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OFDA Board of Directors Legal Report - May 22, 2018 Meeting

Prepared by T. Scott Gilligan, OFDA Legal Counsel


MAY 22, 2018, MEETING

1.      PROPOSED PRENEED PAYMENT REGULATIONS.  OFDA has had discussions with the Ohio Board of Embalmers and Funeral Directors (“the State Board”) regarding payment issues that have arisen as of a result of the new direct payment requirements of Ohio’s preneed law.  Those requirements mandate that all preneed payments from consumers be made directly to preneed trustees and insurance companies rather than being funneled through the funeral home. 

OFDA and the State Board have agreed that if a consumer makes a check out to the funeral home, it makes sense for the funeral home to endorse the check and forward it to the preneed trustee or insurance company rather than insisting that the consumer issue a new check.  The State Board proposed a regulation that would recognize the endorsement of the check as compliant with the new preneed law. 

A second payment issue arose because several preneed insurance companies refused to accept preneed payment payments made by funeral homes that were the recipient of excess insurance proceeds.  Some consumers who are applying for Medicaid will assign existing life insurance policies to Ohio funeral homes.  When it is anticipated that there will be excess proceeds from the insurance policies after the Medicaid applicant’s funeral has been paid for, funeral homes advise the Medicaid applicant that they can earmark those excess proceeds for the preneed purchase of burial space items for immediate family members.  As a result, many of the Medicaid applicants will enter into preneed contract addendums or special preneed contracts for Medicaid applicants that direct the funeral home to use excess insurance proceeds after the Medicaid applicant’s death for the preneed purchase of burial space items for immediate family members. 

Some insurance companies, however, believe that the new law prohibits them from accepting preneed payments from funeral homes under all circumstances.  The State Board agrees with OFDA that preneed payments by funeral homes of excess insurance proceeds do not constitute preneed payments by consumers and would not be covered by the direct payment requirements in the preneed law.  The State Board issued a proposed regulation which would recognize that funeral home payments of excess insurance funds to preneed trustees and insurance companies are not prohibited by the new preneed law. 

Unfortunately, we have learned from conversations with the State Board that the Ohio Joint Committee on Agency Rule Review (JCARR) has rejected the two proposed regulations by the State Board.  The rejection had nothing to do with the merits of the proposed regulations; rather, JCARR felt that the State Board did not have authority to issue regulations governing preneed since there is no specific authority in the statute for the State Board to do that. 

OFDA has published an article to our members notifying them of the action by JCARR.  However, we are emphasizing that although the proposed regulations were rejected on technical grounds, they do provide guidance to Ohio funeral directors on how the State Board would consider endorsements of preneed checks and payment of excess insurance funds by funeral directors.  In other words, although the regulations were rejected, the proposed regulations do show that these endorsement and payment practices are permissible according to how the State Board interprets the new preneed law. 

2.      HERITAGE CREMATION PROVIDERS.  We have previously advised OFDA members regarding Heritage Cremation Providers.  Heritage Cremation Providers, which also operates under the name of Legacy Memorial Funeral Services, is an online middleman that solicits low cost cremation from consumers by portraying itself as a licensed funeral home.  However, Heritage Cremation Providers is not licensed and simply operates as a middleman between the consumer and the funeral homes which it hires to carry out low cost cremations for its consumers.  There have been many instances where Heritage Cremation Providers have defrauded consumers and lost bodies.  As a result, a number of states have warned funeral directors not to deal with Heritage Cremation Providers.

Although several states have taken action against Heritage Cremation Providers, it is difficult to mount any effective enforcement since they operate on the internet.  We have recently learned that Heritage Cremation Providers is still operating out of offices in Charlotte, North Carolina.  We do not know the location of the offices, but we were contacted by an employee of Heritage Cremation Providers who viewed online articles warning funeral directors about Heritage Cremation Providers.  She did inform us that the company is operating out of offices in Charlotte, North Carolina, but would not identify where those offices are located. 

