39–006 

109TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 109–40 

MILITARY PERSONNEL FINANCIAL SERVICES 

PROTECTION ACT 

APRIL 13, 2005.—Committed to the Committee of the Whole House on the State of 

the Union and ordered to be printed 

Mr. OXLEY, from the Committee on Financial Services, 

submitted the following 

R E P O R T 

[To accompany H.R. 458] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 458) to prevent the sale of abusive insurance and investment products to military personnel, having considered the same, 

report favorably thereon without amendment and recommend that 

the bill do pass. 

CONTENTS 

Page 

Purpose and Summary ............................................................................................ 1 

Background and Need for Legislation .................................................................... 2 

Hearings ................................................................................................................... 5 

Committee Consideration ........................................................................................ 6 

Committee Votes ...................................................................................................... 6 

Committee Oversight Findings ............................................................................... 6 

Performance Goals and Objectives ......................................................................... 6 

New Budget Authority, Entitlement Authority, and Tax Expenditures ............. 6 

Committee Cost Estimate ....................................................................................... 6 

Congressional Budget Office Estimate ................................................................... 7 

Federal Mandates Statement ................................................................................. 9 

Advisory Committee Statement .............................................................................. 9 

Constitutional Authority Statement ...................................................................... 9 

Applicability to Legislative Branch ........................................................................ 9 

Exchange of Committee Correspondence ............................................................... 9 

Section-by-Section Analysis of the Legislation ...................................................... 10 

Changes in Existing Law Made by the Bill, as Reported ..................................... 16 

PURPOSE AND SUMMARY

H.R. 458, the Military Personnel Financial Services Protection 

Act, will protect military services members from the sale of quesVerDate Aug 04 2004 00:35 Apr 16, 2005 Jkt 039006 PO 00000 Frm 00001 Fmt 6659 Sfmt 6602 E:\HR\OC\HR040.XXX HR040
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1Final Report, Insurance Solicitation on Department of Defense Installations, May 15, 2000; 

Litigation Report, Investigation of NCOA Standard Procedures for Selling Insurance, November 

19, 1997. 2DoD Directive 1344.7, Sect. 6.1. 

3DoD Directive 1344.7, Sect. 6.4. 

4Diana B. Henriques, Basic Training Doesn’t Guard Against Insurance Pitch to G.I.’s, N.Y. 

Times, July 20, 2004, at A1. 

tionable financial products, curb abusive sales practices on military 

installations, and ensure regulatory oversight of financial services 

sales on military installations. Specifically, H.R. 458 bans the sale 

of contractual plans, requires written disclosures in conjunction 

with certain on-installation sales or solicitations, encourages the 

development of improved products for military personnel, increases 

investor access to broker registration and disciplinary information, 

and improves regulatory oversight by coordinating and encouraging 

contact among insurance companies, Federal and State regulators, 

and the Secretary of Defense. 

To further protect military personnel, a registry of barred and 

banned agents will be established and maintained by the Secretary 

of Defense, and the registry information is to be made readily 

available to the appropriate Federal and State regulators. The Secretary of Defense is directed to notify the appropriate regulatory 

authorities when an individual is added to or removed from the 

registry. 

BACKGROUND AND NEED FOR LEGISLATION

There is an extensive history of abusive and misleading marketing and sales of financial services products on military installations. Problems have included abusive and coercive sales tactics, 

expensive and outdated products, and a lack of uniform regulatory 

oversight for on-installation sales. 

A Pentagon-commissioned study by General Thomas Cuthbert 

and a separate Navy Judge Advocate General Corps report by Lt. 

Wayne Hildreth documented the problem of abusive sales practices 

of life insurance agents on domestic and foreign U.S. military installations.1 These reports detailed improper solicitation on installations, the use of fraternal military organizations to sell insurance 

products, a lack of uniform oversight or regulation of insurance 

sales on installations, and routine and systemic violations of Department of Defense rules. These reports were followed by a series 

of news articles in the summer of 2004 that alleged abusive sales 

practices on several military installations throughout the country 

and overseas. 

