Thousands of customers who have paid for funeral plans risk losing ‘significant’ sums of cash following a major industry clampdown.
The deals, which typically cost between £3,000 and £4,000, promise customers peace of mind that their loved ones will not be hit with a big bill when they die.
An estimated 1.6million plans have been sold, with about 174,000 taken out every year.
Thousands of customers who have paid for funeral plans risk losing ‘significant’ sums of cash following a major industry clampdown (stock photo used)
But an investigation by the City watchdog last year exposed evidence of mis-selling, high-pressure sales tactics and unfair charges.
There were also concerns about the financial soundness of some providers, which could mean they are unable to pay out when customers die.
The Financial Conduct Authority (FCA) pledged to regulate the industry, which is worth an estimated £4billion, by this summer.
If providers fail to apply for authorisation or their application is rejected, they must cease trading from July 29.
This means they will not be able to deliver the funeral plans paid for by customers. Of the 72 providers listed by the FCA, about 30 have not yet submitted an application.
The regulator had advised providers to apply before the end of January.
A number of providers are subsidiaries of bigger firms, which are applying on their behalf, or still working to get the paperwork in order.
Others are in talks with larger companies, such as Dignity, in the hope they will take over their plans.
But some firms may have to be wound down.
In these cases, experts warned there would not be enough money to refund customers, and there is no compensation scheme available.
Yet despite this, the companies can continue selling funeral plans until the summer.
The FCA is urging anyone purchasing a plan ahead of the new rules to avoid companies that have not applied for authorisation.
This week it warned customers not to buy a plan from one of the country’s biggest providers, Safe Hands, after it withdrew its application.
The firm will be contacting existing customers to discuss their options.
James Daley, managing director of Fairer Finance, said: ‘We needed regulation but unfortunately the act of introducing it will send some of these companies to the wall and could leave thousands of customers with underfunded – or unfunded – funeral plans.
The deals, which typically cost between £3,000 and £4,000, promise customers peace of mind that their loved ones will not be hit with a big bill when they die (stock image used)
‘But customers should avoid panicking as cancellation fees can be as much as £1,300.
‘The hope is that many customers will be saved by bigger firms who want to avoid a scandal that would put people off buying funeral plans.’
Graeme McAusland, chief executive of the Funeral Planning Authority, said: ‘If firms have to be wound up, customers will only get back what’s left and that could be significantly less than what they paid.
‘The other problem is many people bought their plans years ago, so even if they get their money back they will then have to pay more for another because prices have gone up.’
An FCA spokesman said: ‘We have been proactive to ensure only firms which will meet our standards will be authorised.
‘We’re also engaging with firms that haven’t applied to understand their next steps.
‘For example, a number of firms are planning to transfer their customers to another provider.
‘We are encouraging those firms to contact their customers as soon as possible.
‘The FCA is imposing new rules to make sure consumers are sold products that offer fair value, including banning cold calling and all commission payments to intermediaries.’