Advisory opinion on the lawful construction of the term “cash

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Commission Advisory Opinion

The Honorable Dan Flynn

Texas State Representative

House District 2

P.O. Box 2910

Austin, TX 78768-2910

Dear Representative Flynn:

This responds to your letter dated April 12, 2005, in which you

request a Commission opinion on the lawful construction of the

term “cash advance item” as used in the FTC’s Funeral Rule, 16

C.F.R. § 453.1(b) (“the Funeral Rule” or “the Rule”).

Specifically, you question whether a Texas trial court is correct in

ruling that “all goods or services purchased from a third-party

vendor, even though not included on the contract, are ‘cash

advances’” under the Funeral Rule.

Correct interpretation of the

It is our understanding that your request is prompted by the

May 2004 decision granting partial summary judgment in Hijar v.

SCI Texas Funeral Services, Inc., No. 2002-740, Order Granting

Plaintiff’s Motion for Partial Summary Judgment and Establishing

Issues Under Rule 166a(e), T.R.C.P. and Denying Defendants’

Second Motion for Summary Judgment (County Court at Law No.

3, El Paso, May 21, 2004), in which the court held that the

defendant violated the cash advance disclosure provision of the

Funeral Rule by failing to disclose each fee charged to the plaintiff

for the cost of advancing funds on behalf of the plaintiff for goods

and services purchased from third parties and resold to plaintiff.

The Court in Hijar based its holding on an interpretation of the

term “cash advance item” that would include the following items,

when purchased from a third party and resold to persons arranging

funerals: “direct cremation; immediate burial; forwarding

remains; receiving remains; embalming; refrigeration; other

preparation; transportation; casket/cremation casket; alternative

container; outside enclosure; clothing/shroud; memorial booklet;

service folders/prayer cards; acknowledgment cards; flowers;

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term “cash advance item” is important because it determines the

breadth and impact of certain substantive provisions of the

Funeral Rule that employ that term.

The Commission believes that the court is incorrect in ruling

that all goods or services purchased from a third-party vendor are

cash advance items. This interpretation sweeps far too broadly,

potentially bringing within its scope every component good or

service that comprise a funeral. This was not and is not the

Commission’s intention in the “cash advance” provisions of the

Rule. In our opinion, the term “cash advance item” in the Rule

applies only to those items that the funeral provider represents

expressly to be “cash advance items” or represents by implication

to be procured on behalf of a particular customer and provided to

that customer at the same price the funeral provider paid for them.

This conclusion is based on the analysis set forth below.

Analysis

The Funeral Rule

defines the term “cash advance item” as

follows:

[a]ny item of service or merchandise described to a

shipping container; crematory services; crucifix; escorts; certified

copies; public transportation; outside funeral director’s expense;

vault installation; clergy/religious facility; musicians or singers;

hairdressing; and permits.”

The Commission promulgated the original Funeral Rule on

September 24, 1982, making it fully effective on April 30, 1984.

47 Fed. Reg. 42260 (Sept. 24, 1982). The Commission amended

the Rule in 1994, following a lengthy review proceeding, and that

1994 amended Rule continues to be in effect. 59 Fed. Reg. 1592

(Jan. 11, 1994). All references to “the Funeral Rule” or “the

Rule” are to the 1994 amended Rule, currently in effect.

References to the 1982 Rule are to “the original Rule.”

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purchaser as a “cash advance,” “accommodation,” “cash

disbursement,” or similar term. A cash advance item is also

any item obtained from a third party and paid for by the

funeral provider on the purchaser’s behalf. Cash advance

items may include, but are not limited to: cemetery or

crematory services; pallbearers; public transportation; clergy

honoraria; flowers; musicians or singers; nurses; obituary

notices; gratuities; and, death certificates. 16 C.F.R.

§ 453.1(b).

The first sentence of this definition quite clearly states that any

item a funeral provider describes expressly using the words “cash

advance” item (or similar words or phrases) is, in fact, a cash

advance item for purposes of the Funeral Rule. The second

sentence broadens the definition to cover situations when a funeral

provider purports to act “on behalf” of a particular customer, more

as that customer’s procurement agent rather than as a retailer

serving the general public. The third sentence merely provides an

illustrative list of the various types of goods or services that

funeral providers typically may treat as cash advance items.

Certain substantive provisions in the Funeral Rule employ the

defined term “cash advance item.” Specifically, §§ 453.3(f)(1)(ii)

and 453.3(f)(2) require a funeral provider who is charging a

customer more for a cash advance item than the funeral director

paid for it to disclose that material fact (i.e., the existence of a

mark-up, but not the amount) to the customer on the statement of

funeral goods and services selected by the customer.

