Bring Transparency to the Purchase We All Have to Make

Bring Transparency to the Purchase We All Have to Make
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The way the free market system works is simple. Give consumers choice and transparency and competition for consumer loyalty will follow. Prices fall, services improve, and firms produce newer, better products and services. Add the Internet, where price information, price comparison tools and reduced entry barriers have made the consumer king -- and the number of new products explodes, prices fall further and the forces of competition intensify due to instant transparency.

Conversely, consumers suffer where choice and transparency are absent. Shopping costs (the time and money it takes to call or drive around asking for price information) enable sellers to keep prices high and lead the easy life. When product comparison tools are missing, innovation is slow and service suffers.

Most of us probably don't like the idea that funerals are subject to the same market forces as everything else we shop for. The key difference is that purchasing a funeral is almost unparalleled in its essentiality. While not everyone will personally plan and pay for someone else's funeral, we all have to face the fact that someone will carry out our own respective funerals. This is a purchase under the most dire and extreme conditions, where our loved ones will be extraordinarily vulnerable. It was with this reality in mind that the Federal Trade Commission (FTC) adopted the Funeral Rule over three decades ago. The Funeral Rule requires basic disclosure of prices and prevents egregious tactics that exploit mourners. The Rule also compels funeral homes to tell consumers they have the right to buy only the goods and services they want; undertakers may not force you to buy an all-inclusive package.

The Funeral Rule isn't functioning as well as it could be. Research conducted by the Consumer Federation of America and the Funeral Consumer Alliance shows that huge price discrepancies exist in the funeral services market, indicating problems. In their study of 150 funeral homes across the country, it was revealed that prices vary from $2,580 to $13,800 for a full-service funeral. Local price differences exist as well. According to Stephen Brobeck, CFA's Executive Director, "The huge price ranges for identical funeral services within individual areas indicate that these markets lack effective competition." Indeed, an article in the Washington Post by Michelle Singletary highlights the frustration felt by grieving family members who just need to find price information without going to extraordinary lengths. And not only do funeral homes not always abide by the way the Funeral Rule is currently written, the rule itself doesn't reflect 21st Century life.

While you can compare prices on the Internet for almost everything under the sun, this is not the case when it comes to funerals. Considering how important and expensive funerals are for consumers, how can funeral homes be stuck in the past?

That was a question lurking in a hearing before the Congressional subcommittee on Commerce, Trade, and Manufacturing (part of House Energy and Commerce) convened to discuss 17 miscellaneous Federal Trade Commission (FTC) bills. One of these bills was H.R. 5212, The Bereaved Consumer Bill of Rights Act, introduced by Congressman Bobby Rush, Democrat of Illinois. The bill would update the FTC's Funeral Rule, establishing federal standards for all death-related businesses--many of which have traditionally been regulated at the state and local levels. Both sides of the issue were represented at the hearing. On the side of the consumer was Michael Best from the Consumer Federation of America (also speaking on behalf of the Funeral Consumers Alliance). Representing the business interests of the industry was Robert Arrington, the president of the National Funeral Directors Association.

Spoiler alert: everybody dies. The funeral industry therefore has something of a captive market and consumers are uniquely at risk of exploitation. In today's marketplace, consumers are accustomed to searching the internet to obtain the best price for the goods and services they need. However, because the Funeral Rule does not have a provision about price disclosure on the Internet, funeral homes are not required to post prices on their websites. The one exception is California, which has a state law to this effect. In states that do not regulate online price disclosures, the price lists offered by funeral homes are often misleading. Josh Slocum, the FCA's Executive Director, says the FTC needs to require price disclosure on the internet, an adoption of the California model on the national level.

This is no esoteric squabble. We all die and the price of funerals is increasing. About half of all Americans would have difficulty covering an unexpected expense of $2,000, according to a 2011 study. In 2014, the median cost of a funeral with viewing was more than three times that amount: $7,181. That does not include cemetery costs, which typically add $2,000 to $3,000. When the stakes are that high for consumers, it is of the utmost importance that regulation is providing adequate protection. The survey conducted jointly by the CFA and FCA showed that a share of funeral homes - 16% of their sample - were not even compliant with the current Funeral Rule's basic price disclosure provision.

Let's not move too fast, Mr. Arrington said in his testimony before the subcommittee. He proposed waiting for the comprehensive review of the Funeral Rule to take place, which is scheduled to occur in the year 2019. But consumers cannot wait that long. It is unacceptable that in 2016, consumers can apply for a mortgage in an app, but funeral homes cannot be held responsible for accurate record-keeping online.

From a consumer advocacy standpoint, H.R. 5212 is a good start. Its very existence recognizes the fact that consumers' protection needs can change at a pace that is faster than the FTC's rule review process. It also addresses recent abuses that took place in the funeral industry, despite the fact that regulation was in place, and proposes federal regulatory action that would prevent future abuses. It does not go far enough, however, because it does not address the digital gap in the funeral industry. Any proposed changes to the Funeral Rule should include provisions for online price disclosure, which is important in an industry already characterized by information asymmetry.

Consumers should not hold their breath for the passage of any one bill that is still in committee, as passing legislation remains difficult in the current political environment. But H.R. 5212 is well intentioned and good for consumers, and of course, an Internet price provision would make it even better. None of us gets to choose whether or not we will need funeral services of some kind. We can, however, make simple regulatory changes to improve choice and lower prices for when that day eventually comes.

*This post is co-authored by Becky Davidson. Becky is a recent graduate of the University of Massachusetts Amherst, where she studied applied economics with a focus on consumer and family issues.

The original article stated that the NFDA opposes online price disclosure. The NFDA has not taken a position on online price disclosure at this time.

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