SB2599 SD1

SECTION 1. The legislature finds that the funeral industry in Hawaii presently lacks uniformity in its sales contracts and required financial reports so that consumers are at an unfair disadvantage when purchasing pre-need funeral goods and services. The department of commerce and consumer affairs does not have the knowledge and resources to perform adequate oversight for this industry.

The National Funeral Directors Association, the largest organization of funeral service professionals in the United States, adopted the "Model Consumer Protection Guidelines for State and Pre-need Funeral Statutes" in October 2007 to assist consumers who purchase pre-need funeral and interment goods and services. These consumer guidelines establish industry standards that enable consumers to make informed purchases, receive protections against the loss of pre-paid funeral funds, deal with ethical and licensed pre-need authorities and agents, and retain the right to cancel pre-need funeral and interment contracts.

The purpose of this Act is to adopt the National Funeral Directors Association guidelines in order to materially advance and improve the level of consumer protection afforded to Hawaii's cemetery and funeral service consumers.

SECTION 2. Chapter 441, Hawaii Revised Statutes, is amended by adding five new sections to be appropriately designated and to read as follows:

"§441‑ Board; appointment. (a) There is established the board of cemetery and funeral trusts, which shall consist of seven members appointed in accordance with section 26-34, unless otherwise provided in this section. Three of the members shall be engaged in the industry of cemetery and funeral trusts as provided in subsection (b). One of the members shall be a member of the public not connected with the industry. Three of the members shall be representatives of consumer organizations as provided in subsection (c).

(b) The governor shall appoint three members who shall be engaged in the cemetery and funeral trusts industry from nominations submitted by three organizations representing the cemetery industry, the pre-need industry, and funeral directors. The governor shall appoint one member from the nominations submitted by each of the three industries. One appointee shall represent the pre-need industry, another, the cemetery industry, and the other, funeral directors.

(c) The governor shall appoint three consumer members from nominations submitted by the three most active consumer organizations in Hawaii with priority in protecting consumer interest in the industry of cemetery and funeral trusts. The governor shall appoint one member from the nominations submitted by each of the three consumer organizations.

(d) The term of the members shall be for two years. The governor shall reduce the terms of four of the members initially appointed to the board such that two of the three members engaged in the industry of cemetery and funeral trusts and two of the three members who are representatives of consumer organizations shall serve a term of one year, and the remaining three members shall serve a term of two years.

§441‑ Board; powers and duties. The board shall assist the director in carrying out the director's duties under section 441-19. In addition, and pursuant to chapter 91, the board shall:

(1) Assist the director in establishing the qualifications for the licensing of a cemetery or pre-need funeral authority as necessary for the welfare of the public and the cemetery and pre-need funeral authority industry;

(2) Receive complaints and assist and advise the director in investigating the actions of any person acting in the capacity of a licensee under this chapter, including making recommendations for proper courses of action to take against any person, if there is reason to believe that there may be a violation of this chapter or the rules adopted pursuant thereto; and

(3) Inquire into the practices and policies of the cemetery and pre-need funeral authority industry and make recommendations to the director with respect to the adoption of practices and policies deemed necessary by the board for the welfare of the public and the cemetery and pre-need funeral authority industry.

§441‑ Pre-need funeral and pre-need interment salesperson. (a) No person shall act as a pre-need funeral or pre-need interment goods and services salesperson, unless that person is a licensed cemetery or pre-need funeral authority, or:

(1) Is at least eighteen years of age and has received a high school diploma or its equivalent; and

(2) Has not been previously convicted of a felony.

(b) The cemetery or pre-need authority shall maintain a file on each salesperson selling pre-need funeral or pre-need interment goods and services, which file shall include at a minimum:

(1) The name, address, telephone number, and date of contract or agreement between the salesperson and cemetery or pre-need authority;

(2) Confirmation of a criminal background investigation performed by the authority. The names and addresses of all other cemeteries and pre-need funeral authorities the salesperson will represent; and

(3) A copy of any contract or agreement for representation the salesperson has entered into with any cemetery or pre-need funeral authority, which shall be available for inspection by the department or appropriate board authority at all times.

The salesperson and cemetery or pre-need funeral authority shall update the file within ten days of any changes to the matter required to be filed in this subsection.

The salesperson shall also agree to maintain a copy of this chapter, chapter 481P, the Telemarketing Sales Rule, 16 Code of Federal Regulations part 310 of the Federal Trade Commission, the Telemarketing Consumer Fraud and Abuse Prevention Act, 15 United States Code chapter 87, and any other applicable laws in the salesperson's principal place of business.

