April 26, 2001
Last year, Congress enacted the Gramm-Leach-Bliley Act ("GLB Act"). Title V of the GLB Act imposes privacy regulations on financial institutions. The purpose of Title V and the regulations that have been issued to implement it is to provide consumers of financial institutions the ability to control how and by whom private financial information they supply to a business will be used.
II. Coverage of the GLB Act
To determine how the GLB Act impacts funeral service, it is necessary to review the detailed privacy regulation issued by the Federal Trade Commission ("Privacy Regulation"). That Privacy Regulation, which will go into full effect on July 1, 2001, implements the GLB Act for financial institutions that are not regulated by other governmental agencies such as the Federal Reserve, Federal Deposit Insurance Corporation, Secretary of the Treasury, etc.
According to the FTC Privacy Regulation, a "financial institution" means any business that is "significantly engaged in financial activities." "Financial activities" are further defined to include any of the following:
In looking at the above list, there are four financial activities which funeral homes engage in from time-to-time and which may require them to comply with the GLB Act.
The examples provided by the FTC are as follows:
From the examples provided above in the Privacy Regulation, it appears that the determining factor in whether a funeral home is a financial institution will depend upon the number of times it extends credit. If a funeral home routinely enters into retail installment contracts with its consumers, it would be subject to the GLB Act as a financial institution. On the other hand, if most consumers pay the funeral home by check, credit card, insurance assignment, or payment from estates, the funeral home will not be regarded as a financial institution simply by occasionally allowing consumers to pay over time.
To stay outside of GLB Act coverage, funeral homes should heed the same advice that is given with regard to the Truth-In-Lending regulations. In order to avoid the appearance of extending consumer credit, funeral purchase contracts should not use the words "interest", "carrying charge", or "finance charge". Rather, if a consumer has not paid by the due date on the funeral purchase contract, the funeral home may require the payment of a "late charge", "late penalty" or "delinquency charge". By using this terminology, the funeral home will not be viewed as extending consumer credit.
In summary, funeral homes which "occasionally" permit consumers to pay through installments will not be regarded as financial institutions for the purposes of the GLB Act. However, if they routinely use retail installment contracts for payment for at-need or preneed funeral contracts, the funeral home would be regarded as a financial institution and subject to the requirements of the GLB Act and the FTC Privacy Regulation.
In these consumer loan programs, the funeral home is not the lender. However, the funeral home does assist consumers in arranging or securing loans. As such, the funeral home would be regarded as the agent of the financial institution participating in the program. Any funeral home involved in these programs should secure from the financial institution the required GLB Act disclosures that must be given when the loan application is submitted. State Associations that offered these consumer loan programs should discuss GLB Act compliance issues with the financial institutions participating in the program.
The FTC addressed these specific concerns in the Privacy Regulations. It found that communications from a collection agency to a retailer who had retained the collection agency is a permitted exception to the GLB Act. Therefore, simply because a funeral home hires a collection agency to pursue delinquent accounts would not render the funeral home subject to the GLB Act.
III. Compliance with the GLB Act
In those cases where funeral homes are serving as an insurance agent or a loan arranger, they should obtain the GLB Act disclosures that must be presented to consumers from the insurance companies or consumer finance businesses that they represent. The disclosure form should be provided prior to the effective date of July 1, 2001.
If a funeral home extends consumer credit to its customers on more than an occasional basis, it will have to prepare its own GLB disclosure forms. These forms must be given to the consumer when the loan is entered into and on an annual basis while the loan is being paid off.
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