FTC Staff Comment to the Hon. John E. Amari Concerning Proposed Funeral Bill to Restrict Sale of Funeral Goods and Services to Only Licensed Funeral Establishments

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Federal Trade Commission
Atlanta Re~onal Office
COMMISSION
APPROVED
Room 1000
171BPeachlreeSl.,N.W. 	January 	16, 	1986
Atlanta, Georgia 30309
(404) 881-4836
Senator 	John 	E. 	Amari
Alabama 	State 	Senate
9636 	Parkway 	E.
Birmingham, 	Alabama 	35215
Dear 	Senator 	Amari:
The 	Federal 	Trade 	Commission's 	Atlanta 	Regional 	Office l
is 	pleased 	to 	respond 	to 	your 	invitation 	to 	C0lment 	on 	the
proposed 	Funeral 	Bill 	to 	be 	considered 	by 	th~ 	Alabama
legislature 	this 	session. 	In 	these 	comments, 	we 	discuss 	the
following 	two 	issues: 	(1) 	the 	effect 	on 	consumers 	and
competition 	of 	the 	restrictions 	on 	the 	sale 	of 	funeral 	goods
and 	services; 	and 	(2) 	the 	impact 	of 	the 	bill 	on 	the
requirements 	of 	the 	Commission's 	Trade 	Regulation 	Rule
Concerning 	Funeral 	Industry 	Practices 	("Funeral 	Rule").
The 	Federal 	Trade 	Commission 	("Commission") 	seeks 	to
promote 	competition 	among 	members 	of 	the 	professions 	to 	the
maximum 	extent 	compatible 	with 	other 	legitimate 	state 	and
federal 	goals. 	For 	several 	years, 	the 	Commission 	has 	been
investigating 	the 	effects 	of 	restrictions 	on 	the 	business
practices 	of 	professionals, 	inclUding 	optometrists, 	dentists,
lawyers, 	physicians 	and 	others. 	Our 	goal 	is 	to 	identify 	and
seek 	the 	removal 	of 	such 	restrictions 	that 	impede 	competition,
increase 	costs, 	and 	harm 	consumers 	without 	providing
countervailing 	benefits.
As 	you 	may 	be 	aware, 	the 	Commission 	recently 	completed
extensive 	rulemaking 	proceedings 	with 	respect 	to 	the 	funeral
industry 	that 	led 	to 	the 	adoption 	of 	the 	Trade 	Regulation 	Rule
Concerning 	Funeral 	Industry 	Practices, 	16 	C.F.R. 	Part 	453,
1 	These 	comments 	represent 	the
Office 	and 	of 	the 	Bureaus 	of
Protection, 	and 	Economics 	of
do 	not 	recessarily 	represent
any 	individual 	Commissioner.
authorized 	the 	submission 	of
views 	of 	the 	Atlanta 	Regional
Competition, 	Consumer
the 	Federal 	Trade 	Commission 	and
the 	views 	of 	the 	Commission 	or
The 	Commission, 	however, 	has
these 	comments.

which 	became 	effective 	in 	full 	on 	April 	30, 	1984. 	(A copy 	of
the 	Funeral 	Rule 	is 	attached 	to 	this 	letter.) 	The 	purpose 	of
the 	Funeral 	Rule 	is 	to 	promote 	increased 	competition 	and
consumer 	choice 	in 	the 	funeral 	industry 	by 	facilitating
informed 	purchasing 	decisions 	by 	consumers. 	The 	Funeral 	Rule
requires 	the 	disclosure 	of 	detailed 	information 	about 	prices
and 	legal 	requirements 	to 	purchasers 	of 	funeral 	goods 	and
services. 	.
As 	we 	understand 	it, 	the 	Funeral 	Bill 	to 	be 	proposed 	in
the 	1986 	Session 	of 	the 	Alabama 	legislature 	would 	impose
restrictions 	on 	the 	sale 	of 	funeral 	goods 	and 	services 	by
permitting 	only 	licensed 	funeral 	establishments 	to 	make 	such
sales. 	The 	bill 	could 	also 	apparently 	create 	a 	potential
conflict 	of 	interest 	in 	determining 	the 	person 	who 	is
permitted 	to 	make 	certain 	decisions 	affecting 	a 	funeral 	home's
obligations 	under 	the 	Commission's 	Funeral 	Rule. 	We 	believe
that 	the 	following 	comments, 	in 	which 	we 	discuss 	in 	general
the 	restrictions 	contained 	in 	the 	bill, 	will 	be 	of 	some
assistance 	to 	you 	in 	evaluating 	the 	bill's 	possible 	effect
upon 	competition 	and 	consumers 	and 	upon 	compliance 	wit' 	the
Commission's 	Funeral 	Rule.
