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A Watershed Year
Even Lobbying Should Be Prearranged
How is the Labor Department going about redrafting an ergonomics proposal? What else is happening on the legal, legislative and regulatory front that might affect your cemetery or funeral home? Irwin Shipper, CCE, chairman of the ICFA Government and Legal Affairs Committee, provides his annual summary, analysis and predictions.
Irwin, our annual interview seems to cover more topics each year, so before we discuss recent federal court decisions, IRS rulings, the status of the FTC Funeral Rule and other developments, let's pick up where we left off last time. The Senate Aging Committee hearings had just ended and the General Accounting Office (GAO), the investigative arm of Congress, had published a report on our industry. What has been the fallout from these two major events since then?
I suppose that today both of those events have gained a historical perspective they didn't have a year ago. The GAO report marked the first time in history that Congress investigated the sales practices of our industry. The Senate Aging Committee hearings marked the first time in 36 years that any Congressional committee heard witnesses on funeral-related issues, and the first time in history that a Senate committee did this. So both events are significant for all of us and should not be lightly dismissed.
In a way, they can be compared to undergoing surgery. It's too bad that we couldn't have avoided the ordeal, but the good news is that from our industry's viewpoint, both operations were successful. The GAO investigation found no evidence of widespread problems in the allied industries, and the Senate committee hearings inadvertently confirmed the GAO findings by offering only a handful of highly unusual, anecdotal complaints that even the media found to be exceptional. The fact is that industry critics had made some highly inflammatory claims of widespread abuses that they were unable to document. Today, nobody is seriously anticipating new investigations or hearings on Capitol Hill.
That leads us into the larger issue of effective lobbying at the national and the grassroots levels. But before we get into that, let's discuss some recent developments such as the two federal court decisions on casket sales.
A number of states have anti-competitive laws that restrict who may sell funeral-related products to the public. About a dozen states allow only licensed funeral directors to sell caskets. Speaking of effective lobbying, these laws were enacted because some industry trade groups persuaded their state legislators that these laws were necessary to "protect the public." Of course, these laws only protect established sellers from new competition.
Until recently, courts rarely scrutinized these laws to determine their actual effects. Last year, in separate decisions, two federal courts held that restrictive casket laws in Tennessee and Mississippi were unconstitutional. These decisions were major breakthroughs, and now a third federal court, in Oklahoma, is examining a similar casket law in that state. The Oklahoma case will be interesting because in 1998 a state court upheld the casket law there. Anti-competitive laws have been common in just about every profession you can think of, including doctors and lawyers. In each area, the motives were the same -- as I've said, to protect the existing companies and individuals from new competition. For whatever reason, these types of laws have hung on longer in the funeral profession, but I believe that may be changing because of the increased scrutiny we've received in recent years.
Along that same line, can you bring us up to date on the federal litigation in the state of New York?
Back in 1998, New York enacted a terribly restrictive law that, among other things, prohibited cemetery-funeral home combined operations and prohibited cemeteries over 30 acres in size from selling monuments. The legislature had been persuaded that these measures were needed for consumer protection. Since legislators are busy people and everybody is in favor of consumer protection, the bill was passed. The New York Association of Cemeteries later filed litigation in federal court to have the law declared unconstitutional. The association also asked the ICFA for assistance, and we submitted an amicus curiae or "friend of the court" brief late last year. We demonstrated that the New York law prohibited activities that are commonplace almost everywhere else and that do not harm the public. In fact, the restrictions are anti-consumer because they limit the number of sellers and inhibit price competition. Currently, we are waiting for the court to rule on motions for summary judgment filed by both sides.
Where do consumer groups, such as AARP, stand regarding anti-competitive legislation such as the New York law or the casket statutes in other states?
Surprisingly, they are generally silent on these issues. AARP in particular has adopted an anti-preneed position in the sense that they say, "Prearrange, but don't talk to any funeral home or cemetery, and don't prepay anything." Regrettably, AARP's main contribution to educating consumers seems to be limited to writing inflammatory articles to frighten them away from ever contacting a funeral home or cemetery. There's quite a collection of these pieces on the AARP Web site, so I don't think I'm being unfair by saying this.
By contrast, even the Federal Trade Commission recommends buying cemetery property in advance of need. So that's why I say that AARP, for all practical purposes, is basically anti-preneed and doesn't seem to have a problem with any legislation that makes preneed marketing difficult. Although AARP has a litigation fund, it was not involved in the private lawsuits in Mississippi, Tennessee and Oklahoma that challenged the casket laws. I think that speaks volumes on their attitude. The one exception to this anti-preneed position is where a person has to "spend down" his or her assets to qualify for government assistance. In that case, AARP not only suggests prepayment, but encourages it. This policy is contradictory and performs a disservice to AARP members.