Also, the statement of goods and services that the funeral

provider must give to the customer at the conclusion of the

discussion of funeral arrangements must itemize any cash advance

items that are part of the agreed-upon funeral arrangements, and

must state the price, or if not known, the estimated price, of those

items. The Rule states: “(These prices must be given to the

extent then known or reasonably ascertainable. If the prices are

not known or reasonably ascertainable, a good faith estimate shall

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The Commission included these “cash advance” disclosure

provisions in the Rule to address a practice in the marketplace that

the Commission had identified as being harmful to consumers.

Specifically, some funeral providers misrepresented that they

would obtain goods or services for their customers at cost, when

in fact these funeral providers profited by marking up the price of

the items.

The Final Staff Report on the original Funeral Rule,

which is part of the rulemaking record on which the Commission

relied in adopting the Rule, succinctly describes the problem:

Cash advance charges are completely separate from, and

additional to, the funeral director’s own charges. They

usually appear on the funeral bill under such headings as

be given and a written statement of the actual charges shall be

provided before the final bill is paid.)” 16 C.F.R.

§ 453.2(b)(5)(i)(B).

This mark-up was achieved both directly and indirectly. As

noted in the Final Staff Report, “[s]ometimes, [the mark-up] has

been accomplished by simply inflating the amount of the charge

on the customer’s bill. In other instances, the same effect has

been achieved by the funeral home securing some form of

kickback or rebate from the supplier of the cash advance item

after charging the customer the full price.” Final Staff Report

(June 1978) at 249. Marking up cash advance items was not an

uncommon practice. The Commission noted, in adopting the

original Rule, that “the evidence demonstrates that many

individual funeral providers do charge mark-ups for cash

advances. In a 1976 survey of California funeral directors, 12% of

the 291 respondents admitted charging ‘in excess of the amount

actually advanced for any items of service labeled as ‘cash

advances’ or ‘accommodation items.’ [The National Funeral

Directors Association’s] annual survey of funeral homes indicates

that, on a national level, funeral homes are receiving a 5% mark-

up on cash advance items. . . .” 47 Fed. Reg. 42279 (Sept. 24,

1982).

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“accommodations,” “cash disbursements,” and “cash

advanced for your convenience.” This terminology clearly

indicates the basic conception, both by the funeral home and

the consumer; that is, that the family is simply reimbursing

the funeral director for cash outlays. The traditional use of

such terms, as well as the obvious fact that these items are

being provided by the third party, create the expectation that

the amount billed is the same as that paid or owed. . . . Our

investigation revealed, however that some funeral homes

have generated extra revenues by charging their customers

more for cash advance items than the funeral home actually

paid out.

Based on the record evidence of this problem, as summarized and

analyzed in the Final Staff Report, the Commission adopted

§ 453.3(f) to remedy it. As noted in the Statement of Basis and

Purpose issued by the Commission when it adopted the original

Rule, § 453.3(f) is intended to prevent consumers from being led

to believe, incorrectly, that the cost to the consumer for a

particular item is the same as the cost to the funeral provider:

[C]onsumers believe that items labeled “cash advances” . . .

are being provided at cost. There is an implicit

representation that the cash advance transaction involves

merely a forwarding of cash by the funeral provider and a

subsequent dollar-for-dollar reimbursement by the consumer

. . . . The use of this term in connection with items such as

flowers, obituary notices, etc., which the consumers could

easily obtain from a third party, creates the expectation that

the amount billed the consumer is the same as the amount

paid by the funeral provider. Given this expectation, the

failure to disclose the existence of a mark-up is a deceptive

practice.

Final Staff Report (June 1978) at 249.

47 Fed. Reg. 42278-42279 (Sept. 24, 1982).

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The Commission found that, in describing a particular item to a

customer, a funeral provider’s express use of the term “cash

advance item” (or alternative formulations such as

“accommodation” or “cash disbursement”) implies that the cost

to the customer for that item is the same as the cost to the funeral

provider. Thus, in cases where a funeral provider describes an

item in this manner, yet charges the customer more for it than the

funeral provider paid for it, the Commission requires a corrective

disclosure to prevent the customer from being deceived.

Specifically, in such a circumstance, the Funeral Rule requires

that the following disclosure be placed on the statement of funeral

goods and services selected: “We charge you for our services in

obtaining: (specify cash advance items).”

This is the scenario

addressed by the first sentence in the “cash advance item”

definition.

The second sentence of the definition, indicating that “[a] cash

advance item is also any item obtained from a third party and paid

for by the funeral provider on the purchaser’s behalf,” is in the

nature of a “fencing-in” provision.

The Commission’s intention

in including this sentence is to bring within the ambit of § 453.3(f)

any situation where a funeral provider might, without using the

specific term “cash advance,” offer to obtain an item for a

particular customer that the customer could obtain on her own –

purporting to act “on behalf” of that customer, more as that

customer’s procurement agent than as a retailer serving the

general public. Specifically, the purpose of this fencing-in aspect

of the definition is to deter the less scrupulous funeral provider

from evading the Rule by eschewing express description of an

16 C.F.R § 453.3(f)(2). The Rule also specifically prohibits

this type of affirmative misrepresentation. 16 C.F.R

§ 453.3(f)(1)(i).

