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Summary: The Texas Department of Banking (department) regulates prepaid funeral benefits contracts and issues permits to companies authorizing the sale of such benefits. In fiscal year 2012, nearly 400 companies or individuals held permits to sell prepaid funeral benefits contracts, with their worth surpassing $3 billion. Due to this growth, fraud concerns have increased. HB 1489 would give the department additional powers to address fraud in the prepaid funeral benefits industry.
HB 1489 requires permit holders to notify the department if the permit holder transfers complete ownership of their business and requires transferees to file for a permit. Prepaid funeral benefit sellers (seller) may renew permits as unrestricted sellers if they meet department requirements. Sellers become restricted sellers if they cannot demonstrate that they meet qualifications and standards, and if they don’t wish to sell prepaid funeral services anymore. Restricted sellers cannot operate in the industry.
HB 1489 gives broad investigation and subpoena authority to the Commissioner of the Texas Department of Banking (commissioner) if the commissioner has a reasonable suspicion a seller is engaged in certain fraudulent or dishonest activity relating to prepaid funeral services. The commissioner can conduct investigations and subpoena to compel attendance, testimony, and documents from sellers.
HB 1489 changes language from “shall” to “may” that makes imposition of the chapter’s maximum administrative penalty up to the discretion of the trier if a seller has willfully disregarded the department’s rules. The Commissioner can certify that a record seized as evidence in any proceeding before the commissioner is admissible without prior proof of its correctness.
The commissioner may issue prohibition orders that forbid a person from selling prepaid funeral benefits if the commissioner determines a person intentionally participated in certain acts an act described by 154.401, Finance Code, such as a refusal to produce records or engaging in a dishonest practice in a contract.
If the commissioner serves a prohibition on a person alleged to have committed or participated in an act described above if the commissioner determines it to be in the public interest. The commissioner may make a prohibition perpetual or temporary, and one may only appeal a prohibition 10 years after the prohibition’s order and the commissioner may approve or deny any appeal. The commissioner’s appeal decision is final and not appealable.
Analysis: HB 1489 presents unnecessary regulation of problems that can be addressed by consumers who wish to utilize prepaid funeral services.
Portions of HB 1489 are not controversial and may even be beneficial, particularly those provisions seeking to inform consumers about when a seller is going to close or transfer ownership. Current law also already requires sellers in this industry to apply for a permit that must be approved by the department.
HB 1489 does, however, give the commissioner significant new investigative authority. Moreover, HB 1489 gives the commissioner power to issue orders of prohibition that keep sellers from doing business even before they are fully convicted of any wrongdoing and without a court order. This is a violation of due process rights. Sellers under a prohibition order would only be able to appeal ten years after the prohibition issuance. The appeal would directed back to the commissioner who originally investigated, not to an unbiased entity. The commissioner’s appeal decision would be final and unappealable.
People using prepaid funeral services should be allowed the opportunity to take personal responsibility in finding trustworthy prepaid funeral service providers, and they should be allowed to take any allegation of fraud to the judicial system. Allowing the commissioner to issue a preemptive injunction without due process against a business alleged of wrongdoing will only constrain this market and hurt consumers. We encourage legislators to oppose HB 1489.