A 1986 Department of Defense Directive limits personal commercial solicitations to licensed and approved entities with specific appointments.2 The Directive prohibits, among other practices, solicitation of recruits, trainees, and transient personnel in a ‘‘mass’’ or 

‘‘captive’’ audience, using misleading advertising and sales literature, and giving the appearance that the Department of Defense 

endorses any particular company.3 Despite these prohibitions, 

‘‘agents have made misleading pitches to ‘captive’ audiences * * * 

posed as counselors on veterans benefits and independent financial 

advisers [and] solicited soldiers in their barracks or while they 

were on duty, [which are all] violations of Defense Department regulations.’’ 4

3 

5 Hearing entitled ‘‘G.I. Finances: Protecting Those Who Protect Us’’ before the House Subcommittee on Capital Markets, September 9, 2004, written testimony of David F. Woods, p. 3. 6 Hearing, written testimony of Hon. Frank Keating, President and CEO, American Council 

of Life Insurers, p. 4. 7 Hearing, written testimony of Ms. Elisabeth W. Jetton, CFP, on behalf of the Financial Planning Association, p. 5. 8 Hearing, written testimony of Mr. Mercer E. Bullard, President of Fund Democracy, Inc. and 

Assistant Professor of Law, University of Mississippi School of Law, p. 3. 9Securities and Exchange Commission, Public Policy Implication of Investment Company 

Growth 224 (1966). 

Witnesses at a September 9, 2004 hearing before the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises criticized these abusive sales practices. Mr. 

David F. Woods, CEO of the National Association of Insurance and 

Financial Advisors, testified that, ‘‘We condemn * * * deceptive, 

and unethical sales practices and have consistently worked to 

eliminate them from sales on and off base.’’ 5 In addition to criticizing the sales practices, witnesses before the Subcommittee discussed the lack of regulatory oversight for on-installation sales. As 

another witness testified, ‘‘We are convinced that the reason these 

issues continue to come up is because of the lack of clarity over 

who has the authority to oversee such sales and the absence of 

clear procedures to ensure the highest standards for dealing with 

men and women in uniform.’’ 6

In addition to improper and unethical sales practices, witnesses 

at the Subcommittee hearing criticized the securities and life insurance products being sold, suggesting that the products were particularly unsuitable for most members of the armed services and 

superior investments were available for all investors. For example, 

Ms. Elizabeth Jetton, President of the Financial Planning Association, testified that the American Amicable Insurance Company’s 

sales tactic of pitching insurance as a retirement vehicle was ‘‘misguided and misleading’’ and that ‘‘any disinterested third party 

would have a very difficult time justifying [such] insurance as a rational retirement investment for the typical serviceman.’’ 7 Mr. 

Mercer Bullard, President and Founder of Fund Democracy, testified that, ‘‘it is particularly offensive that insurance agents peddle 

overpriced, unsuitable products to the men and women who daily 

put their lives on the line for America’s defense * * *.’’ 8

The Subcommittee investigation in preparation for the hearing 

revealed that one financial services company was targeting military 

personnel with the sale of contractual plans, an obscure financial 

product through which an investor contributes equal monthly payments typically for 15 to 25 years into shares of a designated mutual fund. The hallmark of the contractual plan is a sales load of 

50% assessed against the first year of contributions. 