My offices subsequently contacted the FTC and the North Carolina Board of Funeral Service about Heritage operating out of Charlotte.  The attorney for the Board of Funeral Service stated that they would take no action unless Heritage was dealing with a North Carolina consumer.  The FTC recommended that we alert the FBI in Charlotte to see if they would pursue a criminal case.  That initiative is under way.  

3.      FIVE NEW FTC COMMISSIONERS.  For the past three years, the Federal Trade Commission (FTC) has been at less than full strength.  In fact, for most of 2017, there were only two sitting commissioners and three vacant seats.  Moreover, one of those commissioners stayed on the job for eight months after her term expired just to make sure that there would be at least two commissioners. 

That all changed on April 26, 2018 when the Senate confirmed five new commissioners giving the FTC an entirely new panel.  The five appointed commissioners are:

Chairman Joe Simons, a veteran Washington, D.C. antitrust attorney who is a Republican.  He previously served as Director of the FTC Bureau of Competition under FTC Chair Tim Muris back in the early 2000s.  His term as commissioner will expire in 2024.

Noah Phillips, who served as chief counsel to Texas Senator John Cornyn.  He is a Republican whose term will expire in 2023.

Christine Wilson, Senior Vice President for Regulatory and International Affairs at Delta Airlines.  Ms. Wilson was chief of staff to former FTC Chair Tim Muris.  She is the third Republican on the Commission and her term will expire in 2025.

Rebecca Slaughter, a former chief counsel to Senator Chuck Schumer of New York.  Ms. Slaughter is a Democrat whose term will end in 2022.

Rohit Chopra, a former Assistant Director of the Consumer Financial Protection Bureau.  He is a Democrat with a strong consumer protection background.  However, since he is a replacement for a term that will expire in September, 2019, he will only be on the Commission for a little over a year unless President Trump re-appoints him. 

4.      FUNERAL RULE REVIEW.  The long delay in filling the FTC vacancies has pushed back the scheduled review of the FTC Funeral Rule.  Originally set to commence in 2017 – 18, it has now penciled in for 2019.  Additionally, with the FTC’s budget being cut by $5 million and with the Commission having more issues piled on its regulatory plate, such as internet privacy concerns, the FTC Staff is not certain how thorough the review of the Funeral Rule will be.  Nevertheless, NFDA has already alerted the FTC Staff that it will be pushing to revise and clarify the price list distribution requirements of the Funeral Rule as well as allowing funeral directors the option of using variable basic service fees. 

While in Washington, D.C. for the Advocacy Summit, NFDA was able to meet with FTC Funeral Rule Coordinator Craig Tregillus.  Craig will be retiring in January, 2019 and introduced his successor, Patricia Poss, a senior attorney with the FTC.  Ms. Poss will be overseeing the revision of the Funeral Rule. 

5.      FUNERAL RULE COMPLIANCE RATES.  Last month, the FTC issued the results of its 2017 undercover shopping operations.  The report showed that 39 out of the 134 funeral homes that were shopped in 2017 violated the Funeral Rule.  That is a noncompliance rate of 21.6%.

The average annual noncompliance rate for the past eleven years is reported to be 23.2%.  Therefore, the 2017 noncompliance rate of 21.6% was slightly below the overall noncompliance rate.  The FTC shopped 134 funeral homes in 2017.  This is above the average annual number of 118 funeral homes shopped each year.

6.      BRAVE ACT (H.R. 1212).  Passage of the BRAVE Act will be NFDA’s primary legislative goal in 2018.  The BRAVE Act will increase funeral benefits for deceased veterans and also for unclaimed bodies of deceased veterans.  As of January, 2018, the Bill had 33 co-sponsors in the House.  The number of co-sponsors is currently at 57 with broad bi-partisan support.  Several co-sponsors were added as a result of lobbying by funeral directors during the Advocacy Summit. 

The major hurdle to passing the Bill is its estimated $300 million price tag for the next ten years.  Since the VA is already severely strapped for funds and is taking tremendous heat for the quality of medical care provided to veterans, it may be difficult to overcome the $300 million price tag.  NFDA continues to strongly advocate for the passage of H.R. 1212.

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