Stewart Cemetery Practices Deceptive
The following was faxed to Maridel Freshwater in the regional office of the Federal Trade Commission by Pierson Ralph, Executive Director, Memorial Society of North Texas. Several editorial comments have been added in italics.
Simplicity Plan of Texas, a subsidiary of Stewart Enterprises, Inc., sells preneed cemetery space and funeral plans for Stewart funeral homes, including Restland, Laurel Land, Anderson Clayton, and Bluebonnet Hills, among others.
Simplicity seeks to sell cemetery space/markers and a funeral plan concurrently, and offers time payment terms to cover the purchases.
Simplicity encourages purchasers who buy both items to combine payments on one account. There are, however, potentially adverse consequences to such combination if the purchaser defaults or chooses to cancel a contract. Simplicity does not warn purchasers of such adverse consequences.
These consequences arise because of the manner in which payments are posted to the two contracts, and the different consumer protection provisions which apply [or may not apply].
On a prepaid funeral plan under a trust arrangement, the form Simplicity sells, Simplicity retains for its own use one-half of all payments until ten percent (10%) of the face amount of the contract has been retained. The other one-half is deposited in a trust account for the purchaser. Once the ten percent has been retained, all further payments are deposited in the trust. Payments deposited to the trust, but not earnings thereon, are refundable to the purchaser in the case of cancellation or default on the payments. This is significant protection to the purchaser. [Actually, this is only a beginning protection. The earnings should be refundable, as well.]
The cemetery space/marker payments are under a retail installment contract, which provides essentially no protection to the purchaser in the case of cancellation or default.
The potential adverse consequences arise because Simplicity does not allocate principal payments on the debts proportionally, but allocates them all to the cemetery space/marker debt until it is fully paid. Only then are payments allocated to the funeral plan.
Although this distribution is spelled out in the contract, the implication will not be apparent to almost any purchaser. The Memorial Society contends that this is a deceptive trade practice, and should be corrected either by allocating principal payments proportionally between the two contracts from the start, or by including a clear warning in the contract that "Combining these payments may substantially reduce the amount you could recover in case you find you have to cancel." [There appear to be only a few states that have such an allocation requirement.]
In April 1995, a woman of modest financial means and relatively unsophisticated about time purchases—and with essentially no knowledge at all about funeral purchases—became concerned about funeral arrangements for her father. She contacted Restland Funeral Home in Dallas and purchased two contracts, one for a cemetery space at $1,850, the other for a funeral at $4,040. She paid $100 down and financed the balance at 7% interest—on first appearance, a relatively low finance rate. As it turned out, this supposedly favorable rate was an illusion, as is shown later. [How can any state allow a business to CHARGE interest on something NOT YET ACQUIRED while they are COLLECTING interest on the payments in the meantime?!! What is wrong with the Texas legislature that they haven't put a stop to this practice? How can Stewart's corporate boys sleep at night?]
Although she had two contracts, Restland graciously offered to combine these under a single payment plan under terms of the cemetery space purchase contract: "For your convenience, the payments on the (cemetery purchase) Contract may be combined with payments for any additional purchase(s), including any pre-paid funeral arrangements, on one account."
Restland normally sets up payments for a funeral purchase for a maximum of seven years. Under this arrangement, however, the funeral purchase was tacked onto the end of the cemetery purchase. The payment schedule called for 119 payments of $68, extending the payout period to one month shy of ten years!!!
The total time payment price, thus, was $8,192: the $100 down payment and 119 time payments of $68. The total finance charges included in this price, if paid according to the schedule, come to $2,302. This increased the total cost by 39%, ignoring for this calculation the subtleties of the "time value of money."
In late 1996, the woman began to have financial problems. The sight drafts for the monthly payments (Restland goes so far as to offer lower carrying charges for bank drafts than for direct pay), among other things, caused several overdrafts at her bank account. She closed the account, and, by 1997, no regular payments were being made. In September, she turned to Senior Citizens of Greater Dallas for help, and they referred her to the Memorial Society.
