The £2 billion funeral market is at risk of a crackdown as the UK competition watchdog and Government launch separate reviews into the sector.
The Competition and Markets Authority (CMA) confirmed on Friday that it was launching an investigation “to ensure that people are not getting a bad deal”.
It will examine whether funeral directors were providing “clear” prices and services information and look at how prices have changed over time.
The probe will also look at rising fees for cremations, which now account for 75% of all funerals.
The average funeral cost hit nearly £3,800 last year before “extras”, which the CMA said could add another £2,000 to the final bill.
It raises concerns around affordability and debt, as those on the lowest incomes can end up spending up to one third of their annual income on funerals, the CMA explained.
Daniel Gordon, a senior director of markets at the CMA, said: “People can understandably be very emotionally vulnerable when planning a funeral.
“We therefore think it is important that, at what can be a particularly challenging time, the process is made as easy as possible.”
Shares in listed funerals firm Dignity plunged more than 14% on the news.
The Treasury is separately proposing that pre-paid funeral plan providers come under the regulation of the Financial Conduct Authority (FCA).
It comes amid evidence showing elderly people are being “pressured, harassed and misled” by some operators.
Action is needed because 95% of the market is voluntarily regulated by the Funeral Planning Authority (FPA), which lacks the power to prevent pre-paid plan providers from trading and whose code of practice is not legally binding, according to ministers.
The Treasury says it is launching a consultation process to prevent people being “ripped off” when they are at their most vulnerable after alarming research conducted by Citizens Advice Scotland and Fairer Finance.
Economic Secretary to the Treasury John Glen said: “I’m appalled by the lengths that some dishonest salesmen have gone to in order to sell a funeral plan.
“It breaks my heart to think that our oldest and most vulnerable are being pressured into funeral plans that leave their grieving families out of pocket.”
Demand for funeral plans has grown rapidly, with annual sales rising by about 245% between 2006 and in 2017, but regulations have remained the same since 2001.
In 2017, there were 207,700 plan sales made by FPA-registered providers, and 1,313,100 undrawn plans.
Commenting on the Treasury’s proposals, Simon Cox, from funeral provider Dignity, said: “It is excellent news that the Government has decided to do something about mis-selling in the funeral plan sector.
“Our research has shown that bad practices like persistent and pushy cold-calling are rife among firms that have no oversight from a regulatory body.
He said that the majority of providers are registered with the industry’s own voluntary regulator, but that a growing number of new players were taking advantage of a regulation gap and did not receive proper oversight as a result.
The Treasury’s consultation is set to close on August 1, while the CMA will collect submissions until June 28 before publishing a full report in a year’s time.