Funeral Industry Practices Trade Regulation Rule
Federal RegisterJan 11, 1994
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SUMMARY: The Federal Trade Commission issues final amendments to the
Funeral Industry Practices Trade Regulation Rule (hereafter ``the
Rule'' or ``the original Rule''), pursuant to the review mandated by
Sec. 453.10 of the Rule. That provision required that the Commission
initiate a rulemaking amendment proceeding no later than four years
after the effective date of the Rule to determine whether the rule
should be amended or terminated.
EFFECTIVE DATE: The amended Rule will become effective on July 19,
1994.
ADDRESSES: Requests for copies of the amended Rule and the Statement of
Basis and Purpose should be sent to Public Reference Branch, room 130,
Federal Trade Commission, 6th Street and Pennsylvania Avenue, NW.,
Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT: Matthew Daynard, Division of Service
Industry Practices (202-326-3291), or Carol Jennings (202-326-3010) or
Sally Forman Pitofsky (202-326-3318), Division of Marketing Practices,
Bureau of Consumer Protection, Federal Trade Commission, Washington, DC
20580.
SUPPLEMENTARY INFORMATION: The amended Rule retains the Rule's primary
itemization, price and other disclosure requirements, without major,
substantive modification; expressly prohibits non-declinable fees (such
as so-called ``casket handling fees'' or ``basic facilities fees'')
charged in addition to the non-declinable fee for basic services of
funeral director and staff; deletes the affirmative telephone
disclosure requirement, but retains the obligation to give price and
other information to consumers who request it over the telephone; and
contains a series of changes to the original Rule in the nature of
fine-tuning and technical revisions designed to make the Rule more
effective and to facilitate compliance.1
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\1\ In this document, references made to material contained in
the rulemaking record, and references to particular, oft-cited
documents in the record, are made in the footnotes using the
following abbreviations:
Tr.--The transcript of the public hearings (Vol. I-III).
HX--Exhibits presented and accepted into the record at the
hearings.
R--Materials submitted by the Commission staff or interested
parties, or placed on the record by the Presiding Officer.
References to documents in this written (``R'') portion of the
rulemaking record show the category in which the document was
placed, the document number, and the internal page number of the
document on which the cited reference appears. The reference number
for the rulemaking record itself is 215-66.
R-B-5--The Commission's official publication of the Rule and the
SBP, referred to above.
R-N-1--Bureau of Consumer Protection, Federal Trade Commission,
Funeral Industry Practices, Mandatory Review (16 CFR Part 453):
Final Staff Report to the Federal Trade Commission With Proposed
Amended Trade Regulation Rule, June 1990 (hereafter cited as the
``Staff Report'' in text, ``SR'' in notes).
R-O-1--The Presiding Officer's July 1990 Report (``POR'').
R-A-1--The Commission's Notice of Proposed Rulemaking (``NPR'')
initiating the review proceeding (53 FR 19864, May 31, 1988).
R-B-2--Market Facts, Inc., Report on the Survey of Recent
Funeral Arrangers (1988) (the FTC-sponsored study of 1,004 consumers
who arranged funerals between Dec. 1986 and June 1987, hereafter
cited as the ``Replication Study'' in the text, or ``RS'' in notes).
R-B-3--Office of Impact Evaluation, Bureau of Consumer
Protection, Federal Trade Commission, Market Facts--Washington, and
Dr. J. Paul Peter, University of Wisconsin, Baseline and Follow-up
Studies for Evaluating the Effect of the Federal Trade Commission's
Funeral Home Industry Trade Regulation Rule: Final Report, July 1982
(The FTC-sponsored study and follow-up of 1,200 consumers who
arranged funerals between Nov. 1980 and May 1981, hereafter cited as
the ``Baseline Study'' in the text, or ``BLS'' in notes).
HX-122--February 1989, FTC Bureau of Economics staff report
analyzing expenditure, selection and compliance data from the 1988
Replication Study (hereafter cited as the ``BE Report'').
HX-66--1988 study, sponsored by the American Association of
Retired Persons and conducted by the Gallup Organization, of 675
consumers who arranged funerals between April 1987 and Oct. 1988
(hereafter cited as the ``Gallup Study'').
HX-108--Statement of Rebecca Ayers, National Research, Inc.,
presenting the results of a national study of 500 funeral directors.
R-B-6--1985 FTC Staff publication assisting funeral providers in
Rule compliance (hereafter cited as the ``Compliance Guidelines'').
R-M-9--Proposed Findings of Fact, Conclusions of Law, and
Recommended Decision jointly submitted by the National Funeral
Directors Association and the National Selected Morticians.
R-M-11--Proposed Findings of Fact, Conclusions of Law, and
Recommended Decision submitted by the American Association of
Retired Persons.
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STATEMENT OF BASIS AND PURPOSE
I. Introduction
A. Overview of the Original Rule
The Commission promulgated the original Rule on September 24, 1982,
making it fully effective on April 30, 1984.2 The Commission's
decision to promulgate the Rule was appealed, and was subsequently
affirmed in Harry & Bryant Co. v. FTC.3 The Funeral Rule declares
it an unfair or deceptive act or practice for funeral providers to: (1)
fail to furnish price information to funeral consumers; (2) require
consumers to purchase items they do not desire to buy; and (3) embalm
deceased human remains for a fee without authorization. The Rule
further declares it a deceptive practice for funeral providers to
misrepresent: (1) the necessity for embalming, caskets for cremation,
and grave vaults or grave liners; (2) legal and cemetery requirements;
(3) preservation and protection capabilities of funeral goods and
services; and (4) cash advance charges for items arranged for by the
funeral provider on the consumer's behalf.
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\2\ The Rule had two effective dates. Those portions of the Rule
that prohibit certain oral or written representations became
effective on January 1, 1984. 48 FR 45537 (Oct. 6, 1983). The
remainder of the Rule--the portions imposing affirmative obligations
on funeral providers--became effective on April 30, 1984. Id. The
effective date of Sec. 453.3(b)(1)(ii) of the Rule was changed from
January 1, 1984 to April 30, 1984. 49 FR 564 (Jan. 5, 1984).
\3\ 726 F.2d 993 (4th Cir. 1984), cert. denied, 469 U.S. 820
(1984). The Court held that the Funeral Rule did not, as alleged,
exceed the Commission's authority under Secs. 5 and 18 of the FTC
Act and did not violate funeral directors' First Amendment rights of
commercial free speech.
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To prevent those practices and to correct consumers'
misimpressions, the Rule contains several remedial requirements. The
Rule requires that funeral providers: (1) Disclose written price
information by means of a General Price List (``GPL''), Casket Price
List (``CPL''), and an outer burial container price list (``OBC-PL'')
to persons who inquire in person about funeral arrangements or the
prices of funeral goods and services (Secs. 453.2(b)(2)-(4));4 (2)
Give purchasers a written statement, after they have selected funeral
goods and services, containing the prices for each of the items
selected, the total price for the funeral arrangements selected, price
estimates or actual costs, if known, for cash advance items, and any
legal, cemetery or crematory requirements that compel the purchase of
any items or services for the particular funeral (Sec. 453.2(b)(5));
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\4\ The Rule permits providers to incorporate the information
from the casket and outer burial container price lists in the
general price list. This combined list also must be offered to
persons who inquire in person about funeral arrangements or the
prices of funeral goods and services.
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(3) Affirmatively disclose to telephone callers who inquire about
funeral ``terms, prices or conditions'' that price information is
available over the telephone (Sec. 453.2(b)(1)(i));
(4) Disclose specific price information over the telephone to
persons who call and request it (Sec. 453.2(b)(1)(ii));
(5) Make truthful representations about legal and other
requirements that compel the purchase of particular items or services
(Sec. 453.3));
(6) Allow consumers to select and purchase only those goods and
services they desire (rather than offering goods and services only in
predetermined packages) (Sec. 453.4(b));
(7) Seek express approval before embalming the deceased for a fee
(Sec. 453.5));
(8) Make truthful representations about the preservative and
protective value of funeral goods and services (Sec. 453.3(e));
(9) Disclose that they charge a fee for obtaining cash advance
items, if that is the case (Sec. 453.3(f)); and
(10) Make unfinished wood boxes or alternative containers available
for direct cremation, if the provider offers direct cremation
(Sec. 453.4(a)(2)).
The Commission in its 1982 Statement of Basis and Purpose stated
that the essential purpose of the Rule is to lower barriers to price
competition in the funeral market and facilitate informed consumer
choice.5 The Rule thus seeks to ensure that consumers have access
to sufficient information to permit informed purchase decisions, that
consumers are not required to purchase items they do not want and are
not required by law to purchase, and that misrepresentations are not
used to influence consumer purchase decisions.6
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\5\47 FR 42260 (Sept. 24, 1982), R-B-5 (hereafter cited as
``SBP'').
\6\47 FR 42260 (Sept. 24, 1982), R-B-5.
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The staff on July 9, 1985 issued Final Compliance Guidelines to
assist providers in their efforts to comply with the Rule.7
Following an initial period where the Commission sought principally
through educational efforts to encourage industry compliance, the
Commission to date has obtained thirty-six consent orders and one
litigated order in thirty-seven completed federal district court
actions filed against individual providers regarding various violations
of the Rule.8
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\7\R-B-6 (50 FR 28062).
\8\U.S. v. Troy Suggs Funeral Home, No. CA3-87-1258-G (N.D.
Tex., May 20, 1987); FTC v. Crane Rhoton Services Corporation, No.
CA-3-87-1545-T (N.D. Tex., June 13, 1988); U.S. v. Ware Crest, Inc.,
No. CA4-88-437-K (N.D. Tex., July, 11, 1988); U.S. v. Horton Co.
Morticians, No. 88-1828 (D.D.C., July 11, 1988); U.S. v. Simon
Funeral Chapel, No. 88-874PA (D. Or., August 3, 1988); U.S. v.
Manning Funeral Chapel, Inc., No. 88-4085 (D. Idaho, August 26,
1988); U.S. v. Funeral Corporation Texas, No. CA4-8929 E (N.D. Tex.,
January 11, 1989); FTC v. Niday Funeral Home, Inc., No. H-88-2808
(S.D. Tex., November 1, 1989); U.S. v. Errington Memorial Chapel,
No. 89-0640M (D.N.M., August 16, 1989); U.S. v. Turner Funeral Home,
Inc., No. 89-5217 (E.D. Pa., July 21, 1989); U.S. v. Eddy's Funeral
Home, No. 89-593 (D. Nev., September 14, 1989); FTC v. Dudley M.
Hughes Funeral Co., 710 F. Supp. 1524 (N.D. Tex. 1989), appeal
dismissed, 891 F.2d 589 (5th Cir. 1990); U.S. v. Vail-Holt Funeral
Homes, No. NA90-57-C (S.D. Ind., May 11, 1990); U.S. v. J.D. & M.
Investment, Inc., No. 90-C-476-J (D. Utah, May 30, 1990); U.S. v.
Allen Funeral Home, Inc., No. IP-90-1430-C (S.D. Ind., June 8,
1990); U.S. v. Fitzhenry's Funeral Home, No. CV-N-90-282-BRT (D.
Nev., June 25, 1990); U.S. v. Striffler Community Funeral Homes, No.
90-1809 (W.D. Pa., November 5, 1990); U.S. v. Moore Funeral Homes,
Inc., No. 90-C-965-C (N.D. Okla., November 14, 1990); U.S. v. Wetzel
and Son, Inc., No. 91-2562 (E.D. Pa., April 24, 1991); U.S. v. Peake
Memorial Chapel, Inc., No. CV91-637-RE (D. Or., July 5, 1991); FTC
v. Perkins Funeral Home, Inc., No. 391-CV-00556-JAC (D. Conn.,
September 25, 1991); U.S. v. McGann & Son Funeral Home, No. 91-C-
6517 (N.D. Ill., October 30, 1991); U.S. v. Goble's Fortuna
Mortuary, No. C-91-3883-SC (N.D. Cal., November 26, 1991); U.S. v.
Wilhelm Funeral Home, Inc., No. S-91-3152 (D. Md., November 6,
1991); U.S. v. Restland Funeral Home, Inc., No. 3-91CV-2576-G (N.D.
Tex., filed December 3, 1991) (in litigation); U.S. v. Scala
Memorial Home, Inc., No. 91-5679 (D.N.J., December 30, 1991); U.S.
v. Montrose Valley Funeral Home, Inc., No. 92-Z-645 (D. Colo., April
6, 1992); U.S. v. Douglass-Marsh, Inc., No. 92-30004-F (D. Mass.,
January 6, 1992); U.S. v. Higgins Funeral Home, Inc., No. 92-10100S
(D. Mass., February 19, 1992); U.S. v. Elliston Funeral Home, No.
92-C-4294 (N.D. Ill., July 6, 1992); U.S. v. J.M. Posey and Sons,
Inc., No. CA3: 92-2221-17 (D.S.C., August 17, 1992); U.S. v. John
Harold Davis, No. 92-1046-CIV-ORL-22 (M.D. Fla., November 13, 1992);
U.S. v. Valley of the Temples Mortuaries, Ltd., No. 92-0073 (D.
Haw., December 1, 1992); U.S. v. Memorial Guardian Plans, Inc., No.
92-2967-MlBro (W.D. Tenn., November 25, 1992); U.S. v. Macias
Mortuary Services, No. C93-0193 (N.D. Cal., January 26, 1993); U.S.
v. Meyer Funeral Home, Inc., No. 1-93-CV-10010 (S.D. Iowa, March 25,
1993); U.S. v. C.A. Anderson Funeral Parlors, Inc., No. C93-1939-EFL
(N.D. Cal., June 11, 1993); and U.S. v. Ronald W. Brown d/b/a/
Comisky-Roche Funeral Home, No. C93-2819-WHO (N.D. Cal., July 29,
1993).
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B. The Amended Rule
The Commission, in promulgating the amended Rule, seeks to increase
the Rule's potential benefits to consumers by clarifying its
requirements and reducing actual or potential compliance burdens on the
funeral industry. Such action should increase provider compliance with,
and consumer understanding of, the Rule's disclosure and other
obligations. Based on the record in this proceeding, the Commission has
concluded that the low levels of industry compliance with, and consumer
awareness of, the Rule do not permit a full cost-benefit analysis of
its impact, because the analysis does not capture the full effects of
the Rule had there been greater compliance. Despite this finding, the
Commission has determined from the record evidence that the Rule is
providing pro-competitive and informational benefits to consumers that
outweigh its costs to providers, and that those benefits, but not
costs, are likely to increase over time as Rule compliance and consumer
awareness of their rights under the Rule increase. The Commission has
further concluded that the record in this proceeding does not contain a
sufficient basis to overturn the Rule's presumptive validity as a
legally promulgated rule.
The Commission has concluded, however, that clarifying amendments
to the price disclosure and ``unbundling'' provisions of the Rule are
necessary to clarify that it shall be an unfair or deceptive practice
to impose non-declinable fees in addition to the one for ``basic
services of funeral director and staff,'' permitted under
Sec. 453.2(b)(4)(iii)(C). These amendments effectively eliminate the
imposition of so-called ``casket handling fees'' as separate non-
declinable fees charged to consumers who purchase caskets from non-
funeral home sources.9 The Commission has determined that these
fees serve to frustrate the Rule's basic ``unbundling'' requirement by
penalizing consumers who decline caskets sold by the funeral home and
instead purchase them from third party sellers. The emergence of third-
party casket sellers, and consequently, those fees, have developed in
the market since the Rule's promulgation.
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\9\To the extent that these fees include a charge for provider
overhead that is not allocated to other items offered for sale, the
amended Rule does not prohibit their inclusion in the non-declinable
services fee permitted under Sec. 453.2(b)(4)(iii)(C).
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The Commission further has concluded that repeal of the affirmative
telephone disclosure requirement (Sec. 453.2(b)(1)(i)) is warranted
because its costs outweigh its actual and potential benefits. The
record evidence indicates that the affirmative telephone disclosure is
an inartful and unnecessary signal to consumers about the availability
of price information. The Commission has determined that the Rule's
other price disclosure provisions are adequate, and that this provision
is unlikely to provide substantial additional benefits to consumers.
