Pre-paid Funerals Code of Practice review 2018 draft code and summary

A pre-paid funeral is a contract entered into with a funeral organiser in which payments are made for the provision of funeral services in the future. However, a pre-paid funeral contract does not include a contract to carry out funeral services between a client and a cemetery manager (e.g. Metropolitan Cemeteries Board). One of the attractions of pre-paid funerals is that prices are usually at today’s prices, thus avoiding inflation and other rising costs.

Western Australia (WA) currently has no specific legislation regulating pre-paid funerals, as exists in most other States and Territories. Some protections exist under the Australian Consumer Law (ACL) but these are aimed primarily at ensuring that sellers do not engage in misleading, deceptive or unconscionable conduct; that goods and services are of acceptable quality and provided with due care and skill and that contracts are not unfair. The ACL does not directly protect the investments of those who have prepaid money towards their funeral.   

At present, many funeral directors in WA abide by a voluntary standard for pre-paid funerals which was developed by the Australian Funeral Directors Association (AFDA).  However the degree of compliance with that standard is unclear.  

The Government is now developing a mandatory code of practice for pre-paid funerals to give consumers greater consistency, clarity and certainty when investing in pre-paid funerals and to guard against loss of monies paid by them in advance.  The code of practice would be made under the Fair Trading Act 2010 (FTA) and would apply to sellers and brokers of pre-paid funerals.  

The consultation code of practice has been prepared in accordance with the requirements of the FTA.   

In December 2011, a Consultation Regulatory Impact Statement (Consultation RIS) was released which advanced five options for the regulation of pre-paid funerals in WA. Recommendations flowing from an earlier consultation process, contained in a 2007[1] report, formed the basis of the five options.

Submissions to the Consultation RIS were received from consumers and key industry stakeholders. Analysis of the submissions showed the preferred option to be the introduction of a code of practice under the FTA, which would be based largely on the pre-paid funeral standard of the AFDA, insofar as it relates to pre-paid funerals, and the recommendations contained in the 2007 report. Details of the AFDA pre-paid funeral standard and the recommendations of the 2007 report are provided in Appendix 1.   

In October 2016, Consumer Protection conducted a survey of all funeral directors in WA which revealed that the size of the pre-paid funeral market was significantly larger than estimated and growing rapidly. With the ever increasing amounts of funds now being held by the pre-paid funeral industry, it was considered that tighter controls be placed around the security of these funds.  While there is no suggestion of any misuse of funds, the survey revealed a potential risk in the absence of mandatory regulation.     

The objectives of the draft code of practice are to address some of the problems which can exist for consumers of pre-paid funerals. These are as follows:

• protect pre-paid consumer funds in the event of bankruptcy or insolvency of the seller/broker or the closure of a business;
• provide certainty as to the treatment and investment of prepaid consumer funds;
• provide a mandatory cooling off period of 30 days for pre-paid funeral contracts;
• provide contractual certainty around the goods and services agreed to and paid for by the consumer;
• require a register of pre-paid funerals to enable next-of-kin to ascertain whether a pre-paid funeral has been purchased; and
• provide contractual certainty as to the treatment of late or missed payments (where instalments apply) or the entitlement to a refund in certain circumstances.

Requirements of AFDA’s Pre-paid Funeral Standard

AFDA’s Pre-paid Funeral Standard states that:

1. A written contract must be provided by the funeral director to the client clearly detailing the funeral requisites and services contracted and paid for.
2. The price of each pre-paid funeral should be fixed.
3. The financial institutional holding the funds should be at “arm’s length” from the funeral director.
4. A numbered certificate in the name of the client should be provided by the financial institution.
5. The financial institution should guarantee that no funds can be withdrawn by the funeral director until the death and the funeral take place.
6. The financial institution must safeguard the funds of the client even if the funeral firm has gone out of business.
7. The pre-paid funeral plans and associated procedures must comply with the relevant Commonwealth and State legislation in each State in which it operates.
8. In the event that an AFDA member is convicted in a court of law in relation to a charge of improper practice involving a prepaid funeral contract, National Council shall take action to revoke the membership of the particular member in accordance with the Association’s Constitution.

Recommendations of the 2007 Final Report   

The 2007 Final Report recommended that a code of practice be established under the Fair Trading Act 1987[2] to regulate:

• the information that must be included in a pre-paid funeral contract including provisions which outline what happens in the event of:

1. late or missed payments (for instalment contracts or those with annual fees); or
2. death of the consumer before final payment is made (for instalment contracts);

• a requirement for pre-paid funeral monies to be invested in an approved funeral benefit fund or approved trust account;
• a requirement for funeral directors to give consumers who enter into a pre-paid funeral contract, details in writing of the manner in which monies paid will be invested, including the type of investment, the terms and conditions applying to that investment and the timeframe in which the monies are to be invested;
• a cooling off period of 30 days for pre-paid funeral contracts;
• the obligations of the funeral director with respect to financial and other arrangements should the funeral director cease to carry on business before the contract is performed or be unable to perform the contract;
• the circumstances under which monies paid pursuant to a pre-paid funeral contract should be refunded; and
• a requirement that funeral directors keep a register of all pre-paid contracts entered into.

The 2007 Final Report also recommended that regulation of pre-paid funerals only apply to future contracts.