeral X All three licenses must be
directors, embalmers, and funeral renewed on an annual
establishments basis.
Requirement that funeral directors X Licensees are required to
complete continuing education complete 14 hours of
credits continuing education every
2 years.
Requirement that state regulatory X
office be notified of change of
funeral home ownership
Requirement prohibiting the X
combined ownership of funeral homes
and cemeteries
Requirement that low-cost caskets X All caskets must be either
be included as part of funeral home physically displayed in
displays the casket selection room
or displayed
photographically.
Oversight
Required annual inspections of all X A CFP official stated that
funeral homes the office does not
inspect all of the state's
funeral homes on an annual
basis, but it conducts
unannounced inspections of
about 200 of the state's
approximately 800 funeral
homes. He further said
that although complaints
often generate
inspections, CFP maintains
an ongoing random
inspection program.
Consumer Information
Requirement that state regulatory X California law requires
office produce a consumer brochure that CFP produce and make
for consumers who inquire about available to funeral
funeral goods and services establishments a consumer
guide for funeral and
cemetery purchases.
Funeral establishments are
required to prominently
display and make available
this guide.
Requirement that all funeral X California law requires
contracts contain state regulatory that CFP's name, address,
office's contact information and telephone number be on
such contracts.
Source: CFP, California Department of Consumer
Affairs.
Florida
The Board of Funeral Directors and Embalmers of
the Department of Business and Professional
Regulation has jurisdiction over the funeral
industry in Florida. The Board is made up of seven
members appointed by the governor; five of whom
are licensed funeral directors, and two of whom
are consumer representatives who must have no
affiliation with the funeral industry.
Table IV.2 provides information on the regulation
and oversight of Florida funeral homes and shows
state requirements regarding consumer information.
Table IV.2: Florida Funeral Homes-Regulation,
Oversight, and Consumer Information
Category Yes No Comments
Law or regulation
Licensing requirement for funeral X All three licenses must be
directors, embalmers, and funeral renewed every 2 years.
establishments
Requirement that funeral directors X Licensees are required to
complete continuing education complete 12 hours of
credits continuing education every
2 years. Licensees also
must have completed a
single Board-approved
course on communicable
diseases and HIV/AIDS.
Requirement that state regulatory X
office be notified of change of
funeral home ownership
Requirement prohibiting the X
combined ownership of funeral homes
and cemeteries
Requirement that low-cost caskets X The least expensive casket
be included as part of funeral home offered for sale must be
displays displayed in the same
manner as the other
caskets.
Oversight
Required annual inspections of all X Annual inspections of
funeral homes funeral homes are
required, and additional
inspections can be
conducted in response to
complaints. State
inspectors have
responsibility for 800 to
1,000 funeral homes in
addition to inspections
for cosmetology salons,
barbers, and
veterinarians.
Consumer Information
Requirement that state regulatory X
office produce a consumer brochure
for consumers who inquire about
funeral goods and services
Requirement that all funeral X
contracts contain state regulatory
office's contact information
Source: Board of Funeral Directors and Embalmers,
Division of Professions, Florida Department of
Business and Professional Regulation.
Maryland
The State Board of Morticians, Department of
Health & Mental Hygiene regulates the funeral
industry in Maryland. The Board of Morticians
consists of 12 members; 8 of whom are licensed
morticians or funeral directors, and 4 are
consumer representatives. An Executive Director
oversees the day-to-day work of the Board.
Table IV.3 provides information on the
regulation and oversight of Maryland funeral homes
and shows state requirements regarding consumer
information.
Table IV.3: Maryland Funeral Homes-Regulation,
Oversight, and Consumer Information
Category Yes No Comments
Law or regulation
Licensing requirement for funeral X All three of these
directors, embalmers, and funeral licenses must be renewed
establishments every 2 years.
Requirement that funeral directors X Licensees are required to
complete continuing education complete the equivalent of
credits 12 hours of Board-approved
continuing education
courses during the 2-year
term of the license.
Requirement that state regulatory X
office be notified of change of
funeral home ownership
Requirement prohibiting the X A Board of Morticians
combined ownership of funeral homes official stated that the
and cemeteries owner would be required to
have separate licenses for
the funeral home and the
cemetery.
Requirement that low-cost caskets X
be included as part of funeral home
displays
Oversight
Required annual inspections of all X Inspections also are made
funeral homes on the basis of written
complaints received by the
Department.
Consumer Information
Requirement that state regulatory X A Board of Morticians
office produce a consumer brochure official stated that the
for consumers who inquire about Board has produced a
funeral goods and services brochure, in collaboration
with the Maryland Office
of Cemetery Oversight,
which will be made
available to funeral homes
for distribution. However,
another official added
that funeral homes are not
required by law to hand
out these brochures.