Record evidence indicates that the Rule is contributing now to
increased consumer ``price-sensitivity'' that results in some consumer
shopping for lower-cost providers and services. Consumers who call to
first arrange a date and time for a funeral service, however, or who
request the removal of remains, likely expect an empathetic response,
and may be seriously offended by the uninvited offer to discuss prices.
Some consumers in that circumstance are likely to interpret the
affirmative disclosure as an indication of an unwarranted provider
concern with the consumer's ability to afford services. The provision's
likely inability to benefit consumers does not justify the imposition
of such undue awkwardness and potential offense in what is otherwise an
extremely delicate business, social and personal transaction. The
Commission has concluded that the integrity of the Rule's price
disclosure requirements will be maintained by retention of the
requirement to provide price and other readily-available information
over the telephone on request.
The Commission further has adopted a variety of minor, ``fine-
tuning'' amendments in light of the evidence on industry compliance.
Those amendments are designed to clarify the Rule's requirements and
reduce actual or potential compliance burdens in order to increase
provider compliance with, and consumer understanding of, the Rule's
disclosures. Those amendments, which do not alter providers' basic
obligations or consumers' rights under the Rule, concern the timing of
giving the general price list and other disclosure requirements, the
casket and outer burial container price list disclosures, and the
general ``unbundling'' provision.
Finally, the Commission has adopted several technical Rule
amendments that are necessary to correct inconsistencies or unnecessary
language in certain Rule provisions, or to complement other recommended
amendments.10
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\1\0Little, if any, systematic or otherwise reliable evidence in
the record documents industry-wide deceptive or unfair practices
concerning Rule-related issues by cemeteries, crematories that do
not sell funeral goods, or other sellers of funeral goods or funeral
services not presently subject to the Rule. Therefore, the
Commission has declined to expand the Rule to cover such entities,
as recommended by some rulemaking participants. See R-N-1 (SR) at
109-121 for a full discussion of the evidence on this issue.
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C. Background of this Proceeding
1. The Commission's Findings in 1982
The Commission required this unique review to determine, at an
early date: (1) Whether the Rule is operating as expected in reducing
barriers to price competition and increasing informed consumer choice,
or whether some modification is necessary to facilitate those benefits;
and (2) whether there is a need to continue the Rule after it has had
an opportunity to work in the marketplace; termination would be
considered if increased competition has largely corrected the problems
addressed by the Rule.11
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\1\1R-B-5 (Statement of Basis and Purpose) at 42261, 42299.
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The Commission determined, however, that the Rule's effects on the
funeral market may be evidenced more slowly than in other industries
due to factors it found unique to the funeral transaction.\12\ One of
those factors was that many consumers would not have exposure to the
Rule-required price lists and other provisions for many years because
purchases of funerals are infrequent. Unlike other situations,
consumers also are unusually susceptible to influence from the funeral
director's advice because of the unique combination of emotional
stress, lack of experience and information, and tight time constraints.
The Commission predicted as a result that the initial stimulus for
price competition would likely come from existing or new providers that
begin to advertise and otherwise compete on the basis of price. The
Commission concluded that it could not say how quickly the Rule's
competitive impact would begin to be felt in light of traditional
industry constraints on price competition and barriers to entry.
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\1\2 Id. at 42299.
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The Commission nonetheless predicted that the Rule could provide
economic benefits for consumers in various ways.13 Should greater
price competition emerge, for example, the Rule could reduce or hold
stable actual prices and overall consumer expenditures for funerals.
This would most likely result from increased consumer price-
sensitivity, which might lead some consumers to shift from higher to
lower-priced providers. Expenditures could also be reduced as consumers
decline items previously required in packaged funerals, and as unfair
or deceptive acts or practices that induced consumer purchases decline.
Finally, the Commission determined that mandatory price itemization was
warranted even if some consumers knowingly chose to buy more goods and
services than they would have under package-only pricing. The purpose
of the Rule is to enhance consumer choice.
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\1\3 Id. at 42297.
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The Commission finally determined that, while competition induced
by the Rule could reduce price levels, mandatory itemization presented
opportunities for providers to voluntarily raise prices.14
Providers could choose to raise itemized prices or the price for the
lowest-priced funeral, for example, in order to increase profits or
account for increased consumer declinations of certain items. The
Commission reasoned, however, that itemization does not require those
results because it does not preclude traditional industry pricing
methods, such as package pricing and ``graduated recovery'' of
proportionately more overhead from higher-priced funerals. The
Commission further concluded that providers may not be able to raise
prices simply to recoup lost revenue or increase profits as price
competition increases under the Rule.
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\1\4Id. at 42296-42298.
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2. The Mandatory Review Proceeding
The Commission on December 9, 1987 published an Advance Notice of
Proposed Rulemaking (hereafter ``ANPR'') describing the planned review
of the Funeral Rule.15 The ANPR notified the public that the
Commission intended to conduct the rulemaking, and solicited public
comments on many of the key Rule-related issues. The ANPR contained 44
questions concerning consumer and funeral provider experiences, the
scope of the Rule, compliance, various Rule provisions, regulatory
flexibility and the paperwork burden imposed by the Rule. The majority
of the commenters16 recommended retention of the Rule. Funeral
director trade groups recommended repeal or, in the alternative,
substantial modification and expansion of the Rule to cover other
sellers, such as cemeteries.
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\1\552 FR 46706.
\1\6Over 350 persons responded to the request for public
comment, including 131 consumers, 134 funeral directors, 46 memorial
societies, and approximately 20 trade associations and related
industries.
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Following a review and assessment of the comments, the Commission
on May 31, 1988 published a Notice of Proposed Rulemaking (hereafter
``NPR'') initiating this review proceeding.17 The Commission in
the NPR established a schedule for three public hearings to be held in
Washington, Chicago, and San Francisco, and requested comment on a
number of questions set out in the notice. In all, 189 individuals and
groups submitted written comments, including two funeral directors,
five cemetery/crematory/third-party casket seller groups or
individuals, six funeral director trade associations, 147 consumers, 27
consumer/memorial society groups, one federal official and one state
group.
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\1\7R-A-1 (53 FR 19864).
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During the public hearings,18 testimony was received from
sixteen funeral directors, five monument builders, one vault seller,
sixteen cemeterians/cremationists, one individual who provides business
and consulting services to industry members, seven state officials,
twenty consumer advocates, nine consumers/ clergy/counselors, and eight
economists/survey experts or consultants (one economist testified
twice).
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\1\8Based on requests from interested parties who wished to
question witnesses at the public hearings, the Presiding Officer
designated four groups for that purpose: (1) The Consumer Interest
Group, including the American Association of Retired Persons and the
Continental Association of Funeral and Memorial Societies; (2) the
Funeral Director Group, including the National Funeral Directors
Association and the National Selected Morticians (that group also
included William Pierson, the owner of the Hursen Funeral Home, the
Illinois Funeral Directors Association, and the Conference of
Funeral Service Examining Boards; (3) the Crematory and
Prearrangement Group, including the Cremation Association of North
America and the Pre-Arrangement Association of America; and (4) the
Special Cemetery Group, including the American Cemetery Association.
The Presiding Officer established the last group for the limited
purpose of conducting examination on whether the Rule should be
expanded to include cemeteries. See R-A-37.
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In April 1989, Rebuttal Submissions were filed by the staff, the
Cremation Association of North America (``CANA''), the Monument
Builders of North America (``MBNA''), the National Funeral Directors
Association (``NFDA'') and National Selected Morticians (``NSM'')
(joint rebuttal), the American Cemetery Association (``ACA''), the
American Association of Retired Persons (``AARP'') and the Pre-
Arrangement Association of America (``PAA''). In response to a request
from the Presiding Officer, those groups other than the staff also
filed Proposed Findings of Fact, Conclusions of Law and Recommended
Decision in May 1989.
In addition to all of the testimonial and written information just
described, the record contains three national surveys of actual funeral
arrangers, conducted in 1981, 1987 and 1988. The 1981 Baseline Study
(or ``BLS'')19 was conceived as a benchmark for later comparison
with the 1987 Replication Study (or ``RS'').20 Conducted for the
Commission, these studies examined: (1) Consumer purchasing behavior
and expenditures for funerals; (2) consumer knowledge of the funeral
market; and (3) industry practices and prices. By comparing the results
of the two studies, inferences could be drawn about the Funeral Rule's
impact on the funeral market. The Bureau of Economics Report of
February 198921 contains that comparative analysis. The Gallup
Organization conducted the third, and most recent, study of funeral
arrangers for the AARP.22 Viewed together, those three empirical
surveys represent the most reliable and comprehensive systematic data
available on consumer experiences under the Rule in shopping for and
choosing funeral goods and services, and of industry Rule
compliance.23
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\1\9R-B-3, supra n. 1.
\2\0R-B-2, supra n. 1.
\2\1HX-122.
\2\2The Gallup Study, HX-66, supra n. 1.
\2\3With respect to the BLS, however, the 1982 rulemaking staff
concluded from its review of a telephone validation study that the
BLS data were subject to qualification and differing interpretation
in four specific areas where the data appeared to conflict with
evidence already on the original record--consumers' receipt of
telephone price information, written itemized price information and
itemized statements, and requests for permission to embalm. See R-B-
70 (Memorandum from Funeral Rule Staff to Commission, ``Impact
Evaluation Survey, Funeral TRR,'' July 15, 1982). The Commission in
its comparative analysis of the Baseline and Replication study data
does not rely on the Baseline data in those four areas.
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In addition to these empirical studies, statistical data and
testimony presented by Mr. Wendell Hahn of the Federated Funeral
Directors of America (hereafter ``FFDA''), an independent firm that
provides financial and business consulting services to some 1,500
independent funeral homes in 30 states, representing about 10% of all
funerals per year, afforded evidence on changes in funeral home costs
of operation and prices under the Rule. A 1988 national survey of 500
funeral directors presented by the AARP provided similar
evidence.24 A 1987 survey of state laws regulating the funeral
transaction is also part of the record, as is the 1984 survey of NFDA
members regarding changes in provider practices under the Rule. The
record further contains two national opinion surveys concerning
consumers' views about, and knowledge of, various Rule requirements,
and five other surveys of cemeterians, cremationists, monument builders
and memorial societies conducted by interested groups on specific,
Rule-related issues.
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\2\4Ayers, HX-108, supra n. 1.
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The rulemaking staff and Presiding Officer published their
respective Reports in June and July 1990, summarizing the record
evidence and recommending, with minor differences, retention of the
Rule, repeal of the affirmative telephone disclosure, prohibition of
separate non-declinable fees, in addition to the non-declinable fee for
basic services of funeral director and staff, such as so-called
``casket handling fees,'' and the adoption of several ``fine-tuning''
amendments.25 In response to the Presiding Officer's published
invitation,26 forty-nine groups and individuals submitted comments
on those reports by November 1, 1990.27
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\2\5See R-N-1 (SR) and R-O-1 (POR).
\2\655 FR 30925 (July 30, 1990).
\2\7The commenters included 22 consumer organizations (19 local
funeral and memorial societies, the CAFMS--two comments, the
National Consumers League, and the AARP); three individual
consumers; 12 funeral industry trade associations, including five
state funeral director associations (California, Illinois, Michigan,
North Carolina and South Carolina), the Funeral Director Services
Association of Chicago, the ACA, the CANA, the PAA, the MBNA, the
Casket Manufacturers Association, and the NFDA and NSM) (joint
comment); five individual funeral directors; two casket
manufacturers or distributors; one cemetery/third-party casket
seller, one economist, and two funeral industry financial
consultants, including the FFDA.
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On June 20, 1991, the Bureau of Consumer Protection forwarded its
final recommendations to the Commission on this review proceeding. The
rulemaking staff continued the major recommendations contained in its
1990 Report, and, together with the Bureau of Economics staff, jointly
recommended a separate amendment concerning the disclosures that are
necessary whenever the fee for ``services of funeral director and
staff'' is incorporated in the price of caskets offered for
sale.28 The Bureau of Economics concurred with all of the
rulemaking staff's recommendations concerning substantive Rule
provisions.29
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\2\8BE also recommended a clarifying change to the definition of
``services of funeral director and staff,'' in which the rulemaking
staff concurred.
\2\9The Office of the Director, Bureau of Consumer Protection,
favored a limited review by the Bureau of the amended Rule to
measure its impact, in particular the prohibition of ``casket
handling fees.'' See Memorandum from Gerald Caplan, Deputy Director,
Bureau of Consumer Protection, to the Commission, June 20, 1991 at
5. The Bureau of Economics recommended the inclusion of a future and
final mandatory review of the Rule under the rulemaking procedures
of section 18 of the FTC Act. See Memorandum from Peter Vander Nat,
Bureau of Economics, to the Commission, August 26, 1991 at 3. The
Commission has not adopted either recommendation, but has scheduled
the Funeral Rule for a mandatory ``notice and comment'' review in
1999, in accordance with its ten-year review schedule adopted for
all Commission rules and guides. See 58 FR 11554 (Feb. 25, 1992).
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On November 21, 1991, representatives of the NFDA, NSM, AARP, CANA,
ACA, MBNA and PAA made oral presentations to the Commission concerning
this review proceeding. On January 28, 1993, after reviewing the
rulemaking record as a whole, the Commission voted unanimously to
retain and amend the Rule, incorporating all of the substantive changes
recommended by the rulemaking staff and the Bureau of Economics.
II. Basis for the Amended Rule
A. The Legal Standard for Amending the Rule
Section 18(d)(2)(B) of the FTC Act states that ``[a] substantive
amendment to, or repeal of, a rule promulgated under subsection
(a)(1)(B) shall be prescribed, and subject to judicial review, in the
same manner as a rule prescribed under such subsection.''30 Thus,
the standard of judicial review for amendment to, or repeal of, a
section 18 rule is identical to that for any rule prescribed pursuant
to section 18. Upon judicial review, a section 18 rule may be set aside
if it is ``arbitrary, capricious'' or otherwise not in accordance with
law upon any of the grounds set forth in the Administrative Procedure
Act (APA) at 5 U.S.C. 706(2)(A)-(D), or if the factual determinations
upon which the rule is based are not supported by ``substantial
evidence'' in the rulemaking record as a whole.31
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\3\0The Commission's rulemaking standards applicable to
promulgation and amendments of a Section 18 rule require a
preponderance of reliable evidence. See Statement of Basis and
Purpose, Credit Practices TRR, 49 FR 7740 (March 1, 1984).
\3\115 U.S.C. 57a(e)(3); Consumers Union of the United States,
Inc. v. FTC, 801 F.2d 417, 422 (D.C. Cir. 1986).
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In their Proposed Findings, funeral director groups assert that the
current rulemaking is subject to the same standards and procedures as a
de novo rulemaking. Therefore, they appear to contend that the
Commission must support any decision, including the retention of the
Funeral Rule, on a new administrative record compiled afresh.32
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\3\2R-M-9 (NFDA/NSM) at 213-214. The NFDA/NSM further suggest
that any change in the Rule's requirements (other than repeal) must
be based on new evidence that current practices are unfair or
deceptive, in accordance with the Commission's regulatory authority.
Id. at 220-221. The amended Rule, however, except as noted, covers
no other new acts, practices, or sellers of funeral goods or
services. Moreover, the Commission concludes that the NFDA/NSM
position is inaccurate. The Commission when it promulgated the Rule
determined that the covered practices were unfair or deceptive, as
the Rule states. The Rule, however, also contains many ``preventive
requirements'' designed to remedy those practices. Those preventive
requirements may be modified without an entirely new record, as
discussed in the accompanying text. As the Commission stated in
mandating this review, one of its purposes was to determine whether
the Rule is operating as expected in reducing barriers to price
competition and increasing consumer choice, or whether some
modification is necessary to facilitate those benefits. R-B-5 (SBP)
at 42299.
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This view is incorrect. A decision to retain any portion of the
current Rule may be based upon evidence gathered during the original
rulemaking and the Commission's subsequent enforcement experience, as
well as evidence adduced during the current rulemaking. Indeed, to the
extent that nothing supplements evidence from the initial rulemaking,
there is a presumption that the existing rule should be
retained.33
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\3\3See Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins.
Co., 463 U.S. 29, 42 (1983).
