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5.'5 East :\lonrOt' StreetChicago, lI1inois 60603Area Code 312 3.')3-~~23

FEDERAL TRADE CO~I~lISSIO:\

Chicago Regional Office

May 9, 1986

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Department of Registration and EducationAttention: Kathy Campbell Lynch320 West Washington, 3rd FloorSpringfield, IL 62786

Dear Ms. Lynch:

The Federal Trade Commission's Chicago Regional OfficI andBureaus of Competition, Consumer Protection, and Economics arepleased to have the opportunity to comment on the proposedamendments to the Rules for the administration of the IllinoisFuneral Directors and Embalmers Licensing Act ("IllinoisRul es"). In these cornmen ts, we discuss: (1) restrictions onpre-tieed solicitation of funeral services, and (2) restrictionsin cu'rrent Illinois Rules that may inhibit .truthful and non""deceptive advertising.

The Federal Trade Commission ("Commission") seeks to promotecompetition among members of licensed professions to the maximumextent compatible with other legitimate state and federalgoals. For several years, the Commission has been investigatingthe effects of restrictions on the business practices ofprofessionals, including optometrists, dentists, lawyers, funeraldirectors, physicians, and others. Our goal in theseinvestigations is to identify and seek the removal of thoserestrictions that impede competition, increase costs, and harmconsumers, but do not provide countervailing benefits.

The Commission has pursued this goal actively in the funeralindustry. As you may be aware, after extensive rulemakingproceedings, the Commission adopted the Trade Regulation RuleConcerning Funeral Industry Practices ("Funeral Rule"), 16 CoF.R.

1 These comments do not necessarily represent the views of theCommission or any individual Commissioner, although theCommission has authorized their submission.

Kathy Campbell LynchMay 9, 1986

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Part 453, which became effective in full on April 30, 1984. Thepurpose of the Funeral Rule is to promote increased competitionand consumer choice in the funeral industry by facilitatinginformed purchasing decisions by consumers. Among other things,the Funeral Rule requires the disclosure of detailed informationabout prices and legal requirements to purchasers of funeralgoods and services.

As we-understand it, the Illinois Funeral Directors andEmbalmers Licensing and Disciplinary Board ("Board") has proposedamendments to the Illinois Rules that would prohibit telephonesolicitation, as well as all forms of solicitation by personsother than licensed funeral directors. By letter dated May 31,1985, to State Senator Judy Baar Topinka, the Commission staffcommented on Illinois Senate Bill 293, which would have imposedthese same restrictions. (The bill would have also prohibitedall door-to-door solicitation and prohibited the ownership offuneral establishments by unlicensed persons.) Senate Bill 293was defeated. Commission staff also commented on these issues tothe Illinois Department of Registration and Education("Department") by letter dated November 6, 1985, and at aroundtable discussion convened by your office on that date. 2

We believe that the following comments, in which we discussthe restrictions contained in the Board's proposed amendments aswell as several other existing Illinois Rules containing ­restrictions which appear to be anticompetitive,. will be of someassistance to you in evaluating the Rules' possible effects oncompetition and consumers.

I. Restrictions on Pre-need Solicitation of Funeral Services

The Board's proposed Rule 250.205(g) would prohibit allforms of funeral service solicitation by persons other thanlicensed funeral directors, and the Board's proposed amendment toRule 250.205(e) would prohibit all telephone solicitation bysellers of funeral services. Rule 250.205(e) currently prohibits

2 Commission staff has also recently commented concerning thepossible anticompetitive effects of proposed funeralindustry legislation in Michigan, Kansas, and Alabama.Letter of April 7, 1986, to Senator Kirby Holmes ofMichigan; letter of February 14, 1986, to RepresentativeGinger Barr of Kansas; and letter of January 16, 1986, toSenator John E. Amari of Alabama. Copies of these commentsare available upon request.