The Federal Trade Commission has not been actively pursuing its review of the Funeral Rule lately, but we know that will definitely change. Can you tell us about the status of this proceeding?
The FTC has had the Funeral Rule review on "hold" since November 1999. By law, the agency is required to complete its review, but the time frame apparently can be extended quite a bit. Since the end of 1999, we have been awaiting a report from the FTC staff making recommendations for the future of the rule. The conventional wisdom holds that staff will keep all issues on the table, including the question of whether the rule should be expanded to sellers not currently covered. Once published, the FTC will initiate another round of public comments on the staff report and eventually will hold another public hearing.
Will the fact that the FTC has a new chairman change the direction of the Funeral Rule review?
I don't think anybody can answer that question for certain. We do know that the new chairman, Timothy Muris, has been a critic of FTC rulemaking and that the commission itself has repealed a number of its trade rules in the past 10 years. How any of this affects the Funeral Rule remains to be seen, but this development has caused the ICFA to reconsider its approach to the rulemaking review. As you know, the ICFA has been the only funeral industry trade association to oppose expansion of the rule to other sellers. I doubt that position will change, but we have been exploring additional issues, such as whether the FTC would be willing to modernize the rule, since it was written primarily in the late 1970s using legal jargon now considered archaic. The fact that FTC staff have published a compliance guide that is several times longer than the rule itself in order to explain what it means confirms our criticism.
The rule has never been easy to understand for compliance purposes, so we think that calling for an overhaul should have broad-based appeal to other trade associations. Assuming the rule continues in effect, the FTC should be willing to commit adequate resources to overhauling it and to addressing some long-standing issues such as the timing of giving the general price list and the inequity of imposing huge fines -- $12,000 per violation -- for technical infractions. Without a real commitment by the commission to a Funeral Rule overhaul, our concern is that the industry may end up with the worst of all possible worlds: A trade rule written in archaic language, with vague timing provisions, that imposes big fines for minor violations.
With those considerations in mind, shouldn't other funeral trade associations consider reassessing their positions on the Funeral Rule?
We hope so. For the first time since the rule was enacted, our industry may have a real opportunity for the commission to take a hard look at its costs and effectiveness. All of the industry's trade associations, including the ICFA, would be very shortsighted to adopt a "business as usual" attitude toward the rule review under these circumstances.
The FTC is also reviewing the Telemarketing Sales Rule (TSR). Where does this proceeding stand right now?
Like the Funeral Rule review, the TSR review is on hold. This rule has a short history. It was enacted in 1995 through a Congressional mandate, so it can't be repealed unless Congress changes the law. I should mention here that this restriction makes the TSR different from the Funeral Rule. The Funeral Rule is called a "discretionary" trade rule because it originated in the FTC, not in Congress. That means that the FTC can also repeal it without the need for authorizing legislation from Congress.
The TSR was enacted to prevent fraud and abuse through telemarketing. This rule makes an important distinction between sales calls and "appointment" calls, where nothing is sold over the phone but the caller is trying to make an appointment with the consumer. The ICFA was instrumental in getting an exemption added for these types of calls, which are primarily made by preneed sellers. To the best of our knowledge, the exemption has worked well and we are not aware of any abuses that would cause the FTC to consider eliminating this exemption.
Where does the industry stand on the TSR exemption for preneed calls?
For most of the five years or so the rule has existed, the ICFA was the only national association in our industry to become involved with it. I believe we were the only association to submit testimony during last year's public comment period. Obviously, we believe that the exemption is simply common sense and should be continued. But earlier this year, the NFDA announced it would push for the elimination of the exemption for funeral-related calls. Frankly, I can't imagine why the NFDA would take that position, and it suggests an anti-preneed marketing viewpoint on their part. The only other party we know that has opposed this "preneed" exemption in the TSR is industry critic Lisa Carlson, whose opposition to preneed marketing is well known. Why the NFDA would want to take the "Lisa Carlson viewpoint" on this issue is a mystery.
Where are the FTC reviews headed at this point?
As with the Funeral Rule review, the FTC staff eventually will publish a report with recommendations on the Telemarketing Sales Rule and the review will move on to its next phase of public comment and hearings. There is a possibility that the commissioners will preempt all this by announcing that the trade rules, either the TSR or the Funeral Rule, are just fine the way they are now. So both reviews can move in a number of different directions.
Tax-wise, we've almost become accustomed to getting bad news from the IRS, but that's changed recently.