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As discussed elsewhere in this Statement of Basis and Purpose, the
Commission has evaluated the relative costs and benefits of the Rule,
industry compliance, the Rule's effect on competition and consumer
awareness, and a number of other factors, to determine whether to
retain, amend, or repeal the Rule. In making that determination, the
Commission has taken into account, among other things, the comments
received in this rulemaking as well as the record established in the
original rulemaking proceeding and the Commission's experience in
enforcing the existing Rule. The Commission believes that its decision
to retain certain provisions of the Rule while supplementing or
amending others, as described in this Statement of Basis and Purpose,
comports with the legal standards discussed earlier governing Section
18 rules.
B. Overall Costs and Benefits of the Rule
1. Repeal vs. Retention: Participants' Views
The vast majority of rulemaking participants supported the Rule's
retention, or its expansion to cover other sellers. Of the 189 NPR
commenters and 83 public hearing witnesses, only eight unequivocally
advocated repeal of the Rule.34 Two participants suggested repeal
as an alternative, if the Commission declined to make various
substantive amendments; two advocated repeal because, in their view,
existing state laws were deemed adequate to protect consumers.35
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\34\Those eight were: The NFDA (R-G-6, R-M-9); the Funeral
Directors Service Association of Chicago (R-G-5)(repeal or sunset);
Mr. Ninker, funeral director (R-G-1); the Conference of Funeral
Service Examining Boards (R-J-1); the National Concrete Burial Vault
Association (R-E-2); Mr. Hahn, FFDA, Tr. Vol. II, 674-675, 678
(because he believes the marketplace will not change significantly
as a result, even though the Rule has made providers more aware of
their cost components and those few consumers who are interested
more aware of funeral prices); Mr. Yurs, funeral director, Tr. Vol.
II, 554; and the Illinois Funeral Directors Association (R-G-2).
\35\Those four include: The NSM (R-G-3; R-M-9 at 224) (repeal
unless major amendments are adopted as proposed and a ``sunset''
date is mandated); the NYS Funeral Directors Association (R-G-4)
(Rule is redundant to New York law); Mr. Hocker, President, NFDA,
Tr. Vol. III, 1399, 1400, 1444-1445 (NFDA advocates repeal, but his
personal objections are limited to three areas--affirmative
telephone disclosure, GPL timing and distribution, and prior
permission to embalm; otherwise, the Rule has educated consumers
about the funeral process and many providers say they are not overly
burdened by the Rule); and Mr. Farrow, Exec. Dir, Texas Funeral
Service Commission, Tr. Vol. III, 550-551, 573 (Rule is unnecessary
in light of Texas funeral law, which is patterned after the Rule and
benefits consumers).
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The NFDA, the largest association of funeral industry firms, was
the major proponent of repeal,\36\ asserting that repeal is warranted
because the Rule has imposed significant costs but failed to provide
its promised benefits of increased competition and altered patterns of
consumer behavior. According to the NFDA, the evidence shows that
consumers in selecting funeral providers and types of funeral service
still place a higher importance on social, moral and practical factors
(such as provider reputation and quality of service) than they do on
price.\37\ The NFDA concluded that the evidence logically demonstrates
that consumers under the Rule spend no less for funeral arrangements,
comparison shop no more, and purchase no fewer items and no different
types of service than they did before the Rule. The NFDA asserted that
the Rule has imposed various monetary costs on providers that have been
passed on to consumers in the form of higher prices, as well as non-
monetary costs that interfere with providers' ability to give caring,
quality service. The NFDA thus concluded that the Rule should be
repealed in its entirety because its costs outweigh its benefits.\38\
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\36\One issue raised during the proceedings was whether
individual members of the NFDA or other trade groups agree that the
Rule warrants repeal. Several surveys and other evidence introduced
into the record indicated that many funeral directors may not wholly
agree with the NFDA view. See, e.g., HX-32 (American Funeral
Director magazine survey asked its funeral director readers ``How
would you recommend that the NFDA deal with the Funeral Rule during
the forthcoming Review?'' 70% responded that the Rule should be
accepted as is or partially modified, 12% suggested substantial
modification, and 20% repeal; 88% of firms represented by respondent
funeral directors were NFDA members); See also, Hocker, President,
NFDA, Tr. Vol. III, 1400 (many funeral directors say they are not
overly burdened by the Rule); Hunter, President, NSM, Tr. Vol. I,
790-791 (majority of NSM members do not advocate repeal; parts of it
have been very helpful); Ayers, HX-108 at 3 (68% of 500 funeral
directors surveyed agreed that the Rule's required information was
beneficial to consumers).
\37\However, the NFDA suggested that price plays a greater role
in consumers' selections of individual items involved in the
funeral, such as caskets and outer burial containers. R-M-9 at 20.
\38\See, e.g., R-G-6 (Comment on the NPR) at 5-7, 35, 114-121
and R-M-9 (Proposed Findings) at 216-220, 224.
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In contrast to the NFDA's view, the AARP provided the most vigorous
support for retention of the Rule.\39\ The AARP advocated that a
decision to repeal the Rule must be founded on substantial evidence
demonstrating that: (1) The acts and practices addressed by the Rule
are no longer prevalent; (2) the harm resulting from those practices
has been removed; (3) repeal would not permit the return of that harm;
and (4) the benefits of repeal exceed the costs of continuing the Rule.
According to the AARP, those questions cannot be answered, and the
Rule's full impact cannot be assessed, because the record evidence
reveals unacceptably low levels of industry compliance and consumer
awareness of the Rule's provisions. Because the Rule's full impact
cannot be gauged, the AARP concluded, repeal is unwarranted. The AARP
further asserted that the evidence indicates that the Rule has not
increased funeral providers' costs, funeral prices, or consumer
expenditures, but has begun to provide a variety of consumer benefits.
The AARP thus further concluded that, although the Commission need not
meet a specific evidentiary burden to retain the Rule, such evidence
exists to support the conclusion that the Rule's benefits exceed its
costs.\40\
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\39\The other major participants in the rulemaking proceeding
and consumer groups that addressed the issue all supported retention
as well. These groups included the PAA, CANA, CAFMS, and Consumers
Union.
\40\R-M-6 (Comment) at 10, 12-14 and R-M-11 (Proposed Findings)
at 85-95, 144-145.
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2. Costs and Benefits Compared
The Commission has concluded, based on its review of the rulemaking
record viewed as a whole, that the Rule warrants retention because its
actual and potential benefits to consumers outweigh its costs to
providers, and that those benefits are likely to increase over time as
the Rule continues to operate. The Commission finds that, at the time
of this review:
(1) The Rule has not been effective in the funeral market for a
sufficient period to permit a full assessment of its benefits;
(2) The market is increasingly price-sensitive for the selection of
funeral providers, types of service, and individual goods and services,
particularly caskets, when price and options information is readily
available during the selection process;
(3) Despite a documented, low overall compliance level, pro-
competitive and informational benefits attributable in part to the Rule
appear to be manifesting in the market and are likely to increase over
time;
(4) The Rule overall imposes minimal compliance burdens on
providers that do not significantly raise their business costs or
prices, or reduce consumers' satisfaction with the funeral services
they receive; and
(5) Most states have not adopted laws similar to the Rule in scope
and coverage, and such action is not likely in the near future.
a. Levels of compliance/price competition/consumer Awareness. The
evidence in the record indicates, at the time of this review, a low
level of industry compliance with the Rule. Systematic, empirical data
from two independent surveys--the Commission-sponsored, 1987
Replication Study and the 1988 Gallup Study conducted for the AARP--
show that 36% of funeral providers simultaneously complied with the
Rule's two key requirements to give consumers a general price list
(``GPL'') and an itemized final statement of goods and services
selected.\41\ Using the more comprehensive Replication Study results,
that overall compliance level dropped to 31% when misrepresentation
provisions about the necessity for embalming and caskets for cremation
are added to the analysis,\42\ and to 9% when the GPL timing
requirement is viewed strictly and several other Rule provisions are
considered.\43\ Most rulemaking participants opined, when asked, that a
30% level of compliance would be insufficient to assess adequately the
Rule's benefits.\44\
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\41\HX-122 (BE Report) at 25-27; R-M-5 (Staff Rebuttal
Statement) at 25, Table 7. Looking at these obligations
individually, 23% of RS providers gave consumers the GPL--the key
price disclosure document required by the Rule--at the outset of
arrangements discussions as required, and 62% gave consumers who
purchased a funeral on an item-by-item basis a properly itemized
final statement. See HX-122 at Table VIII, p.20 and Table X, p.24.
\42\Id. at 26.
\43\R-M-5 (Staff Rebuttal) at 27, Table 8; R-B-2 (Replication
Study/Market Facts Report) data tapes. In the BE analysis (HX-122),
RS respondents were considered to have been the beneficiaries of
``compliance'' with respect to receipt of the GPL if they reported
its receipt after discussions had begun but before selection of a
casket or other container. BE staff, at the rulemaking staff's
request, re-computed the compliance index using the Rule's
definition of when a GPL must be given to consumers --``upon
beginning discussion either of funeral arrangements or of the
selection of any funeral goods or funeral services.'' The result was
that compliance with four of the Rule's provisions fell from 31% to
15% (timely receipt of the GPL and a properly-itemized statement,
and no misrepresentations about the necessity for embalming and
caskets for cremation). Overall, simultaneous compliance continued
to drop from a ``high'' of 29% (using the most stringent BE
compliance index, which added receipt of the GPL ``in writing'' to
the four requirements stated above) to a ``low'' of 9% as other Rule
provisions were added to the analysis.
\44\See R-N-1 (SR) at 51-56, notes 200-207.
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In addition to the relatively low level of overall industry Rule
compliance, the rulemaking record demonstrates that funeral providers
have not provided the initial stimulus for ``increased competition'' on
the basis of price considered necessary by the Commission. The few
funeral home entrants that aggressively compete on price, documented in
the record, appear to be former, more traditional funeral directors who
reentered the market as ``discount'' providers, and who are considered
to be ``mavericks'' by the funeral industry as a whole. More
traditional funeral homes, by industry representatives' own admission,
generally do not price advertise or otherwise compete on the basis of
price.\45\ The record further indicates that funeral providers show
little support for unfettered competition in the sale of pre-need
funeral services,\46\ and that many affirmatively attempt to discourage
potential price competition from third-party cemeteries and other non-
funeral home retailers who sell caskets on a pre-need basis, by
imposing so-called ``casket handling fees,'' averaging $300-$500 per
funeral on consumers who patronize those sellers.\47\
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\45\R-G-6 (NFDA/NSM Comment) at 5, 109-110, 113-114; R-M-9
(NFDA/NSM Proposed Findings) at 8-9, 31, 17-19, 199-200, 202-204;
Krause, Tr. Vol. II, 12-13 (majority of Wisconsin providers do not
compete); R-M-7 (PAA Rebuttal) at 21 (entry in the funeral market is
virtually unheard of without a prior affiliation with a funeral home
or cemetery, or the entrant is chain-related).
\46\The testimony of various funeral directors and cemeterians
indicates that funeral providers as a group have supported state 100
percent pre-need ``trusting'' laws. The major impact of a ``100
percent'' trusting requirement--all moneys received from the
consumer for a pre-need purchase must be placed in trust until the
time of need--is to leave the pre-need seller without current funds
to pay for the expenses associated with pre-need sales, such as an
active sales force. See, e.g., Krause, Tr. Vol. II, 8, 13, 31, 34;
Starks, Tr. Vol. II, 362-363, 367; Graf, Tr. Vol. II, 593, 649;
Nelson, Tr. Vol. II, 180; and Barr, Kansas state representative/
cemeterian, Tr. Vol. III, 1513.
\47\Record evidence concerning the widespread existence and
effects of so-called ``casket handling fees'' is fully discussed in
Section II.C.3, infra.
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Finally, the empirical data and record testimony documents that a
majority of consumers exhibit low levels of awareness concerning their
rights under the Rule\48\ and funeral prices and service options,\49\
as a result of a general lack of ``visibility'' of the Rule and of
readily-available, comparative price information.\50\ Other empirical
evidence indicates that consumers' ``experience'' with funerals is low
by any measure\51\ and that, regardless of their level of experience,
consumers are not ``familiar'' with the funeral transaction.\52\ Most
rulemaking participants concluded that the documented low levels of
overall industry compliance and consumer knowledge, viewed together,
indicate that the Rule has not been in place long enough to adequately
assess its impact on the funeral market.\53\
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\48\Messer, trade embalmer, R-F-60 at 1; Carlson, author/
lecturer, HX-22 at 7; Blake, Memorial Society of Door County,
Wisconsin, Tr. Vol. II, 1119; Rouillard, Calif. Rural Legal
Assistance Foundation (``CRLAF''), Tr. Vol. III, 1343-1344); Rev.
Wasielewski, Inter-Faith Funeral Information Committee, Phoenix, Tr.
Vol. III, 1619; Klein, consumer member, New York State Funeral
Directing Advisory Board (``NYSFDAB''), Tr. Vol. II, 1060 (consumers
don't expect a GPL at the beginning of arrangements or know that
it's required); Botimer, Phoenix funeral director, Tr. Vol. III,
1283; Barr, Kansas state representative, Tr. Vol. III, 1537;
Klugman, President, California Fed'n of Funeral and Memorial
Societies, Tr. Vol. III, 924, 931; Rev. Bell, Inter-Faith Ministries
of Wichita, Tr. Vol. III, 232, 247-248; Clark, Ark. A.G., Tr. Vol.
III, 38; Rev. Dr. Biddle, Tr. Vol. III, 312, 337 (even ``informed''
consumers are unaware); Elvig, California State Cemetery Board, Tr.
Vol. III, 439; Dr. Reveley, former funeral director, Tr. Vol. III,
879; Showalter, Tr. Vol. II, 105; Neel, Pittsburgh funeral director/
cemeterian, Tr. Vol. I, 631; and CAFMS, R-H-12 (Comment) at 2.
\49\Hennessy, FDSA, Tr. Vol. II, 994; Showalter, Tr. Vol. II,
105, 107, 126-127 (consumers do not have basic knowledge to
discriminate between products and services or know what to ask, or
that a funeral is an item that one can price-shop for); SW Florida
Funeral and Memorial Society, R-F-64 at 6 (purchase/embalming
options and availability of published price data); Neel, funeral
director/cemeterian, R-E-1 at 1; Carlson, author, Tr. Vol. I, 516,
524 (consumers are dissatisfied when they learn that they had a
choice); Nelson, PAA, Tr. Vol. II, 228, 233 (especially the less
expensive options); Prof. Sommer, Center for Consumer Research, Tr.
Vol. III, 617, 624, 628-629 (local or national prices because no
published price data/prices); Schwarcz, focus group, Tr. Vol. III,
460 (embalming option); Blake, memorial society, Tr. Vol. II, 1109,
1119, 1131 (cremation options/declination options); Wertheimer,
NAEL, Tr. Vol. III, 964 (consumers blame their inexperience for lack
of knowledge); Clark, Ark. A.G., Tr. Vol. III, 38; Buchanan,
President, CAFMS, Tr. Vol. III, 1107; Dr. Biddle, Tr. Vol. III, 347;
Klein, NYSFDAB, Tr. Vol. II, 1066, 1082 (don't' know what to ask
over the phone/memorial societies exist to increase consumers'
awareness of funeral options); Graf, cemeterian, Tr. Vol. II, 625
(don't know they can move the remains if they wanted to); Snyder,
CU, Tr. Vol. III, 1261; Botimer, funeral director, Tr. Vol. III,
1284, 1289, 1311 (price variance); Rev. Wasielewski, Tr. Vol. III,
1620, 1634-1635 (casket prices/price variance); Bejarno, funeral
consumer, Tr. Vol. III, 1588, 1597 (price variance); and Dr.
Reveley, former funeral director, Tr. Vol. III, 898 (cremation
options). But see, Yurs, funeral director (for NFDA), Tr. Vol. II,
559 (consumers with prior experience will have some idea of funeral
costs); and Hahn, Federated Funeral Directors of America (``FFDA''),
Tr. Vol. II, 709 (consumers are no more aware of prices because they
don't price shop).
