Posted on: Saturday, January 29, 2005

Prepaid funeral services targeted

By Andrew Gomes
Advertiser Staff Writer

Hawai'i consumers who buy prepaid funeral services would receive added protections under an initiative by the state Senate Committee on Commerce, Consumer Protection and Housing.

Committee Chairman Ron Menor D-17th (Mililani, Waipi'o) said the state law governing funeral companies needs reform in several areas, including how much the industry may retain of customer payments if a buyer defaults on or cancels a funeral plan.

Prepaid plans are typically sold at a discount years in advance of use, and can relieve family members from making important, often expensive, decisions during a time of grief, when emotions can lead to overspending.

Though advised against by some consumer groups, the plans are popular with consumers, who often pay no-interest monthly installments over several years as an affordable method of financing versus paying cash at the time of bereavement.

A change in the law would potentially affect tens of thousands of Hawai'i consumers.

The committee announced that it will push for the changes after it hosted an informational briefing and an initial hearing on one of three bills addressing industry practices earlier this week.

The industry strongly opposes a key proposal to reduce the penalty for buyer default, saying any reduction would force the elimination of prepaid plans because they would be unprofitable.

Current law allows funeral service providers to keep 30 percent of customer payments in the event of a default the buyer doesn't cure. The committee said that appears to be excessive compared with other states.

Consumer groups say companies keeping 30 percent when delivering no services to a buyer is unfair. "They should receive a 100 percent refund," testified Alicia Maluafiti, associate director for advocacy at AARP Hawai'i, an advocacy group for seniors. "Otherwise we're just creating a windfall for this business."

Prepaid funeral sellers testified that 30 percent of a purchase price pays for salesperson commissions, benefits, insurance and other administrative expenses. If buyers are allowed to cancel contracts and receive a 100 percent refund, sellers said they couldn't afford to offer prepaid plans.

"Both (bills) HB52 and SB60 would effectively abolish the pre-need contract," wrote attorneys for Hawaiian Memorial Life Plan Ltd., which operates four funeral service companies and derives 70 percent of its sales from pre-need contracts. "To do so would not serve the interests of the consumer."

The consumer protection committee, which also expects to hear another reform bill SB1797, said

it decided to push for changes after weighing input from industry representatives, the state Department of Commerce & Consumer Affairs, consumers and consumer advocates.

Menor said much study was made of exhaustive research by AARP to help propose modifications to Hawai'i law that will include an attempt to provide consumers 100 percent refunds less a "small deduction" for administrative costs.

Other changes proposed include requiring funeral service companies to clearly state refund and cancellation provisions, to notify customers if their contract is canceled for default, and to provide a detailed itemization of goods and services purchased.

One bill would ban companies from retaining more than 30 percent of customer payments in the event of contract cancellation.

A December story in The Advertiser publicized one company's policy that allowed it to legally retain more than 30 percent of customer payments if a customer defaulted and had not paid in full by the time of death.

Many companies said they have no such practice, and said they would not object to a prohibition against retaining more than 30 percent of customer deposits.

Industry representatives also said they had no objection to notifying customers of a contract cancellation.

Reach Andrew Gomes at 525-8065 or agomes@honoluluadvertiser.com.