Requirement that all funeral X
contracts contain state regulatory
office's contact information
Source: State Board of Morticians, Department of
Health & Mental Hygiene.
New York
The Bureau of Funeral Directing of the State
of New York's Department of Health has
jurisdiction over funeral homes in New York State.
A Director administers the Bureau. The Bureau also
has a funeral directing advisory board, which
consists of six licensed funeral directors, three
consumer representatives, and one cemetery
representative.
Table IV.4 provides information on the
regulation and oversight of New York funeral homes
and shows state requirements regarding consumer
information.
Table IV.4: New York Funeral Homes-Regulation,
Oversight, and Consumer Information
Category Yes No Comments
Law or regulation
Licensing requirement for funeral X All three licenses must be
directors, embalmers, and funeral renewed every 2 years.
establishmentsa
Requirement that funeral directors X A Bureau of Funeral
complete continuing education Directing official stated
credits that a continuing
education bill passed the
state legislature and is
currently awaiting the
governor's signature. If
enacted, this bill would
require 12 hours of
continuing education every
2 years.
Requirement that state regulatory X
office be notified of change of
funeral home ownership
Requirement prohibiting the X
combined ownership of funeral homes
and cemeteries
Requirement that low-cost caskets X
be included as part of funeral home
displays
Oversight
Required annual inspections of all X Bureau officials stated
funeral homes that about 300 of the
state's approximately
2,000 funeral homes are
inspected each year. These
officials further stated
that inspections and
investigations are largely
complaint driven.
Consumer Information
Requirement that state regulatory X The Bureau has produced
office produce a consumer brochure separate consumer
for consumers who inquire about brochures for preneed and
funeral goods and services at-need funeral
arrangements; however,
there is no requirement
that funeral directors
make these brochures
available to consumers.
Requirement that all funeral X A Bureau of Funeral
contracts contain state regulatory Directing official stated
office's contact information that the Bureau's contact
information is required to
be included on the
itemized statement that
funeral directors give to
consumers.
aAn official from the Bureau of Funeral Directing
said that New York licenses funeral firms, not
funeral establishments.
Source: Bureau of Funeral Directing, New York
Department of Health.
Texas
The Texas Funeral Service Commission
regulates funeral homes in Texas.1 The Commission
is made up of nine commissioners, including four
licensed embalmers or funeral directors and five
consumer representatives.2 An Executive Director
administers the daily business of the Commission.
Table IV.5 provides information on the
regulation and oversight of Texas funeral homes
and shows state requirements regarding consumer
information.
Table IV.5: Texas Funeral Homes-Regulation,
Oversight, and Consumer Information
Category Yes No Comments
Law or regulation
Licensing requirement for funeral X A Texas Funeral Service
directors, embalmers, and funeral Commission official
establishments stated that funeral
directors and embalmers
licenses must be renewed
every 2 years and funeral
establishment licenses
must be renewed annually.
Requirement that funeral directors X Licensees renewing in
complete continuing education 1999 are required to
credits complete 14 hours of
continuing education.
Licensees renewing in
2000 are required to
complete 16 hours of
continuing education.
Requirement that state regulatory X
office be notified of change of
funeral home ownership
Requirement prohibiting the X
combined ownership of funeral homes
and cemeteries
Requirement that low-cost caskets X
be included as part of funeral home
displays
Oversight
Required annual inspections of all X Although Texas law
funeral homes requires that funeral
establishments be
inspected every 2 years,
a Commission official
stated that all Texas
funeral establishments
are inspected on an
annual basis.a
Consumer Information
Requirement that state regulatory X Texas law requires that
office produce a consumer brochure the Commission produce
for consumers who inquire about and make available to
funeral goods and services funeral establishments a
consumer brochure for
funeral purchases.
Funeral establishments
are required to provide
each prospective customer
with a copy of the
brochure when funeral
services are discussed.
Requirement that all funeral X
contracts contain state regulatory
office's contact information
aUnder the amended law, funeral establishments
must be inspected annually.
Source: Texas Funeral Service Commission.
Cemeteries
California
CFP also regulates the cemetery industry in
California. CFP has jurisdiction over private
cemeteries but does not regulate others, such as
religious and municipal cemeteries and fraternal
burial parks. As mentioned earlier, CFP has
jurisdiction over both the funeral and cemetery
industries in California.
Table IV.6 provides selected information on
the regulation and oversight of cemeteries in
California and shows state requirements regarding
consumer information.