Yes, the Internal Revenue Service has published a private letter ruling stating that the cash advances paid by a funeral home do not trigger a Form 1099 reporting requirement. The IRS specified that the funeral home should not profit from the cash advance nor supervise the services rendered due to the advance. So that's a little bit of good news from an agency that usually complicates life for our members.
Another IRS letter ruling may actually encourage more casket sellers to enter the market. The ruling held that a church may sell caskets without jeopardizing its tax- exempt status, provided that the caskets are used as part of the religious ceremony in the funeral. Under these circumstances, the proceeds from the casket sales are also tax-exempt. This ruling seems surprising, but it is too early to say whether religious organizations will begin selling caskets on any kind of a large-scale basis. I'd better point out that a private letter ruling technically applies only to the taxpayer who requested it. But the rulings are helpful in showing IRS thinking on an issue, especially where other taxpayers have similar situations.
Could this IRS casket sales ruling have an effect on the coverage of nonprofit organizations under the Funeral Rule, especially if the rule were eventually expanded to all casket sellers, not just funeral homes?
This development highlights one of the problems we discussed with FTC staff, namely, if the rule is expanded, what happens to all the religious and nonprofit entities that sell items regulated by the Funeral Rule? The FTC Act generally exempts businesses "not carried on for profit," but that language was written back in 1914 and the U.S. Supreme Court has narrowed its meaning on several occasions. For example, nonprofit trade associations are under FTC jurisdiction, depending on the nature of their activities. This recent IRS letter ruling seems to protect religious institutions that sell caskets in the sense that the proceeds are considered to be tax-exempt. The problem is that for-profit competitors of these religious groups may claim "unfair competition." This area is new and may become very complicated.
Let's talk about ergonomics. The industry, as well as all of American business, dodged a major bullet earlier this year with the last-minute repeal of the Clinton administration ergonomics program. Will there be a new program to take its place?
Yes. The Clinton-era ergonomics proposal was rammed through the Labor Department in the closing months of that administration. It was a complicated program that seemed punitive toward businesses and definitely not "user friendly." The new Congress rescinded it in March, using its authority under the Congressional Review Act for the first time, and President Bush signed the legislation. This summer the Department of Labor's OSHA (Occupational Health and Safety Administration) is holding hearings in Washington, D.C., and elsewhere to study the prevention of musculoskeletal injuries through common sense programs. We're cautiously optimistic that this new approach will work better and actually do more to prevent injuries.
Will the ICFA be participating in the new round of ergonomics hearings?
We are submitting testimony, as well as continuing our support of the National Coalition on Ergonomics, which is a broad-based coalition of industries and various trade associations under the leadership of the U.S. Chamber of Commerce. Part of the problem in developing an ergonomics program is that there is disagreement over what is an ergonomics injury and whether the injury, however it's defined, was caused by a job-related activity. OSHA expects to publish a report this fall that will propose a course of action. That report will probably trigger another round of public comments. One thing is clear: The original program that was developed during the Clinton era was the wrong way to go.
We began our interview by referring to the need for effective lobbying. Did the events of last year prove that when it comes to lobbying, timing is everything?
Definitely. In fact, we can take all the reasons we give consumers for prearranging their funerals and apply them to lobbying. Effective lobbying is always done in advance of need, and waiting until a crisis happens to develop legislative contacts will almost always result in a case of "too little, too late." If a state association wants to advocate certain legislation, that effort takes a number of years of communicating with the legislators. The same is true with fighting adverse legislation. We've seen cases where a bill will go through a committee within days of being introduced, be reported on the floor of the state house and senate for a vote and be on its way to the governor for signature by the time the state association has discovered the bill was introduced. That's why I say that lobbying should be prearranged just like other things in our industry.
Where does the ICFA see the role of federal regulation of our industry, compared to state regulation?
There is a viewpoint that federal regulation is an opportunity to create uniform treatment for our industry that would be consistent from state to state, that is, one law for 50 states. That approach seems to make a lot of sense, especially when compared to the crazy quilt we have now of varying state laws in different states. The problem with a federal approach to regulation is that we have little reason to believe federal law would be imposed in lieu of state laws. The states have shown little interest in giving up their regulation of our industry. I am concerned that it is more likely that federal regulation would be imposed in addition to state regulation, not in place of it. So industry members would find themselves grappling with a dual layer of regulation -- and compliance.
Is your concern just theory or do examples currently exist?
