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FTC Staff Opinion on Discounted Packages

by: T. Scott Gilligan, NFDA General Counsel
February 26, 2009

An FTC staff advisory letter issued on February 17, 2009 takes on the issue of how funeral homes may and may not calculate the amount of a discount for a package funeral. The staff advisory letter examines the case of a funeral home that chooses to offer a discount package to encourage families to purchase a casket from the funeral home. The Opinion first affirms that funeral homes may offer a discounted package funeral that is available only to families that choose to purchase a casket from the funeral home. However, according to the Opinion, funeral homes must be careful in how they calculate the dollar discount that will be provided to the families purchasing the package.

The opinion states that when a funeral home determines the amount of the discount that it will offer, it should not calculate that discount by including a reduction of its non-declinable basic service fee.

For most funeral homes that have discounted packages, the staff advisory letter will have no impact. It is only in those situations where a funeral home explains on the GPL or elsewhere that the discount is due in part to a reduction of its basic service fee that the letter will apply. Funeral homes that have calculated the discount by reducing the basic service fee that is included in the package would need to correct that situation.

Does this mean that a funeral home has to explain how it calculated a discount that is available with the purchase of a package? No, as long as the funeral home did not reduce the price of its basic service fee when it calculated the amount of the discount it offers with the package, the staff advisory letter does not apply.

A simple example may show the limited applicability of the staff advisory letter. Let's assume that there are three funeral homes in different parts of the country that all offer a $300 discount on a full funeral package that is available only to families who purchase a casket from the funeral home. The first funeral home calculated the $300 discount by examining its anticipated profit margins on the casket and determining that a $300 discount would still allow it to generate an overall profit. The second funeral home decided to offer a $300 discount because that number "just seemed right." The third funeral home applied a 5% discount to the regular prices of each of the services in the package (including its basic service fee) and arrived at a $300 discount. Which funeral home violated the Funeral Rule? According to the staff advisory letter, it would be the third funeral home because it reduced the price of its basic service fee.

The important point to remember is to avoid reducing the price of the funeral home's basic service fee when calculating the discount that will be offered on a package funeral that is available only to families who purchase a casket from the funeral home.

NFDA members with questions regarding this matter may contact Scott Gilligan at 513-871-6332 with any questions.