Paying for a funeral is the third largest expense most American families face, after buying a house or an automobile. The average funeral, including a casket and vault, costs about $6,000. But more traditional funerals with flowers, cards, a limousine and hearse often run over $10,000.
Despite being a $10 billion a year industry, funeral providers say they're struggling with declining profit margins and increased competition from low-cost cremations, which now account for one quarter of all funerals.
Online discount stores have also started competing with funeral homes by offering caskets and burial goods at marked down prices.
To expand the market for funeral goods, the industry is selling "preneed" contracts, or prepayment for funeral goods. A preneed agreement allows consumers to arrange and pay for their funeral in advance by placing money in a trust, hopefully easing the burden for surviving family members.
"With the increasing cremation rate, the industry is coming up with all kinds of mischief to crank up the dollars," Lisa Carlson, executive director of Funeral and Memorial Societies of America told Stateline.org. FAMSA monitors the funeral industry and promotes consumer protection from unfair sales tactics. According to the National Funeral Directors Association (NFDA), Americans have paid $21.2 billion for pre-arranged funerals since 1996. NFDA held a "preneed" summit in June to discuss problems with such contracts and came up with a set of guidelines for state governments to fix the problems.
"It's an issue where we are trying to look out for the best interests of the consumer by being thorough and putting forth guidelines that will help consumers make good decisions," NFDA spokesperson Laura Glawe said.
Regulations governing preneed agreements differ from state to state. Twenty-nine states require that 100 percent of all pre-paid funeral expenses be placed in trust. But regulations are spotty in many other states, and Alabama and New Mexico have no regulations at all.
Minnesota's state auditor launched a probe of preneed deals in 1997 after uncovering $3.7 million in missing trust funds administered by funeral conglomerate Loewen Group. The probe was spurred by a complaint from the family of Gertrude Dahl, who died in 1997.
The Dahl family found that although their mother was cremated, she had purchased a full sized burial vault in a preneed agreement in 1994 for $1,500. A smaller crematory vault would cost only $165, so they asked the funeral home to refund the difference.
A representative of Sunset Memorial Park Cemetery, owned by Loewen, claimed that the burial vault had already been sunk in the ground and convinced the family to buy an additional crematory vault.
But the Minnesota investigation found that the cemetery never purchased Mrs. Dahl's vault or sank it, and had failed to put her money in a trust.
"Most families don't even know what a vault is or that it gets buried, so the cemetery is free to take advantage of them," State Auditor Judi Dutcher said.
In the course of looking into the Dahl case, Dutcher discovered that $3.7 million in preneed payments were never placed in trusts, as required by Minnesota state law.
This prompted a broader investigation in Minnesota that uncovered widespread abuse of "preneed" contracts and patterns of intrusive, pushy sales tactics.
As a result, the Minnesota legislature unanimously passed a funeral reform bill during the 2000 session. It prohibits funeral providers from soliciting funeral services at hospitals, nursing homes, wakes and grave sites. It also strengthened regulation of preneed contracts, guaranteed fixed prices and stipulates that 100 percent of all funds be placed in a trust under control of the consumer.
"Unfortunately it's (the funeral industry) going to have to be examined state by state because the federal government's hearings last year... didn't make any changes, which is regrettable," Dutcher said.
The Federal Trade Commission has been reviewing its regulation of funeral homes for more than two years, but has yet to recommend changes to existing rules.