\50\Although not uncontroverted by the rulemaking staff and
funeral industry representatives, the results of two national,
consumer opinion surveys indicated that: (1) When asked whether they
were ``familiar with the FTC's Funeral Rule and what it requires,''
90 percent of the 782 respondents aged 45 and above surveyed in the
first of these ``Excel'' surveys said ``no'' and 10 percent answered
``yes;'' and (2) when asked whether each of several declarative
statements about funeral director obligations and funeral consumer
rights was ``required by federal law or not,'' a majority (54
percent-75 percent) of the 916 consumer-respondents aged 21 and over
said that, to the best of their knowledge, federal law does not
require the rights and obligations actually mandated by the Funeral
Rule, or said that they do not know. See McFadden, HX-8 at 3 and
Exhibit B, Table 001; Soulas, HX-76 at 3. The ``McFadden'' survey
results also provided evidence that older consumers aged 65 or over
are significantly less likely to be aware of the Rule's protections
than are younger consumers aged 18-34. HX-8 at Exhibit B, tables
002-004, 006-007.
\51\Thirty-six percent of the RS respondents reported that they
had no prior experience arranging funerals; another 30 percent said
that they had participated in planning arrangements once before, and
the remaining third said they had done so twice before or more. R-B-
2 at III-9, Table III-7. Because the RS surveyed recent funeral
arrangers, however, and not the general public, the level of
respondents' prior experience may not be representative of the
population as a whole. The Commission found, for example, that, at
the time it promulgated the Rule, about 50 percent of the adult
population had never arranged a funeral and another quarter had done
so only once. See R-B-5 (SBP) at 42265.
\52\The Bureau of Economics staff performed an analysis of the
RS data to determine whether there was any link between respondents'
degree of experience in making funeral arrangements (Question 10. of
the study) and their level of knowledge about the funeral
transaction (Question 55 asked whether embalming is required by law
and whether a sealed casket/vault preserves remains indefinitely).
BE staff divided respondents into two categories--those with
arrangements experience prior to the one surveyed and those without
such prior experience. BE staff then performed a statistical test to
determine whether there was any relationship between those two
categories and their answers to Question 55. BE staff found no
relationship between the degree of respondents' reported prior
experience and their level of knowledge. See R-N-1 (SR) at n. 124.
In addition to BE's statistical test, the RS results show that 50
percent and 42 percent, respectively, of the RS respondents, all of
whom had arranged a funeral at least once, reported incorrectly that
embalming was always required as a public health measure and that a
sealed casket/vault preserves remains for an indefinite time. R-B-2
at Table III-54, p. III-85.
\53\See R-N-1 (SR) at notes 115, 200-207; R-O-1 (POR) at 48-49,
223-224.
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b. Market price-sensitivity. Consumers' demand for funerals, of
course, is price inelastic. Record evidence indicates, however, that
consumers' selections of individual funeral providers, overall types of
funeral service, and individual funeral goods and services are price-
sensitive.
Consumers value available price information in selecting a funeral
home and in making specific funeral arrangements, particularly when
they receive the price information early in selecting funeral goods and
services. With respect to the selection of a provider, 52% of NSM
survey respondents in the years 1983-1988 said that they considered
price ``very important'' in their funeral home selection, although
other factors appeared to be more important; only 19% considered price
unimportant.\54\ Similarly, ``low-cost'' funeral homes, where they
exist, have increased their business substantially in recent years as a
direct result of their competitive pricing practices.\55\ Regarding the
selection of specific goods and services, many consumers are purchasing
competitively-priced caskets from third-party sellers when they are
available,\56\ are increasingly choosing the significantly less-
expensive cremation alternative,\57\ are purchasing significantly fewer
caskets and requesting embalming for cremation less frequently than in
1981,\58\ and are declining items that used to be included in funeral
``packages.''\59\ Replication Study consumers who received price
information early in the transaction spent $252 less for their specific
arrangements than those who did not get that timely information;\60\
the earlier consumers received price information, the more likely they
were to consider the information important to their choices in making
funeral arrangements.\61\
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\54\The analysis is based on R-J-11, NSM Summary sheets,
Question 1.f. See also, R-M-5 at 7-8. The NSM Survey results are
remarkably similar to those of the RS concerning the importance of
price. That data indicate that 56% of the survey respondents
reported that the cost of funeral arrangements was ``very'' or
``somewhat'' important in their decision to select the funeral home
they used; 15% reported that cost was somewhat or very unimportant.
R-B-2 at Table III-28, p. III-39, and data tapes.
\55\Botimer, Tr. Vol. III, 1269, 1325 (based on the surveys his
firm conducts, 85% of his clients choose his funeral home because of
its low prices); Peebles, Tr. Vol III, 1551-1552 (the majority of
his customers come to his funeral home because of its competitive
prices); Heffner, HX-33 at 11 and Ex. T (annual funeral calls at the
firm he recently purchased have increased 400% as a result of his
discount price advertising); and Showalter, Tr. Vol. II, 130 (two
discount funeral homes have captured 10% of the market in Phoenix,
even though there are some 50 homes in that area, because they offer
``traditional'' funerals for less than $1,200).
\56\See R-N-1 (SR) at 124-127.
\57\The BE analysis showed that cremation selections increased
from 11% in 1981 to 14% in 1987, and that the average cremation cost
to 1987 respondents was about one-third of the cost of open-casket
funerals ($1,054 vs. $2,818). HX-122 at Table II, p. 6, Table III,
p. 7. BE staff noted that the close similarity of the survey results
to cremation statistics provided by the CANA suggests that the BLS
and RS are representative of the national population. Id. at n. 9.
\58\Thirty-four percent of cremation buyers in 1981 also
purchased caskets, and 35 percent bought embalming services; those
selections dropped in 1987 to 19% (caskets) and 25% (embalming). R-
B-3 (BLS) at Table 3, p. 23; R-B-2 (RS) at Table III-44, p. III-71
(caskets) and Table III-42, p. III-67 (embalming). Similarly, CANA
member surveys indicate a reduction in the purchase of caskets for
cremation from 22% to 17% between 1983 and 1987, a reduction which
the CANA attributed to the Rule. See Kelsey, Tr. Vol. II, 310-312,
Purdy, Tr. Vol. III, 158.
\59\Hahn, FFDA, Tr. Vol. II, 684-685.
\60\HX-122 (BE Report) at 37 and Table XI, p. 38 (variable noted
as ``pinferly'').
\61\Seventy-six percent of consumers who received price
information ``at the beginning'' of arrangements discussions said
that price information was very or somewhat important; 75% said so
when they got price information ``before casket selection;'' 62% who
reported that they received such information ``when finalizing
arrangements'' said that it was very or somewhat important at that
time; 67% said so when they got the information ``after decisions
had been made;'' and 53% said so when there was ``no discussion of
price.'' In the first three periods above, 41%, 31%, and 22% of
respondents, respectively, said that price information was ``very''
important. The analysis is based on consumers' answers to RS
questions 27 (when price information was first received) and
35(c)(5) (importance of price information in arranging the funeral).
R-B-2 at APPENDIX: Questionnaire, and data tape. See also, R-M-5
(Staff Rebuttal) at 6-7.
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c. Pro-competitive/informational benefits. Despite the 31% overall
industry compliance level with four of the Rule's key requirements\62\
and the lack of price competition among funeral homes, competitive and
informational benefits that are at least partially attributable to the
Rule have begun to manifest in the funeral market. Testimonial evidence
establishes that the Rule's ``unbundling'' and price disclosure
provisions have encouraged third-party casket sellers and low-cost
funeral homes to enter the market and have helped them compete,\63\ in
part because the GPL and telephone disclosure requirements permit non-
industry entities to gather and publish comparative price data.\64\
Many consumers have used that data to select those lower-cost funeral
providers and purchase caskets from third-party sellers where they
exist.
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\62\Those four requirements are: to give consumers a timely
general price list (Sec. 453.2(b)(4)) and itemized statement of
goods and services selected (Sec. 453.2(b)(5)), and to refrain from
misrepresenting the necessity for embalming and caskets for
cremation (Sec. 453.3(a) and 3(b), respectively).
\63\Radovich, PAA, Tr. Vol. III, 1026, 1029 (virtually no third-
party casket sellers existed before the Rule; casket retailers owe
their existence primarily to the enactment of the Funeral Rule,
which effectively allows the consumer to use a casket from an
outside source); Drozda, Tr. Vol. II, 894 (``Sale of caskets through
cemeteries is a relatively recent innovation. Prior to the enactment
of the Funeral Rule in 1984, we were hardly aware of any cemeteries
that sold caskets on their own because of the difficulty in
obtaining a funeral home which would accept them and provide funeral
services'').
\64\Memorial society members, journalists and others testified
that collecting comparative funeral price data was, at best, a
difficult task before the Rule. See, e.g., R-N-1 (SR) at 86-88.
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Other testimonial evidence presented by the FFDA, which provides
financial and accounting services to 1,500 independent funeral home
clients in 30 states, indicates that the Rule--through the availability
of the GPL--has raised the industry's ``price consciousness,'' which
may be partly responsible for the tempering of price increases in
recent years.\65\ Mandatory itemization may have helped retard the
growth of funeral prices and consumer expenditures, a goal fully
intended by the Commission.\66\ Statistical data provided by the FFDA
and the Replication Study, and analyzed by an economist for the AARP
and the BE staff, also establish that, although overall prices and
consumer expenditures for funerals increased since 1981 by more than
the general price level (the ``CPI-U''), which includes all goods and
services, the increase was comparable to the increase in service prices
(the ``CPI-US,'' which excludes medical services); that is, compared to
other service industries,\67\ funeral prices and expenditures in the
period 1981-1987 did not increase above the rate of inflation.\68\ In
1988, expenditures and prices for funeral services increased by even
less than the rate of inflation for the general economy (the ``CPI-
U'').\69\
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\65\Hahn, FFDA, Tr. Vol. II, 678 (funeral homes refrained from
increasing prices for professional services even more than they did
because of the GPL).
\66\See R-B-5 (SBP) at 42297.
\67\The funeral home industry is classified by the U.S. Dept. of
Commerce in the standard industrial classification scheme (SIC) as a
``service'' industry, because, like other service industries, it
sells services as well as goods.
\68\See R-N-1 (SR) at 76, 79-80. Even if overall industry
compliance were higher and consumer expenditures still remained
unchanged, the level of expenditures is not the sole test of the
Rule's benefits. As the BE staff stated in its report, expenditures
may rise as a result of price increases related to funeral homes'
fixed costs that are not associated with any costs of Rule
compliance. The record evidence indicates, in fact, that Rule
compliance has not significantly increased funeral providers' costs
or prices, that consumer expenditures and funeral prices, when
compared to other service industries, have not increased above
inflation, and that an industry ``price consciousness'' induced by
the availability of the GPL may have tempered price increases. If
the Rule's only benefit were to increase informed consumer choice
(without imposing substantial costs on industry), regardless of
whether some chose to spend more for their arrangements than they
would have without the Rule, that benefit would likely justify
retention of the Rule because other consumers would have the right
to choose to spend less. The Commission in its 1982 SBP for the Rule
so stated the Rule's purpose. The record evidence in fact indicates
that many consumers will purchase fewer funeral items or less-
expensive services as a result of informed choice.
\69\See Funeral Service Insider, March 20, 1989, at 2.
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In addition to these benefits, record evidence discussed above
suggests that the Rule has helped increase consumers' awareness of
prices and service options as factors to consider in making funeral
purchase decisions. Many consumers choose low-cost funeral homes and
caskets competitively offered by third-party providers, and consumers
who chose cremation in 1987 purchased fewer caskets and embalming than
in 1981. Finally, that evidence indicated that consumers now decline
items once included in packaged funerals, and increasingly choose less-
expensive cremation alternatives.\70\
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\70\Although the record evidence supports the conclusion that
the Rule facilitates consumers' choice of cremation, the degree to
which the Rule has affected the cremation rate is unclear from the
record evidence. The NFDA suggested that the Rule has not played an
important role in the steadily increasing cremation rate, because
the increase began in the early 1970s and is based primarily on
changing social and moral values, as well as on the wishes of the
deceased, and not on price concerns. The CANA and the AARP, in
contrast, asserted that the Funeral Rule proceedings, which also
began in the early 1970s, as well as the Rule itself, substantially
increased publicity about the cremation alternative, and that many
consumers do choose cremation based on price and other
considerations. The CANA also provided evidence that the marketing
of cremation options has dramatically increased since the Rule's
inception. See R-N-1 (SR) at 68-71.
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Other empirical evidence indicates that, since 1981, the proportion
of consumers who receive price information early in the funeral
transaction, and use that information to spend less for their
arrangements, has increased by 7%.\71\ Consumer purchases of
``unneeded'' caskets and embalming for cremation have decreased,\72\ as
have provider misrepresentations about casket requirements,\73\ and the
accuracy of consumers' knowledge regarding casket for cremation and
embalming requirements and the preservative value of sealed caskets has
increased slightly.\74\ The great majority of rulemaking participants
expressed the view that the actual and potential Rule benefits just
enumerated will tend to increase over time, as compliance with, and
consumer awareness of, the Rule increases.\75\
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\71\HX-122 (BE Report) at 15 and Table VI, p. 14.
\72\That data show that, in 1981, 18% and 11% of ``direct
cremation'' purchasers, respectively, appear to have bought
embalming services and caskets that were unnecessary, because the
body is not present during the service (making embalming
unnecessary) and is not buried (making a casket unnecessary). In
1987, those figures declined to 9% (unneeded embalming) and 2%
(unneeded caskets), respectively. See R-M-5 (Staff Rebuttal) at 9;
R-B-2 (RS) and R-B-3 (BLS) data tapes. The decline in unneeded
casket purchases is statistically significant.
Record data also indicate that those arguably ``unneeded''
casket purchases occurred in many cases as a result of funeral
director misrepresentations. Those data show that in all but one
case, in instances where cremation was selected, consumers purchased
a casket when told that one was required--8 of 9 instances in 1981,
and 2 of 2 in 1987. Id.
\73\Seven percent of those 1987 RS respondents who purchased
cremations said that the providers they used represented that a
casket was required, as opposed to 26% of 1981 cremation buyers. See
R-B-2 at IV-8; R-N-1 (SR) at 39, n. 149. The 26% figure may be
somewhat overstated, however, because, unlike the RS, the 1981 BLS
question did not include a response category permitting the
compliant statement that an unfinished wood box (an alternative
container that is arguably a type of casket) was required. Eleven
percent of the 1987 RS respondents answered the question that way.
\74\In 1981, 19% of BLS respondents thought that caskets were
required for cremation (vs. 13% in 1987); 61% said that embalming
was always required (vs. 50% in 1987); and 60% in 1981 believed that
a sealed casket preserved remains for an indefinite time (vs. 42% in
1987). See R-B-3 (BLS Report) at Table 9, p. 32; R-B-2 (RS Report at
Table III-54, p. III-85.
\75\See R-N-1 (SR) at notes 116, 200-207.
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Although not directly related to pro-competitive and informational
benefits, other empirical evidence based on the Replication Study data
and BE staff's compliance indices indicates that the proportion of
consumers reporting satisfaction with their arrangements steadily
increases as simultaneous provider compliance with the Rule's
provisions increases.\76\ That evidence indicates that compliance with
the Rule benefits consumers and funeral providers by increasing
consumer satisfaction with funeral service, and that the level of
satisfaction might continue to increase if compliance with the Rule
were greater.
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\76\See HX-125. The analysis demonstrated that, although
``satisfaction'' is over 80% even when consumers report no
compliance with individual measures, the proportion of satisfied
consumers increases steadily as compliance with the Rule increases.
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d. Costs to providers. While the Rule has begun to provide benefits
to consumers, empirical evidence demonstrates that its requirements
have not been a significant contributing factor to increases in funeral
home costs of doing business or funeral home prices, or to any
reduction of overall consumer satisfaction with funeral services.
Funeral provider groups, however, asserted that the Rule has imposed on
providers a variety of increased costs, most notably for personnel as a
result of a 23-minute average increase in the duration of the
arrangements conference, and for business expenses such as printing,
accounting and legal services. These costs, those groups said, have
been passed on to consumers in the form of higher prices, particularly
for professional services.\77\
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\77\See, e.g., R-M-9 (NFDA/NSM) at 62-76, 89-96 and McChesney,
HX-126-A at 52-53, 86-89.