Table IV.6: California Cemeteries-Regulation,
Oversight, and Consumer Information
Category Yes No Comments
Law or regulation
Jurisdiction over all cemeteries X Religious and public
within state cemeteries, and certain
private and fraternal
burial parks less than 10
acres in size and
established before
September 19, 1939, are
exempted from state
regulation. CFP officials
stated that about 200 of
the approximately 2,000
cemeteries, representing
about 40% of the burials
in the state, are under
CFP's jurisdiction.
Licensing requirements X Separate cemetery brokers
and salespersons licenses
must be obtained from CFP
and must be renewed on an
annual basis. A
certificate of authority
also must be obtained for
a cemetery before
interments can be made
there.
Restrictions on what cemeteries can X
sell
Perpetual or endowment care X California law does not
requirements a permit a cemetery
authority to represent an
endowment care fund as
"perpetual or permanent."
CFP-regulated cemeteries
must create an endowment
care fund and must fulfil
a minimum deposit
requirement of $2.25 per
square foot for each
grave sold.
Oversight
Required annual inspections of all X CFP conducts
cemeteries investigations of
regulated cemeteries on
the basis of complaints.
Consumer Information
Requirement that state regulatory X California law requires
office produce a consumer brochure that CFP produce and make
for consumers who inquire about available to cemetery
cemetery goods and services authorities a consumer
guide for funeral and
cemetery purchases.
Cemetery authorities are
required to prominently
display and make
available this guide.
Requirement that all cemetery X California law requires
contracts contain state regulatory that CFP's name, address,
information and telephone number be
on such contracts
aThe selected states have additional care
requirements for items, including crypts and
mausoleums as well as other cemetery goods.
However, for purposes of comparison, GAO is
limiting its coverage to states' perpetual or
endowment care deposit requirements for gravesites
sold. According to a cemetery industry
representative, perpetual care suggests a cemetery
will provide a certain level of maintenance
regardless of available funding; under endowment
care, a cemetery will provide a certain level of
maintenance according to the level of funding.
Source: CFP, California Department of Consumer
Affairs.
Florida
The Board of Funeral and Cemetery Services,
Department of Banking and Finance, Office of the
Comptroller, regulates the cemetery industry in
Florida. The Board consists of seven members
appointed by the governor, including two funeral
directors who are not associated with a cemetery
company, two licensed cemetery operators, and
three consumers who are not associated with the
funeral or cemetery industry. The Board does not
have jurisdiction over certain religious, county
and municipal, and community and nonprofit
association cemeteries.
Table IV.7 provides selected information on
the regulation, oversight, and information
available to consumers concerning cemeteries under
Florida's jurisdiction.
Table IV.7: Florida Cemeteries-Regulation,
Oversight, and Consumer Information
Category Yes No Comments
Law or regulation
Jurisdiction over all cemeteries X An official with the
within state Office of the Comptroller
stated that approximately
170 of the 3,000
cemeteries in the state
are under the
jurisdiction of the
Office. Some of the
cemeteries that fall
outside of the Office's
jurisdiction include
religious cemeteries of
less than 5 acres;
religious cemeteries
owned and operated before
June 23, 1976; county and
municipal cemeteries; and
community and nonprofit
association cemeteries,
which provide only single-
level ground burial and
do not sell burial spaces
or merchandise.
Licensing requirements X A license is required to
operate a cemetery, and
must be renewed on an
annual basis.
Restrictions on what cemeteries can X
sell
Perpetual or endowment care X Cemeteries regulated by
requirementsa the Office of the
Comptroller must deposit
into a care and
maintenance trust fund
10% of payments received
for gravesites sold.
Oversight
Required inspections of all X An official with the
cemeteries Office of the Comptroller
stated that cemeteries
are inspected annually
for upkeep and
recordkeeping. The Office
has the authority to
examine the financial
affairs of cemetery
companies and to conduct
investigations on the
basis of written
complaints.
Consumer Information
Requirement that state regulatory X
office produce a consumer brochure
for consumers who inquire about
cemetery goods and services
Requirement that all cemetery X An official from the
contracts contain state regulatory Office of the Comptroller
information said that preneed
cemetery contracts must
contain certain
disclosures, including
state regulatory
information; however,
these disclosures are not
required for at-need
contracts.
aThe selected states have additional care
requirements for items, including crypts and
mausoleums as well as other cemetery goods.
However, for purposes of comparison, GAO is
limiting its coverage to states' perpetual or
endowment care deposit requirements for gravesites
sold. According to a cemetery industry
representative, perpetual care suggests a cemetery
will provide a certain level of maintenance
regardless of available funding; under endowment
care, a cemetery will provide a certain level of
maintenance according to the level of funding.