., ........ u.r \".alllpOe.L.L LynchMay 9, 1986

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all uninvited solicitation at a residence or health careinstitution. We believe that the following discussion willprovide the Department and the Board with a framework in which toconsider the competitive and consumer protection aspects ofimposing certain types of limitations on the solicitation offuneral services.

Effective communication of truthful information by sellersor their representatives to potential clients is critical to thefunctioning of competitive markets. Restrictions on solicitationmay reduce significantly the truthful information that is avail­able to consumers making purchasing decisions. Such restrictionson the flow of truthful information may make it more difficultfor consumers to learn about the various prices, levels, andtypes of services that are available, as well as which firms arestressing the price factor. When consumers are unable to compareprices and other options, competitors are insulated fromcompetition. As a result, competitors' incentives to keep pricesdown and to offer alternatives (in both the amount and quality ofservices) desired by consumers are reduced. Restrictions onsolicitation may also prevent competitors, especially new marketentrants or those offering innovative services, from obtainingcli en ts.

This is not to say that all forms or methods of solicitationare alway"s procompetitive. In certain circumstances, aparticular form or method of uninvited, in-person solicitation _may be so susceptible to coercion, harassment, "'or similar abusesthat its prohibition is justified. In its decision in AIII~rican

Medical Association,3 the Federal Trade 'Commission held-that anAMA code of ethics provision prohibiting virtually alladvertising and solicitation by physicians violated Section 5 ofthe Federal Trade Commission Act. The Commission found that the"AMA's broad proscription of advertising and solicitation [had]gby its very essence~ significant adverse effects on competitionamong AMA members." The Commission did provide in its order,

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American Medical Ass'n, 94 F.T.C. 701 (1979), aff'd, 638F.2d 443 (2d Cir. 1980), aff'd memo by an egually dividedCourt, 455 U.S. 676 (1982).

94 P.T.C. at 1005.

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however, that "in view of the potential overreaching that mayoccur in the absence of professional regulation," the AMA couldproscribe "uninvited in-person solicitation of actual orpotential patients, who, because of their particularcircumstances~ are vulnerable to undue influence."S

In the funeral industry, restrictions on at-need 6solicitation may be justified because of the substantial risk ofcoercion, harassment, or similar abuses in such instances. Pre­need solicitation and the competitive process it encourages, onthe other hand, may be especially important in the funeralindustry because many consumers are not aware of the wide rangeof options available from pre-need sellers. Pre-need arrange­ments enable consumers to make choices without the time oremotional pressures associated with at-need purchases.

It is possible that, in some circumstances, even pre-ne~d

solicitation may be susceptible to coercion, harassment, orsimilar abuses. This possibility does not, however, justifyrestrictions on pre-need solicitation that are more restrictiveof legitimate forms of solicitation than reasonably necessary toprevent any such abuses that could be shown to exist.

Restrictions that permit only licensed funeral directors toengage in pre-need solicitation may limit unnecessarily theability of legitimate businesses to disseminate information thatis beneficial to consumers and for which the professionalexpertise of a funeral director is not required~ Similarly,restrictions that prohibit all telephone solicitation, asproposed, and all uninvited door-to-door solicitation, as in thepresent Illinois Rules, may restrict unnecessarily the dissemina­tion of truthful information about -- and consequently the s~les

of -- pre-need funerals to willing and competent purchasers.

Telephone solicitation is a well established businesspractice that is widely used to sell goods and services in manymarkets. In the funeral industry, it may be an efficient, costeffective method by which pre-need sellers may impart toconsumers truthful and valuable information about the broad rangeof pre-need purchasing options that are available. It may alsobe a useful means for pre-need sellers to schedule salesconsultations with interested consumers at the consumers'

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Id. at 1029-30 (emphasis added).

"At-need" means after a death has occurred or where death isimminent. "Pre-need" means in advance of death.

As discussed above, the Illinois Senate has already defeateda proposal to impose these prohibitions.

