Regulation From Cradle to Grave

December 13, 2006 1:49 PM by S.M. Oliva | Other posts by S.M. Oliva | Comments (1)

This may qualify as my favorite government “consumer protection” scheme of all time: The Federal Trade Commission’s Funeral Rule Offenders Program (FROP). The Funeral Rule, adopted in 1982 and revised in 1994, imposes a host of federal regulatory requirements on funeral homes on top of the extensive rules imposed by state regulators.

Every year, the FTC conducts undercover “enforcement sweeps” of funeral homes in search of Funeral Rule violators. Today the Commission announced that this year’s sweep led 12 funeral homes to “participate in a voluntary compliance program,” the aforementioned FROP. Thirty-two additional funeral homes received demands from the FTC to correct “technical violations” of the Funeral Rule or “face possible enforcement action.”

The core of the Funeral Rule requires funeral homes to furnish an itemized general price list to a consumer upon request. The Rule also discourages funeral homes from offering “packages” of funeral services, and guarantees consumers the “right to buy individual goods and services.” For example, a funeral home cannot require a consumer to use a casket sold by the home in connection with a funeral service. The funeral home may also not charge a consumer any fees in association with using a casket purchased from another provider. The Rule also further requires funeral homes to provide “alternative containers” for cremated remains.

Every state regulates funeral directors to some degree. Licensing regimes often restrict entry into the market. Some states further impose anti-competitive rules that tie the purchase of a casket to a funeral service or forbid the purchase of “out-of-state” caskets. The FTC Funeral Rule doesn’t overrule any state regulation, although it does require funeral homes to disclose state requirements to consumers.

The FTC also colludes with nominally private organizations to enforce the Funeral Rule. The AARP and the National Funeral Directors Association assist the FTC’s “enforcement sweeps,” and participants in the FROP must make a “voluntary payment” to the U.S. Treasury and the NFDA in order to avoid further penalties.

When the Funeral Rule was first adopted in 1982, FTC Chairman James C. Miller was the lone dissenting vote. In his official statement, Miller said the Commission’s record—compiled over a ten-year period—failed to demonstrate any market failure that would justify federal regulation:

I fear the Commission has deceived a very vulnerable segment of America’s consumers. The Commission’s act is deceptive because it raises expectations of lower prices for funerals and better service, when in fact we have little reason to believe the rule would have these effects.

Miller was particularly critical of the Funeral Rule’s “unbundling” requirements. He said that funeral directors could simply raise their prices for “a la carte” services. He added that bundling was often beneficial to consumers, using the analogy of purchasing a car versus all of the car’s individual parts.

There’s also the question of how the FTC can assert jurisdiction over the funeral industry at all. Funeral services are essentially intrastate activities. The FTC itself has no specific authority to regulate the industry; instead the Commission relied on its general power to define “unfair” competitive practices to micromanage the pricing policies of individual funeral homes. But nothing in the Funeral Rule “regulates” interstate commerce.

Again, we must be mindful that state governments do impose anti-free market rules on the funeral industry. To the extent such rules retard interstate commerce, Congress could simply pass legislation to remove such barriers. For example, Congress could preempt state laws that forbid customers from buying a casket from another state. But neither Congress nor the FTC may constitutionally forbid or discourage a funeral home from offering bundling services or mandate a particular form of price list.

The Funeral Rule simply adds bad federal regulation on top of bad state regulation. It’s particularly noxious for FTC officials to go “undercover” and enter funeral homes under false pretenses for the purpose of committing extortion. Private industry and consumer groups could easily provide “watchdog” services to monitor funeral homes for genuinely deceptive or fraudulent practices. But ironically, if a private industry group attempted to mandate the disclosure of itemized prices—or discourage the use of bundled services—as the Funeral Rule does, the FTC would bring “price fixing” charges, which it has done in other industries.