Source: Bureau of Funeral and Cemetery Services,
Division of Finance, Office of the Comptroller.
Maryland
The Office of Cemetery Oversight in the
Department of Labor, Licensing, and Regulation
(DLLR) regulates the cemetery industry in
Maryland. The Office was created in 1997 in
response to concerns that consumers were not
adequately protected in their dealings with
cemeteries. The Office has responsibilities for
all but certain religious, nonprofit cemeteries in
the state and is administered by a Director
appointed by the Secretary of DLLR.
Table IV.8 provides selected information on
the regulation, oversight, and information
available to consumers concerning cemeteries under
Maryland's jurisdiction.
Table IV.8: Maryland Cemeteries-Regulation,
Oversight, and Consumer Information
Category Yes No Comments
Law or regulation
Jurisdiction over all cemeteries X Religious, nonprofit
within state cemeteries that do not
sell preneed goods and
not-for-profit
organizations created
before 1900 are exempted
from the Office's
jurisdiction. An Office
of Cemetery Oversight
official stated that the
Office has jurisdiction
over about 60 for-profit
cemeteries. In addition,
this official estimated
that there are
approximately 300
nonprofit cemeteries and
800 religious cemeteries
in the state.
Licensing requirements X Cemetery operators must
register with the Office
and must renew
registrations every 2
years.
Restrictions on what cemeteries can X
sell
Perpetual or endowment care X Maryland requires that,
requirementsa if the cemetery offers
perpetual care, 10% of
the selling price of each
burial lot or 35 cents
for each square foot of
land burial space be
placed in a trust fund
for perpetual care.
Oversight
Required inspections of all X Although there is no
cemeteries requirement that all
licensed cemeteries in
the state be inspected on
an annual basis, an
Office of Cemetery
Oversight official stated
that these cemeteries are
subject to inspection at
any time.
Consumer Information
Requirement that state regulatory X An Office of Cemetery
office produce a consumer brochure Oversight official stated
for consumers who inquire about that the Office has
cemetery goods and services produced a consumer
brochure, in
collaboration with the
State Board of Morticians
that will be made
available to cemeteries
for distribution.
However, this official
stated that cemeteries
are not required by law
to hand out these
brochures.
Requirement that all cemetery X
contracts contain state regulatory
information
aThe selected states have additional care
requirements for items, including crypts and
mausoleums as well as other cemetery goods.
However, for purposes of comparison, GAO is
limiting its coverage to states' perpetual or
endowment care deposit requirements for gravesites
sold. According to a cemetery industry
representative, perpetual care suggests a cemetery
will provide a certain level of maintenance
regardless of available funding; under endowment
care, a cemetery will provide a certain level of
maintenance according to the level of funding.
Source: Maryland Office of Cemetery Oversight,
Division of Occupational and Professional
Licensing, Department of Labor, Licensing, and
Regulation.
New York
The Division of Cemeteries of the New York
Department of State regulates the cemetery
industry in New York. The Division is administered
by a Director who carries out day-to-day
operations. The Director is appointed by the State
Cemetery Board, which comprises the Secretary of
State, the Attorney General, and the Commissioner
of Health. New York does not have jurisdiction
over religious or municipal cemeteries. However,
New York also requires that cemeteries under its
jurisdiction be operated on a nonprofit basis.
According to Division of Cemetery Officials, this
restricts profit-making entities from taking
advantage of consumers at a time of vulnerability.
New York also prohibits joint ownership of funeral
homes and cemeteries. Table IV.9 provides selected
information on the regulation, oversight, and
information available to consumers concerning
cemeteries under New York's jurisdiction.
Table IV.9: New York Cemeteries-Regulation,
Oversight, and Consumer Information
Category Yes No Comments
Law or regulation
Jurisdiction over all cemeteries X The Division of
within state Cemeteries does not have
jurisdiction over
religious or municipal
cemeteries. Division of
Cemeteries officials
stated that the Division
has jurisdiction over
1,885 of the more than
6,000 cemeteries in the
state.
Licensing requirements X
Restrictions on what cemeteries can X Officials stated that
sell cemeteries are permitted
to sell grave liners; but
they are prohibited from
selling caskets, burial
vaults, and monuments.
Perpetual or endowment care X Cemeteries must deposit
requirementsa 10% of the sale of a lot
into a permanent
maintenance fund and must
deposit an additional 15%
deposit into a current
maintenance fund.
Oversight
Required annual inspections of all X Inspections are largely
cemeteries complaint-driven.
Cemeteries with assets of
$400,000 or more are
subject to an examination
by an independent
certified public
accountant. The Division
also conducts field and
desk audits on the basis
of financial reports
resulting from these
examinations.
