Prepaid funeral plans profiting from defaults
By Andrew Gomes
Advertiser Staff Writer
In her waning years, Norma Courtney picked out her casket and a plot overlooking the ocean at Valley of the Temples.
Deborah Booker The Honolulu Advertiser
Yahnina Hackney places a picture of her stepmother, Norma Courtney, in front of the box holding her ashes. Courtney had wanted to be buried at Valley of the Temples
Deborah Booker The Honolulu Advertiser
"She should have gotten better than she got," said stepdaughter Yahnina Hackney. "She didn't even want to be cremated."
Like many people in their twilight years, Courtney had bought a prepaid funeral plan.
But after Courtney suffered a series of strokes in 2001, she stopped making the monthly $50 payments on her $5,000 plan. The funeral company, RightStar Hawaii, citing a clause in her contract, canceled the plan and kept Courtney's $1,800 balance.
It is surprising to many, but the practice of canceling prepaid funeral contracts and not giving full or even partial refunds is common in Hawai'i.
"You know what that's called?" said Joshua Slocum, executive director of the Vermont-based Funeral Consumers Alliance. "Legalized robbery."
Hawai'i among worst
Hawai'i is one of the worst states in the nation when it comes to protecting purchasers of prepaid funerals, according to Slocum.
Bruce Asato The Honolulu Advertiser
Norma Courtney picked a plot at Valley of the Temples Memorial Park. Instead, she was cremated at state expense
Bruce Asato The Honolulu Advertiser
If prepaid customers default on payments, as Courtney did, they can lose 100 percent of their balance with certain companies. Other firms keep no more than 30 percent.
RightStar, the largest funeral service company in Hawai'i, collected $2.8 million in 2002 by canceling prepaid contracts and keeping the money already paid, including Courtney's $1,800.
Jim Wagner, an attorney representing RightStar, said the $2.8 million collection resulted from a housekeeping move intended to update accounts following RightStar's purchase of the business from the Loewen Group in 2001.
The state is suing RightStar which operates Valley of the Temples Memorial Park, 50th State Funeral Plan, Ordenstein's Hawaiian Memorial Park Mortuary and seven other affiliates on O'ahu, Maui and the Big Island because the company failed to file audited 2003 financial reports. The suit, which proposes state oversight of company operations, does not allege wrongdoing by RightStar but questions the appropriateness of several withdrawals of customer payments, including $2.8 million from canceled contracts.
RightStar's situation has created more awareness of the prepaid funeral business, and underscores the importance of consumers' understanding cancellation policies, reading fine print on contracts and weighing benefits and drawbacks of prepaid plans.
RightStar's contract says the company may cancel an account if a customer is two months late on a payment, which happened to Courtney. What makes it difficult for customers and their caretakers to avoid losing money is RightStar's policy of not notifying a customer when he or she is in default.
RightStar received a total of about $1 million in payments during 2002 from customers whose contracts the company had already canceled, according to KMH LLP, which did an independent audit of RightStar customer accounts in 2002.
RightStar says it canceled some contracts that were not two months delinquent. The company said that was because of inaccurate and incomplete customer records it received from Loewen, the previous owner of the business. RightStar has not disclosed how many customers may have been canceled by mistake or whether those customers have been notified.
No delinquency notice
Auditor KMH reported that RightStar intended to notify customers who continued to pay on delinquent accounts, and offer to either give refunds or reinstate contracts if delinquent payments were remitted.
Wagner, the RightStar attorney, said he does not know if affected customers have been contacted to date, but that any customers concerned that their contracts may have been canceled can verify that by calling RightStar.
Several RightStar prepaid customers contacted by The Advertiser said they were happy with the company's service and are not concerned about what the company has said are internal problems that will not hurt customers.
Lance Vares, an 'Ewa Beach resident, said he paid off his RightStar prepaid plan in May after seven years, but has yet to receive the deed to his plot rights. He said his mother, who is paid up on her RightStar funeral plan, received a deed but still gets blank payment forms every month.
Courtney's stepdaughter Hackney said if the company had sent a delinquency notice, she could have tried to resume payments, possibly using part of Courtney's Social Security income.
"They didn't let her know," Hackney said. "Maybe in that couple of years she could have paid it off."
Hackney said she discovered the contract when arranging nursing-home care for her stepmother, but by that time Hackney didn't have $3,000 to pay off the plan.
No notice required
According to the state Department of Commerce and Consumer Affairs, which regulates the funeral industry, prepaid funeral providers are not required to notify customers of cancellations if customers breach a contract.
