Financial Regulation of Funeral Services

Neil Gray Excerpts

1st reading: House of Commons
Wednesday 14th December 2016 Commons Chamber

[Neil Gray (Airdrie and Shotts) (SNP)]

I beg to move,

That leave be given to bring in a Bill to require pre-paid funeral plan contracts to be regulated by the Financial Conduct Authority; to amend the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 accordingly; and for connected purposes.

I rise to propose this Bill as a result of “Funeral Poverty in Scotland”, a report commissioned by the Scottish Government and published in February this year. It was written by Citizens Advice Scotland and John Birrell, who chairs the Scottish working group on funeral poverty. The Scottish Government have accepted this excellent report, which has a series of recommendations, including the need to address the regulation of prepaid funeral plans. I thank Fraser Sutherland from CAS and John Birrell for their work with me on this Bill proposal. I also wish to thank the Fair Funerals Campaign, which has supported me in the run up to today.

Before I begin my speech in earnest, I should say that I am an advocate of funeral plans as the best means of avoiding funeral poverty, allowing people to pay in advance, in full or in instalments, for their own funeral. I have also had meetings with the Financial Conduct Authority and the Funeral Planning Authority, the industry’s internal regulator, to discuss the proposal, and they were both constructive in their response. It was also welcome to see supportive statements this morning from the National Association of Funeral Directors and from Dignity, one of the largest funeral plan providers. We are approaching a consensus on change being required.

I am proposing this Bill in the context of a 90% rise in the cost of funerals over the last decade. In my area, North Lanarkshire Council increased burial and cremation charges by 39% last year—the steepest rise in Scotland—and the average funeral cost has risen 7% in the last year in Scotland as a result. After paying for an average funeral in the UK today, there is unlikely to be much change from £4,000. The Scottish Government are taking action in those areas and will next year publish a funeral costs plan to address the main drivers of funeral poverty. When the Scottish Government take on responsibility for the benefit, they are also committing to process applications for funeral payments within 10 working days to reduce the reliance on borrowing to pay for funerals.

The additional costs are placing an unbearable burden on the already stretched finances of bereaved families, many of whom are getting into serious and unmanageable debt when they lose a loved one, as has been raised in the House by, among others, the hon. Members for Belfast East (Gavin Robinson) and for Swansea East (Carolyn Harris), both of whom both support the Bill, and the hon. Members for Blackpool South (Gordon Marsden) and for South Shields (Mrs Lewell-Buck). People are rightly turning to funeral plans as a way of addressing that incredible financial pressure, which often arrives suddenly on family members. Funeral plans are like vouchers for funerals that are paid in advance and redeemed when the policy holder passes away. People can sign a contract describing how they want their funeral to take place and pay for it in advance. There is also an added advantage in that people can secure the funeral at today’s prices.

Funeral plans are described in article 59 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 and article 60 details how the plans can be exempted from FCA regulation if the funeral plan company undertakes to secure the sums paid by the customer through whole life insurance or if they hold the funds in trust—with some further stipulations about how the trust should be constituted and thereafter handled. The whole life insurance market, specifically over-50 plans, is another area that needs to be considered and is addressed by the CAS report, but it is not the focus of this particular Bill.

As I said, I spoke to the chief executive of the FPA and he understands my concerns and those raised by CAS. I also appreciate that he is not responsible for all funeral plans sold and that the FPA does all it can to satisfy complaints when they arise, but a debate is necessary on whether the current system is the best to ensure consumer confidence in what is going to be an ever more important area of the market in coming years.

In compiling the report, Citizens Advice Scotland found evidence of apparent mis-selling by some funeral plan salespeople. Some funeral plans cover all associated costs for the funeral, but others cover only basic funeral director costs. It has been suggested that some salespeople are misleading customers about what is included in the contract they are signing up to. One member of a focus group quoted in the report said:

“They were very pushy and I think trying to pull the wool over my eyes. I knew the amount they were quoting wasn’t enough to cover the cost, so I think they can mislead people.”

That calls into question the practices of some salespeople involved in funeral plan contracts. Some of those are third-party salespeople who are paid on a commission basis for selling contracts, which makes me a little uncomfortable, as this can encourage people to chase harder for sales than to ensure the consumer is entirely aware of, or happy with, what they have signed up to. Charles Flannigan, the managing director of Donald McLaren Ltd, a funeral directors based in my constituency, has told me that when he asks his customers why they have chosen to take out a plan with him the majority say it is because they are fed up with cold calling by funeral plan companies. That is of major concern to me, and I know it will be of concern to others in this House. He has also given me numerous examples of elderly people who have been coerced into buying plans that either are more expensive than necessary or are where the customer has not been asked any questions specifically about the funeral to be provided. In one case, the funeral plan company apparently waited until after the 30-day cooling-off period to deliver the funeral plan documents, and explained that the funeral director of choice had refused the funeral plan but listed others who might carry it out. The gentleman had specifically purchased the plan in order to be with that particular funeral director, who informed him that he had been mis-sold the plan as it did not include all of what he had wished for his funeral.

Mr Flannigan is particularly keen to see closer involvement of funeral directors in the selling of funeral plans, so as to avoid unintended issues in the contracts arising. Heather Kennedy from the Fair Funerals Campaign has said that there are some excellent funeral companies that are rising to the challenge presented by funeral poverty—their processes and prices are transparent, they talk openly about money and make different options available. As with any other industry, however, there are others who do not, and are charging too much for their plans and at-need funerals. I hope that some of those areas of concern may be addressed here.

Another case study was highlighted by the east of Scotland citizens advice bureau, which reported a client complaint regarding a funeral plan. The client felt that no matter what she does she is not going to get the funeral she wants or had planned for. She was told when she bought the plan that it could be at any funeral director and it would cover all the costs. It later turned out, after she had signed the contract, that the nearest funeral director who will honour the plan is 30 miles away and she will get only the “basics” from the funeral director. The director she wanted to administer the funeral will not do it, as the plan is held with another company, and the plan provider has told her she will lose a lot of her money if she cancels. She has got nowhere with the complaint.

Finally, the provision of funeral plans is not covered by the Financial Services Compensation Scheme, which protects against insolvency events, nor are these plans covered by the Financial Ombudsman Service, which provides an independent complaints and adjudication service free to the consumer. Although the FPA has taken action to address these criticisms, a bonus of this Bill being accepted and enacted by the Government would be that these schemes were open to offer additional consumer confidence.

In conclusion, I hope that by my proposing this very reasonable Bill, the UK Government will look seriously at this issue and engage in a positive dialogue to ensure that consumers who are often in a vulnerable and bereaved state are adequately protected.

Question put and agreed to.

Ordered,

That Neil Gray, Patricia Gibson, Roger Mullin, Dr Eilidh Whiteford, Liz Saville-Roberts, Diana Johnson, Mr Jacob Rees-Mogg, Sir David Amess, Gavin Robinson, Carolyn Harris and Rosie Cooper present the Bill.

Neil Gray accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 24 February 2017, and to be printed (Bill 112).