§441‑ Pre-need funeral and pre-need interment solicitations. All pre-need funeral and pre-need interment salespersons, when engaged in the solicitation of pre-need funeral and pre-need interment goods and services, shall comply with all requirements of this chapter, chapter 481P, the Telemarketing Sales Rule, 16 Code of Federal Regulations part 310 of the Federal Trade Commission, the Telemarketing Consumer Fraud and Abuse Prevention Act, 15 United States Code chapter 87, and any other applicable laws, rules, and federal regulations.

§441‑ Pre-need cemetery and funeral governance fund; use of fund; fees. (a) The director shall establish and maintain a trust fund that shall be known as the pre-need cemetery and funeral governance fund, the proceeds of which may be used by the department to inquire into and investigate any violation or complaint that has been lodged or asserted by reason of fraud, misrepresentation, or deceit against any authority selling pre-need funeral or pre-need interment goods and services.

(b) The director shall collect a one time fee of not more than $2 per contract from each pre-need funeral authority for deposit into the pre-need cemetery and funeral governance fund, as provided in rules adopted by the director pursuant to chapter 91. The fee shall apply to every contract accepted by the pre-need funeral authority on or after the effective date of this section and to every contract that was accepted by the pre-need funeral authority on or after January 1, 1992 and that is still in effect upon the effective date of this section. The pre-need funeral authority shall provide payment to the director every January 31, and June 15, for all contracts accepted by the authority during the prior six month period, and shall be allowed to reduce the fee correspondingly for each contract that cancels or terminates within the first six month period of the contract life.

(c) The director, as the trustee of the pre-need cemetery and funeral governance fund, shall be authorized to expend moneys in the fund to:

(1) Retain private legal counsel to represent the interest of the department in any action involving, or that may result in the enforcement of any payment from, the authority selling pre-need funeral or pre-need interment goods and services;

(2) Retain a certified public account for accounting and auditing of the pre-need trusts or perpetual care funds or other funeral and cemetery authorities;

(3) Employ necessary personnel, not subject to chapter 76, to assist the director and the department in exercising its powers and duties with respect to this chapter; and

(4) Retain a consultant to recover and collect any payments from the pre-need cemetery and funeral governance fund, including interest from the cemetery and funeral trust authorities.

(d) The sums received by the director for deposit into the pre-need cemetery and funeral governance fund shall be held by the department in trust for carrying out the purpose of the fund. The director, as trustee of the fund, shall be authorized to expend the funds as set forth in this section, and shall hold such funds for investment and reinvestment in the same manner as funds of the state employees' retirement system. The interest from these investments shall be deposited to the credit of the fund. The director, as trustee, may combine, for the purpose of investing, these sums with other funds held in the same manner; provided that the director shall have the duty to keep separate and distinct accounting records for the fund."

SECTION 3. Section 441-1, Hawaii Revised Statutes, is amended by adding three new definitions to be appropriately inserted and to read as follows:

""Board" means the board of cemetery and funeral trusts.

"Consumer" means any person who:

(1) Has purchased cemetery property, pre-need interment services, or pre-need funeral services and related commodities from a mortuary, cemetery, or pre-need funeral authority; or

(2) Is the purchaser's contract beneficiary.

"Consumer organization" means an organization that advocates for the interests of consumers under this chapter."

SECTION 4. Section 441-22.5, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) Every cemetery or pre-need funeral authority shall be required to provide to the purchaser of cemetery property, pre‑need interment, or pre-need funeral services and related commodities a written contract, in at least ten-point font, which shall contain the following disclosures:

(1) The names [~~and~~], addresses, telephone numbers, and license number, if applicable, of the cemetery or pre‑need funeral authority, and the names, addresses, and telephone numbers of the purchaser, and contract beneficiary, if the beneficiary is someone other than the purchaser;

(2) A clear and concise itemized statement of the property, including, for cemetery property, the location of the plot, crypt, or niche by its unique identifier, and any services and related commodities to be supplied or not supplied and by whom, particularly if the authority is not to be the provider under the terms of the contract;

(3) The purchase price of each item of property, services, and related commodities to be supplied, the total purchase price, and how the total purchase price is payable, including any credit terms, if applicable; provided that, pursuant to section 441-22.7, disclosure shall also be made that further additional charges or fees for perpetual care subsequent to the execution of the contract are prohibited for any purpose and on any occasion, except for reasonable fees related to the administrative costs of transferring ownership rights, including the cost of research, document and file preparation, photocopying, notary fees, records transfer and storage, and any other costs directly related to the transfer of ownership rights;

(4) Related costs covered under the contract;

(5) The basis on which funds are to be deposited in trust, including:

(A) The name and address of the trustee; provided that the disclosure shall not preclude the cemetery or pre-need funeral authority from changing the trustee named;