First offered in 1930, contractual plans were created to allow the 

investor of modest means to make monthly payments of as little as 

$10 and still experience the benefits of investing in the financial 

markets. Yet, these plans fell quickly into disrepute, beginning a 

sordid history of abusive selling practices and excessive sales 

charges.9

In congressional hearings on the investment industry in 1940 

that led to the passage of the Investment Company Act of 1940, Securities and Exchange Commission attorney John Boland testified 

that the SEC’s investigation into the contractual plan industry revealed gross abuses, including rampant misrepresentations conVerDate Aug 04 2004 00:35 Apr 16, 2005 Jkt 039006 PO 00000 Frm 00003 Fmt 6659 Sfmt 6602 E:\HR\OC\HR040.XXX HR040
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10 Hearings Before a Subcommittee of the Committee on Banking and Currency on S. 3580, 

76th Cong. 3d. Sess. (1940), Testimony of John Boland, Attorney, General Counsel’s Office, Securities and Exchange Commission, pp. 168, 172. 11 Investment Company Act of 1940, Sec. 2(a)(27). 12 Investment Company Act of 1940. Sec. 27(a). 13 H.R. Doc. No. 95, 88th Cong., 1st Sess. (1963). 14 Id. at 211. 15 Id. 16 Id. at 207. 17 H.R. Rep. No. 2337, 89th Cong., 2d Sess. (1966). 18 Id. at 237. 19 Id. at 244. 

cerning the sales loads.10 To counter these abuses, Congress included in the Investment Company Act provisions applying to sales 

of contractual plans. First defining a contractual plan as a ‘‘periodic 

payment plan certificate,’’ 11 Congress then placed restrictions on 

sales loads, the most relevant being the sales load cannot exceed 

9% of the aggregate payments into the plan and cannot be more 

than 50% of the first twelve monthly payments into the plan.12

Again reviewing these plans in the 1960s in two different congressional reports, the SEC questioned the justification for the high 

front-end load as well as the product itself. Responding to Congress’ request to study investor protection in light of the rules of 

the securities markets, in 1963 the SEC published the Report of 

the Special Study of Securities Markets.13 The report devoted some 

analysis to the contractual plan, concluding that the high first-year 

sales load was unjustifiable: ‘‘[O]nly compelling reasons can justify 

the continued existence of the front-end load [on contractual plans]. 

The study has concluded that the justifications advanced by the industry are hardly persuasive and certainly not compelling.’’ 14

The Special Study Report then called for considering the elimination of the excessively high first-year front-end load.15 The Special Study Report also noted the likely unsuitability of the product 

for investors of modest means: ‘‘To some extent the industry is reluctant to concede that questions of suitability can ever arise in the 

sale of funds or plans, but * * * [the] evidence concerning contractual plan redemptions and lapses leave no doubt that a substantial 

number of plans are sold to persons for whom, because they have 

insufficient income or inadequate other financial resources, they 

are likely to be unsuitable investments.’’ 16

Following upon the 1963 Report, in 1966 the SEC released the 

Report of the Securities and Exchange Commission on the Public 

Policy Implications of Investment Company Growth.17 In the report, the SEC noted that early contractual plan redeemers ‘‘pay ‘effective’ or cumulative average sales loads which often amount to 

many times the normal sales loads applicable to the underlying 

fund shares—effective sales loads which clearly would be ‘unconscionable or grossly excessive’ but for the express provisions of 

[Section 27(a)] of the [Investment Company] Act with respect to 

front-end loads.’’ 18 In addition the SEC noted the potential for 

sales abuses: ‘‘Moreover, though the contractual plan is a longrange program for systematic investing, the front-end load only 

provides retailers with a strong incentive to get purchasers to initiate such a plan, regardless of their circumstances, in order to realize commissions on at least the front-end portion of the load. 

After these first-year payments are made, the salesman’s interest 

in the completion of the plans he sells is sharply eroded by the fact 

that his commissions are substantially decreased.’’ 19

5 

20 Id. at 246–47. 21The only substantive amendment to Section 27 was passed under the National Securities 

Markets Improvement Act of 1996, which exempted variable life insurance and variable annuities from the strictures of Section 27. See Section 27(i) of the 1940 Act. Note that in 1971, Congress further amended Section 27(f) to clarify that the 60 day notice provision did not apply 

to periodic payment plans where the sales load was always under 9% of the total monthly payment (i.e. a plan without a disproportionate front-end load). 22Diana B. Henriques, Basic Training Doesn’t Guard Against Insurance Pitch to G.I.’s, N.Y. 