Consumer Information
Requirement that state regulatory X
office produce a consumer brochure
for consumers who inquire about
cemetery goods and services
Requirement that all cemetery X
contracts contain state regulatory
information
aThe selected states have additional care
requirements for items, including crypts and
mausoleums as well as other cemetery goods.
However, for purposes of comparison, GAO is
limiting its coverage to states' perpetual or
endowment care deposit requirements for gravesites
sold. According to a cemetery industry
representative, perpetual care suggests a cemetery
will provide a certain level of maintenance
regardless of available funding; under endowment
care, a cemetery will provide a certain level of
maintenance according to the level of funding.
Source: Division of Cemeteries, New York
Department of State.
Texas
The Special Audits Division of the Texas
Department of Banking regulates the cemetery
industry in Texas. The Department does not have
jurisdiction over certain religious, public,
family, and non-profit cemeteries.
Table IV.10 provides selected information on
the regulation, oversight, and information
available to consumers concerning cemeteries under
Texas jurisdiction.
Table IV.10: Texas Cemeteries-Regulation,
Oversight, and Consumer Information
Category Yes No Comments
Law or regulation
Jurisdiction over all cemeteries X Religious, family,
within state fraternal, or community
cemeteries not larger than
10 acres, unincorporated
associations of plot
owners not operated for
profit, and nonprofit
corporations organized by
plot owners are not under
the jurisdiction of the
Department.
Licensing requirements X Department of Banking
officials stated that
perpetual care cemeteries
are required to be
licensed and that these
licenses must be renewed
annually.
Restrictions on what cemeteries can X
sell
Perpetual or endowment care X Cemetery corporations must
requirementsa deposit the greater of
$1.50 a square foot of
ground area conveyed as
perpetual care property or
10% of the total purchase
price of that ground area.
Oversight and Consumer Information
Required annual inspections of all X The books and records of
cemeteries cemetery corporations
relating to their
perpetual care trust funds
are required to be
examined by the Department
on annual basis, or as
often as necessary.
Consumer Information
Requirement that state regulatory X
office produce a consumer brochure
for consumers who inquire about
cemetery goods and services
Requirement that all cemetery X
contracts contain state regulatory
information
aThe selected states have additional care
requirements for items, including crypts and
mausoleums as well as other cemetery goods.
However, for purposes of comparison, GAO is
limiting its coverage to states' perpetual or
endowment care deposit requirements for gravesites
sold. According to a cemetery industry
representative, perpetual care suggests a cemetery
will provide a certain level of maintenance
regardless of available funding; under endowment
care, a cemetery will provide a certain level of
maintenance according to the level of funding.
Source: The Special Audits Division of the Texas
Department of Banking.
_______________________________
1Amendments to the law governing the Texas Funeral
Service Commission took effect on September 1,
1999. Information about regulation, oversight,
and consumer information concerning Texas funeral
homes was current through July 1999, the end of
our data collection period.
2Under the amended law, the Commission is made up
of six Commissioners, including two persons who
are each licensed as both a funeral director and
embalmer and four consumer representatives.
Appendix V
Information on Preneed Arrangements in the
Selected States
Page 63 GAO/GGD-99-156 Funeral-Related Industries
This appendix contains information on preplanned,
prepaid funeral transactions, which are commonly
called preneed arrangements. In addition, the
appendix provides information on the regulation of
preneed arrangements in the five selected states.
Preneed Arrangemen
Preneed Arrangements
In purchasing a preneed arrangement, a consumer
typically makes an agreement with a preneed seller
to pay for funeral goods and services that will be
provided at a later time-that is, following the
death of the consumer or another designated
person. In many cases, the consumer has the
option of selecting a guaranteed price contract,
which fixes the price of goods and services
selected, regardless of price inflation that may
occur after the contract is signed.
According to death care industry studies, the most
commonly used options for funding preneed
arrangements are trust accounts and insurance or
annuity policies. Conning & Company, an insurance
research and publication firm, describes the trust
option as a state-regulated trust account that is
established in connection with the preneed
contract and managed by a trustee.1 According to
Conning & Company, the rationale behind this
funding method is that interest earned on the
trust account will accumulate over time so that
future increases in funeral prices can be
accounted for. The funeral provider receives the
funds held in trust after the funeral. According
to a 1996 law journal article, under state law, a
consumer also typically has the option of creating
an irrevocable trust contract, which allows the
consumer to maintain his or her eligibility for
public assistance.2
According to the article, under the insurance
option, the consumer purchases, either in a lump
sum or by installments, an insurance policy and
names the seller as the beneficiary of the policy.3
Following the consumer's death the benefit is paid
out to the seller. According to Conning &
Company, these preneed insurance products
typically have an increasing death benefit to
cover future increases in the prices of funeral
goods and services. Conning & Company states that
another option for consumers who would face
difficulty obtaining life insurance is to purchase
annuities. Following the death of the purchaser,
the annuity is to be paid out by the insurer to
the funeral provider to cover funeral expenses.