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Statistical business expense data for the years 1977-1987 presented
by the FFDA,78 and analyzed by an economist for the AARP,
indicates that funeral home costs arguably most related to the Rule
(such as legal, accounting and consulting costs) have increased at
lower rates than other expenses (such as depreciation and casket
cost),79 and that overall cost increases have resulted more from a
general increase in all business expenses than from a dramatic increase
in any one expense category.80 Mr. Hahn of the FFDA further
testified that the Rule has played a very minor role in business
expense and price increases,81 which he and other witnesses
attributed generally to inflation and individual funeral home business
decisions.82
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\7\8Federated Funeral Directors of America (FFDA) processes
records from 1,500 funeral home clients in 30 states that conduct
about 181,000 funerals a year, representing just under 10% of all
deaths. FFDA is the largest company of its type in the country.
Hahn, Tr. II, 662-663.
\7\9Dr. Barnow, speaking on behalf of the AARP, reported that
his review of the FFDA data showed that accounting, consultants and
legal costs were responsible for 2.6% of the real increase in
overall funeral home costs since 1981, whereas depreciation and
casket cost respectively accounted for 14.9% and 9.3% of the real
increase in costs. See Dr. Barnow, HX-118 at 14 and Exhibit 2,
pp.12-13. Dr. Barnow further stated that increased compliance would
not substantially increase the Rule's costs, because there are no
identifiable, major costs imposed by the Rule now on providers. Tr.
Vol. I, 880, 883.
\8\0HX-118 at 14. Dr. Berry, an economist and industry observer
appearing on his own behalf, agreed that the Rule has not had a
significant influence on funeral home costs. Tr. Vol. I, 151.
\8\1Tr. Vol. II, 681, 683-85, 689-90.
\8\2Id. at 678-80, 683, 688-689, 709; R-C-7 (American Funeral
Director magazine interview with Mr. Hahn) at 3; Pierson, R-D-1 at
2; Ninker, R-G-1 at 3; Davis, Illinois FDA, R-G-2 at 1; Botimer, Tr.
Vol. III, 1292; and FDSA of Chicago, R-G-5 at 25;; Krause, Tr. Vol.
II, 24; and Longmire, R-D-2 at 5; see also, R-N-1 (SR) at 83, n. 402
and McChesney, HX-126-A at 53, which contains the following quote
from Business Trends Analysts:
When first proposed, many believed the Funeral Rule would lower
funeral and cremation service prices because lower-priced options
would be made known to the consumer. However, when put into effect,
the Funeral Rule caused funeral directors to examine their costs. In
doing so, many realized that they had been ``giving away'' some
services. In effect, funeral directors became more business-oriented
as a result of the FTC rulings, and found that they could actually
raise prices.
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Further record analysis of the FFDA statistical data by BE staff
indicates that funeral homes' personnel expenses appear to have
increased very slightly since 1984, but that personnel expense as a
proportion of overall business expense has not significantly changed in
many years, including the period covered by the Rule. Similar analysis
shows that salary expense as a proportion of personnel cost has
likewise remained stable.83 Mr. Hahn of the FFDA testified that
significant changes in those areas should have occurred if the Rule
were significantly increasing funeral homes' personnel costs.84
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\8\3See HX-50 (BE Personnel Expense Data Analysis).
\8\4Tr. Vol. II, 688.
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e. State Regulation of Funeral Providers. The rulemaking record
finally documents that most individual states favor the continued
existence and strong enforcement of the Funeral Rule to protect funeral
consumers, rather than reliance on the states to adopt comprehensive,
state-specific legislation. A 1987 staff survey of the states' funeral
industry statutes, regulations and rules revealed that ten states have
incorporated the Rule by reference into their laws or adopted
provisions similar to six of the Rule's most salient requirements; six
have enacted at least four of those provisions, and, overall, thirteen
to twenty-five states have laws that include one or more provisions
similar to the Rule.85 No party presented evidence during the
review that additional states have adopted relevant funeral laws or
that existing laws have been significantly strengthened.
---------------------------------------------------------------------------
\8\5See R-C-12 (staff survey); R-J-1 (Conference of Funeral
Service Examining Boards survey) at 4-6.
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Testimonial evidence presented by state legislators and officials
further indicates that, although the Rule has helped stimulate the
enactment of similar funeral industry laws in several states, such
reform is unlikely in their or other states because of industry
opposition. Those witnesses expressed their views that the Funeral Rule
needs to be retained as a result, and is beneficial to consumers,
funeral providers, and state enforcement officials.86
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\8\6See the testimony cited in R-N-1 (SR) at 97-100.
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C. Section-by-Section Analysis
1. Introduction
The Rule as amended contains two major changes--deletion of the
affirmative telephone disclosure requirement and the prohibition of
non-declinable fees (such as so-called ``casket handling fees'' and
``basic facilities fees'') charged in addition to the non-declinable
fee for basic professional services of the funeral director and staff.
These primary changes, and a number of ``fine-tuning'' amendments, are
intended to increase the Rule's benefits and reduce its costs by
facilitating funeral providers' compliance with, and consumer
understanding of, the Rule's requirements, while preserving the
integrity of the Rule's ``unbundling'' and price disclosure
requirements. Finally, the Commission has made several technical
amendments to the Rule that are necessary to correct inconsistencies or
unnecessary language in certain Rule provisions, or to complement other
amendments.
2. Affirmative Telephone Disclosure Repeal: Section 453.2(b)(1)(i)
Section 453.2(b)(1)(i) of the original Rule required funeral
providers to affirmatively tell persons who call and ask about the
``terms, conditions, or prices'' at which funeral goods or funeral
services are offered that price information is available over the
telephone. The Commission has decided that the affirmative telephone
disclosure provision should be deleted from the Rule because its costs
outweigh its actual and potential benefits to consumers, and because
the integrity of the Rule's price disclosure requirements will be
maintained by retaining the requirement to provide price information
over the telephone on request.
The Commission designed this provision to help consumers in two
ways. First, it would alert them to the availability of price
information over the telephone, and, second, it might diminish
consumers' reluctance to seek such information. The Commission intended
that affirmative disclosure provision to facilitate consumers'
comparison shopping for a provider.87
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\8\7R-B-5 (SBP) at 42273.
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Empirical evidence presented by the Replication Study, however,
indicated that few consumers comparison shop before selecting a
provider. The Commission in the NPR thus requested public comment on
whether: (1) Consumers are aware of their right to seek price
information over the telephone; (2) compliance with this provision is
costly; and (3) it should retain the affirmative telephone disclosure
provision in view of the study results.88
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\8\8R-A-1 at 19869 (Question 7).
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Empirical and testimonial evidence in the record provided insights
into the delicate relationship between consumers and funeral providers
that appear to affect the degree to which consumers seek price
information directly from providers. Results from the Baseline,
Replication and Gallup Studies indicated that consumers seldom seek
price information or comparison shop by calling providers directly. In
1981, 7.2% of the Baseline Study respondents comparison shopped by
contacting more than one funeral home;89 4.2% of the 1987
Replication Study respondents did so,90 and 11% of the 1988 Gallup
Study consumers contacted more than one provider.91 Most 1987
Replication Study respondents knew which funeral provider they intended
to use,92 and those who had not decided on a funeral provider
usually contacted only one at the time of need.93 In the initial
telephone contact, RS respondents asked about ``prices, terms or
conditions'' only 9.2% of the time.94
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\8\9HX-122 (BE Report) at 14, Table VI.
\9\0Id. (42 of 991) Eighty-five percent of respondents had
already decided on a funeral home before contacting any. R-B-2 at
Table III-18, p. III-24. Eighty-two percent of those who had not
decided on a particular funeral home contacted only one funeral
home. Id. at III-25.
The study contractor, Market Facts, in its report stated that
these results ``must be viewed with extreme caution'' because so few
respondents (43) contacted multiple funeral homes and even fewer
(35) contacted any by telephone. Id.
\9\1Colasanto, HX-66 at Ex. B, p. 7 and Tabs, p. 19 (68 of 607).
\9\2R-B-2 at Table III-18, p. III-24 (85% had already selected
the provider).
\9\3Id. at III-25 (95% of the respondents who had not decided on
a funeral provider before contacting one still contacted only one).
\9\4HX-122 (BE Report) at 16.
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Record evidence indicated that both consumers and providers are
reluctant to initiate price discussions during funeral
arrangements.95 The evidence indicates that, unlike a visit to the
funeral home, where the general price list facilitates the actual
review of services and merchandise, the offer to discuss prices over
the telephone is helpful only if the consumer is prepared to do so. The
weight of the evidence demonstrates that the initial telephone contact
is a tentative encounter in which the consumer is relying on the
funeral provider to set the tone of the interaction. The funeral
provider at that delicate time, however, reasonably wishes to avoid the
appearance of insensitivity by raising price issues when the callers'
typical concerns are whether and how to arrange the funeral with the
particular provider.
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\9\5See R-N-1 (SR) discussion at 61; Hocker, Tr. Vol. III, 1435;
Johnson, Tr. Vol. I, 744; Starks, Tr. Vol. II, 402-403; and
Hennessy, Tr. Vol. II, 1024.
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Several provider witnesses96 testified that the affirmative
telephone disclosure has offended callers, who interpret the disclosure
as an indication of the funeral provider's preoccupation with the
consumer's ability to afford services.97 For example, a state
funeral board member observed that, whenever a client calls first to
arrange a date and time for a funeral service, expecting an empathic
response, the consumer is offended by the funeral director's uninvited
statement that price information is available, and the funeral provider
resentful about having to make such a statement at this early
juncture.98 Other providers distinguished between the accepted
practice of giving price information that is requested, and the
difficulty of telling the caller who has not requested it that the
funeral provider is prepared to talk about prices.99 Funeral
director representatives concluded that providers' goodwill is harmed
as a result of the offense generated by the unsolicited affirmative
disclosure, which providers under the Rule must make during the initial
telephone contact.100
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\9\6None of the systematic, empirical evidence in the record
addressed the question whether the unsolicited disclosure during the
initial telephone discussion that price information is available was
offensive or confusing to consumers. The Gallup results indicated
that most arrangers (83%) are not offended ``when funeral directors
give them information about the cost of funeral services when they
first begin making arrangements.'' See Colasanto, HX-66 at Appendix
B, Tabulations, p. 24. That question, however, refers more
specifically to consumers' feelings about actual price information
offered by providers during the arrangements conference, such as
providers' offer of the GPL, and not to consumers' views about the
affirmative telephone disclosure that price information is
available.
\9\7Hocker, Tr. Vol. III, 1400-1401 (``It's very difficult
sometimes to tell people price information is available on the
telephone when they don't ask for it and when it's the furthest
thing from their mind. It creates a real awkwardness for us. There
are many times people want to have an idea of when they can have the
service, how long they can wait, Joey's in Germany in the service
and he has to come back home, and to tell them that price
information is available on the telephone is sometimes an intrusion
when it's not called for.''). See also, Nilsen, Tr. Vol. III, 1482;
and Keith, Tr. Vol. III, 1459.
\9\8J. Hunter, Tr. Vol. III, 603-604. See also, Nilsen, Tr. Vol.
III, 1482 (``It just simply makes it look to callers that instead of
caring individuals we're money-hungry professional or business
people out there; that's what it does to the consumer at that point
in time.'').
\9\9See Keith, Tr. Vol. II, 1459 (``We're objecting to the
disclosure at that moment, that triggering event, not to the
disclosure of the prices over the telephone upon request''); and
Hocker, Tr. Vol. III, 1464, 1480 (``I would rather not have to make
an affirmative statement unless people asked for price information,
and then you know that they're interested in it, and so there's no
problem.'').
\1\00See, e.g., Hennessy, HX-61 at 7-8; Farrow, HX-85 at 4; and
Johnson, Tr. Vol. I, 748.
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The evidence further shows that providers experience difficulty in
understanding their obligation under Sec. 453.2 (b)(1)(i). Under that
affirmative disclosure provision, a funeral provider must either tell
every caller that price information is available, or determine whether
an inquiry concerns a ``term,'' ``condition,'' or ``price'' of funeral
goods or funeral services offered, thus triggering the disclosure. The
original staff Compliance Guidelines illustrated that problem; the
Guidelines told funeral providers that a call asking whether the
provider will perform a funeral for a particular religion does not
trigger the disclosure, whereas a call asking whether the provider will
remove the deceased from a hospital does.101 The difficulty of
determining whether an inquiry concerns a ``term'' or ``condition''
thus places a clear burden on the provider, without a commensurate
benefit to the caller.102
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\1\01R-B-6 at 28062, 28064 (Illustrations #2 and #6).
\1\02The Commission, however, has not adopted the AARP-suggested
modification that would resolve this compliance problem by requiring
funeral providers to inform all callers that price information is
available over the telephone. The record contains substantial
evidence that some consumers would be offended unnecessarily by such
unsolicited remarks, and that substantial harm to funeral providers'
reputations could occur, without significant consumer benefit. These
possibilities further may increase the likelihood of non-compliance,
which the evidence suggests may be no greater than 50% at this time.
On balance, ensuring that those callers who seek price information
can obtain it would better assist consumers in making informed
selections.
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Other empirical data indicate that the disclosure does not affect
consumers' expenditures for funeral arrangements. Economic analysis of
the Replication Study data indicated that those consumers who called
the provider and received the Rule-required affirmative disclosure
spent no less for their arrangements than other respondents.103
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\1\03HX-122 (BE Report) at 17.
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Consumer group participants, however, suggested that the
affirmative disclosure was meant to signal consumers who are reluctant
to raise price issues that it is acceptable to do so, and that
providers can find ways to make that disclosure without offending
consumers.104 Although the empirical evidence is not conclusive on
the issue, the preponderance of the reliable anecdotal evidence
provided by many funeral directors who must make the disclosure to
consumers supports the conclusion that the requirement's potential to
overcome consumers' inhibitions and benefit additional consumers is
unlikely, and does not justify the imposition of awkwardness and
potential offense in a transaction already fraught with delicate
business, social and personal issues.
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\1\04P-39 (AARP) at 31-39; P-36 (National Consumers League) at
2.
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In summary, the record evidence shows that consumers rarely price
shop for a funeral home or seek price information directly from
providers because of their reluctance to do so and their general lack
of awareness about prices charged by providers, and not because of a
conviction that price information cannot be requested over the
telephone. The affirmative disclosure that price information is
available thus does not appear to give consumers new information that
is likely to increase their desire to ask about prices or to encourage
price shopping.
The record evidence further indicates, however, that the Rule
overall is contributing to increased consumer ``price sensitivity''
that leads some additional consumers to use the telephone to shop for
lower-cost providers, or to seek comparative price information from
non-industry sources. Consequently, consumers who want price
information will affirmatively use the telephone to seek such
information from providers who advertise prices, or to engage in
alternative shopping methods, such as calling memorial societies, media
price ``hotlines,'' or state agencies that make comparative price
information available.105 The Commission has concluded that
consumers will increasingly seek price information as their awareness,
and the availability, of comparative price information increases.
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\1\05See, e.g., R-N-1 (SR) discussion at 58-59, 66-67.
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The preponderance of the evidence in the rulemaking record
indicates that the affirmative telephone disclosure is an inartful and
unnecessary signal to consumers about the availability of price
information that is unlikely, over time, to provide substantial
benefits to consumers not afforded by the Rule's other price disclosure
provisions.106
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\1\06 Nor does the evidence support a conclusion that industry
compliance with the affirmative telephone provision is too low to
permit a conclusion about its potential benefits. The evidence on
compliance with Sec. 453.2(b)(1)(i) is inconclusive. The RS data
show that about half of all providers (49%) who were asked about
funeral ``prices, terms, or conditions'' over the telephone made the
required disclosure. However, an unusually large proportion of the
respondents--29%-31%--could not recall whether they received the
disclosure, and the study contractor warned that the results should
be viewed with extreme caution because of the small cell size (93
respondents called and asked about ``prices, terms, or
conditions''). Excluding from the analysis those who could not
recall increases the compliance level to about 72%. See R-B-2 (RS)
at III-36, Table III-26; HX-122 (BE Report) at 16-17 (compliance
results); R-B-2 at III-25, III-31 (Market Facts concern).
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In light of this evidence, the Commission has determined to repeal
the affirmative telephone disclosure provision because its potential to
benefit additional consumers is unlikely, and does not warrant the
intrusion of potential offense in what is otherwise an extremely
delicate business, social and personal transaction. The Commission
further concludes that the integrity of the Rule's price disclosure
requirements will be maintained by retention of the general requirement
to provide price and other readily-available information over the
telephone on request (Sec. 453.2(B)(1)).