I. 	Restrictions 	on 	the 	Sale 	of 	Funeral 	Goods 	and 	Services
Section 	4A of 	the 	proposed 	bill 	requires 	that 	any 	entity
selling 	a 	pre-need 2 	funeral 	contract 	must 	have 	a 	valid
certificate 	of 	authority. 	Section 	5B(1) 	requires 	that 	an
applicant 	for 	such 	a 	certificate 	must 	show 	that 	it 	is 	a
licensed 	funeral 	establishment. 	This 	bill 	would 	thereby
prohibit 	anyone 	other 	than 	a 	licensed 	funeral 	home 	from 	3
selling 	any 	funeral 	goods 	or 	services 	on 	a 	pre-need 	basis.
In 	addition, 	Section 	15 	seems 	to 	prohibit 	any 	entity
other 	than 	a 	licensed 	funeral 	home 	from 	selling 	any 	funeral
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"Pre-need" 	means 	that 	someone 	is 	planning 	a 	funeral 	before 	a
death 	has 	occurred. 	"At-need" 	means 	that 	a 	death 	has
occurred 	when 	the 	purchase 	of 	goods 	and 	services 	is 	made.
Section 	16 	exempts 	cemeteries 	from 	the 	provisions 	of 	this
act, 	but 	only 	as 	to 	burial 	goods 	and 	burial 	services.
Although 	there 	is 	no 	definition 	of 	"burial 	goods 	and 	burial
services," 	Section 	34-l3-l(a) (6) 	of 	the 	Alabama 	Code 	permits
cemeteries 	to 	sell 	vaults 	(outer 	burial 	containers), 	urns,
and 	cemetery-related 	items 	such 	as 	crypts 	and 	markers.
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· 	. -- 	- 	.., -.:
goods, 	whether·the-saie 	is 	by 	means 	of 	pre-need 	contracts 4 	or
on 	an 	at-need 	basis. 	(In 	the 	bill, 	the 	phrase 	·selling 	or
providing 	under 	a 	pre-need 	contract 	or 	otherwise" 	is 	used.
[Emphasis 	added.]) 	This 	section 	explicitly 	covers 	caskets 	and
any 	equipment 	normally 	required 	or 	used 	for 	the 	preparation 	of
human 	remains 	for 	disposition. 	This 	language 	could 	be
interpreted 	to 	cover 	any 	type 	of 	funeral 	good 	or 	merchandise.
Finally, 	Section 	16 	seems 	to 	state 	that 	only 	licensed
funeral 	directors 	may 	sell 	pre-need 	funeral 	contracts. 	This
section, 	therefore, 	appears 	to 	prohibit 	pre-need 	sales 	by
employees 	of 	licensed 	funeral 	homes 	who 	are 	not 	themselves
licensed 	funeral 	directors. 	This 	section 	also 	appears 	to
prohibit 	pre-need 	sales 	by 	individuals 	who 	are 	employed 	by
other 	business 	organizations 	but 	who 	are 	not 	licensed 	funeral
directors.
The 	restrictions 	in 	the 	above-mentioned 	sections 	of 	the
proposed 	bill 	may 	impede 	the 	development 	of 	new 	providers 	of
funeral 	goods 	and 	services 	that 	may 	be 	more 	efficient 	and
offer 	lower-cost 	alternatives 	to 	traditional 	funeral 	home
Because 	payment 	for 	pre-need 	arrangements 	is 	typically made
well 	in 	advance 	of 	death, 	some 	states 	have 	adopted 	regulatory
measures, 	e.g., 	trust 	requirements, 	to 	protect 	consumers 	from
fraud 	and 	other 	abuses. 	Although 	these 	comments 	do 	not
address 	the 	particular 	trust 	requirements 	set 	forth 	in 	the
proposed 	Alabama 	bill, 	we 	do 	wish 	to 	note 	that 	when
legislators 	adopt 	such 	measures 	in 	order 	to 	protect 	the
consumer's 	investment 	or 	prevent 	abuses, 	they 	should 	at 	the
same 	time 	be 	cognizan.t 	that 	certain 	types 	of 	trust
requirements 	may 	have 	anticompetitive 	consequences 	that 	can
cause 	injury 	to 	consumers. 	The 	cost 	of 	financing 	a 	new
funeral 	home 	or 	launching 	a 	pre-need 	marketing 	program would
be 	higher 	if 	the 	new 	entrant 	could 	not 	make 	use 	of 	a 	certain
percentage 	of 	the 	funds.