Ka,thy Campbell LynchMay 9, 1986

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convenience. Because this method of solicitation does notinvolve direct, face-to-face contact between the seller and thepotential buyer, it would appear to pose minimal risks ofcoercion, harassment, or similar abuses. Hence, a totalprohibition on this mode of solicitation for pre-need sales doesnot appear to be warranted.

Door-to-door solicitation, although possibly moresusceptible to seller abuses, is also a widely used method ofdisseminating truthful information about goods and services thatshould not be restricted unnecessarily. In determining whether atotal prohibition on such solicitation as in the present IllinoisRules is justified, it is necessary to weigh the benefits ofincreasing the total amount of truthful information about pre­need options available to consumers against the potential risk~hat the ~ncidents of coercion, harassment, or similar abuses maylncrease. 1

For example, in the context of door-to-door solicitation inhealth care institutions, as opposed to personal residences,there is arguably a greater potential for the occurrence ofseller abuses because many residents of health care institutionsmay be peculiarly vulnerable to such abuses. However, healthcare institutions probably vary greatly with respect to thepercentage of resident individuals whose physical, emotional, ormental scates are such as to render such individuals especiallyvulnerable to seller abuses. Rather than imposing a totalprohibition on all door-to-door solicitation at health ca.reinstitutions, the Board and the Department may wish to considerwhether potential consumers residing in such institutions areafforded adequate protection by virtue of the rules or policiesof such institutions or by virtue of the discretionary authorityvested in the individual administrators. Such institutions andadministrators presumably have a strong interest in promoting the

8 All consumers who purchase pre-need funerals at a placeother than the place of business of the seller are protectedby the Federal Trade Commission's Trade Regulation RuleConcerning Cooling-Off Peri cd for Door-to-Door Sales, 16C.F.R. Part 429. The Rule requires that the seller give theconsumer a notice of the consumer's right ,to resci nd thedoor-to-door sale within three days. The Funeral Rule'sprotections are also applicable to pre-need purchasers. Inaddition, because at least partial payment for pre-needarrangements is typically made well in advance of death,some states have adopted regulatory measures (~., trustrequirements) designed to protect consumers from fraud andother abuses. In these comments, we do not address whatadditional consumer protection measures, if any, may beappropriate in the area of pre-need sales.

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welfare of their residents in relation to the commercialinterests of funeral directors. An additional factor that may beweighed is that many individuals residing in health careinstitutions may constitute a segment of the population that hasa particular interest in exploring the possibility of making pre­need arrangements.

In considering the need to impose blanket prohibitions ontelephone and door-to-door solicitation, the Department and theBoard may also wish to consider that a current regulation,Illinois Rule 250.205(f), already affords substantial protectionsto consumers by specifically prohibiting solicitation where1) the licensee, or his representative, reasonably should knowthat the physical, emotional, or mental state of the personsolicited is such that the person could not exercise reasonablejudgment; 2) the person solicited has made known a desire not toreceive the communication; or 3) the solicitation involvescoercion, duress, or harassment.

Accordingly, we urge the Department and the Board toconsider whether the proposed prohibitions on telephonesolicitation and solicitation by persons other than licensedfuneral directors, as well as the current prohibition on alluninvited door-to-door solicitation, may be overly restrictive ofcompetition in the market for pre-need services withoutnecessarily providing countervailing consumer benefits.

II. Other Restrictions That May Inhibit Truthful andNon-Deceptive Advertising

As a part of its efforts to foster competition amonglicensed professionals, the Commission has examined the effectsof public and private restrictions that limit the ability of

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professionals to engage in nondeceptive advertising. 9 In thisregard, several studies have found that prices for professionalgoods and services are lower whIOe advertising exists than whereit is restricted or prohibited. Studies also suggest thathigher prices occur at all quality levels where advertising isrestricted, and that these restrictions do not increase the