Times, July 20, 2004, at A1. 23Gary S. Mogel, Congress Questions Sale of High-Fee Funds to Military: Contractual Plans 

Come under Scrutiny, Investment News, Vol. 8, Issue 34, Sept. 13, 2004, at 21. 

In concluding its analysis of the structure and sales of contractual plans in the Public Policy Implications of Investment Company 

Growth, the SEC recommended to Congress the abolition of the 

front-end load on contractual plans and the reduction of the maximum aggregate load during the plan’s term from 9% to 5%.20 In 

1967, the SEC drafted a bill to implement those and other policy 

recommendations. The bill included a provision to abolish the frontend load on contractual plans. Bowing to industry pressure, Congress refused to follow the SEC’s recommendation, passing the Investment Company Act Amendments of 1970, which implemented 

refund and surrender privileges for contractual plan investors, but 

did not reduce the front-end load. 

After the 1970 Amendments, Congress and regulators focused little attention on contractual plans 21 as sales declined with the advent of no-load and low-load mutual funds and the possibility of 

dollar cost averaging with minimal monthly contributions. In fact, 

in a mutual fund market that has over 7 trillion dollars invested, 

these plans account for only approximately 11 billion dollars of 

which 90 percent are held by military personnel. Today financial 

experts decry these investment vehicles. Vanguard Group founder 

John C. Bogle asserted: ‘‘Would I ever recommend that an investor 

buy contractual plans? No, I would not.’’ 22 Similarly, Morningstar 

Inc.’s Senior Fund Analyst Bridget Hughes succinctly stated, 

‘‘There are really no advantages to these contractual funds; they 

are old-fashioned, based on old ideas of how to force people to commit to systematic investing.’’ 23

In December 2004, the dominant retailer of contractual plans, a 

financial services company catering exclusively to military personnel, voluntarily stopped selling them in the wake of last year’s 

Committee action and investigations by the SEC and NASD into its 

use of misleading contractual plan sales materials. Later that same 

month the company settled the charges with the SEC and NASD, 

agreeing to pay $12 million to reimburse certain customers and 

provide investor education to the military. At the same time NASD 

issued a warning to investors regarding the high upfront costs associated with contractual plans. 

HEARINGS

The Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises held a hearing on financial product 

sales to military personnel entitled ‘‘G.I. Finances: Protecting 

Those Who Protect Us’’ on September 9, 2004. The Subcommittee 

received testimony from the following witnesses: Specialist Brandon Conger, United States Army; Ms. Elizabeth W. Jetton, President, Financial Planning Association; Mr. Mercer Bullard, Founder 

and Chief Executive Officer, Fund Democracy, Inc.; Mr. Lamar C. 

6 

Smith, Chairman and Chief Executive Officer, First Command Financial Planning, Inc.; Mr. Joe W. Dunlap, Executive Vice President, American Amicable Life Insurance Company of Texas; Mr. 

David Woods, Chief Executive Officer, National Association of Insurance and Financial Agents; Hon. Frank Keating, President and 

Chief Executive Officer, American Council of Life Insurers. 

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on 

March 15, 2005 and ordered H.R. 458, the Military Personnel Financial Services Protection Act, favorably reported to the House by 

a voice vote. 

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. A motion by Mr. 

Oxley to report the bill to the House with a favorable recommendation was agreed by a voice vote. An amendment offered by Mr. 

Gutierrez, no. 1, to limit ‘‘pay day’’ lending activities was withdrawn. 

COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House 

of Representatives, the Committee has held hearings previously 

and made findings that are reflected in this report. 

PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House 

of Representatives, the Committee establishes the following performance related goals and objectives for this legislation: 

The Secretary of Defense and State and Federal financial regulators will use the authority granted by this legislation to protect 

members of the military from abusive sales practices on military 

installations. Further, the Secretary of Defense will use the authority granted by this legislation to create and maintain a registry of 

agents and broker/dealers who have been banned or barred from 

selling financial services products on military installations. 

