Consumer Guarantee Fund
Developed in 1998 by the Government and Legal Affairs Task Force of the
International Cemetery and Funeral Association
One method to protect purchasers of prepaid contracts from financial losses while allowing sufficient proceeds to meet the seller's expenses is through establishment of a statewide consumer guarantee fund. If the purchaser of the prepaid contract does not receive the merchandise or services due to non-performance of the seller or provider, the purchaser has recourse by making a claim against the consumer guarantee fund for restitution or delivery of the contracted merchandise and services.
Other alternatives to trusting, such as financial instruments and insurance-funded prearrangements, are reviewed under separate guidelines.
- All sellers of prepaid contracts, except those specifically exempted by law, should be required to contribute to the Consumer Guarantee Fund (the "Fund"). This requirement should apply to all types of pre-funded prearrangements except those funded by insurance, which are discussed under a separate guideline.
- The Fund should not be used for any purpose other than payment of claims from purchasers who have suffered actual financial loss under prepaid contracts.
- The Fund should exist as a separate account and should not be commingled with other monies except for investment purposes. The earnings attributable to the fund should be retained in the account.
- The basis of funding the Fund should be established. For example, the contribution could be a flat fee per prepaid contract. The prepaid contract should contain a disclosure regarding the existence and nature of the Fund. If the contribution is collected from the purchaser, then the contribution amount should be disclosed as an itemized charge on the prepaid contract.
- The Fund should have a maximum level of funding based on its claims history, determined through annual assessments of claims made in recent years. When the Fund has reached the specified maximum level of funding, further contributions should be suspended until such time as the Fund's balance drops below the specified level of funding.
- Amounts may be deducted from the Fund for payment of actual administrative expenses incurred by the regulatory authority in performing the duties and functions of administering the Fund. The Fund administrators should publicly report annual income, expenses, and claims.
- The claims procedure should clearly specify the conditions under which claims can be made and should establish the process for reviewing and investigating claims, approving or denying applications, and making disbursements from the Fund.The claims procedure should clearly specify the conditions under which claims can be made and should establish the process for reviewing and investigating claims, approving or denying applications, and making disbursements from the Fund.
- Claims should be paid only upon a finding of fact by the regulatory authority that the purchaser has suffered an actual financial loss and that the amount is uncollectible from the seller or provider or that the seller or provider cannot fulfill the terms of the prepaid contract.
- A claim against the Fund should be a matter of grace and not a right. No claimant should have any vested right or interest in the Fund.
- Claims paid from the Fund should be awarded only for restitution or delivery of merchandise or services. Restitution should not exceed the amount of the purchase price paid under the prepaid contract. No monies should be paid for attorneys' fees involved in the recovery process.
- Each seller or provider involved in an individual transaction should be held jointly and severally liable for failure to perform under the prepaid contract. The state regulatory authority administering the Fund should have the right and obligation to collect and reimburse the Fund for the amount of any claims paid from defaulting sellers or providers.
- No claims should be allowed for failure to perform by entities which have been exempted from regulation or funding requirements.
- The fund should have no liability for claims submitted for prepaid contracts entered into prior to establishment of the Fund.