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See, e.g., American Medical Ass'n, supra n.3. The thrust ofthe AMA decision -- "that broad bans on advertising andsoliciting are inconsistent w~th the nation's public policy"(94 F.T.C. at 1011) -- is consistent with the reasoning ofrecent Supreme Court decisions involving professionalregulations. See, e.g., Zauderer v. Office of DisciplinaryCounsel of the Supreme Court of Ohio, 105 S. Ct. 2265 (~985)

(holding in part that an attorney may not be disciplined forsoliciting legal business through printed advertisingcontaining truthful and nondeceptive legal advice and otherinformation regarding the legal rights of potential clientsor for using nondeceptive illustrations or pictures); Batesv. State Bar of Arizona, 433 U.S. 350 (1977) (holding statesupreme court prohibition on advertising by attorneysinvalid under the First Amendment and according greatimpbrtance to the role of advertising in the efficientfunctioning of the market for professional services);Virginia State Board of Pharmacy v. Virginia CitizensCouncil, 425 U.S. 748 (1976) (holding Virginia prohibitionon advertising by pharmacists invalid under the FirstAmendment). See also recent consent orders issued by theCommission in Rhode Island Board of Accountancy, Trade Cas.(CCH) ~I 22,308 (Dkt. 9181) (prohibiting Board restrictionson truthful, non-deceptive advertising, solicitation, orencroachment); Wyoming State Board of Registration inPodiatry, Trade Cas. (CCH) ~I 22,303 (Dkt. C-3l76)(prohibiting Board restrictions on truthful, non-deceptiveadvertising); Montana Board of Optometrists, Trade Cas.(CCH) ~I 22,259 (Dkt. C-3l6l) (prohibiting Board restrictionson truthful, non-deceptive advertising of free examinations,payment terms, or "professional superiority"); LouisianaState Board of Dentistry, Trade Cas. (CCH) ~I 22,257 (Dkt.9188) (prohibiting Board restrictions on the advertising oroffering of discount prices).

Cleveland Regional Office and Bureau of Economics, FederalTrade Commission Staff Report on Improving Consumer Accessto Legal Services: The Case for Removing Restrictions onTruthful Advertising (1984); Bureau of Economics, FederalTrade Commission, Effects of Restrictions on Advertising andCommercial Practice in the Professions: The Case ofOptometry (1980); Benham and Benham, Requlating Through theProfessions: A Perspective on Information Control, 18 J.Law & Econ. 421 (1975); Benham, The Effects of Advertisinqon the Price of Eyeglasses, 15 J. Law & Econ. 337 (1972).

Kathy Campbell LynchMay 9, 1986

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quality of services available in the marketplace. ll Therefore,to the extent that nondeceptive advertising is restricted, higherprices and a decrease in consumer welfare may result. For thisreason, we believe that only false or deceptive advertisingshould be prohibited. Any other standard is unnecessary toprotect consumers, is likely to suppress the dissemination ofpotentially useful information, and may contribute to an increasein prices. _

Because several of the Illinois Rules concerning advertisingappear to go well beyond the false or deceptive standard, we alsotake this opportunity to express o~r concerns regarding thoseRules.

A• tiD i gn i f i ed" Adve r tis i ng

Illinois Rule 250.205(a) requires, among other things, thatadvertising by funeral directors be "direct, dignified, andreadily comprehensive." We believe that this provision should beeliminated, because it is vague, subjective, and not reasonablyrelated to the prevention of false or deceptive advertising. TheUnited States Supreme Court recently dealt with a similar ruleregarding advertising by attorneys in Ohio:

[A]lthough the State undoubtedly has a substantialinterest in ensuring that its attorneys behavewith dignity and decorum in the courtroom, we areunsure that the State's desire that attorneysmaintain their dignity in their communicationswith the public is an interest substantial enoughto justify abridgement of their First Amendmentrights. Even if it were the case, we areunpersuaded that undignified behavior would tendto recur so often as to warrant a prophylacticrule •••• [T]he mere possibility that somemembers of the population might find advertisingembarrassing or offensive cannot justifysuppressing it. The same must be true fotadvertising that some members of the bar mightfind beneath their dignity.l?