By this time, the father was failing and could die any time. The woman had equity of only $835 (according to Restland) toward the contract of $5,890. All the rest of her payments had gone to carrying charges and penalties. Upon maturity (the death of her father), she would have to come up with over $5,000 to complete the purchase. This seemed virtually impossible considering the trouble she was having just making the $68 monthly payments.
The best the Memorial Society could suggest was that she cancel, essentially forfeiting everything she had paid, including the $835 equity in the cemetery space, and choose a less expensive package of goods and services from a less costly provider, of which there are many in the area.
Restland, in its magnanimity, would extend a credit of $835 to the woman or any member of her family toward the purchase of a grave space at any of the cemeteries affiliated with Restland, at need only, i.e., when the person to be interred had died. This, of course, would reduce the value of the credit proportionally, as cemetery prices in the already expensive cemeteries at Restland and its affiliates increase still further.
As Virgil remarked in Aeneid, Book II, Line 49: "I fear the Greeks, even when bringing gifts."
All of the above are according to Restland's contracts. Of course, not all purchasers read the contracts, and even fewer understand them. Caveat emptor!
There is, however, a possibility that the packaging of the single payment for the two contracts constitutes a deceptive trade practice. As noted above, there were two separate contracts, one for purchase of cemetery space, the other for purchase of the funeral. There are substantial differences in protection to the consumer under these contracts. The cemetery property sale is a retail installment contract, governed by Texas law pertaining to such contracts. One provision of the contract is that "If a payment to be made by Purchaser on this Contract is not paid within 60 days of the date the payment is due, Seller may, as a matter of its sole discretion, (i) declare that all payments made by Purchaser on this Contract are forfeited to and shall remain the property of Seller as and for liquidated damages." This indicates that the cemetery property would revert entirely to the seller in the case of default or cancellation. The funeral contract is governed by a special law which restricts what the seller can retain in case of cancellation. (Article 548b, Vernon's Texas Civil Statutes, permits the seller of a trust-funded plan to retain one-half of all funds collected or paid until it has received an amount not to exceed ten percent of the total amount agreed to be paid. All other funds must be deposited in a trust account. All amounts so deposited, but not the earnings thereon, must be paid to the purchaser on cancellation.)
The provision for combination of the payments is in the contract for purchase of the cemetery space. It goes on to state, "All payments will be applied first, to accrued finance charges and insurance premiums, if applicable, secondly, to purchases of cemetery property and any memorial until fully paid, and lastly to other purchases." In the case cited, the other purchase was for the funeral.
If, instead of these provisions, the payments had been allocated proportionally to the amount financed, the equity would have been only $262 in the cemetery property and $573 in the funeral purchase. The seller could retain only half this amount or $286.50. The other $286.50 would be returned to the purchaser. A small amount, but significant to a financially strapped buyer. [Frankly, some of us find it appalling that 100% of the funds paid aren't refunded, with the seller permitted to keep only a modest portion of the interest income to cover administrative expenses!]
It would take a person with thorough knowledge of the difference in the cancellation provisions between the two contracts to catch the significance of allocating principal payments first to the cemetery property debt and only after this is paid in full, to the funeral contract. The effect is to minimize what the purchaser can recover upon cancellation, and, conversely to maximize what the seller can keep. It seems very unlikely that the attorneys and other professionals at Restland were not aware of this distinction and structured the provisions to benefit their own interests at the expense of the purchaser.
It's all there in the contracts, but it requires a lot of know-how to figure it out. The consumer would be warned if a statement to the effect that "Combining these payments may substantially reduce the amount you could recover in case you find you have to cancel." were included in the section of the cemetery space purchase contract which covers the combination of payments. Failure to include such a statement is construed as a deceptive trade practice. [Perhaps a clearer warning is needed for some, with a schedule of what has been paid and how much of that can be expected in a refund after cancellation or default during each of the ensuing years!]