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee finds that this legislation 

would result in no new budget authority, entitlement authority, or 

tax expenditures or revenues. 

COMMITTEE COST ESTIMATE

The Committee adopts as its own the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

7 

CONGRESSIONAL BUDGET OFFICE ESTIMATE

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House 

of Representatives, the following is the cost estimate provided by 

the Congressional Budget Office pursuant to section 402 of the 

Congressional Budget Act of 1974: 

APRIL 13, 2005. 

Hon. MICHAEL G. OXLEY, 

Chairman, Committee on Financial Services, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 458, the Military Personnel Financial Services Protection Act. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contacts are Melissa E. Zimmerman (for federal costs), and Craig Cammarata (for the private-sector impact). 

Sincerely, 

DOUGLAS HOLTZ-EAKIN. 

Enclosure. 

H.R. 458—Military Personnel Financial Services Protection Act 

Summary: H.R. 458 would ban the sale of mutual funds sold 

though contractual plans. The bill also would require insurance 

companies to provide certain notices about insurance policies offered by the U.S. government when selling an insurance policy to 

servicemembers or while marketing on military installations. The 

bill would require the Department of Defense to maintain a list of 

agents and advisors barred from doing business on military installations. Finally, the bill would amend securities law to require registered securities associations to provide public access to certain 

consumer information and to file certain financial information with 

the Securities and Exchange Commission. 

CBO estimates that implementing H.R. 458 would result in no 

significant cost to the federal government and would not affect direct spending or revenues. 

H.R. 458 contains no intergovernmental mandates as defined in 

the Unfunded Mandates Reform Act (UMRA), and any costs to 

state, local, or tribal governments would be voluntary. 

H.R. 458 contains private-sector mandates as defined in UMRA 

related to the sales of mutual fund and life insurance products. 

Based on information provided by industry and government 

sources, CBO expects that the aggregate direct costs of complying 

with those mandates would fall below the annual threshold established by UMRA for private-sector mandates ($123 million in 2005, 

adjusted annually for inflation). 

Estimated cost to the Federal Government: CBO estimates that 

implementing H.R. 458 would result in no significant cost to the 

Federal Government and would not affect direct spending or revenues. 

Estimated impact on state, local, and tribal governments: H.R. 

458 contains no intergovernmental mandates as defined in UMRA, 

and any costs to state, local, or tribal governments would be voluntary. The bill would encourage state insurance regulators to coVerDate Aug 04 2004 00:35 Apr 16, 2005 Jkt 039006 PO 00000 Frm 00007 Fmt 6659 Sfmt 6602 E:\HR\OC\HR040.XXX HR040
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ordinate with the Department of Defense to protect military personnel from predatory life insurance schemes. Based on information from state insurance commissioners, CBO estimates that the 

costs of such cooperation would not be significant. 

Estimated impact on the private sector: H.R. 458 contains private-sector mandates as defined in UMRA related to the sales of 

mutual fund and life insurance products. Based on information provided by industry and government sources, CBO expects that the 

aggregate direct costs of complying with those mandates would fall 

below the annual threshold established by UMRA for private-sector 

mandates ($123 million in 2005, adjusted annually for inflation). 

H.R. 458 would impose private-sector mandates on registered investment companies, registered securities associations, insurers 

and those selling life insurance products to members of the Armed 

Forces on military installations of the United States. Specifically, 

the bill would impose mandates by: 

Prohibiting the sales of periodic-payment-plan certificates; 

Requiring a registered securities association to provide an 

electronic or other process to receive and respond to inquiries 

about disciplinary actions taken against brokers and dealers; 

and 

Requiring insurers and producers of life insurance products 

to make certain disclosures when selling or soliciting life insurance products on military installations. 