Funeral provider representatives, however, suggested that such
action would concede what they consider the Rule's premise that
increased comparison shopping was necessary to cure
``supracompetitive'' prices.107 That suggestion, however,
overstates the importance of the disclosure to achieve the goal of
increasing comparison shopping, and fails to acknowledge record
evidence indicating that the Rule overall already has contributed to
increased price competition.108
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\1\07P-37 (NFDA/NSM comment) at 23-24.
\1\08See the evidence cited at notes 63-65, supra.
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The Commission in its Statement of Basis and Purpose for the Rule
clearly expressed its view that the general telephone requirement to
give price information on request, and the requirement to give the GPL
to any person seeking in-person information about funeral arrangements,
in addition to the affirmative telephone disclosure, would all
contribute to increased comparison shopping.109 Nevertheless, the
Commission did not base the Rule's entire success in reducing barriers
to price competition on the affirmative telephone disclosure or on
comparison shopping, because it fully recognized that such behavior
might always be infrequent.110 As described above, the Rule's
provisions already are providing pro-competitive benefits to consumers,
including increased price sensitivity, despite the low overall levels
of industry compliance, price competition and consumer knowledge
demonstrated by the record. Those benefits are likely to increase over
time as industry compliance with, and consumer awareness of, the Rule's
other provisions increases.
---------------------------------------------------------------------------
\1\09R-B-5 at 42272-42273.
\1\10Id. at 42273, n. 140.
---------------------------------------------------------------------------
3. ``Casket Handling Fees:'' Section 453.4(b)(1)(ii)
One benefit the Commission ascribed to the Rule in its 1982
Statement of Basis and Purpose was that ``the greater availability of
price information may encourage entry into the funeral market of new
competitors seeking to attract business by offering lower
prices.''111 That prospective benefit was important to the Rule's
remedial intent, because the Commission found that the funeral industry
had historically opposed price advertising.112 The Commission
concluded that, as a result of that reluctance to make price
information readily available, consumers purchased unwanted items and
paid higher than competitive prices for items they selected.113
---------------------------------------------------------------------------
\1\11R-B-5 at 42293.
\1\12Id. at 42266.
\1\13Id. at 42269.
---------------------------------------------------------------------------
The Commission further recognized that easy access to the market
and a fair chance to compete were prerequisites to the entry of new
retailers into the funeral market.114 The Rule's general
``unbundling'' provision, Sec. 453.4(b), afforded that opportunity to
new entrants by removing the primary industry restraint on consumer
choice--package-only pricing.115 The Commission found that, by
``bundling'' all funeral goods and services in a package, funeral
providers had effectively forced consumers to buy unwanted items as a
condition of providing a necessity that only they can provide:
disposition of the remains.116 Section 453.4(b) of the Rule
prohibits funeral providers from conditioning the furnishing of one
funeral product or service upon the purchase of another product or
service unless required by law, such as embalming for interstate
shipping, or as a ``practical necessity,'' such as embalming where the
consumer wants a viewing of the remains for several days.
---------------------------------------------------------------------------
\1\14 R-B-5 at 42291.
\1\15The Commission's major finding in the original proceeding
was that funeral providers had denied consumers the privilege of
freely choosing the goods and services they wanted by failing to
disclose itemized price information and by ``bundling'' their
funeral offerings together in pre-determined packages; consumers'
only choice was between packages. R-B-5 at 42260, 42279-42282.
\1\16Id. at 42281.
---------------------------------------------------------------------------
Some ANPR commenters asserted that funeral providers, in response
to emerging competition in the sale of caskets from cemeteries and
other third-parties, charge high ``casket handling fees'' for
arrangements where consumers supply their own caskets purchased from
those third parties.117 The alleged purpose of these fees was to
recoup overhead costs and profits built into casket prices but lost on
the third-party casket sales. The Commission in the NPR thus sought
comment on the existence and impact of so-called ``casket handling
fees,'' and on whether, and how, the Rule should address that
practice.118
---------------------------------------------------------------------------
\1\17See R-A-1 (Notice of Proposed Rulemaking) at 19867.
\1\18Id. at 19870 (Question 14).
---------------------------------------------------------------------------
a. Existence and impact. Members of the third-party, casket seller
industry119 provided empirical and other evidence on the purpose,
widespread existence and impact of these ``casket handling fees.''
Casket seller representatives asserted that the emergence of third-
party casket sellers is directly attributable to the Funeral Rule's
``unbundling'' provision; those sales were virtually non-existent
before the Rule.120 A PAA official who presented the results of a
PAA membership survey (the ``PAA Survey'') on handling fee issues, Mr.
Duke Radovich, estimated that there are between 100 and 200 casket
retailers in the country.121
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\1\19 Third-party casket sellers generally were represented
during this review by the PAA.
\1\20 R-M-12 (PAA) at 18, 82. See also, Radovich, Tr. Vol. III,
1029 (Casket retailers owe their existence primarily to the
enactment of the Funeral Rule, which allows the consumer to use a
casket from an outside source); and Drozda, Tr. Vol. II, 894 (few
casket retailers before the Rule because providers would not accept
the outside casket and provide funeral service).
\1\21 Radovich, Tr. Vol. III, 1057 (31 of the 90 survey
respondents were active third-party casket sellers at the time of
the survey). He reported that these thirty-one active casket
retailers are located in Florida, Illinois, Iowa, Maryland,
Michigan, Mississippi, Nebraska, Ohio, Pennsylvania and Wisconsin;
74% of those sellers exist in Pennsylvania, Michigan, and Ohio. Id;
HX-101 at Exhibit ``A-3.''
---------------------------------------------------------------------------
The PAA Survey provided empirical evidence on the widespread
existence and amount of ``casket handling fees,'' as reported by the
respondent retailers. Eighty-six percent of the respondents said that
at least 60% of the funeral homes in their market area assess handling
fees, about two-thirds said that 80% to 100% charge the fees, and one-
quarter reported that all of the homes impose the casket handling
fee.122 Mr. Radovich concluded that a substantial number of
providers assess ``casket handling fees'' wherever third-party sellers
exist.123 Individual casket retailers agreed with that
finding,124 and further testified that funeral providers began
imposing handling fees when third-party casket sellers entered the
market.125
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\1\22Radovich, HX-101 at 17 and Ex. B, p. 5.
\1\23Id. at 12, 17, 20.
\1\24See Neel, HX-25 at 4 and Exhibit 2; Teck, HX-58 at 5-6 and
Ex. B; and Heffner, HX-33 at 8 and Ex. J-1.
\1\25 Graf, Tr. Vol. II, 647; Neel, Tr. Vol. I, 582-584; and
Teck, Tr. Vol. II, 861-862. See also, Showalter, Tr. Vol. II, 118.
One funeral provider witness who did not charge handling fees stated
on the record that, if he got competition from casket retailers, he
would begin to assess fees. Hennessy, Tr. Vol. II, 997.
---------------------------------------------------------------------------
Concerning the amount of ``casket handling fees'' assessed, 81% of
the PAA Survey respondents said that the average handling fee was over
$300; 74% reported an average fee between $300 and $500.126 Sixty-
two percent of the PAA Survey respondents further reported that the
highest fee charged was over $500; 35% said that the largest fee was
over $700.127 A ``handling fee'' of $500 was nearly equal to the
average wholesale cost of a casket in 1988 ($517) and 60% of the
average casket mark-up in that year ($821).128 Wendell Hahn of the
FFDA, which provides financial advising services to 1,500 providers in
30 states, testified that handling fees are assessed because providers,
who typically charge professional service fees ``hundreds of dollars''
below their true operation cost, will try to recoup those costs that
are lost by the third-party casket sale. Mr. Hahn concluded that
handling fees are thus roughly equal to the amount that providers' non-
declinable service fees are underpriced.129
---------------------------------------------------------------------------
\1\26Radovich, HX-101 at 18 and Ex. B, p. 6.
\1\27Id.
\1\28See Hahn, FFDA, HX-49 at 2. The average mark-up in 1988 was
$1,338 (average retail casket price) minus $517 (average wholesale
cost), or $821. By definition, a handling fee must be ``high'' if
its purpose is to recoup overhead costs and profit lost on the
casket sale.
\1\29Tr. Vol. II, 692-693. Mr. Hahn further suggested that by
failing to disclose the amount of overhead not included in the non-
declinable professional services fee, providers may be engaged in
deceptive pricing. Id. at 671.
Several local surveys conducted by individual casket retailers
provided further evidence on the range of ``casket handling fees''
in given market areas. Those surveys found that handling fees ranged
from $100 to $700 in Chicago; DeSoto, R-B-42; and Hennessy, HX-61 at
8; from $150 to $1000 in Greater Pittsburgh; Neel, HX-25, Exhibit 2
at 1; and from $100 to $800 in Detroit, Michigan; Teck, HX-58,
Exhibit A. Wendell Hahn of the FFDA reported six instances among a
sampling of funeral home records he reviewed for the month of August
1988 where handling fees ranging from $75 to $480 were disclosed on
providers' GPLs. HX-49 at 5, Tr. Vol. II, 673, 719-720. Other
witnesses, including two funeral directors, testified to the
existence of handling fees ranging from $425 to $2,500. See
Showalter, Tr. Vol. II, 120; HX-36, at 17 (citing an open letter
from Steve Shurden, President of the Oklahoma Funeral Directors
Association, printed in The Oklahoma Director, Vol. XV, No. 9 (Sept.
1985) at 1) ($1,000-$2,500); Starks, Tr. Vol. II, 412 ($700); and
Drozda, Tr. Vol. II, 896-897 ($425).
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Record evidence indicates that ``casket handling fees'' prevent
potential price competition and reduce consumer choice. Ninety-two
percent of the casket seller respondents to the PAA Survey reported
that their casket sales have declined since the imposition of handling
fees; about one-third said that they have reduced or eliminated their
casket marketing efforts as a result of those fees.130 One
industry observer testified that ``casket handling fees'' have caused
the exit from the casket market of five small businesses who thought
that they could gain market share by offering third-party caskets at
lower prices.131 Several casket retailers and others also asserted
that these so-called ``handling fees'' impede price competition by
removing consumers' incentive to price-shop for less costly caskets,
and penalize consumers who do shop.132
---------------------------------------------------------------------------
\1\30Radovich, HX-101 at 20-22 and Ex. B, pp. 8-9 (sales
decreased by 20% for 54% of respondents, by 40% for 29% of sellers,
and by 80% for 13% of respondents; although other market factors
could have contributed to the decreases, the PAA attributed them to
handling fees).
\1\31Showalter, Tr. Vol. II, 107-108.
\1\32See, e.g., Teck, Tr. Vol. II, 867; Neel, Tr. Vol. I, 568,
572-573, 615; Drozda, Tr. Vol. II, 923, 944; Radovich, Tr. Vol. III,
1063; Showalter, Tr. Vol. II, 109, HX-36 at 16-17; and R-B-27 (CAFMS
Comment) at 5.
Casket retailers and others provided evidence that many third-
party sellers offer caskets at prices lower than those charged by
funeral homes. About half of the seventeen PAA Survey respondents
who answered the survey's price question said that their price for
the ``same or similar'' casket was at least $250 less than funeral
home prices in their market area. About one-quarter said that their
prices were between $100 and $250 less, and another quarter said
that their prices were comparable (within $100). See, Radovich, HX-
101 at Ex. B, p. 10. One retailer who commented on the ANPR reported
that a small casket manufacturer in Chicago was selling 90% of its
retail caskets on an at-need basis, charging about half that of
Chicago funeral homes--$250 for a cloth-covered casket and $650 for
a sealed, metal casket. See, DeSoto, R-B-42.
---------------------------------------------------------------------------
Finally, third-party sellers testified that market forces will not
effectively regulate ``casket handling fees,'' and that the elimination
of those discriminatory fees would result in increased competition in
the sale of caskets and reduced casket prices.133 Mr. Royal Keith,
a funeral provider appearing for the NFDA, when asked on cross-
examination about the effect of market forces on handling fees,
responded that he was not aware of any cases where market forces have
successfully reduced the amount of handling fees charged in a
particular area.134
---------------------------------------------------------------------------
\1\33See, e.g., Teck, Tr. Vol. II, 872-873; Drozda, Tr. Vol. II,
944, 974.
\1\34Tr. Vol. III, 1422.
---------------------------------------------------------------------------
b. Providers' basis for imposing ``casket handling fees''.
Proponents of handling fees did not provide evidence to refute that
offered by casket retailers and others on the purpose, prevalence and
impact of ``casket handling fees'' on the casket market. Funeral
provider representatives, for example, did not dispute that ``casket
handling fees'' are used to recoup profits and overhead costs lost to
third-party casket sales, but defended that purpose on several
grounds.135 Providers' responses to third-party casket sales
arise, the trade groups asserted, due to the industry's long-standing
tradition of recovering much of its overhead costs and profits through
the casket mark-up, and not by increasing service fees; lower service
fees allow funeral homes to provide full service funerals, including
lower-priced caskets, to those who might not otherwise be able to
afford them. Although providers in recent years have shifted some of
that casket mark-up to service fees, the shift has been very gradual.
The industry groups concluded that providers who lose casket sales to
third parties must, as a result, still forego the recovery of much of
their costs and profits that would have been included in the casket
sale.
---------------------------------------------------------------------------
\1\35Nor did the NFDA and NSM argue that ``casket handling
fees'' are imposed for actual services rendered in ``handling''
consumer-supplied caskets. Many witnesses, including funeral
directors, testified that providers incur no additional labor or
insurance costs when third-party sellers provide a casket, and that
the actual labor time spent handling any casket is minimal; the cost
for that service is normally included in the non-declinable
professional services fee. See R-M-9 (NFDA/NSM) at 182; Hahn, FFDA,
Tr. Vol. II, 692-693; Bates, NSM Executive Director, Tr. Vol. I,
706-708; Simms, funeral director, R-J-9 (supplementing HX-42); Dr.
Nelson, AARP, Tr. Vol. I, 77-78; Showalter, industry analyst, Tr.
Vol. II, 116-117, 120-122; Graf, Tr. Vol. II, 652; Hennessy, funeral
director, Tr. Vol. II, 1009-1014; Radovich, funeral director/casket
retailer, Tr. Vol. III, 1044-1045; Starks, funeral director, HX-41
at 11, Tr. Vol. II, 369; and Drozda, funeral director/casket
retailer, Tr. Vol. II, 897.
---------------------------------------------------------------------------
Those groups asserted that the imposition of ``casket handling
fees'' is an isolated, non-discriminatory practice that fairly
allocates providers' overhead costs and profits; the purpose of the fee
is to obtain from consumers who buy third-party caskets consumers'
proportionate share of providers' costs and profits for rendering the
funeral service. Providers' only alternative to handling fees, the
industry groups argued, would be to raise service fees charged to all
consumers, which, in effect, would require regular clients who purchase
providers' caskets to subsidize the funerals of consumers who purchase
their caskets elsewhere--by paying the mark-up on the casket as well as
the higher service fee that would result from other consumers supplying
their own caskets.
Those groups further asserted that handling fees are not assessed
for ship-ins, outer burial container sales traditionally lost to
competing cemeteries, or for direct cremation/immediate burials where
the consumer supplies the alternative container because, unlike the
unexpected loss of a casket sale to a third-party seller, providers set
prices for those services with the knowledge that they will not make a
sale in those cases. Finally, the funeral groups concluded that the
amount of ``casket handling fees'' is sufficiently regulated by the
market, because providers that charge unreasonably high fees will
offend consumers and lose market share.136
---------------------------------------------------------------------------
\1\36R-M-9 at 181-189; R-G-6 at 80-83. Individual providers
agreed with the NFDA and NSM position. See Hocker, HX-111 at 13;
Franzen, Tr. Vol. II, 819-820, Tr. Vol. III, 1408; Hennessy, Tr.
Vol. II, 997-998; Keith, Tr. Vol. III, 1419; Yurs, Tr. Vol. II, 530,
563; and Nilsen, Tr. Vol. III, 1414-1415. See also, Hahn, FFDA, Tr.
Vol. II, 692-694.