Conning & Company states that preneed insurance
typically is sold in conjunction with a funeral
home, either by a funeral director who holds an
insurance license or an independent insurance
agent. A spokesman for the preneed insurance
industry said that preneed insurance is
actuarially based and has less underwriting than
other whole life policies. This spokesman
described a typical 10-year installment premium
plan as one that would pay a death benefit of 35
percent of face value during the first year, 70
percent during the second year, and 100 percent
the third year and thereafter. According to death
care industry observers, an advantage of preneed
insurance policies over trusts is that unlike
trust accounts, the purchaser is not taxed for
interest income earned. However, an insurance
industry spokesman also noted that the rate of
return for preneed insurance is typically lower
than that of trusts.
Regulation of Preneed Arrangements in the Five
Selected States
The following tables provide information on the
regulation of preneed arrangements in California,
Florida, Maryland, New York, and Texas.
California
The Cemetery and Funeral Programs (CFP) of
the California Department of Consumer Affairs has
jurisdiction over preneed funeral trusts in
California, and the California Department of
Insurance has jurisdiction over preneed insurance.
Table V.1 contains information on the
regulation of preneed arrangements in California.
Table V.1: California Regulation of Preneed
Arrangements
Category Yes No Comments
Trusts
Trusting requirements X Trusting requirements are
100% for funeral goods and
services.
Administrative fees permitted X Trustees may withdraw an
annual fee for
administering a funeral
trust from the current
trust income. CFP
officials stated that the
total withdrawal in any
year shall not exceed 4%
of the trust balance.
Both revocable and irrevocable X
contracts offered
Consumer receives refund if trust X The consumer would receive
is revoked 100% plus interest less
administration fees and a
revocation fee.a
Contracts directly transferable to X CFP officials stated that
another state the law does not
specifically address this
issue, and the terms of
the individual contract
would determine whether
the contract may be
transferred to another
state.
Restrictions on where trust funds X CFP officials stated that
may be deposited California law provides
various options for
depositing funeral trust
funds, such as in bonds or
securities guaranteed by
the U.S. government or
agency; bonds or
securities guaranteed by
the state, or any city or
county within the state,
or certificates of deposit
or other interest-bearing
accounts in any bank in
the state insured by the
Federal Deposit Insurance
Corporation (FDIC). CFP
officials stated that
California law also allows
the funds to be deposited
in any investment deemed
prudent by a prudent
person as allowed under
the California Uniform
Prudent Investor Act.
Restrictions on where deposits may X CFP officials stated that
be invested California law provides
various options for
investing funeral trust
funds, such as in bonds or
securities guaranteed by
the U.S. government or
agency; bonds or
securities guaranteed by
the state, or any city or
county within the state,
or certificates of deposit
or other interest-bearing
accounts in any bank in
the state insured by FDIC.
CFP officials stated that
California law also allows
the funds to be invested
in any investment deemed
prudent by a prudent
person as allowed under
the California Uniform
Prudent Investor Act.
State consumer protection trust X
fund
Insurance
Sale of preneed insurance X
permitted within state
aThe revocation fee shall not exceed 10 percent of
the principal and is chargeable against earned
income only.
Source: CFP, California Department of Consumer
Affairs.
Florida
The Board of Funeral and Cemetery Services,
Department of Banking and Finance, Office of the
Comptroller, has regulatory responsibility for
preneed funeral trusts, and the Department of
Insurance regulates preneed insurance policies.
Table V.2 contains information on the regulation
of preneed arrangements in Florida.
Table V.2: Florida Regulation of Preneed
Arrangements
Category Yes No Comments
Trusts
Trusting requirements X Sellers of preneed
contracts are permitted
to choose between
trusting 30% of the
purchase price or 110% of
the wholesale price of
funeral goods. For
funeral services, the
trusting requirement is
70% of the purchase
price.
Administrative fees permitted X An official with the
Office of the Comptroller
stated that
administrative fees are
permitted to be withdrawn
from trust income and
there is no limit on
these fees.
Both revocable and irrevocable X
contracts offered
Consumer receives refund if trust X The consumer is entitled
is revoked to receive a full refund
of the purchase price if
the contract is revoked
within 30 days of
purchase. After 30 days,
services remain fully
refundable, but goods are
refundable if they cannot
be delivered within 24
hours of need. An
official with the Office
of the Comptroller stated
that any accumulated
interest earnings are
paid to the seller.
