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Federal Financial Privacy Rules - Apply to Funeral Homes

April 26, 2001

I. Background

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:

  • Lending, exchanging, transferring, investing for others, safeguarding money or securities.
  • Insuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability or death and acting as principal, agent or broker for purposes of the foregoing.
  • Providing financial, investment or economic advisory services.
  • Brokering or securing loans.
  • Leasing real or personal property or as acting as agent, broker or advisor in such leasing (unless the lessor also operates, maintains or repairs the leased property).
  • Appraising real or personal property.
  • Offering check guaranty, collection agency, credit bureau or real estate settlement services.
  • Providing financial or investment advisory activities including tax planning, tax preparation, and instruction on individual financial management.
  • Management consulting and counseling activities.
  • Courier services for bank instruments.
  • Printing and selling checks and related documents.
  • Community development or advisory activities.
  • Selling money orders, savings, banks or travelers checks.
  • Providing financial data processing and transmission services.

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.

    1. Providing credit to funeral consumers.
    2. Selling preneed funeral insurance to consumers as an insurance agent.
    3. Arranging loans for funeral consumers.
    4. Turning delinquent accounts over to collection agencies.
  1. Providing Credit - The FTC wrestled with the issue of when a retailer that extends credit to consumers should be classified as a "financial institution" subject to the GLB Act. Instead of adopting a precise standard, the FTC chose to provide examples of when a retailer would and would not be a financial institution. From the examples, we can conclude that funeral homes which "occasionally" extend credit to consumers will not fall within the definition of a "financial institution".

    The examples provided by the FTC are as follows:

  2. A retailer that extends credit by issuing its own credit card directly to consumers is a financial institution.
  3. A retailer is not a financial institution if its only means of extending credit are occasional deferred payment plans.
  4. A retailer is not a financial institution merely because it accepts payment in the form of cash, checks, or credit cards that it did not issue.
  5. 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.

  6. Preneed Insurance Agent - It is clear from the GLB Act that an agent of an insurance company that sells life insurance to a consumer would be regarded as a financial institution that is subject to the GLB requirements. Since the agent is obtaining the financial information from the consumer and providing it to the insurance company, the insurance company would be responsible for providing to its agents the initial consumer disclosures required by the GLB Act. Therefore, funeral homes and funeral directors that serve as agents for preneed insurance companies should ensure that they have received the printed consumer disclosures forms from the insurance companies they represent prior to July 1, 2001.

  7. Arranging Loans- Several State Associations have established consumer loan programs for their members. Under these programs, funeral directors serve as a conduit between the funeral consumer and the bank or consumer finance business participating in the program. When a funeral consumer wishes to pay in installments, the funeral director typically helps the consumer fill out a loan application at the funeral arrangement conference. The application is then faxed or e-mailed to the loan company and processed immediately. Funds are transferred to the funeral home and the consumer becomes a loan customer of the bank or consumer finance business participating in the program.

    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.

  8. Use of Collection Agencies- Some funeral homes use outside collection agencies to pursue delinquent accounts receivable. Since these collection agencies, which are regarded as "financial institutions" under the GLB Act, would be communicating with funeral homes, the issue arises as to whether communication between the funeral home and the collection agency would render the funeral home a "financial institution".

    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.

The FTC has provided sample disclosures in the appendix to the Privacy Regulations. From these disclosures, NFDA has drafted a Sample Privacy Policy for a funeral home that extends consumer credit through retail installment contracts and does not share private financial information with any non-affiliated third parties.