Under the “fencing-in” doctrine, the FTC may frame a

remedy which extends beyond the precise illegal conduct found.

Bristol-Myers Co. v. FTC, 738 F.2d 554, 561 (2d Cir. 1984).

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item as a “cash advance item” (or alternative formulations), yet

nevertheless conveying to a customer acting reasonably under the

circumstances that obtaining the item involves merely a

forwarding of cash by the funeral provider and a subsequent

dollar-for-dollar reimbursement by the customer. The

Commission’s intention, in sum, is that this part of the “cash

advance item” definition function to foreclose funeral providers

from attempting to sidestep the strict letter of the Rule by using

implied misrepresentations rather than express ones.

In the absence of either the funeral provider’s express

representation that an item is a “cash advance item” or implied

representations that the item is procured for a particular customer

at the funeral provider’s cost, a consumer, acting reasonably under

the circumstances, would not believe that the amount he or she is

billed for an item is the same as the amount the funeral provider

pays its supplier. Indeed, such a belief would be contrary to a

reasonable consumer’s most elementary experience in the

everyday marketplace. In these circumstances, the funeral

provider is generally acting like any retailer who purchases goods

or services from third parties for resale to consumers.

The Commission believes that reasonable consumers generally

understand that the price charged by a retail seller – including

funeral providers – includes profit.

Thus, the corrective

disclosure about cash advance items that § 435.3(f)(2) requires is

unnecessary when the funeral provider does not mislead the

customer through either express representations that the item is a

“cash advance item” (or alternative formulations), or implied

representations that the customer is paying no more for an item

than the amount the funeral provider paid for it.

As the Commission noted in the Statement of Basis and

Purpose for the original Rule, “The Commission does not suggest

that it is improper for funeral providers to profit on items obtained

from third parties. It is clear that it is wholly proper for providers

to do so.” 47 Fed. Reg. 42278 (Sept. 24, 1982).

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It is worth noting that the text and structure of the Rule overall

reflect the fundamental distinction between cash advance items

and non-cash advance items. For items that are typically non-cash

advance items, the Rule requires disclosure of the retail price of

specified goods and services offered for sale by a funeral

provider.

An obvious example is the Rule’s treatment of

caskets, for which it requires a separate price list containing only

the funeral provider’s retail price.

Therefore, items that must

appear on a funeral provider’s price list

would not trigger

Funeral providers must “[i]nclude on the [general] price list,

in any order, the retail prices (expressed either as the flat fee, or as

the price per hour, mile or other unit of computation) and the

other information specified below for at least each of the

following items, if offered for sale . . . .” The rule then lists:

forwarding of remains to or receiving remains from another

funeral home; direct cremation; immediate burial; transferring

remains to the provider’s premises; embalming and other

preparation of the body; use of the provider’s facilities and staff

for viewing, for a funeral ceremony, or for a memorial service; use

of the provider’s equipment and staff for a graveside service; the

use of the provider’s hearse or limousine; and the provider’s basic

services fee. 16 C.F.R. § 453.2(b)(4). (Emphasis supplied.)

“The funeral provider must offer the [casket price] list upon

beginning discussion of, but in any event before showing caskets.

The list must contain at least the retail prices of all caskets and

alternative containers offered which do not require special

ordering, enough information to identify each, and the effective

date for the price list.” 16 C.F.R. § 453.2(b)(2)(i). (Emphasis

supplied.)

Section 453.2(b)(4)(i)(C) of the Rule sets forth the

minimum information that must be included on a funeral

provider’s general price list. These items include: caskets; outer

burial containers; forwarding of remains to or receiving remains

from another funeral home; direct cremation; immediate burial;

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the cash advance disclosures unless the funeral provider expressly

represents the items as “cash advance items” (or alternative

formulations) or represents by implication that items can be

procured on behalf of the particular customer and provided at the

same price the funeral provider paid for them.

Accordingly, the Commission wishes to be clear that the term

“cash advance item” does not apply to every good or service that a

funeral provider obtains from a third party. This overbroad

interpretation, which potentially brings within its scope every

component good or service of a funeral, does not comport with the

Commission’s intention in promulgating the “cash advance”

provisions of the Rule. Rather, based on a review of the original

Rule and the rulemaking record, the Commission finds that the

term “cash advance item” in the Rule applies only to those items

that the funeral provider represents expressly to be “cash advance

items” or represents by implication to be procured on behalf of a

particular customer and provided to that customer at the same

price the funeral provider paid for them.

transferring remains to the provider’s premises; embalming and

other preparation of the body; use of the provider’s facilities and

staff for viewing, for a funeral ceremony, or for a memorial

service; use of the provider’s equipment and staff for a graveside

service; the use of the provider’s hearse or limousine; and the

provider’s basic services fee.