On May 1, California Attorney General Rob Bonta (pictured at top), along with the district attorneys of Alameda and Marin counties, and the city and county of San Francisco, announced a settlement with Service Corporation International, the nation’s largest funeral service provider, which does business in California as the Neptune Society and the Trident Society.
The settlement, which is subject to court approval, resolves the people’s enforcement action alleging that Texas-based SCI violated the Unfair Competition Law and False Advertising Law by engaging in false advertising and unlawful and deceptive acts in its marketing and sale of preneed cremation packages. The proposed settlement, in the form of a stipulated judgment, provides full restitution to consumers, comprehensive injunctive relief, and $23 million in civil penalties.
California law requires that all money paid for preneed funeral arrangements be placed in trust until either the beneficiary dies and services are provided, or the consumer cancels the contract, at which point the consumer is entitled to a full refund.
The lawsuit alleges that SCI deceptively marketed its products in a variety of ways, including by misleading consumers about its trusting practices, refund policy, and veterans’ burial benefits and cremation. Among other things, SCI routinely informed customers that they had 30 days to cancel their plans and receive a full refund, which is deceptive because pre-need customers are entitled to cancel and receive a full refund at any time before services are provided.
Sold through its Neptune and Trident locations in California, SCI’s highest-selling pre-need cremation package is one that the company marketed as the “Standard Plan.” The Standard Plan includes both cremation services and merchandise but was marketed and sold to customers as a single plan with a single price. Importantly, the Standard Plan was strategically priced to be cheaper than (or comparably priced to) stand-alone cremation services in order to induce consumers into purchasing the Standard Plan. However, when it came time to sign, SCI presented consumers with two contracts, one for heavily marked up merchandise, and one for deeply discounted cremation services. SCI then placed into trust only the discounted funds it allocated to the cremation services, keeping out of trust the funds it allocated to merchandise. Through this practice, SCI withheld from trust more than half of the total price of the Standard Plan.
Further, when a Standard Plan purchaser requested a refund, SCI only refunded the portion it had allocated to cremation services and not any of the money allocated to merchandise. In other words, SCI typically refunded less than half of a consumer’s money. The complaint alleges that these practices violate California law, which requires funeral service providers to provide a full refund of the amount paid for the entire pre-need cremation package at any time before services are rendered. This hurt consumers and their families, and allowed the company to artificially inflate its profitability.
Under the settlement, SCI will pay a $23 million civil penalty, pay full consumer restitution to the consumers who cancelled their plans but did not get a full refund, and be subject to strong injunctive terms which provide meaningful protections for California consumers. Among other things, SCI and its California locations Neptune Society and Trident Society must:
- Cease selling the Standard Plan or any similar package unless all money paid for the plan or package, as well as money paid for any collateral agreements, is placed into trust.
- Provide clear written disclosures informing consumers of their rights under California law and that consumers are not required to purchase additional products or services in order to purchase pre-need cremation services.
- Provide a full refund upon request to any consumer who cancels a pre-need funeral agreement.
- Comply with California law when advertising events or presentations regarding veterans’ benefits.
“California’s robust consumer protection laws protect all Californians from unlawful, unfair, and fraudulent business and marketing practices,” Bonta said. “Whether in higher education, home insurance, or the funeral service industry, deceptive business practices will not be tolerated. When consumers purchase pre-need funeral services, they expect — and the law requires — their funds to be safe and protected until those services are utilized.”
“Neptune Society’s and Trident Society’s pervasive price manipulation and deceptive marketing affected all their consumer negotiations and contracts for preneed services, demonstrating how their unlawful business practices were a result of decisions made at the highest levels of the companies,” said Alameda County District Attorney Pamela Price. “Thanks to the collaborative hard work of fellow District Attorney Offices and the Department of Justice, defrauded consumers will be made whole, and the companies will be required to pay $23 million in civil penalties and, more importantly, comply with the law requiring them to place preneed funds in trust.”
“Today’s settlement brings long overdue relief to the many concerned California consumers who purchased preneed cremation products and services from the Neptune Society companies,” said Marin County Deputy District Attorney Andres Perez. “Our action further sends a clear message to the funeral industry that California laws that protect customers of these products will be strictly enforced.”
SCI Comments on Settlement
During an quarterly conference call, Tom Ryan, SCI’s president and CEO, commented on the settlement, noting, “There’s no admission of any wrongdoing or fault by the company or the officers of the Board. We believe that our fourth quarter 2022 accrual that we made in relation to this is adequate to cover the $23 million civil penalty and reimbursement as well as any estimated cancellations from the customer contract. In a little history here the lawsuit was brought by the state. It was primarily based on the interpretation of the Short Act, which is under California law very specific to California.”
He continued, “And while we don’t agree with California’s interpretation, we’ve agreed to certain operational changes that allowed us to remedy the dispute … in my (earlier) comments, I mentioned that in California, we had stopped delivering merchandise and that’s one of the reasons that the non-funeral home revenues have been down. And as we’ve been finalizing these negotiations, we started looking at the model. And while this is very specific to California and again we believe in compliance with every law, we saw an opportunity to streamline the SCI Direct model. And so as I mentioned over time here, we’re going to transition SCI Direct to go from delivery merchandise in advance and delivering TRPP and shift that product to an insurance product.
“And the reason we could do that, one, is to streamline the model; two, it provides protection for our customers that pay over time. So by having an insurance product if I pay over time and die then I’m fully paid for. So we can add that benefit. It also allows us to leverage the value of our insurance sales production stream because we have such a powerful business and this will just add the power of that. And it will generate general agency revenues, which will offset the effects of not delivering the merchandise. And so now we’re going to generate these revenues upfront and the average contract revenue coming out of the backlog of SCI Direct is going to be significantly higher. So I think it’s a win-win for everybody. We’ve settled a dispute with the AG and we’re happy about that.”
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