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Consumers Stand to Lose in Battle Between Pennsylvania Funeral Directors and Cemeteries

A “turf battle” between funeral directors and StoneMor Partners, a public company that has a 60-year deal with the Archdiocese of Philadelphia to manage 13 Catholic cemeteries in the Philadelphia area, threatens to impose restrictions on cemeteries throughout Pennsylvania that will reduce consumer choice and raise prices. The Pennsylvania Funeral Directors Association supports Senate Bill 874, co-sponsored by Senator Robert Tomlinson (R), owner of Tomlinson Funeral Home in Bensalem, Pennsylvania.

The bill proposes several changes to the Pennsylvania Cemetery and Funeral Merchandise Trust Fund Law.  If a person purchases funeral or cemetery goods and services on a preneed basis in Pennsylvania, current law requires that the funeral home or cemetery deposit 70% of the retail sales price of the goods or services in a merchandise trust fund established with a Pennsylvania bank. Customers can pay for a preneed contract in one lump sum, or in payments over time. The law currently states that the funeral home or cemetery must make the deposit to the merchandise trust fund within 30 days after the final payment is made. So, if a customer is paying over, say, 60 months, the seller isn’t required to make the 70% deposit into the merchandise trust fund for five years. SB 874 proposes that the 70% deposit must be made each month that the seller receives payments on the preneed contract.

SB 874 also provides that “there shall be no delivery of merchandise or product, except for mausoleums, cremation gardens, markers and lawn crypts, prior to the death of the person for whose benefit the contract was made.” This change eliminates “constructive delivery” of caskets and vaults in Pennsylvania. Under the current law, a customer could enter into a preneed contract and the seller could immediately take their funds and purchase the casket or vault and then “warehouse” them until the time of need. Cemeteries “warehouse” vaults by installing them into the ground, sometimes years before they are actually used.

The changes regarding the timing of deposits to the merchandise trust fund and the end of constructive delivery are pro-consumer changes. But consumer protection isn’t the goal of SB 874. That is clear in the bill’s failure to change one of the most anti-consumer aspects of the Cemetery and Funeral Merchandise Trust Fund Law—the liquidated damages provision.

Under current Pennsylvania law, if a customer defaults on a single payment under a preneed contract (even the final payment), the funeral home or cemetery is permitted to retain 30% of the contract price (not the payments to date, but the total contract price) as liquidated damages. So, let’s say I enter into a preneed contract with a funeral home today for $10,000 worth of funeral goods and services, with a plan to make $1,000 payment each year for the next ten years. The funeral home will collect my payments and deposit 70% in the merchandise trust fund with the remaining 30% in their own special account. If I default at any time during that ten-year period, the funeral home is permitted to keep $3,000 of my payments as liquidated damages and terminate our preneed contract. Keep in mind that the funeral home hasn’t actually spent any money on goods and services to benefit me—they have just been collecting payments and waiting for me to die.

These liquidated damages are justified by the industry based on the seller’s need to be compensated for their time and effort in securing the preneed contract. But that logic is undermined by the very different treatment of customers who make their payment without default and then move out of state after the final payment. In that situation, the customer can cancel the contract and receive a refund of the entire prepayment. The seller, however, gets to keep the interest earned.

The real purpose of the bill is made clear with the seemingly innocuous provision that “a [preneed] seller must … adhere to the Federal Trade Commission’s Funeral Industry Practices Revised Rules regarding the sale of the merchandise.” This reference is to the FTC’s so-called “Funeral Rule,” which requires “funeral providers” (which are sellers of both funeral goods and services, i.e. funeral homes) to give customers detailed price lists and to make certain disclosures. The FTC Funeral Rule does not apply to cemeteries because they do not sell “funeral services.” Many of the disclosures required by the Funeral Rule make little sense if they are imposed on cemeteries. For example, the Funeral Rule requires funeral providers to include the following disclosure on their outer burial container (vault) price list: “In most areas of the country, state or local law does not require that you buy a container to surround the casket in the grave. However, many cemeteries require that you have such a container so that the grave will not sink in. Either a grave liner or a burial vault will satisfy these requirements.” If a cemetery is required to publish an outer burial container price list with this disclosure, consumers would be understandably confused.