---------------------------------------------------------------------------
c. Commission's conclusion and amendment. The Commission has
concluded that substantial ``casket handling fees'' are imposed on
consumers by a significant proportion of providers wherever third-party
casket sellers exist, and, as a result, frustrate the Rule's
``unbundling'' requirements and result in the reduction of potential
competition in the sale of caskets fostered by the Funeral
Rule.137 Some providers are forced to impose handling fees because
of their competitive reluctance to shift overhead costs and profit from
the casket mark-up to professional service fees.138 Others may use
handling fees as a direct response to third-party competition. In
either case, the issue to be determined in this proceeding was whether
the Rule should allow providers to condition a consumer's right under
the Rule to obtain a funeral service with a consumer-supplied casket
upon the payment of a non-declinable fee, charged in addition to the
basic professional services fee (already permitted under the Rule to be
non-declinable), or whether the Rule should require providers to recoup
costs and profits lost to third-party casket sales in ways that do not
violate the intent of the Rule's ``unbundling'' provision. For example,
providers under the Rule may recoup any unallocated costs or profits
lost to third-party casket sales in the non-declinable professional
services fee permitted by Sec. 453.2(b)(4)(iii)(C). The Commission has
determined that the latter course is warranted to affirm the Rule's
intent to increase consumer choice and reduce barriers to price
competition.
---------------------------------------------------------------------------
\1\37Even if ``casket handling fees'' were not widespread, their
coverage in the Rule would be necessary because they frustrate the
original Rule's ``unbundling'' provision and impose substantial,
unavoidable costs on consumers who make purchase decisions based on
their rights under that provision.
\1\38The Commission disagrees with arguments made by funeral
provider groups during the proceeding that regulation of handling
fees would amount to ``price regulation.'' The primary issue is the
propriety of the handling fee cost and profit adjustment, through
the imposition of a separate, non-declinable fee charged in addition
to the non-declinable fee for ``services of funeral director and
staff,'' and not the amount of the handling fee.
---------------------------------------------------------------------------
Section 453.4(b) of the Funeral Rule was intended to address all
``bundling'' arrangements imposed on consumers by funeral providers.
Under that provision, consumers have the right to decline the purchase
of any item, including a casket, from a funeral provider, and may elect
to supply their own. That right, however, is illusory if funeral
providers can condition consumers' choice on the payment of an
additional, non-declinable fee. The fee, in any amount, penalizes
consumers for exercising their choice afforded by the Rule.139
---------------------------------------------------------------------------
\1\39Section 453.4(b)(2)(ii) of the Rule permits providers to
refuse a request for goods and services that would be ``impossible,
impractical, or excessively burdensome'' to provide. That provision,
however, does not permit a funeral provider to refuse service to a
consumer because the consumer supplied the casket. See, e.g., Staff
Opinion Letter to George W. Lemke, Executive Director, Casket
Manufacturers Association of America (March 18, 1985), FTC File No.
215-46, No. XXVIII-211.
---------------------------------------------------------------------------
``Casket handling fees'' require consumers to pay two substantial
mark-ups, one on the casket they purchase from the third-party seller,
and another on the casket they did not buy from the funeral provider.
The evidence indicates that handling fees average between $300 and
$500, and often are higher. That burden, the evidence shows,
effectively removes consumers' economic incentive to purchase a casket
from anyone but the funeral provider. Casket sales by third parties
have declined as a result, and several retailers have curtailed their
marketing efforts or withdrawn from the market. Handling fees thus
frustrate the purpose of the Funeral Rule--to ensure informed consumer
choice and foster a competitive funeral market. The Commission thus
concludes that casket handling fees are unfair conditions on a
consumer's right to decline unwanted items he or she may wish to
purchase elsewhere, in violation of section 5 of the FTC Act, and the
spirit of the Rule's ``unbundling'' provision (Sec. 453.4(b)).140
---------------------------------------------------------------------------
\1\40 Conditioning the furnishing of any funeral good or service
upon the payment of a so-called ``casket handling fee,'' or any
other non-declinable fee not otherwise permitted by the Rule, is an
unfair practice for the same reasons articulated by the Commission
in declaring ``package-only'' pricing unfair when it promulgated the
Funeral Rule and its general ``unbundling'' section--453.4(b) (the
practice is prevalent and imposes substantial and unavoidable injury
on consumers). See R-B-5 (SBP) at 42269-71.
---------------------------------------------------------------------------
Section 453.4(b), however, does not specifically address the
practice of conditioning the furnishing of any funeral goods or
services on the payment of fees, such as ``casket handling'' fees,
because those fees have developed since the Rule's implementation, and
because they are not conditioned charges for ``goods'' or
``services''--the conditioned products referred to in that provision.
The Commission thus has concluded that so-called ``casket handling''
fees, and other non-declinable fees that are more aptly referred to as
``recovery of overhead and profit'' fees, need to be separately
addressed in the Rule.141
---------------------------------------------------------------------------
\1\41 The Commission prohibits fees that are similar in purpose
to ``casket handling fees'' in its Advertising of Ophthalmic Goods
and Services Trade Regulation Rule, 16 CFR Part 456. That Rule
requires eye doctors to give consumers a copy of their eyeglass
prescription, so that consumers can shop for eyeglasses. Section
456.7(c) of that Rule further prohibits eye doctors from charging
consumers a fee ``as a condition for releasing the prescription,''
other than the examination fee. The section thus prevents eye
doctors from charging a fee for goods and services not provided
that, in effect, would penalize consumers who wish to comparison
shop for ophthalmic goods. Like the non-declinable ``casket handling
fee,'' the conditional fee prohibited by this Ophthalmic Goods and
Services Rule frustrates a consumer's right under the Rule to
exercise free choice.
---------------------------------------------------------------------------
The Commission recognizes the legitimate desire and expectation of
funeral industry members to recover overhead costs and realize a
profit. The Rule, however, permits consumers to select and buy only the
items wanted unless state or local law require otherwise. The Funeral
Rule is designed to permit funeral providers to have one non-declinable
fee to recover general overhead costs--the fee for the basic services
of funeral director and staff. Permitting funeral providers to have
additional surcharges, whether they are called ``casket handling
fees,'' or something else, would frustrate the Rule's aim to promote
full itemization and informed consumer choice.
To prevent that result and clarify the current requirements of the
Rule, the Commission has added paragraph (b)(1)(ii) to Sec. 453.4 of
the Rule. That amendment prohibits as an unfair or deceptive act or
practice the furnishing of funeral goods or services upon payment of
any conditional ``fees'' not otherwise permitted by the Rule. The
amendment, however, permits funeral providers to recover overhead in
the two ways permitted by the original Rule--by marking up the items
offered for sale to the public, and by having the non-declinable fee
for basic services of funeral director and staff, permitted by
Secs. 453.2(b)(4)(iii)(C) and 453.4(b)(2)(i)(A) of the Rule.
The Commission also has amended Sec. 453.2(b)(4)(iii)(C)(2) of the
Rule to require, among other things, disclosure of: (1) The dollar
amount charged for any non-declinable basic professional services when
that charge is included in the price of the provider's caskets; and (2)
the statement ``This same fee shall be added to the total cost of your
funeral arrangements if you provide the casket.'' These amendments are
intended to have the same effect as the amendment to Sec. 453.4(b)
above--they prohibit funeral providers (who choose not to itemize the
charge for basic professional services) from charging consumers who
purchase caskets from third parties a non-declinable fee for recovery
of overhead and profit in addition to the professional services fee
charged to all customers.
These two amendments are not intended to impede funeral providers
from recovering overhead costs and earning profits from their
operations. Efficient providers can structure their prices charged to
all consumers to recover the revenue lost to third-party casket (or
other merchandise) sales. The evidence indicates that providers for
many years have so adjusted their pricing structure to account for
consumer-supplied caskets (in ship-in cases), outer burial containers,
and alternative containers.142
---------------------------------------------------------------------------
\1\42 See, e.g., the evidence cited at note 136, supra.
---------------------------------------------------------------------------
Providers asserted that the impact of a ban on imposing separate,
non-declinable casket handling fees, in addition to the non-declinable
professional services fee, would be increased professional service fees
to all consumers. The funeral provider industry made the same argument
in the original proceeding regarding the effect of consumer
declinations caused by Rule-required itemization.143 As the
Commission reasoned at that time, providers under the Rule can set or
shift prices as they wish, but the long-term competitive impact of the
Rule's price availability provisions might not permit providers to
recover lost revenue from casket declinations simply by raising
professional service fees. In the short-term, some consumers might
spend more and some less than they would without the right to decline
if providers actually raise service fees in order to recoup revenue
lost to third-party casket sales. As discussed earlier, however, the
evidence in this proceeding indicates that, although service fees
generally are underpriced by roughly the average handling fee amount,
providers are reluctant to raise service fees even under current
competitive conditions. In any event, the evidence indicates that the
impact of a ban on handling fees would more likely be increased
competition in the sale of caskets, and, in turn, an overall reduction
in casket prices over time.144
---------------------------------------------------------------------------
\1\43 See R-B-5 at 42298.
\1\44 See, e.g., the evidence discussed at notes 135-138, supra.
---------------------------------------------------------------------------
4. GPL Timing/Distribution Requirements. Section 453.2(b)(4) of the
Rule required providers to give for retention a General Price List to
persons who inquire in person about funeral arrangements or the prices
of funeral goods and services. The GPL must contain, among other
things, several disclosures about consumers' right to select only those
items they desire and the retail prices for 17 specified items, if
offered for sale. Providers under Sec. 453.2(b)(4)(i) of the original
Rule were required to offer the GPL ``upon beginning discussion either
of funeral arrangements or of the selection of any funeral goods or
funeral services.'' (Emphasis added.)
Many funeral providers, however, erroneously believe that the GPL
must be given immediately upon initiation of preliminary arrangements
discussions that do not involve price or specific goods or services.
That misinterpretation leads them to offer the GPL at arguably
inappropriate times, such as during preliminary discussions of death
certificates or veterans benefits, or, in the case of an out-of-town
death, the location of the deceased.145
---------------------------------------------------------------------------
\1\45 See R-N-1 (SR) at 151-153.
---------------------------------------------------------------------------
To remedy their concerns, provider groups proposed repeal of the
GPL timing and distribution requirements, or, in the alternative,
amendments that would require providers to:
(1) ``Make available'' to consumers a GPL;
(2) Offer the GPL to consumers who inquire only about prices;
(3) Offer the GPL to consumers before ``specific'' funeral goods or
funeral services are ``selected'' or prices discussed; and
(4) Give a GPL for retention only to those consumers who request to
keep it.146
---------------------------------------------------------------------------
\1\46R-G-3 (NSM) at 43; R-G-6 (NFDA) at 66; R-M-9 (NFDA/NSM) at
277.
---------------------------------------------------------------------------
The Commission has determined, however, that the preponderance of
the evidence does not warrant the sweeping amendments to, or repeal of,
Sec. 453.2(b)(4)(i) as proposed by funeral provider groups. The
Commission draws that conclusion particularly in light of the empirical
evidence on the level of providers' compliance with the current GPL
requirements (23% give the GPL at the outset of arrangements
discussions), and the evidence that consumers want price and options
information about funeral goods and services and value price
information that they receive early in the funeral transaction.
The Commission is persuaded by that compliance evidence, however,
that some fine-tuning is necessary to clarify the Rule and promote
increased compliance, thereby enhancing the Rule's opportunity to
provide benefits to consumers. The amendment discussed below thus is
intended to remove any ambiguities and unnecessary rigidity in
Sec. 453.2(b)(4)(i) that appear to cause funeral directors to
misinterpret their obligations under that provision.
Provider group proposals would have unacceptably narrowed the
circumstances in which providers would be required to provide a GPL to
consumers. First, the suggestion that providers ``make available'' a
GPL might have been tantamount to effective repeal of the entire GPL
requirement if such language means something other than physically
giving the GPL to consumers.147 Consumers might receive no GPL
disclosures about funeral service prices or options, or concerning
their rights in the funeral transaction under the Rule or other laws,
unless they asked to see the GPL and providers voluntarily complied
with their request. Such a change is not warranted, given record
evidence on relatively low, overall levels of Rule compliance. Other
evidence--that consumers are reluctant to raise price issues after the
death of a loved one, that consumers, nonetheless, desire price and
service options information, and that consumers benefit from price
information they receive early in the funeral transaction--also
supports this conclusion.
---------------------------------------------------------------------------
\1\47 The proponents of this change did not specifically explain
or define the term ``make available,'' or how this and other
suggested amendments would change the current requirements of
Sec. 453.2(b)(4)(i).
---------------------------------------------------------------------------
Second, the NFDA suggestion that providers need only give a GPL to
persons who inquire in person about the ``price'' of funeral goods or
services would eliminate the obligation to give a GPL to those who ask
about prices or ``funeral arrangements.'' In light of the evidence just
mentioned, this proposed narrowing of the GPL distribution requirement
is not supported by the record. Although one of the Rule's goals is to
increase price competition, and, in turn, reduce overall consumer
expenditures, the Commission also intended the provision of itemized
price information to alert consumers to their various options and to
permit them to select only those items they desire, whether or not
expenses would be reduced as a result.148 Lacking record evidence
to support a change, consumers who inquire about providers' offerings,
and not their prices, should thus be entitled to receive a GPL.
---------------------------------------------------------------------------
\1\48R-B-5 at 42297.
Virtually every funeral director who advocated a change in the
GPL timing requirements expressed concern about when in the
arrangements discussions might be the sensitively correct time to
discuss ``price'' with consumers. None spoke of the correct time to
provide or discuss information about funeral service ``options'' and
their relative cost. The record evidence, however, suggested that
because price issues may not specifically arise early in the
transaction, due to mutual provider and consumer reluctance,
consumers may choose particular types of arrangements, or specific
items, without the benefit of information about the available
alternatives unless they receive a timely GPL.
---------------------------------------------------------------------------
Third, the NFDA proposal that providers make the GPL available at
the funeral arrangements conference before ``specific'' funeral goods
and services are selected or prices discussed would remove the
requirement that providers give the list at the beginning of
arrangements discussions, wherever they take place. Record evidence
shows that consumers benefit from price and service options
information, including the GPL, that they receive early in selecting
funeral goods and services, and that at least some funeral
arrangements, short of a formal ``arrangements conference,'' often can
and do occur away from the funeral home premises.149 Other
evidence discussed earlier demonstrated that consumers' knowledge
generally about the funeral transaction, although somewhat improved, is
still relatively low. As a result of adopting the NFDA suggestion,
consumers' opinions about the overall type of funeral service or
individual items could thus be formed, or actual selections made,
without the benefit of the GPL disclosures concerning prices, options
and consumer rights under the Rule. In that event, the preponderance of
the record evidence supports the conclusion that the GPL's purpose to
provide ready price and service options information for consultation
while consumers are considering what goods to purchase, before they
make selections, would be unnecessarily defeated.
---------------------------------------------------------------------------
\1\49See, e.g., Hennessy, funeral director, Tr. Vol. II, 1026-
1027 (timing of visitation and service often likely to be among
first topics of concern to a family during removal); Hunter, Tx.
Funeral Service Comm'n, Tr. Vol. III, 602-603 (discussing funeral
arrangements away from the funeral home is a very common practice);
Johnson, NSM, Tr. Vol. I, 744 (conversations away from the funeral
home border on making funeral arrangements); Simms, NFDA, Tr. Vol.
II, 452, 470-471, 473 (various arrangements discussions during
removal have occurred); Hocker, NFDA, Tr. Vol. III, 1402, 1479
(problem during removal when the family says something like ``can we
have the funeral on Wednesday'' that triggers presentation of the
GPL); Dr. Nelson, AARP, Tr. Vol. I, 91 (preliminary arrangements can
occur in consumers' homes where their concept of the funeral may be
discussed and formed); and Klein, NYSFDAB, Tr. Vol. II, 1067 (not
all arrangements are made in the funeral home).
Empirical evidence from the Replication Study on that issue
indicated that 14% of consumers said that in-person arrangements
discussions took place at a hospital or nursing home, or at the home
of the respondent, the deceased, or a relative. See R-B-2 at Table
III-24, p. III-33. The extent to which some of those respondents may
also have participated in discussions at the funeral home is not
clear from the data.