(B) The percentage of the contract price for trustable items to be placed in trust; provided that the percentage shall be no less than seventy per cent;

(C) The percentage of the contract price for trustable items that the cemetery or pre-need funeral authority will retain and not deposit into the trust; provided that the percentage shall not be more than thirty per cent; and

(D) Where a portion of the contract price relates to deeded property, services, or related commodities that are for immediate delivery and that are not trustable items, a clear description of what those non-trustable items are;

(6) The refund, cancellation, and default provisions of the contract, including an explanation of the requirements of section 441-22.8, and a statement in twelve-point bold type in substantially the following form:

"YOU HAVE REFUND, CANCELLATION AND DEFAULT RIGHTS UNDER STATE LAW AND UNDER THE CONTRACT. PLEASE READ THE CONTRACT CAREFULLY FOR AN EXPLANATION OF THESE RIGHTS";

(7) The date and place of execution of the contract;

(8) The cemetery or pre-need funeral authority's or its duly authorized agent's signature on the contract and the identification of this person by name and title;

(9) A statement that the written contract, when signed, shall constitute the entire agreement between the parties relative to its subject matter and that all obligations of both parties shall be fixed and enforceable by the other parties of the contract; [~~and~~]

(10) A statement that the contract may not waive any rights of the consumer or duties of the cemetery or pre-need funeral authority under the law[.]; and

(11) A statement that identifies who will be responsible for the taxes generated by the earnings on the trust, the dollar amount to be trusted, and the dollar amount that will not be trusted."

SECTION 5. Section 441-22.8, Hawaii Revised Statutes, is amended by amending subsection (d) to read as follows:

"(d) If the contract is canceled or terminated pursuant to subsection (a) or (b) or for any other reason, the purchaser shall be entitled to a refund of the amounts paid by the purchaser, including any interest earnings and any increase in value, less amounts that may be retained by the cemetery or pre-need funeral authority for its costs pursuant to section 441-38(b)[.]; provided that if the contract is canceled within seven days of its purchase, the purchaser shall be entitled to a refund of one hundred per cent of the amount paid at the time the contract was purchased. The cemetery or pre-need funeral authority shall make the refund to the purchaser within thirty days of:

(1) Receipt of the purchaser's written notice of cancellation; or

(2) Termination of the contract."

SECTION 6. Section 441-23, Hawaii Revised Statutes, is amended to read as follows:

"§441-23 Fine, revocation, suspension, and renewal of authority licenses. (a) All cemetery or pre-need funeral authorities, their employees, agents, or anyone soliciting on their behalf, are prohibited from:

(1) Making untrue statements or omitting any material fact when engaged in solicitation of pre-need interment or pre-need funeral goods and services;

(2) Using advertisements or offers of pre-need interment or pre-need funeral goods and services that are false, misleading, deceptive, unfair, coercive, or intimidating;

(3) Soliciting consumers by telephone any time between the hours of 9:00 p.m. and 8:00 a.m.;

(4) Using the term "trust" or "trust-funded" in any advertisement or solicitation that is misleading in any way; and

(5) Direct solicitation of persons in hospitals, rest homes, nursing homes, or similar health care facilities in-person or by telephone without having been expressly requested to do so by that person or that person's representative.

(b) In addition to any other actions authorized by law, the director may fine an authority, revoke any authority license, or suspend the right of the licensee to use the license, or refuse to renew any license for any cause authorized by law, including but not limited to the following:

(1) Any dishonest or fraudulent act as a cemetery or pre-need funeral authority that causes substantial damage to another;

(2) Making repeated misrepresentations or false promises through advertising or otherwise;

(3) Violation of this chapter or the rules adopted pursuant thereto;

(4) Commingling the money or other property of others with that of the licensee;

(5) Having been adjudicated insane or incompetent;

(6) Selling or offering to sell any cemetery property, pre-need interment, funeral services, or pre-need funeral services based on speculation or promises of profit from resale;

(7) Failing to file the actuarial study or an audited financial statement or to maintain in effect the bond as required by section 441-22;

(8) Failing to maintain pre-need trusts or perpetual care funds as required by this chapter; or

(9) Violating section 441-22.7."

SECTION 7. Section 441-24, Hawaii Revised Statutes, is amended to read as follows:

"§441-24 Inspection of cemetery or pre-need funeral authority books. The books, records, and papers of every cemetery authority whether or not a corporation, which operates or claims to operate a perpetual care cemetery, and of every pre-need funeral authority shall be subject to examination by the director as provided by law, and every cemetery authority operating a perpetual care cemetery, and every pre-need funeral authority shall submit such information as may be required by the director to furnish information as to whether or not the cemetery or pre-need funeral authority has complied with this chapter.