It's a lot more than theory. Florida is a good example. On the federal level, the FTC enforces its Three-Day Cooling-off Rule whereby consumers can cancel most sales made outside the seller's main office within three business days of signing the contract. As a practical matter, this law applies mainly to sales made in people's homes. A few years ago, the Florida preneed law was amended to provide a 30-day cooling-off period to cancel a sale. Common sense would suggest that the Florida 30-day rule should preempt the lesser federal law, and sellers could forget about the FTC three-day rule that runs concurrently. Unfortunately, it doesn't work that way. Preneed sellers in Florida must comply with both the state and federal laws, including the separate disclosure and document requirements. It's not a major obstacle, but multiply that by similar compliance requirements with a variety of other issues and you can see the problem escalating.
Some states, such as Minnesota, have enacted their own mini-Funeral Rules that are similar but not necessarily identical to the FTC Funeral Rule. But so far, no state has been exempted from the FTC Funeral Rule compliance, and separate disclosure must be made to comply with both state and federal laws that cover the same issue. The state of Arizona obtained a partial exemption, but that may be more confusing than having no exemption at all. I think these examples show why the ICFA's concern about dual regulation is valid. This is also why I said earlier that the GAO report and the Senate Aging Committee hearings were like surgery for our industry. Had they turned out differently, we probably would be seeing bills in Congress right now to regulate cemeteries and funeral homes in addition to current and future state regulations.
What is the ICFA doing to make sure that, as you say, the industry doesn't have to undergo this type of surgery again?
Part of the reason we came out of the GAO investigation and the Senate hearings so well is the work that preceded these events. For example, the ICFA was initially contacted by the Aging Committee back in 1996 about the possibility of hearings. We got going at that point and spent over two years developing model guidelines for state laws and regulations. So when the Senate hearings were eventually held, we were prepared to hand over to Sen. Grassley, then chairman of the Aging Committee, a 3-inch binder filled with 27 model guidelines we had written when he suggested that model state guidelines should be developed. This move helped defuse a tense situation and established the ICFA as part of the solution, not part of the problem.
We are in our third year of publishing a Capitol Hill newsletter called "Guardians," named after our association's motto, "Guardians of a Nation's Heritage." We issue this newsletter twice a year and send it to all 535 members of Congress. The ICFA doesn't use it to lobby Congress for anything. Instead, we discuss our consumer assistance work, report on efforts to increase the competitiveness of our industry, and generally let them know we are a resource to help with constituent questions or concerns. In my opinion, the lack of familiarity with our industry may have led a few Congressmen to call for hearings and an investigation. I believe they assumed that industry critics knew what they were talking about when they made extravagant claims of widespread abuses. If members of Congress had known us a little better, I doubt the hearings would have occurred.
Going back to what you said about lobbying being prearranged, what sort of presence do you think the ICFA should have on Capitol Hill and with the federal agencies?
The ICFA should be in the Rolodex of every Congressional office and key federal agency. We don't need to be "in their face" every day, but our reputation should be such that everybody knows we're nearby, we're easy to reach and we're ready to help. Based on the feedback we've gotten from various Congressional offices, I believe we have achieved this goal. The challenge now is in maintaining that presence in the light of ever-changing staff on the Hill. Remember, there's a new Congress every two years, so this is an ongoing job.
Would you describe this year as a kind of watershed in the sense that the ICFA is working on existing issues while no new challenges have arisen so far?
This is definitely a watershed year, and we're lucky to have it. No industry can go running around year after year from one new issue to another. And the years 1999 and 2000 were definitely times of running from pillar to post. It was crisis management, but it robs an organization of the ability to plan for the future. Today we can regroup and, as we've discussed, reassess our goals on ongoing issues to make certain that we keep up with changing times.
Would it be correct to say that the ICFA favors state regulation of our industry over federal legislation?
From experience, we know that our industry is more effectively regulated at the state level. Critics will point out that some states lack provisions on certain issues or enforcement may be weak. If true, these concerns are more easily addressed at the state level than they could possibly be managed on the federal level. So the ICFA believes that federal regulation should be viewed as a last resort, not as a first resort. And as we've discussed, a dual level of regulation will be cumbersome, expensive and confusing to both industry members and the public alike. This concern also explains why we are dismayed when other industry trade associations advocate the expansion of the Funeral Rule or the Telemarketing Sales Rule, for example, because they are pushing the expansion of federal regulation of our industry that will result in a double layer of state/federal regulation. We think this strategy is shortsighted and only plays into the hands of industry critics who want to see us saddled with as much regulation as possible.
Speaking of industry critics, an important function of the ICFA Government Relations program is to respond to media attacks on the industry. Can you tell us about that?
Some media reports have been more interested in generating controversy than in educating consumers. Reasonable people can disagree on how they should shop for funerals, but the industry-bashing that passes for consumer education suggests that private agendas are at work. Recently, Consumers Union published two attacks on prepaid plans that went far beyond warning the public about unscrupulous sellers. These attacks mischaracterized the entire purpose of making prearrangements.