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Bureau of Economics, Federal Trade Commission, Effects ofRestrictions on Advertising and Commercial Practice in theProfessions: The Case of Optometry (1980); Muris andMcChesney, Advertising and the Price and Quality of LegalServices: The Case for Legal Clinics, 1979 Am. B. Found.Research J. 179 (1979). See also Cady, RestrictedAdvertising and Competition: The Case of Retail Drugs(1976); McChesney and Muris, The Effects of Advertising onthe Quality of Legal Services, 65 A.B.A.J. 1503 (1979).

Zauderer, supra n. 9, 105 S. Ct. at 2280.

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We believe that the Supreme Court's comments concerningattorney advertising apply with equal force to- advertising byfuneral directors. Consequently, such blanket prohibitions mayrestrict unnecessarily the flow of truthful, non-deceptiveinformation to the detriment of consumers.

We are_ not aware of any consumer injury that has resultedfrom "undignified" advertising by funeral directors in Illinoisor elsewhere; nor is it clear to us how such injury couldoccur. Even if a funeral director chose to advertise in an"undignified" manner, the advertisi,ng might still providebeneficial information to consumers in two ways. Some consumerscould find the advertising useful and informative. Otherconsumers could choose not to select a funeral director if theyfound his advertising to be "undignified." If many or most -',consumers reacted adversely to "undignified" advertising, thiswould create powerful incentives for funeral directors to avoidsuch an advertising approach. Further, if consumers do not finda given funeral director's advertising "undignified," it wouldnot appear relevant as a policy matter whether other (perhapscompeting) funeral directors or others did. Thus, there do notappear to be any consumer benefits stemming from the rule.

On the other hand, both consumer injury and competitive harmmay result from the rule. The "dignified" standard could beconstrued very broadly in its enforcement to exclud~advertising

that contains such things as pictures of caskets. Furthermore,whether the Department or the Board would construe it broadly,the rule may inhibit truthful, non-deceptive advertising iffuneral directors, unaware of what mayor may not be considered"undignified," reduce the amount of their truthful advertising toavoid any ris~ of violating the vague standards •

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B. Limitation on Information That Mav Be Advertised

Illinois Rule 250.205(b) (1-10) lists specific kinds ofinformation that may be included in advertising by funeraldirectors. Subsection 11 restricts other information that may beincluded to that which "a reasonable person might regard asrelevant in determining whether to seek the registrant'sservices."

As with the "dignified" standard discussed above, we areconce rned that such a' vague, s ubj ecti ve standa rd may tendunnecessarily to inhibit truthful, non-deceptive advertising. Ifa funeral director included irrelevant information in hisadvertising, there would not likely be any consumer injury unlessthe information were also deceptive. If it were deceptive, itwould already be prohibited by Rule 250.205(a). It is difficultto define "relevant" in this context. Some consumers might findcertain information to be relevant while other consumers wouldnot. If~ consumers find truthful information to be relevant,

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it is of value. If.!}£ consumers find it relevant, it is simplywasted, inefficient promotion that doesn't harm consumers. Weurge deleting subsection 11 so that -- as for all other goods andservices -- it is left to the marketplace to determine whatinformation is relevant to prospective purchasers.

C. Fee Disclosure Recruirement

Illinols Rule 250.205(b) (9) requires that advertisementscontaining fees for funeral services and merchandise include astatemen t that "fees may be adj usted due to unforeseencircumstances." We believe that this requirement should beeliminated. This requirement may serve to increase theconsumer's difficulty in discovering the true cost of servicesand merchandise and could inhibit truthful advertisingunnecessarily. )

As discussed above, the Commission's Funeral Rule requiresdisclosure of detailed information about prices to purchasers offuneral goods and services. The Commission found the failure tofurnish price information to be an unfair or deceptive act orpractice. Nevertheless, in adopting mandatory price disclosurerequirements -- including telephone price disclosures -- theCommission did not find it necessary to require a disclaimer suchas Illino~s' to protect consumers.