The records of every cemetery authority shall include the information required under section 441-3(b). The records of every cemetery and pre-need funeral authority shall also include a record of any and all notifications from purchasers or representatives of purchasers regarding:

(1) Any change in address; and

(2) Notice of cancellation,

and shall include copies of any and all written notices of termination that were sent to purchasers. Change of address notices, cancellation notices, [~~and~~] notices of termination, and all other records altering or amending the contract, or otherwise relating to each contract containing any pre‑need funeral services or pre-need interment services shall be maintained by the authority at all times prior to delivering goods or rendering services on the contract and for a period of at least [~~six months~~] three years after all goods have been delivered or all services have been rendered."

SECTION 8. Section 441-24.5, Hawaii Revised Statutes, is amended to read as follows:

"§441-24.5 Pre-need trusts and perpetual care funds; audited financial statements. (a) Every cemetery authority operating a perpetual care cemetery or which engages in pre-need sales [or] and holds money in trust for pre-need interment services, and every pre-need funeral authority which engages in pre-need sales or holds money in trust for pre-need funeral services shall submit an audited financial statement of its pre-need trusts and perpetual care funds to the director within ninety days after the close of the authority's books on a fiscal or calendar year basis[.] and shall use a method of accounting employing generally accepted accounting practices. The director may create a standardized audited financial statement form and require that every funeral authority submit this form annually with reports mandated pursuant to this section.

(b) A late fee of $ shall be accessed for each day a cemetery authority fails to file an audited financial statement within the time requirements of subsection (a).

(c) In the event that any required audited financial statement is not provided to the department within sixty days after it is due, the director may issue immediate notice for the pre-need authority to suspend pre-need sales or prohibit further withdrawal from the perpetual care funds and pre-need trusts. Pending completion of the audit ordered by the director or submission of the audited financial statement by the pre-need or cemetery authority, the director shall impose restrictions on sales and withdrawals for a period determined by the director to be adequate to ensure the integrity of the trust, but the period shall in no event be less than thirty days. The director shall also commence an immediate audit of trust funds held by the funeral authority that engaged in the sale of pre-need funeral or pre-need interment goods and services and failed to submit on a timely basis the required financial statement in accordance with this section. All costs of the audit imposed by the director shall be borne by the pre-need or cemetery authority."

SECTION 9. Section 441-24.6, Hawaii Revised Statutes, is amended by amending the title and subsection (a) to read as follows:

"[[]§441-24.6[]] Pre-need trusts and perpetual care funds; actuarial studies. (a) Every cemetery authority operating a perpetual care cemetery and every cemetery or pre-need funeral authority offering pre-need services shall contract with an independent actuary to conduct an annual study of its level of funding. In the case of a perpetual care cemetery, the study shall be to determine whether the authority's perpetual care fund will provide sufficient income to cover the costs of the perpetual care of the cemetery. In the case of a cemetery or pre-need funeral authority, the study shall be to determine whether the amount in the authority's pre-need trust as of the end of fiscal year will be sufficient to cover the future claims of pre-need plan participants[.] as of the end of the fiscal year."

SECTION 10. Section 441-24.7, Hawaii Revised Statutes, is amended by amending the title and subsection (a) to read as follows:

"[[]§441-24.7[]] Actuarial study, audited financial statement, trust agreement; complaints, consultant reports, and contractor reports; available for review. (a) The actuarial study, audited financial statement, and trust agreement filed by a cemetery or pre-need funeral authority, as required by this chapter, shall be available for review by any member of the general public upon request. The review of these documents shall be done during the department's normal business hours. The director shall have the right to deny public review for these documents together with any other complaints, consultant reports, and contracted support and audit reviews, for reasons specified in rules adopted by the director pursuant to chapter 91."

SECTION 11. Section 441-38, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) [A] Seventy per cent of the funds paid by the purchaser shall be transferred to the trustee to remain in trust; provided that a cemetery or pre-need funeral authority may take and receive, but shall transfer to the trustee as part of or incident to the pre-need trust, all payments received after the recovery of acquisition costs, which shall be the lesser of thirty per of the contract price or the difference between the contract price and the cost of the pre-need interment or pre-need funeral services contracted to be provided. The transfer shall be made not later than thirty days after receipt of payment from the purchaser and shall be immediately deposited in the trust. The trustee shall provide the director with a monthly confirmation notice and, upon request of the purchaser, a copy that the payments have been deposited with the trustee within thirty days of the close of the prior month by the cemetery or pre-need funeral authority."

SECTION 12. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 13. This Act shall take effect on July 1, 2008.

THE SENATE	S.B. NO.	2599
TWENTY-FOURTH LEGISLATURE, 2008		S.D. 1
STATE OF HAWAII