All 	consumers 	who 	purchase 	pre-need 	funerals 	in 	their 	homes
are 	protected 	by 	the 	Federal 	Trade 	Commission's 	Trade
Regulation 	Rule 	Concerning 	Cooling-Off 	Period 	for 	Door-to-
Door 	Sales, 	16 	C.F.R. 	Part 	429, 	which 	requires 	that 	the
seller 	give 	the 	consumer 	a 	notice 	of 	the 	consumer's 	right 	to
rescind 	the 	door-to-door 	sale 	within 	three 	days. 	These
comments 	do 	not 	address 	what 	additional 	consumer 	protection
measures, 	if 	any, 	may 	be 	appropriate 	in 	the 	area 	of 	pre-need
sales.
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providers. 5 	These 	new 	providers 	could 	include 	cemeteries,
manufacturers 	of 	funeral 	goods, 	and 	independent 	retailers.
For 	example, 	cemeteries 	sell 	burial 	plots 	on 	both 	a 	pre-need
and 	an 	at-need 	basis; 	if 	they 	were 	to 	sell 	other 	funeral 	goods
and 	services 	as 	well, 	they 	might 	provide 	consumers 	with
alternatives 	that 	consumers 	might 	find 	valuable. 	Governmental
restrictions 	on 	such 	rivalry 	between 	traditional 	and 	non-
traditional 	providers 	can 	eliminat 6 some 	innovations 	and
alternatives 	desired 	by 	consumers. 	Innovations 	and
alternatives 	could 	lead 	to 	reduced 	prices 	for 	funeral 	goods
and 	services.
Thus, 	it 	is 	likely 	that 	Alabama 	consumers 	of 	funeral
goods 	and 	services 	could 	be 	harmed 	if 	restrictions 	on 	the
identity 	of 	sellers 	of 	these 	goods 	and 	services 	were 	imposed.
II. 	Impact 	of 	the 	Proposed 	Bill 	on 	the 	Requirements 	of 	the
Commission's 	Funeral 	Rule
Section 	2F 	of 	the 	proposed 	bill 	appears 	to 	be 	intended 	to
identify 	the 	person 	authorized 	under 	state 	law 	to 	be
responsible 	for 	the 	funeral 	arrangements 	described 	in 	the 	pre-
need 	contract. 	We 	applaud 	the 	efforts 	of 	the 	Alabama
legislature 	to 	define 	the 	person 	who 	may 	be 	authorized 	to 	make
funeral 	arrangements 	under 	state 	law. 	As 	you 	may 	know,
Section 	453.5(a) 	of 	the 	Commission's 	Funeral 	Rule 	prohibits
charging 	a 	fee 	for 	embalming 	that 	is 	not 	required 	by 	state 	law
unless 	approval 	is 	obtained 	from 	a 	family 	member 	or 	other
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State 	regulation 	of 	certain 	aspects 	of 	the 	funeral 	industry
-- 	such 	as 	public 	health 	standards 	for 	handling 	human 	remains
-- 	may 	protect 	consumers 	and 	may 	benefit 	competition 	as
well. 	Regulations 	that 	restrict 	the 	ability 	of 	non-
traditional 	entities 	to 	provide 	certain 	other 	types 	of
funeral 	goods 	and 	services, 	however, 	may 	stifle 	competition
without 	providing 	any 	countervailing 	protections 	to
consumers. 	For 	example, 	a 	regulation 	that 	would 	prevent 	a
casket 	manufacturer 	from 	selling 	its 	product 	at 	retail 	to
consumers 	would 	stifle 	competition 	without 	providing 	any
apparrnt 	benefits 	to 	consumers.