---------------------------------------------------------------------------
Finally, the NFDA-NSM proposal that the GPL's ``give for
retention'' requirement be changed so that only consumers who request
to keep the GPL may do so is not supported by the record. The evidence
indicates that most consumers value the GPL enough to keep it when it
is offered for retention.150 The Commission might not disagree
with the NFDA suggestion if there were evidence that consumers are
aware of their right under the Rule to retain the GPL. The record does
not contain that evidence, however, and instead shows that consumers
generally are unaware of their rights under the Rule.151 There is
no record basis from which to conclude, therefore, that consumers would
think to ask to retain the GPL. Consumers, as a result, would be denied
the opportunity to use the GPL to comparison shop in at-need or pre-
need situations,152 or to compare authorized selections with final
funeral home charges.
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\1\50Eighty-seven percent of RS respondents and 82% of Gallup
respondents who were offered a GPL to keep said that they took it
with them. See R-B-2 at Table III-32, p. III-46, and HX-66, Ex. B,
p. 7 and Tabulations, p. 29.
\1\51A majority of consumer respondents to the AARP's ``Excel''
Study were unaware that providers are required to give consumers
written price lists when they come in to make arrangements. See
Soulas, HX-76 at 3.
\1\52Record evidence indicates that consumers may increase their
comparison shopping before selecting a funeral provider as the
marketing of pre-need funeral services increases, because the time
constraints surrounding at-need arrangements are not present to the
same degree. See, e.g., Neel, R-E-1 at 3.
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The Commission has amended Sec. 453.2(b)(4)(i) to effect two
changes to its original, preventive requirements. This amendment
remedies providers' stated concerns about the timing of the GPL without
limiting consumers' ability to use the information provided by GPL
disclosures effectively. First, the amendment clarifies the GPL
``timing'' requirements by breaking down the triggering term ``funeral
arrangements'' into its component parts, namely, discussions of prices,
the overall type of funeral service or disposition, or specific funeral
goods or services. This change should eliminate the apparent provider
misinterpretation that the GPL must be given immediately upon
initiation of preliminary arrangements discussions that do not involve
price or specific goods or services. It clarifies, however, that
discussions about the overall type of service trigger the GPL
requirement, and that providers must give the GPL at the beginning of
any discussion involving prices, the overall type of funeral service or
disposition, or specific funeral goods or services.153
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\1\53Record evidence indicates that some providers have
construed the term ``selection'' in the original provision to mean
choosing individual items, such as the casket or vault. See, e.g.,
F. Hunter, Tr. Vol. I, 801 (``as long as before they sign the
contract, before they look at the caskets and select the vault and
the exact kind of funeral''); J. Hunter, Tr. Vol. III, 604-605
(``after we have discussed some basic funeral plans, when the
arranger has determined a feel for the families' wishes and desires,
and prior to the selection of any services and/or goods''); Pierson,
R-G-1 at 2-3; Starks, Tr. Vol. II, 402; Franzen, Tr. Vol. II, 818).
Other providers are reluctant to discuss the GPL until price issues
are raised. See, e.g., Hocker, Tr. Vol. III, 1435; Johnson, Tr. Vol.
I, 744; Starks, Tr. Vol. II, 402-403; and Hennessy, Tr. Vol. II,
1024.
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Second, the amendment clarifies the GPL ``distribution''
requirement contained in an original compliance guidelines
interpretation that requires that providers must give consumers the GPL
whether discussions occur in the funeral home ``or elsewhere.'' Record
evidence shows that arrangements may occur away from the funeral home
premises. However, the amendment exempts from the GPL requirement in-
person provider requests for prior embalming authorization if the
provider makes essentially the same GPL disclosure required by
Sec. 453.3(a)(1)(ii) of the Rule concerning the legal necessity for
embalming.154
---------------------------------------------------------------------------
\1\54Any other discussion during that time about price or the
selection of funeral goods or services would trigger the requirement
that providers give consumers the GPL.
---------------------------------------------------------------------------
Record evidence indicates that providers often may be placed in the
uncomfortable position of responding to consumers' requests to discuss
selections during removal of remains. If providers are willing to
commit consumers to financial obligations at that time by making
arrangements, record evidence supports consumers' right to receive a
GPL. Record evidence also shows, however, that giving the GPL during
removal may be awkward, offensive, and unnecessary if no other
arrangements discussions occur at that time. Such evidence further
indicates that a provider's request for prior embalming authorization,
by itself, may be the most potentially offensive situation for both
consumers and funeral directors, because it is a request to perform an
intrusive procedure so soon after the survivors' loss.155
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\1\55See R-N-1 (SR) at 207-218 for a full discussion of prior
embalming approval issues raised during the proceeding.
---------------------------------------------------------------------------
The original and amended Rule resolve this issue for embalming
requests made over the telephone by not requiring any disclosure in
that case. But the original Rule required that the GPL must be given if
the request is made in person.156 If no other selections are made
when the provider seeks prior permission, arguably the most important
information consumers need to make an informed response at that time
concerns whether embalming is necessary. The required disclosure that
embalming is not required by law except in certain special cases should
trigger that discussion if the consumer so desires. The Rule's
embalming provisions are predicated on that basis. The amendment simply
substitutes the disclosure of that information for the provision of the
entire GPL, to reduce the burden on providers and consumers and to
promote compliance with the Rule. Under the amendment, providers would
be in compliance if they either provided a GPL when seeking prior
permission, or made the required embalming disclosure.
---------------------------------------------------------------------------
\1\56See R-B-6 at 28078 (Illustration #8).
---------------------------------------------------------------------------
5. Fees for Basic (Non-declinable) vs. Other Services
Section 453.4(b) of the Rule imposes the general legal requirement
that consumers' selection of funeral goods and services be permitted on
an itemized basis. However, Sec. 453.4(b)(2)(i)(A) permits an exception
to that general right to select. Under that provision, consumers may
not decline the basic services of the funeral provider if the provider
so requires. The provision in that event further requires that
providers place on the GPL the following statement: ``However, any
funeral arrangements you select will include a charge for our
services.'' Providers under Sec. 453.2(b)(4)(iii)(C) must also place
the following disclosure on the GPL in conjunction with the price for
the services of funeral director and staff, if the fee cannot be
declined: ``This fee for our services will be added to the total cost
of the funeral arrangements you select. (This fee is already included
in our charge for direct cremations, immediate burials, and forwarding
or receiving remains.)''
The Commission, in promulgating that exception, reasoned that the
process of selection itself involves use of the provider's services,
irrespective of the actual goods and services chosen by consumers. The
Commission thus permitted providers to make the services of the funeral
provider non-declinable.157
---------------------------------------------------------------------------
\1\57See R-B-5 at 42282.
---------------------------------------------------------------------------
The Commission also intended that the non-declinable fee for
professional services would include only the charge for providers'
basic services in arranging and planning the funeral, and not charges
for services associated with providing any of the other sixteen items
for which itemization is required on the GPL.158 The Commission,
for example, specifically used the term ``basic services'' in referring
to those services that consumers could not decline under
Sec. 453.2(b)(4)(iii)(C) (the GPL service fee disclosure
requirement).159 The definition in the original Rule itself stated
that the services of funeral director and staff ``are the services, not
included in prices of other categories in Sec. 453.2(b)(4) which may be
furnished by a funeral provider in arranging and supervising a funeral,
such as conducting the arrangements conference, planning the funeral,
obtaining necessary permits and placing obituary notices.''160
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\1\58Under Sec. 453.2(b)(4)(iii)(C), the non-declinable
professional services fee also may include charges for unallocated
provider overhead.
\1\59Id; see also, R-B-5 at 42285.
\1\60Section 453.1(o).
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The Commission, however, did not codify in the Rule its intent
regarding basic services other than in the definition. No substantive
Rule provision thus clarifies that providers in disclosing itemized
fees on the GPL must separate ``basic,'' non-declinable services from
services associated with providing the other, declinable GPL goods and
services, including such items as ``use of facilities for viewing,''
and ``use of facilities for funeral ceremony.'' The original staff
compliance guidelines for the Rule, as a result, contained lengthy
interpretations of the Rule on that issue, concluding that the non-
declinable fee for ``services of funeral director and staff'' may not
include a charge for those services involved in providing any of the
other items required to be separately listed on the GPL. Charges for
those services, the Guidelines stated, must be included in the price
for each of those items. The Guidelines further concluded that the non-
declinable fee for services may include the services listed in the
Rule's definition of ``services of funeral director and
staff.''161
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\1\61R-B-6 at 28068-28069, 28076, and 28087.
---------------------------------------------------------------------------
The only fee permitted by the Rule to be non-declinable at the
outset of the funeral transaction is the charge for ``services of
funeral director and staff'' and items that are required by
law.162 Several public hearing witnesses expressed their view,
however, that the original disclosure requirement for the non-
declinable services fee permitted the inclusion of service items that
all consumers do not receive with their arrangements, so that consumers
may be paying for services not received,163 or that the services
fee should be broken down to separate fees for arranging all funerals
and fees for optional services.164 These and other witnesses
further suggested that consumers are unaware of that potential
overpayment problem.165
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\1\62Id. at 28077 (Illus. # 12). Cemetery or crematory
requirements, embalming as a ``practical necessity,'' and requests
that are ``impossible, impractical or excessively burdensome'' to
provide may result in ``non-declinable'' charges under certain
conditions. Generally, however, those items are not considered
``non-declinable'' in the sense that consumers, at the outset of
planning arrangements, have no choice but to purchase them.
\1\63Morrison, Tr. Vol. II, 771, 778; Karklin, consumer, Tr.
Vol. I, 553; Carlson, Tr. Vol. I, 501-502; Snyder, Tr. Vol. III,
1252; Perguson, Tr. Vol. III, 1180; and Showalter, journalist/
hospice counselor, Tr. Vol. II, 121, 148.
\1\64Klein, New York State Funeral Directing Advisory Board, Tr.
Vol. II, 1040, 1062; Morrison, industry observer, Tr. Vol. II, 771,
778; Carlson, author, Tr. Vol. I, 500-502; Snyder, West Coast
Director, Consumers Union, Tr. Vol. III, 1252-1253; Perguson,
Seattle memorial society, Tr. Vol. III, 1219; and Blake, Wisconsin
memorial society, Tr. Vol. II, 1121.
\1\65See, e.g., Bennett, Tr. Vol. I, 355; Carlson, Tr. Vol. I,
500-501; and Snyder, Tr. Vol. III, 1252.
---------------------------------------------------------------------------
Still other witnesses identified another problem with the original
services fee disclosure. Those participants testified that, although
consumers who ``shop'' among providers rely on quotes for service fees
as a basis for comparison, providers in fact appear to include
different items in their service fee charges. Price comparison among
funeral homes is difficult as a result.166 The record contains no
evidence or views specifically controverting this.
---------------------------------------------------------------------------
\166\Simms, funeral director, Tr. Vol. II, 495 (consumers rely
on professional service price); Johnson, funeral director, Tr. Vol.
I, 755-756; Botimer, funeral director, Tr. Vol. III, 1287; Starks,
funeral director, Tr. Vol. II, 423-424); and Perguson, Seattle
memorial society, Tr. Vol. III, 1177, 1180, 1219 (1987 Seattle
survey for publication showed ``services'' vaguely and variously
described).
---------------------------------------------------------------------------
In addition to these services fee difficulties, funeral provider
groups asserted that the exclusion of a separate, non-declinable
``basic facilities fee'' from the required GPL listing misinforms
consumers about the cost of funeral services.167
---------------------------------------------------------------------------
\1\67R-M-9 (NFDA/NSM) at 128.
---------------------------------------------------------------------------
Four witnesses expressed views on the facilities fee issue
presented by the NFDA. The then-President of the NSM testified that a
non-declinable facilities fee is a legitimate charge to inform
consumers that they are purchasing the use of a facility to shelter and
care for the remains.168 Similarly, Wendell Hahn of the FFDA
asserted that providers' inclusion of the cost of providing a special-
purpose facility in other charges, rather than showing it separately,
violates proper accounting practice and may be deceptive pricing. Mr.
Hahn concluded that the Rule should permit a separate basic facility
charge that is non-declinable.169 Some funeral providers, in fact,
currently include items on their GPLs that could be viewed as non-
declinable facility fees, such as fees for ``parking lot use.''170
---------------------------------------------------------------------------
\1\68R. Johnson, Tr. Vol. I, 745-746, 759.
\1\69Tr. Vol. II, 671.
\1\70Starks, Tr. Vol. II, 424.
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The Commission agrees that the original requirements for the
disclosure of the non-declinable and other service charges likely are
causing compliance difficulties for some providers and informational
problems for consumers.
The evidence indicates that some providers on their GPLs may not be
fully separating non-declinable services from services associated with
providing other items on the GPL. To the extent that is occurring,
consumers who decline other items may be purchasing more services than
they actually receive. Other consumers may be ``double charged'' for
some services if providers, confused about which services are
declinable and which are not, include some portion of the services
associated with declinable items, such as ``use of facilities for
viewing,'' in that charge, as well as the non-declinable services fee.
Still other consumers (or groups such as memorial societies that obtain
and publish comparative price data) who attempt to comparison shop may
not readily be able to do so.
The Commission has concluded that the service disclosure
requirements need to be clarified to implement fully the Commission's
intent in permitting a non-declinable services fee. Amendment of the
Rule, however, to permit a non-declinable ``basic facilities fee''
charge is not warranted by the evidence or the original Rule
requirements. The Rule's core purpose is to permit itemization so that
consumers may select only the funeral items they desire, and decline
unwanted items. The Rule allows providers to recover overhead for
facilities by allocating a portion of those costs to each item offered
or by including them in the non-declinable services fee. A second, non-
declinable fee would signal a return to package pricing, where all
consumers would pay for the use of all facilities (and, presumably,
other overhead costs) irrespective of the degree to which consumers
choose to use them. Itemization permits consumers to decline the use of
various provider facilities. The testimony of at least one funeral
director suggested, however, that some providers currently may be
imposing in some form a ``non-declinable'' facilities fee on consumers,
in apparent violation of the Rule.
Accordingly, the Commission has adopted the following amendments to
clarify the Rule's intent and requirements with respect to service fees
and non-declinable charges:
(1) Revision of the ``services of funeral director and staff''
definition in Sec. 453.1(o) to clarify that these are the basic
services that cannot be included in prices of other, declinable GPL
categories, and that are furnished by a funeral provider in arranging
any funeral, such as conducting the arrangements conference, planning
the funeral, obtaining necessary permits, and placing obituary notices;
(2) Addition of the term ``basic'' before the word ``services''
where the latter term appears in Secs. 453.2(b)(4)(iii)(C) (1) and (2)
and 453.4(b)(2)(i)(A), so that all GPL disclosures regarding the non-
declinable services fee refer to ``basic services'' rather than simply
``services'';
(3) Addition of the phrase ``and staff'' after the phrase ``use of
facilities'' to Secs. 453.2(b)(4) (H) and (I), to clarify that
providers are required to disclose the prices for use of facilities and
the services of staff associated with viewing and a funeral ceremony;
(4) Replacement of the ``other use of facilities'' price disclosure
requirement, Sec. 453.2(b)(4)(J), with the more specific disclosures
``use of facilities and staff for memorial service'' and ``use of
equipment and staff for graveside service'';
(5) Addition to Sec. 453.1 of the definitions of a ``memorial
service'' and a ``funeral ceremony'' to distinguish those services for
purposes of listing them separately on the GPL;
(6) Addition of the express requirement to the disclosure
requirements of Secs. 453.2(b)(4)(iii)(C) (1) and (2) that, if the
services fee cannot be declined, it must include all charges for the
recovery of unallocated funeral provider overhead, and funeral
providers may include in the required disclosure (and in the GPL
disclosure required by 453.4(b)(2)(i)(A)) the phrase ``and overhead''
after the word ``services,'' so that disclosures regarding non-
declinable services fees refer to ``basic services,'' and to ``basic
services and overhead,'' if providers wish; and
(7) Addition of paragraph (b)(4)(iv) to Sec. 453.2 to make clear
that the Rule permits only one non-declinable fee for services,
facilities or unallocated overhead, unless otherwise required by law.
These amendments clarify the Commission's intent and providers'
obligations in distinguishing non-declinable service fees from other
service charges associated with providing separately listed, declinable
goods and services. The changes are designed to promote industry
compliance and consumer understanding of the services they must
purchase and those they may decline, without substantially altering
providers' obligations. The amendment permitting
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