Prepaid funeral sellers face cold-calling ban as regulator unveils new rules
The Financial Conduct Authority has revealed details on how it plans to regulate prepaid funeral sellers from next summer, with measures including a ban on cold calling, a set penalty-free cancellation period and providers requiring authorisation.
Update: 8 November 2021: Additional information on the Financial Conduct Authority's (FCA) new rules for prepaid funeral plan sellers have today been announced. The FCA says that from 29 July 2022:
- Customers will be protected by the Financial Services Compensation Scheme (FSCS) should a provider fail. The FSCS can either arrange continuity of funeral contracts or pay cash compensation from an underlying trust or via insurance. However, these rules are dependent on the Government’s proposed funeral plans legislation, so the FCA says it won't finalise them just yet.
- Customers will be able to receive a partial refund if they choose to downgrade their plan.
- The FCA will carry out checks on prepaid funeral plan sellers to ensure they stick to the rules
The industry is currently overseen by the Funeral Planning Authority, but firms can choose not to sign up to its code of practice, and in 2018, the Treasury found people at their most vulnerable were being pressured, harassed and misled by some prepaid funeral plan providers.
As a result, the Financial Conduct Authority (FCA) will be given new powers to regulate prepaid funeral sellers on 29 July 2022. For more on how prepaid funerals work and what to look out for, see our Prepaid Funeral Plans guide.
What are prepaid funeral plans?
Prepaid funeral plans typically allow anyone aged over 50 (but as young as 18 with some) to pay for and set out the arrangements of their own or someone else's funeral now, so when they die, their family will have little financial and/or organisational responsibility.
The plans cover many of the costs associated with a funeral, such as a coffin and a hearse. However, they don't cover all costs, and one of the major issues is that currently plans aren't covered by the Financial Services Compensation Scheme, which means cash could be at risk if the provider goes under - though as explained below, this is now set to change next year.
How the new rules for prepaid funeral plans will work next year
The FCA said today its new rules "will introduce high standards in the funeral plans market and require firms to ensure that plans are sold fairly, perform as expected and provide value for money". In practice, this will mean:
- All providers will need to be FCA-authorised by 29 July 2022, or they will be shut down. Firms can apply for authorisation from 1 September 2021. The FCA said the Funeral Planning Authority will continue as the voluntary industry body responsible for the conduct of providers registered with it until FCA regulation kicks in next July.
- Cold calling will be banned and new advertising standards brought in to ensure plans are sold fairly. The ban will work in the same way as the FCA’s mortgages cold-calling ban - unless a firm has an existing relationship with you as a customer and you would expect to receive a call from it as part of this relationship, it cannot call you. Commission payments to intermediaries who might advise or arrange the funeral on your behalf will also be banned.
- Prepaid funerals will be covered by the Financial Services Compensation Scheme from 29 July 2022. This means you'll have some protection if a firm were to go under. The FCA says it's now consulting further on exactly what this will mean, but under its proposals the rules would ensure "that contracts can be transferred to new providers where possible, and that the FSCS can arrange continuity of funeral plan contracts or pay appropriate compensation if a firm is not able to meet its liabilities".
- Funerals paid for by instalments must deliver a funeral service. With prepaid plans you can either pay for your funeral in one go or spread the cost. Under current rules, if you pay by installments and die before you finish paying, your family may be asked to cover the cost and if they can't your service may not go ahead.
However under the FCA's new rules, funerals paid by instalment must go ahead, unless the customer dies within 24 months of purchasing the plan, in which case the plan provider won't be required to provide the service but must give a full refund.
- You'll have 30 days after buying a plan to cancel penalty-free if you change your mind. The FCA initially consulted on a 30-day free cancellation window, with an extra seven days if you're appointed a provider on days 23 to 30.
What does the FCA say?
Sheldon Mills, executive director for consumers and competition at the FCA, said: "Our new rules for the sector will drive up standards and ensure that when consumers buy a plan, they receive a product that matches their needs and expectations. We are banning all commission payments to intermediaries to make sure products offer fair value, and, having seen the real harm cold calling can cause consumers, we’ll be banning it."