If a funeral director wishes truthfully to advertisespecific fees or a range of fees for services or merchandise, thedisclosure requirement is unnecessary to prevent deception.Although unforeseen circumstances might require a fee adjustment,these circumstances do not appear to be any different from thosein many other markets in which analogous disclosures are notmandated. On the other hand, with the mandated disclosure in anadvertisement;-a funeral director may feel freer to adjust hisfees from those advertised without causing the consumer toquestion the funeral director's actions. If such an adjustmentis made regularly and without regard to any truly "unforeseencircumstances," the fee advertisement may in fact be false anddeceptive. Finally, unnecessary disclosure requirements tend toinhibit truthful advertising by m~king it more costly.

D. Prohibitions on Specific Types of Representations

Illinois Rule 250.205(d) prohibits certain representationseven if they do not contain a false or deceptive statement orclaim. Subsection 2 prohibits all representations that takeadvantage of the potential client's fears, anxieties, vanities,or other emotions. Subsection 3 prohibits all testimonials (aswell as exaggerations) pertaining to the quality of funeralservices. We are concerned that these provisions go well beyondprotecting the consumer from false or deceptive advertising. Weurge deleting these prohibitions.

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We believe that there is nothing inherently deceptive aboutadvertising that appeals to a person's emotions. Indeed, muchadvertising appeals to the emotions of consumers and, thus, wouldviolate this standard. Like the "dignified" standard discussedabove, this vague, subjective standard may similarly result infuneral directors reducing the amount of their truthfuladvertising to avoid any risk of violating the prohibition.

Likewise, testimonials are widely used in many markets tocommunicate consumer experiences with particular products andservices. In the funeral industry, they can be a highlyeffective means of disseminating useful and truthful information,including statements about a funeral horne's facilities,personnel, prices, and types -- as well as quality -- of servicesoffered. Such advertising can foster competition by enablingfuneral directors to differentiate their goods and services fromthose offered by competing funeral homes. For example, in orderto promote the availability of relatively new types of funeralpurchasing options, such as pre-need plans, some funeraldirectors may wish to advertise the truthful opinions and beliefsof consumers who have already purchased such plans. Testimonialsmay be particularly useful in attracting those consumers who havehad little or no contact with funeral homes. In addition,because many characteristics of a funeral service are not readilydescribed in objective terms, consumers may find especiallyuseful another consumer's honest appraisal of the servicesrendered by a particular funeral horne. SUbsection 3 prohibitsall testimonials concerning quality, including those that aretruthful and nondeceptive. This approach raises seriousantitrust concerns because it may significantly reduce the amountof truthful information available to consumers about the relativeattributes of different funeral homes.

E. Prerecording and Record-keeping

Illinois Rule 250.205 (c) provides that the registrant mustprerecord broadcast television and radio advertisements, and thata copy of the transmission must be retained for five years. Webelieve that this provision should be modified to eliminate theprerecording requirement, and to eliminate or shorten the record­keeping requirement. The prerecording provision may serve toinhibit advertising by increasing its cost. In any event, itappears unnecessary as a means of protecting the pUblic fromfalse or deceptive advertising. The prerecording requirementprohibits the use of less expensive "spot" announcements that theregistrant could prepare or approve for reading over the air by aradio or television announcer. We also recommend that theDepartment and the Board consider whether the five-year record­keeping requirement may be unduly burdensome. If such arequirement is deemed necessary to prevent false or deceptiveadvertising, we would urge that a shorter time period -- such asone year -- be considered.

Kathy Campbell LynchMay 9, 1986

III. Conclusion

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We hope that our comments concerning the possibleanticompetitive effects of restrictions on advertising and thesolicitation of funeral services will assist you in yourdeliberations on the proposed amendments. We appreciate theopportunity to present our views and concerns.

Sincerely,

WIlliam C. MacLeodDi rectorCHICAGO REGIONAL OFFICE