Innovation 	is 	an 	important 	facet 	of 	competition. 	Competitive
forces 	in 	an 	industry 	can 	continually 	provide 	new 	and 	better
ways 	of 	producing 	goods 	and 	services. 	One 	form 	of 	innovation
is 	·product 	extension." 	When 	producers 	of 	some 	goods 	and
services 	begin 	offering 	other 	related 	goods 	and 	services, 	the
result 	can 	be 	lower 	prices, 	better 	products, 	and 	better 	ways
of 	providing 	goods 	and 	services. 	The 	extension 	of
cemeterians 	into 	the 	sale 	of 	funeral 	goods, 	for 	instance,
would 	be 	one 	form 	of 	innovation.
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"authorized 	person." 	In 	the 	Commission 	staff's 	view, 	the
question 	of 	who 	is 	an 	authorized 	person 	is 	governed 	by 	state
law. 	Therefore, 	the 	type 	of 	clarification 	proposed 	by 	Section
2F would 	be 	of 	great 	assistance 	to 	funeral 	providers, 	to
consumers, 	and 	to 	law 	enforcement 	officials. 	However, 	the
proposed 	definition 	of 	"funeral 	authority" 	in 	Section 	2F 	may
create 	a 	potential 	conflict 	of 	interest. 	According 	to 	this
provision, 	the 	funeral 	authority 	can 	be 	the 	funeral 	home 	if
the 	following 	people 	fail 	to 	exercise 	such 	responsibility: 	the
person 	named 	in 	the 	pre-need 	contract 	as 	having 	authority, 	the
surviving 	spouse, 	the 	adult 	children, 	the 	personal
representative, 	and 	the 	heirs. 	Although 	the 	likelihood 	of 	the
funeral 	home 	becoming 	the 	funeral 	authority 	may 	not 	be 	great,
it 	is 	nonetheless 	a 	situation 	that 	warrants 	further 	attention.
Section 	9C 	allows 	the 	funeral 	home, 	if 	it 	is 	the 	funeral
authority, 	to 	direct 	funeral 	arrangements 	that 	may 	be
inconsistent 	with 	the 	purchaser's 	directions 	in 	the 	pre-need
contract. 	Section 	7 provides 	the 	most 	extreme 	example 	of 	this
conflict 	of 	interest 	by 	permitting 	a 	funeral 	home 	,hat 	is 	the
funeral 	authority 	to 	cancel 	the 	pre-need 	contract. 	Thus, 	the
funeral 	home 	could 	cancel 	or 	reinterpret 	the 	contract 	despite
the 	arrangements 	agreed 	to 	by 	both 	the 	funeral 	home 	and 	the
purchaser 	in 	the 	Statement 	of 	Funeral 	Goods 	and 	Services
Selected, 	a 	document 	required 	by 	the 	Funeral 	Rule 	that 	lists
the 	goods 	and 	services 	purchased 	by 	the 	pre-need 	contract
purchaser 	and 	to 	be 	provided 	by 	the 	funeral 	home. 	The
language 	of 	the 	proposed 	bill 	should 	make 	clear 	that 	if 	the
funeral 	home 	is 	the 	funeral 	authority, 	the 	funeral 	home 	must
carry 	out 	the 	pre-need 	contract 	as 	agreed 	to 	by 	the 	purchaser.
We 	hope 	that 	our 	comments 	concerning 	the 	possible
anticompetitive 	effects 	of 	restrictions 	on 	the 	sale 	of 	funeral
goods 	and 	services 	and 	concerning 	the 	possible 	conflict 	with
the 	Funeral 	Rule 	will 	be 	of 	assistance 	to 	you 	in 	your
deliberations 	on 	the 	proposed 	bill. 	We 	appreciate 	the
opportunity 	to 	present 	our 	views 	for 	your 	consideration.
Sincerely,
Harold 	E.
Assistant
Attachment
7 	However, 	under 	Section 	7B 	of 	the 	proposed 	bill, 	the 	purchaser
has 	the 	ability 	to 	assure 	that 	the 	funeral 	home 	will 	not
cancel 	the 	contract 	if 	the 	funeral 	contract 	issuer 	and 	the
purchaser 	make 	the 	contract 	irrevoc~ble.
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