RightStar's cancellation policy, as described in the contract, says the company may cancel contracts if payments are more than two months late and keep 100 percent of payments made.
Under that circumstance, the company would allow a customer to apply the payment balance to buying a new plan at a price equal or greater than the original one. That way the customer avoids losing the money paid on the old plan. If the credit is unused at the time of the customer's death, the company keeps the credit.
Wagner noted that RightStar inherited the cancellation provisions from its predecessor Loewen by acquiring all its customer contracts and obligations.
RightStar's policy of taking 100 percent of payments made when a customer defaults and keeping it unless the customer buys a new plan is typical, said Robert M. Fells, external chief operating officer and general counsel for the International Cemetery and Funeral Association, a Virginia-based trade group. Funeral service companies also have the right to sue a defaulting customer for any balance owed, though that is rare, Fells said.
Several local funeral companies, including Borthwick in Ho-nolulu, Dodo Mortuary Inc. on the Big Island and Ballard Family Mortuary on Maui have policies to refund all payment balances after the first 30 percent if a customer defaults or wants to cancel.
"We're not here to make people's lives miserable at the time of having to deal with a funeral," said Scott Sells, Borthwick's operations director.
Dodo Mortuary President Mitchell Dodo, past president of the Hawaii Funeral Directors Association and president of the Hawaii Allied Memorial Council, said returning 70 percent of a customer's unused balance is a good business practice. "If you cancel a plan without using it, to me you are entitled to your money back," he said.
Mark Ballard, Ballard Family Mortuary president, added: "We took the first 30 percent to cover our costs. Anything left would belong to the family."
Slocum of the Funeral Consumers Alliance, however, said keeping even 30 percent without delivering goods and services is outrageous.
"There is no excuse for not holding funeral companies to a reasonable standard of behavior," he said. "The Hawai'i Legislature has been unforgivably remiss in leaving consumers exposed in that way."
John E. White, a former executive director of the Hawaii Funeral Society, a volunteer consumer group now affiliated with Funeral Consumers Alliance, agreed that there has been lax state oversight. He said prepaid customers who might move away or change their mind deserve a 100 percent refund.
"What right do they have to keep that money if they are not providing any service at all?" White said.
Calls for revised law
State lawmakers are open to changing the law.
"I do think the issue raises some questions and consumer concerns," Sen. Ron Menor, D-17th (Mililani, Waipi'o), who is also chairman of the Senate Commerce, Consumer Protection and Housing Committee. "I'd like to get the input of the Office of Consumer Protection and (the Department of Commerce and Consumer Affairs) and find out what other states are doing to see if legislation may be necessary."
"If we find out that Hawai'i's law needs to be updated or strengthened then I would be open to considering that."
Christopher Dodd, a Connecticut congressman, has called for federal legislation to strengthen consumer protections for prepaid funeral services. Among many things, the proposed legislation would ensure a contract be cancelable or transferrable without a loss to a purchaser, and that purchasers receive annual reports on their plans.
If that law had been in effect three years ago, Courtney's stepdaughter might have been able to keep her stepmother current on her bills and given her the funeral she wanted. As it is, the stepdaughter must now try to save enough from her substitute teaching income to buy her stepmother a final resting place.
Reach Andrew Gomes at firstname.lastname@example.org or 525-8065.
|Before buying a funeral plan:
Consider the alternative of putting money for preselected funeral services and merchandise into an interest-earning "payable-on-death" account such as a Totten trust. Most banks have a simple form that a depositor can use to create a Totten trust form for a bank account.
In a Totten trust, the depositor is the trustor, the trustee and the only beneficiary during his or her life. A contingent beneficiary is named in the trust instrument who takes over ownership of the account upon the death of the trustor. This avoids probate court. The Totten trust is revocable. Thus, the trustor can amend or revoke the trust during his or her lifetime. The easiest way to do this is simply to spend the money in the account.
If you buy a prepaid plan, carefully read the contract prior to signing and be certain any promises the salesperson makes are clearly stated in the contract.
Be clear about cancellation rights of the buyer and seller as well as how much money will be refunded in the event of cancellation or default.
Comparison shop using detailed price lists.
Funeral Consumers Alliance:
Funeral Consumers Alliance Hawaii, formerly the Memorial Society of Hawaii:
International Cemetery and Funeral Association: www.icfa.org
National Funeral Directors Association: www.nfda.org
State Cemetery and Pre-Need Funeral Authority, a branch of the Department of Commerce & Consumer Affairs: www.hawaii.gov/dcca/