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ICFA Responds to Consumers Union Report
Editor's note: The following letter was circulated to key members of Congress, their staffs, federal agencies, state associations and the media.
To: Mr. Reggie James
Director, Consumers Union
Re: "Final Committal, Texas Problems with Prepaid Funeral Services"; Public Policy Series, Vol. 3, No. 3, October 2000
Dear Mr. James:
The International Cemetery and Funeral Association (ICFA), representing nearly 6,000 cemeteries and funeral homes in the United States and other countries, is deeply concerned with the recent report, cited above, published by Consumers Union (CU). We believe that CU has performed a major disservice to the public by attempting to compare prepaid funeral and burial contracts to financial investment vehicles, then advising consumers not to prepay their funeral arrangements because of the low return rate on such contracts. We would agree that the prepayment of funerals and burials may not be suitable for everyone, but CU's conclusion that consumers should only save privately for their funerals ignores the distressingly common problem that occurs when medical expenses from the final illness exceed health insurance coverage, thereby forcing consumers to use savings to pay such bills, leaving little or no funds for funeral expenses.
CU attempts to buttress its position by citing, out of context, approximately 300 funeral-related complaints filed with Texas governmental agencies over a two-year period, 1998-1999. A third of these complaints are said to relate to prepaid contracts, which equals only one complaint per week. CU fails to refer to the 842,000 prepaid funeral contracts in Texas, 510,000 of which are trust-funded and 332,000 of which are insurance-funded, that are outstanding as of 1999. Viewed in this context, the CU complaint percentage is the statistical equivalent of zero.
Nevertheless, the CU report claims that the complaints "reveal a pattern of problems" and cites a handful of anecdotal accounts as requiring legislative amendments to existing law. Make no mistake, the ICFA is concerned with the existence of any consumer complaints and has administered the Cemetery Consumer Service Council for over 20 years to informally mediate, and largely resolve, any such problems. However, the use by CU of "legislation by anecdote" is a dangerous policy that distorts the issues and renders little meaningful guidance to consumers.
The CU report ignores industry efforts to foster uniform consumer protection laws. For example, the ICFA has published 27 model guidelines for state laws and regulations dealing with important consumer issues such as contract disclosures, trust funding, insurance-funded prepaid contracts, consumer guarantee funds to protect purchasers in the event of a defaulting seller, solicitation guidelines and restrictions, and many more. Yet the CU report distorts the picture by implying that the industry takes no initiative in fostering consumer protection laws and, instead, CU gives bad advice to consumers regarding their funeral planning.
Noticeably absent from the CU report is any reference to the findings contained in the September 1999 U.S. General Accounting Office (GAO) report, "Funeral-Related Industries," which is historically significant as the first Congressional investigation of funeral and cemetery sales practices. CU cites the GAO report but only to compare the inflation index with funeral pricing. The GAO's findings, which mainly reflect favorably upon the industry, are omitted from the CU report, thereby suggesting a lack of objectivity, and even a lack of basic fairness, by your organization.
Having cited this report, CU must know that the GAO found a low number of funeral-related consumer complaints, citing a total of 453 received by the Better Business Bureau for 1997 on a national basis. The GAO speculated on why there were not more complaints but conceded, "Clearly consumers may not complain about the goods and services they receive from death care providers because they are satisfied." Speculation aside, and even factoring in a theoretical number of "unreported" complaints, the fact remains that the consumer complaint rate is infinitesimal when compared to the number of funerals and burials, approximately two million annually in the United States, and approximately 143,000 annually in Texas alone. However, consumers would never guess these facts by reading the CU report.
In an effort to further document the level of consumer concerns with funeral-related activities, last year the ICFA filed a Freedom of Information Act request with the Federal Trade Commission (FTC) seeking any complaints involving cemeteries during the previous four years. Although the FTC announced that it had received a total of 60,000 consumer complaints in 1998 alone, the agency reported to the ICFA that it had received none relating to cemeteries. The ICFA informally questioned this result with FTC staff and the agency eventually found 26 complaints over the time period of September 1997 through January 2000, or less than one complaint per month on a national basis. When compared to the volume of approximately 5,500 funerals and burials each day in the United States, the FTC complaint rate is almost nonexistent.
Throughout the report, CU cites complaint percentages instead of actual numbers to disguise the fact that complaints are few. For example, on page 17, CU states, "Nearly 20 percent related to requests for refunds on cancelled or changed preneed policies ...." Twenty percent of what? The 300 complaints received over a two year period or the 100 that relate to prearrangements? Either way, the numbers are small and the accounts anecdotal, but the hostility to the industry is unmistakable and counterproductive.
In many other respects, the CU analysis of consumer issues is seriously flawed. A table showing vigorous price competition among funeral homes is considered a negative factor. The investment return rates of certificates of deposit are viewed favorably compared to prepaid contracts in order to discourage consumers from prefunding their funerals. The ICFA does not quarrel with CU's math but we strongly disagree with its conclusions. Nobody has been able to calculate the return rate for peace of mind and this is the chief advantage of prepaying one's funeral and burial arrangements.
The CU report complains that preneed purchasers may not switch funeral homes, as though purchasers of other types of goods and services can routinely return or exchange them. Even airline tickets cannot be transferred from one carrier to another for flights on the same day and to the same destination. Ironically, there is no suggestion by CU that the funeral provider should be permitted to cancel a prepaid contract should the arrangement become less financially advantageous than originally planned.
CU believes that purchasers are unfairly treated because sellers may retain excess interest income, if any, on prepaid funeral contracts that give consumers guaranteed price protection. It is important to note that when AARP first published a model preneed law in 1987, it agreed that funeral sellers were entitled to retain any excess interest on guaranteed price contracts because the seller assumed the risk of price increases. AARP commented that this arrangement was a fair accommodation for the obligations assumed by the seller. Unfortunately, AARP later changed its position but for reasons no more logical than the opposition expressed in the CU report.
The report is correctly concerned over the fact that preneed purchasers may be required to pay federal income tax on their funeral trust earnings although they may never receive the income itself. This policy was mandated by the Internal Revenue Service in 1987 through Revenue Ruling 87-127, as noted by CU. Prior to 1987, funeral providers generally paid the tax on trust earnings. CU fails to state, or may not realize, that the industry has lobbied Congress since 1987 to change the law to enable funeral homes to once again pay the tax on trust earnings. In 1997, Congress passed Section 685 of the Internal Revenue Code that permits funeral trusts to elect to pay the tax instead of the preneed purchasers. This major victory for consumers is ignored by CU and, just as importantly, the industry is given no recognition for this accomplishment.
In closing, it is painfully obvious that CU did not bother to consult with any industry trade associations or related organizations that could have given the report an important business perspective it needs. Instead, consumers are warned away from purchasing prepaid arrangements and, as a result of following this advice, many will sacrifice their peace of mind and the financial security gained from knowing that their funeral and burial wishes are documented and funded.
Very truly yours,
Robert M. Fells, COO, External Affairs
and General Counsel
Copyright ICFA 2000
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