Adopted Amendments to 7 TAC §25.1

Title 7. Banking and Securities
Part 2. Texas Department of Banking
Chapter 25. Prepaid Funeral Contracts
Subchapter A. Contract Forms
7 TAC §25.1

The Finance Commission of Texas (the commission), on behalf of the Texas Department of Banking (the department), adopts amendments to §25.1, concerning Definitions, without changes to the proposed text as published in the April 25, 2014, issue of the Texas Register (39 TexReg 3332).

These amendments clarify that non-guaranteed cash advance items in a prepaid funeral benefits contract are those delivered or provided by a third party provider. The amendments define “third party provider” as a legal entity with a different federal tax identification number from the funeral provider. If a question arises as to whether a certain entity is a third party provider, the department will require the funeral provider to provide evidence that the third party has a different tax identification number.

The basis for the rule is the existence of confusion as to who constitutes a third party for purposes of prepaid funeral benefits contracts.

In accordance with Texas Finance Code §154.1511(a), purchasers of prepaid funeral benefits may agree to advance funds for all or any portion of items called cash advance items, the actual cost of which will be determined by existing prices when the funeral benefits are provided. In the department’s model prepaid funeral benefits contract, the purchaser is informed that the provider of the funeral benefits pays for these cash advance items on behalf of the purchaser to third parties. Permit holders have differed in their interpretation of who constitutes a third party. For example, some permit holders take the position that a sister company owned by a common parent is not a third party, while other permit holders take the position that such a sister company is a third party. The department’s proposed definition of “third party provider” clarifies this issue.

The department also proposed a non-substantive amendment to the definition of “funeral goods and services” in §25.1(b)(2). Section 25.1(b)(2) included a reference to §25.3(b) and omitted two words that were in the title of §25.3(b). Therefore, the department added “or Waiver” to make the reference to §25.3(b) conform to the title of that section.

There are two amendments to the definition of “non-guaranteed cash advance items” in §25.1(b)(8). The first change clarifies that a purchaser is buying prepaid funeral benefits, not a prepaid funeral benefits contract. The second change clarifies that non-guaranteed cash advance items are those provided by a third party provider. A definition of the term “third party provider” is added in the amendment as §25.1(b)(15).

The definition for “Third Party Provider” is added to §25.1(b) as paragraph (15) and the following paragraphs are renumbered accordingly. The added definition states that a third party provider is a separate legal entity from the funeral provider. The third party provider must have a separate federal tax identification number from the funeral provider, but it may be related to the funeral provider through common ownership or as subsidiaries or affiliates of one another.

The Department received no comments regarding the proposed amendments.

The amendment is adopted pursuant to Finance Code §154.051(b), which provides that the commission may adopt reasonable rules concerning the keeping and inspection of records relating to the sale of prepaid funeral benefits and any other matter relating to the enforcement and administration of Chapter 154. The amendment furthers one of the purposes of Chapter 154 as stated in Finance Code §154.001 (1): to limit the manner in which a person may accept funds in prepayment of funeral services to be performed in the future.

§25.1. Definitions.

            (a) A word or term that is defined in Finance Code, Chapter 154, retains the same meaning when used in this subchapter unless the word or term is defined otherwise in subsection (b) of this section.

            (b) The following words and terms have the following meanings when used in this subchapter, unless the context in which a word or term is used clearly indicates a different meaning that is consistent with the purpose of Finance Code, Chapter 154:

(1) "Contract beneficiary" means the person named in a prepaid funeral benefits contract as the intended recipient of contracted funeral merchandise and services.

(2) "Funeral goods and services" means funeral merchandise and services that are regulated as prepaid funeral benefits, as that term is defined by Finance Code, §154.002(9), except to the extent provided otherwise in §25.3(b) of this title (relating to What Requirements Apply to a Non-Model Contract or Waiver) and related provisions.

(3) "Funeral Provider" or “Provider” has the meaning assigned by Finance Code, §154.002(6), specifically a person that agrees in a prepaid funeral benefits contract to provide specified prepaid funeral benefits.

(4) "Insurance-funded contract" means a prepaid funeral benefits contract funded by an insurance policy.

(5) "Insurance policy" has the meaning assigned by Finance Code, §154.002(7), specifically a life insurance policy or an annuity contract. The term does not include a policy for any other form of insurance.

(6) "Model contract" means a prepaid funeral benefits contract form developed and published by the department for your use.

(7) "Model waiver" means the waiver form developed and published by the department for your use, to govern the voluntary waiver of a purchaser's right to cancel a prepaid funeral benefits contract as permitted by Finance Code, §154.156(a).

(8) “Non-guaranteed cash advance items” are items for which a purchaser of prepaid funeral benefits may agree to advance funds for all or any portion of the reasonable estimated cost of the items included in the prepaid funeral benefits contract, the actual cost of which are to be determined by existing prices at the time the items are delivered or provided by a Third Party Provider in connection with at-need performance of the contracted funeral.

(9) "Non-model contract" means a prepaid funeral benefits contract form that differs from the model contract with respect to the requirements and standards of §25.3 of this title and §25.4 of this title (relating to What Are the Plain Language Requirements for a Non-Model Contract or Waiver). A model contract does not become a non-model contract because you add your name, trademark, or other information about you, or information about the provider.

(10) "Non-model waiver" means a form of waiver that has the same purpose as but differs from the model waiver with respect to the requirements and standards of §25.2(c) of this title (relating to Am I Required to Use the Model Contract and Model Waiver) and §25.4 of this title. For example, a model waiver does not become a non-model waiver because you add your name, trademark, or other information about you, or information about the provider.

(11) "Prepaid funeral benefits contract" or "contract" means a contract or agreement for prepaid funeral benefits, whether trust-funded or insurance-funded.

(12) "Purchaser" means the person who contracts to buy prepaid funeral benefits. The purchaser may also be the contract beneficiary. If permitted by the context, the term includes the purchaser's authorized agent.

(13) "Responsible person" means the person charged with the disposition of the contract beneficiary's remains by Health and Safety Code, §711.002(a).

(14) "Seller" has the meaning assigned by Finance Code, §154.002(10), specifically a person selling, accepting money or premiums for, or soliciting contracts for prepaid funeral benefits or contracts or insurance policies to fund prepaid funeral benefits in this state.

(15) “Third Party Provider” means a legal entity that is separate from the Funeral Provider and which will provide non-guaranteed cash advance items under a prepaid funeral benefits contract. Separate legal entities have different federal tax identification numbers but may be related by common ownership or be subsidiaries or affiliates of one another.

(16) "Trust-funded contract" means a prepaid funeral benefits contract funded by trust deposits made on behalf of the purchaser.

(17) "You" (or "I" in a section title) means a seller that is licensed under Finance Code, Chapter 154, and is subject to this chapter.

            Effective date: July 10, 2014, 39 TexReg 5141.