For example, Consumers Union insists that prepaid plans should be viewed as financial investments whereby a certain rate of return should be provided and paid to the customer. If the rate of return is insufficient or not payable to the customer, then the arrangement is suggested as being a "scam" and the consumer is warned away from it. Consumers Union claims that prepayment should not be considered except, as I mentioned earlier in regard to AARP, to reduce a person's assets so he or she qualifies for government assistance. In that case, it becomes a wise use of one's resources. The standard attack ends with the advice that people should just save for funerals on their own. But consumers are not told that such savings will not be shielded from the bills for medical insurance co-payments or coverage gaps. The ICFA responds to these attacks with lengthy, factual rebuttals that we circulate to various government agencies and lawmakers to get our side of the issues out to the decision makers.
How influential do you think these attacks are?
That's hard to judge. We know that many people do not educate themselves about funeral planning and ignore all information, good or bad. We hear of incidents where customers will call or stop by a funeral home or cemetery where they've made prearrangements with the article in hand, asking for assurances that they haven't been ripped off. I've known of instances where industry members have literally opened their ledgers to prove that the customer's funds have been deposited. So those stories, to the extent that people read them in the first place, are not helping people, they're frightening them.
There is sometimes a spillover effect to organizations that assume AARP or Consumers Union is being objective when it publishes these attacks. Earlier this year, the Council of Better Business Bureaus published a piece drawn from AARP material warning against prearrangements. When ICFA staff brought the errors to the attention of the BBB, the bureau quickly withdrew the article from circulation. By contrast, neither AARP nor Consumers Union has ever corrected any of the misinformation in their articles and they continue to post them on their Web sites. As I said, I think there are anti-business agendas at work, and the ICFA has adopted a practice of responding to these attacks quickly and directly. Perhaps when these organizations realize that their credibility will be challenged, they will become more responsible with what they print.
In addition to your role as chairman of the Government and Legal Affairs Committee, you also spearhead the Government and Legal Fundraising Campaign. How is that going?
I am glad to report that ICFA members continue to see value in the program and are generously responding. Some members voluntarily contribute to the fund a greater amount than they pay in annual dues. I'm especially encouraged when I see members who haven't made a contribution to the fund in a few years send in a check. Last year we received a record number of contributions from our independent members, and that trend seems to be continuing this year.
What recent projects has the fund underwritten?
Already this year, the fund underwrote the republication of ICFA's 10 preneed model guidelines. The guidelines were sent to state trade associations and we offered to send copies to state regulators and legislators at the request of the associations. We had quite a good response as a result of that effort. We conducted our biennial Congressional and Federal Communications Network Survey, which helps us identify who our members know in Congress and in the federal agencies. I am constantly impressed with the level of communications many of our members have with Congressional leaders. Of course, the "Guardians" newsletter that I mentioned earlier is published by the fund and is sent to every Congressional office on Capitol Hill. The fund gives us the flexibility to retain legal and tax specialists when new issues arise and helps defray staffing expenses. So I think it's fair to say the ICFA members see the value of supporting the fund.
We traditionally close our interview by asking you to make some predictions for the next 12 months. This time last year, many of us were bracing for more hearings, but you said if they happened, the hearings would be an opportunity, not a problem. What do you see ahead now?
The likelihood of more Capitol Hill hearings seems remote at this time, but we should never be afraid of scrutiny. In fact, we should be prepared for it. Demographics show that our aging population will continue to be the largest growing group and, after 2005, the death rate will begin to climb after years of remaining stable. So funerals, burials, cremation and different types of memorialization and related services will continue to be a focal point for consumer protection and that should not be surprising. We can either dig in our heels and say, "How dare you question us?" or we can respond by saying, "Yes, let's get rid of any frauds and charlatans that victimize our industry as much as they victimize the public." The real challenge is developing common sense regulation and enforcement because, as we have seen, there are so-called consumer advocates out there with a punitive attitude toward our industry and these people can be very influential if they are not challenged by us.
I am also concerned that we are seeing some state trade associations advocating protectionist legislation to insulate their members from new forms of competition. Depending on how well they are organized, they may manage to win some battles to keep restrictive legislation on the books or to get new bills passed into law. I don't believe that approach is a successful long-term strategy. Anyone who expects to be in this business 10 years from now had better get used to facing competition, just like doctors and lawyers had to get used to it when their forms of protectionism were exposed and abolished. I'm very pleased that the ICFA is leading the way into this new reality to help our members succeed. With this attitude, government relations becomes a resource for success, not an obstacle to it.
Copyright ICFA 2001
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