Contracts directly transferable to X An official with the
another state Office of the Comptroller
stated that a transfer
could be accomplished
only by canceling the
contract and entering
into a new contract in a
different location.
Restrictions on where trust funds X Trusts must be deposited
may be deposited with either a national or
state bank or savings and
loan association having
trust powers or a trust
company in the state.
Restrictions on where deposits may X Florida provides the
be invested opportunity to invest in
numerous types of
investments. These
include, for example,
bonds, notes, and other
obligations of the United
States; Florida state and
county bonds pledging the
full faith and credit of
the state or county;
savings accounts or
certificates of deposit
insured by FDIC; and
investments in real
property.
State consumer protection trust X Use of the fund for an
fund individual case is
restricted to 50% of the
fund's current balance.
Preneed sellers must
contribute $1.00 to the
fund for all contracts.
Insurance
Sale of preneed insurance X
permitted within state
Source: Bureau of Funeral and Cemetery Services,
Division of Finance, Office of the Comptroller.
Maryland
The State Board of Morticians, Department of
Health & Mental Hygiene has regulatory
responsibility over preneed funeral arrangements
in Maryland. In May 1999, Maryland's Governor
signed legislation to authorize a preneed contract
or preneed burial contract to be funded by life
insurance. The Maryland Insurance Administration
has jurisdiction over insurance contracts in
Maryland.
Table V.3 contains information on the
regulation of preneed arrangements in Maryland.
Table V.3: Maryland Regulation of Preneed
Arrangements
Category Yes No Comments
Trusts
Trusting requirements X Sellers of preneed
contracts are required to
place 100% of funds
received for both goods
and services into trust,
with the exception of
caskets, for which they
are required to trust 80%.
Administrative fees permitted X
Both revocable and irrevocable X
contracts offered
Consumer receives refund if trust X Board of Morticians
is revoked officials stated that the
consumer would receive a
refund of the full
purchase price plus
interest.
Contracts directly transferable to X Board of Morticians
another state officials stated that
irrevocable preneed
funeral contracts can be
transferred to another
state. For revocable
contracts, consumers would
have to cancel the
contract and enter into a
new contract in the new
location.
Restrictions on where trust funds X Funds shall be deposited
may be deposited into an interest-bearing
escrow or trust account
with a federally insured
banking or savings and
loan institution.
Restrictions on where deposits may X A Board of Morticians
be invested official stated that there
are no further
requirements in Maryland
law regarding investments.
This official stated that
all investments must be
made with a federally
insured bank or savings
and loan institution.
State consumer protection trust X
fund
Insurance
Sale of preneed insurance permitted X
within state
Source: State Board of Morticians, Department of
Health & Mental Hygiene.
New York
The Bureau of Funeral Directing of the State
of New York's Department of Health has
jurisdiction over preneed funeral trusts. New
York State does not allow the sale of preneed
insurance.
Table V.4 contains information on the
regulation of preneed arrangements in New York.
Table V.4: New York Regulation of Preneed
Arrangements
Category Yes No Comments
Trusts
Trusting requirements X Trusting requirements are
100% for funeral goods
and services.
Administrative fees permitted X The administrative fee
may not exceed 0.75 of 1%
of the trust fund. If a
preneed seller charges
this fee, this must be
disclosed to the consumer
in writing.
Both revocable and irrevocable X
contracts offered
Consumer receives refund if trust X The consumer would
is revoked receive a refund of the
purchase price plus
accrued interest.
Contracts directly transferable to X A Bureau of Funeral
another state Directing official stated
that irrevocable
contracts are directly
transferable. For
revocable contracts,
consumers would have to
cancel the contract and
enter into a new contract
in a different location.
Restrictions on where trust funds X Funds must be deposited
may be deposited in an interest-bearing
account in a bank or
savings and loan
association that shall
earn interest at a rate
not less than the
prevailing rate of
interest earned by other
such deposits in such
banks and savings and
loan associations; or a
trust company in an
investment backed by the
U.S. government.
Restrictions on where deposits may X No further investments
be invested may be made with
deposited funds.
State consumer protection trust X
fund
Insurance
Sale of preneed insurance permitted X
within state
Source: Bureau of Funeral Directing, State of New
York Department of Health.
Texas
Preneed funeral trust contracts are regulated
by the Special Audits Division of the Texas
Department of Banking. Preneed insurance
contracts are regulated by both the Texas
Department of Insurance and the Texas Department
of Banking.
