UPDATE 5/4/08 - Funeral Consumers Alliance and the FCA of Greater Kansas City have sent a joint letter to Missouri Lawmakers asking for amendments to the flawed prepaid funeral reform bills below. We also sent a line-by-line analysis of what's wrong with a proposed bill from the Missouri Board of Embalmers and Funeral Directors.
Missouri lawmakers have two bills in the hopper that would supposedly “reform” the state’s prepaid funeral laws to better protect consumers from losing their money to shady companies that steal their payments or go belly up. Trouble is, the bills don’t go far enough, and they’ll do as much harm as good if they’re passed.
Neither HB 2469 nor HB 2594 [you can download copies of the bills at the bottom of this article] adequately address the worst problem with current law - the fact that funeral directors can pocket a 20 percent commission from consumers’ prepaid deposits, then skim the interest every year from the consumer’s account! Allowing this kind of legalized robbery is not only unfair, it fairly begs shady operators to pad their pockets today with money that ought to be left to fulfill their obligations to consumers at the time of death. To put it bluntly, the law encourages companies to build a house of financial cards by putting short-term greed ahead of long-term stability.
Let’s look at the pros and cons of each bill, starting with HB 2469.
- Beefs up the disclosure requirements on insurance-funded prepaid funerals. The seller will have to show the buyer, in writing, which funeral home the seller works for, whether the contract is “price-guaranteed,” contact information for the insurance company and the funeral home, how much money the buyer loses if he cancels the insurance policy, and other pertinent stuff.
- Prohibits the seller from charging any extra fees above the actual premium payments on the policy.
- Requires the Division of Professional Registration to investigate any violations of prepaid law found by the state funeral board
- Requires the Division to conduct at least five random inspections or audits of prepaid funeral sellers every year.
- Requires preneed sellers to deposit money received from customers within three days (actually, we think this is impractical - 30 days is more fair). This is obviously an attempt to stop the practice of companies “forgetting” to deposit the money for as long as possible.
CONS (and these are big enough to drive a Caddy hearse through with a sidecar attached)
- Lets any funeral director petition the state funeral board to be exempted from establishing a trust fund to safeguard customers’ prepaid money if he can show it’s an “undue hardship.” What? Any prepaid funeral seller who finds it too hard to put his customers’ money in the bank shouldn’t be allowed to do business.
- Continues to let funeral directors keep a 20 percent commission from the customer’s money and put only 80 percent in the bank. 20 percent for what - having made a sales pitch to an elderly couple? If the customer’s paying in installments, the funeral director can keep all their payments until he gets his 20 percent.
- Continues to let funeral directors skim all the interest from a consumer’s prepaid account. How in the world are these accounts supposed to keep up with inflation and pay for the customer’s funeral if the seller’s skimming the accrued value? Why should consumers lose all that interest if they change their mind or transfer the account to another funeral home?
- The bill requires “any investment of preneed funds [to be ] made in investments designed to increase the value of the preneed funds.” This kind of vague language does nothing to stop speculative, risky investments. It sets no standards, and it states the obvious. What the bill really needs is clear standards on exactly, specifically what kinds of investment accounts are acceptable and which are not. A good start would be to follow New York’s lead - require investment in government-backed securities.
- Fails to require preneed sellers to give customers an annual report on where their funds are held, how much interest has accrued, how much was skimmed (of course, who wants to tell Mrs. Smith how much you took out of her account?), etc.
- The worst provision of this bill is how it enshrines secrecy — “All complaints, investigation materials, annual registration, reports, and information pertaining to [the prepaid funeral seller] shall be closed and may be disclosed only as authorized by statutes or order of the court.” Whoa. That means consumers and citizens aren’t allowed to check the license status of a business? They can’t check to see if the seller has disciplinary actions? Reporters or citizens’ groups can’t check up on the annual report filings to make sure a business is operating legally? We cannot figure out who thought this level of secrecy was a good idea, and we doubt it passes legal muster under open government laws.
Now for House Bill 2594:
- Increases the trust deposit requirement from 80 percent to 90 percent, but only for contracts sold after August 28, 2008.
- Requires preneed sellers to send the state a list of every contract sold annually. But why not require a copy of the actual contract? Anybody can make up a fake list.
- Gives consumers a clear right to transfer their prepaid contracts to another funeral home.
- Adds certain activities - fraud, felony conviction, etc. - to the list of things that can get a funeral home’s license pulled.
- Requires sellers to deposit money received from customers within 60 days.
- Continues to allow funeral homes to skim all the interest from a customer’s account.
- Like HB 2469, this one also makes all information about the sellers filed with the state a secret.
- Exempts retail casket sellers (stores that sell caskets directly to the public, often for less money than funeral homes) from the prepaid funeral regulations. Why? If casket stores are selling caskets in advance, they should have to follow the same laws requiring them to deposit customers’ money as funeral homes have to follow.
A source also told us the Missouri Board of Embalmers and Funeral Directors had a last-minute conference call April 11 to present their own bill. This left no time for public comment, and no one from the state has returned our calls asking for a copy of the bill. It’s simply wrong to fast-track this kind of legislation in secret, and with no input from consumer advocates such as FCA or AARP.
The bottomline: Missouri’s preneed laws are broken, and these bills do nothing but daub mud in the cracks. It’s time to start over with new laws. At a minimum, Missouri should follow the lead of states like New York and New Jersey and require 100 percent deposit of the customer’s prepaid money, no skimming of interest, and annual reports to the consumer on the status of their accounts.