Cemetery customers in Pennsylvania, prepare to be confused. SB 874 proposes to extend the FTC Funeral Rule to cemeteries in Pennsylvania. In a comment letter dated October 20, 2015, the FTC’s Office of Policy Planning and Bureau of Economics, Competition, and Consumer Protection urged the Pennsylvania legislature not to extend the Funeral Rule to cemeteries. The FTC noted that in its 2008 review of the Funeral Rule, it chose not to extend it to cemeteries because “there is insufficient evidence that commercial cemeteries, crematories, and third-party sellers of funeral goods are engaged in widespread unfair or deceptive acts or practices.” The FTC also noted that extending the Funeral Rule to cemeteries would lead to consumer confusion because the FTC Act is not applicable to most non-profit entities. Approximately 70% of the active cemeteries in the United States are owned by non-profit entities such as municipalities and religious organizations.

In its comment letter, the FTC also argued against ending constructive delivery, at least with respect to vaults, noting that it may be much more cost effective for a cemetery to install vaults in bulk rather than one by one. The FTC noted that consumer demand for pre-need funeral goods and services was growing, but the cumulative effect of the changes proposed by SB 874 would make it less attractive for cemeteries to engage in pre-need sales. SB 874 would “lessen competition, resulting in potentially higher prices and fewer options for consumers, without countervailing benefits to consumers.” Now, let’s see, if consumers continue to demand pre-need funeral goods and services yet the rules make it less attractive for cemeteries to offer those goods and services, where will consumers go? Oh right, the funeral homes.

In fact, the Pennsylvania Cemetery, Cremation and Funeral Association (PCCFA) argues that SB 874 is a thinly veiled attempt by the state to protect funeral homes from competition from StoneMor Partners. Before StoneMor Partners took over management of the Philadelphia-area Catholic cemeteries in 2013, funeral directors in and around Philadelphia had a monopoly on selling caskets and vaults in the Catholic cemeteries. PCCFA, which represents cemeteries across the state, is understandably upset that a “classic turf war over who can sell caskets and vaults” in the Philadelphia Catholic cemeteries threatens cemeteries and consumers across the state.

Former Pennsylvania Cemetery, Cremation and Funeral Association President Guy Saxton summed up the response of the Pennsylvania cemetery industry in testimony on the legislation. Directing his comments to Senator Tomlinson, the funeral director who co-sponsored SB 874, Saxton said: “I know you don’t like StoneMor, but I’m not StoneMor. And this bill puts me out of business. And everything I’ve heard today tells me that this bill is not in good faith. It’s not trying to help the consumer, it’s attempting to put StoneMor out of business, and we’re collateral damage.”

Tanya D. Marsh

Comments

Paul

I really like your post and surely appreciate your experience that you have discussed in the blog .

Brendan Regan

With my understanding of PA law (I'm a funeral director, mind you, not a lawyer) is that this statement is incorrect:
"So, let’s say I enter into a preneed contract with a funeral home today for $10,000 worth of funeral goods and services, with a plan to make $1,000 payment each year for the next ten years. The funeral home will collect my payments and deposit 70% in the merchandise trust fund with the remaining 30% in their own special account. If I default at any time during that ten-year period, the funeral home is permitted to keep $3,000 of my payments as liquidated damages and terminate our preneed contract. "

PA funeral law requires 100% trusting of preneed funds by funeral homes (cemeteries, however, are only required to trust 70% and can retain 30%). In the example cited above, a Pennsylvania funeralhome would not be allowed to retain $3,000, but a cemetery would.

" (a) A funeral director shall deposit in escrow or transfer in trust to a banking institution in this Commonwealth, the entire amount of monies received by the funeral director under a prepaid contract for funeral services or merchandise, including additional service fees or arrangement fees."

http://www.pacode.com/secure/data/049/chapter13/s13.224.html

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