Table V.5 contains information on the
regulation of preneed arrangements in Texas.
Table V.5: Texas Regulation of Preneed
Arrangements
Category Yes No Comments
Trusts
Trusting requirements X For funeral goods and
services, the preneed
seller has the option of
trusting either 90% or
100% of sales proceeds.
However, the seller must
disclose to the consumer
which option has been
selected.
Administrative fees permitted X The seller may withdraw
money from earnings to
pay (1) reasonable and
necessary trustee's fees
or depository fees, (2)
the examination fee for
one examination by the
Texas Department of
Banking each calendar
year, or (3) the expense
of preparation of
financial statements.
With the Texas Department
of Banking's approval,
the seller also may
withdraw money from
earnings on an account to
pay for (1) any tax
incurred or (2) an
assessment.
Both revocable and irrevocable X
contracts offered
Consumer receives refund if trust X The purchaser is entitled
is revoked to a refund of the amount
paid minus the amount
that the seller is
permitted to retain for
expenses. This amount is
not to exceed one-half of
all money collected or
paid until the seller has
received an amount equal
to 10% of the total
amount the purchaser
agreed to pay under the
contract.
Contracts directly transferable to X Department of Banking
another state officials stated that
there is no statutory
requirement for contracts
to be transferable.
Restrictions on where trust funds X Funds must be deposited
may be deposited in a bank or savings and
loan association in the
state in a federally
insured interest-bearing
account, or a trust
department in a bank or
trust company authorized
to do business in the
state.
Restrictions on where deposits may X Texas law provides the
be invested opportunity to invest in
numerous types of
investments. Some of
these include federally
insured banks or savings
and loan associations,
U.S. government bonds,
certain state or local
bonds, and the common
stock of a U.S.
corporation with a net
worth of at least $1
million.
State consumer protection trust X This fund is termed the
fund Guaranty Fund and its
stated purpose is to
guarantee performance by
sellers of trust funded
prepaid funeral
contracts. The
Department of Banking
collects $1 from sellers
of trust funded preneed
contracts for each
contract sold, to be
deposited in this fund.
Insurance
Sale of preneed insurance permitted X
within state
Source: Special Audits Division, Texas Department
of Banking.
Consumers can also make preneed arrangements
with cemeteries in the five states. In Florida
and New York, cemeteries and funeral homes are
included under the same sections of state preneed
law;4 in Texas, a Department of Banking official
stated that with the exception of perpetual care
funds, cemetery trusts are not regulated; and in
California and Maryland, different laws apply to
cemetery and funeral trusts.5 For example,
although California law restricts the amount of
administrative fees that can be withdrawn from
current funeral trust income, a CFP official told
us that California law does not place any
limitation on the total amount of administrative
fees that may be withdrawn from preneed cemetery
trusts, which in California are called special
care funds. Under Maryland law, sellers of
preneed funeral contracts are required to place
100 percent of funds received for both goods and
services into trust (with the exception of
caskets). Sellers of preneed cemetery contracts
are required to place 55 percent of funds received
for goods and services into trust (with the
exception of caskets, for which, as with funeral
trusts, they are required to trust 80 percent).
_______________________________
1Preneed Insurance: A Business to Die For? 1998,
Conning & Company (Hartford: 1998).
2Judith A. Frank, "Preneed Funeral Plans: The Case
for Uniformity," The Elder Law Journal, Spring
(1996).
3 The designation of who may be the beneficiary
depends on the state where the insurance policy is
sold. For example, a Maryland Insurance
Administration official stated that in Maryland
the funeral director could not be named the
beneficiary.
4 In New York, however, an exception is made for
cemetery sales of lots or graves, which are not
covered by the state's preneed law.
5In three states--California, Florida, and
Texas-the same state agency that has
responsibility for the regulation of preneed
funeral contracts also has responsibility for
regulation of preneed cemetery contracts. In
Maryland, the Office of Cemetery Oversight has
jurisdiction over preneed cemetery contracts. In
New York, the Division of Cemeteries has such
jurisdiction.
Appendix VI
Agency Comments
Page 71 GAO/GGD-99-156 Funeral-Related Industries
Appendix VII
GAO Contacts and Staff Acknowledgments
Page 72 GAO/GGD-99-156 Funeral-Related Industries
GAO Contacts
Laurie E. Ekstrand, (202) 512-8676
John F. Mortin, (202) 512-8676
Jeanne M. Barger, (214) 777-5600
Acknowledgements
Jeremy Latimer, Susan Michal-Smith, Jan B.
Montgomery, Kiki Theodoropoulos, and Gregory H.
Wilmoth made key contributions to this report.
*** End of Document ***