Prohibition on the sales of periodic plan certificates 

Purchasers of periodic-payment-plan certificates make monthly 

investment payments into mutual funds, typically for a period of 15 

years or more. Under current law, the Investment Company Act 

limits the sales load on such certificates to 9 percent of the total 

payments to be made during the life of the plan, but allows that 

sales load to be significantly front-loaded. Specifically, up to half of 

the monthly investment payments made in the first year may be 

deducted for sales load. According to industry sources, current 

practice is to charge a sales load that amounts to 3.3 percent of the 

total payments expected to be made over the life of the plan, and 

to collect that sales charge for the entire plan period by deducting 

half of the first 12 investment payments. 

H.R. 458 would impose a private-sector mandate on registered 

investment companies by prohibiting them from selling any more 

periodic-payment-plan certificates. The cost of complying with the 

mandate would be the income (sales load) forgone net of any operating expenses to generate that income. Based on information from 

industry sources on sales in 2003 and 2004, CBO estimates that 

the annual sales load that would be forgone by the prohibition of 

new sales of periodic-payment-plan certificates would range between $30 million and $35 million. 

Disclosure and inquiry response requirements 

The bill also would impose private-sector mandates regarding additional disclosures by those selling life insurance on military 

bases, and responses to inquiries about broker or dealer registration information. Based on information from industry and government sources, CBO estimates that the direct cost to comply with 

those mandates would be small. Those mandates would: 

9 

Require insurers and producers of life insurance products 

selling or soliciting those products on military installations to 

provide a written disclosure to the consumer that subsidized 

life insurance may be available from the federal government, 

and that the U.S. government has in no way sanctioned, recommended, or encouraged the product being offered; and 

Require a registered securities association to establish and 

maintain a readily accessible electronic or other process to respond to inquiries regarding registration information about 

brokers and dealers and their associated persons, including 

disciplinary actions taken against them. 

Estimate prepared by: Federal Costs: Melissa E. Zimmerman; 

State and Local Impact: Sarah Puro; and Private-Sector Impact: 

Craig Cammarata. 

Estimate approved by: Peter H. Fontaine, Deputy Assistant Director for Budget Analysis. 

FEDERAL MANDATES STATEMENT

The Committee adopts as its own the estimate of Federal mandates prepared by the Director of the Congressional Budget Office 

pursuant to section 423 of the Unfunded Mandates Reform Act. 

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the 

Federal Advisory Committee Act were created by this legislation. 

CONSTITUTIONAL AUTHORITY STATEMENT

Pursuant to clause 3(d)(1) of rule XIII of the Rules of the House 

of Representatives, the Committee finds that the Constitutional 

Authority of Congress to enact this legislation is provided by Article 1, section 8, clause 1 (relating to the general welfare of the 

United States) and clause 3 (relating to the power to regulate interstate commerce). 

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the 

terms and conditions of employment or access to public services or 

accommodations within the meaning of section 102(b)(3) of the Congressional Accountability Act. 

EXCHANGE OF COMMITTEE CORRESPONDENCE

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, Washington, DC, March 16, 2005. 

Hon. MICHAEL G. OXLEY, 

Chairman, Committee on Financial Services, 

Rayburn House Office Building, Washington, DC. 

DEAR MR. CHAIRMAN: On March 16, 2005, the Committee on Financial Services reported H.R. 458, a bill to prevent the sale of 

abusive insurance and investment products to military personnel. 

As you know, H.R. 458, as ordered reported, contained provisions 

within the jurisdiction of the Committee on Armed Services. 

10 

Because of your willingness to consult with this Committee, and 

because of your desire to move this legislation expeditiously, I will 

waive consideration of the bill by the Committee on Armed Services. By agreeing to waive this consideration of the bill, the Committee does not waive its jurisdiction over H.R. 458. In addition, 

should a conference be convened on this legislation, the Committee 

reserves its authority to seek conferees on any provisions of the bill 

that are within its jurisdiction. I ask for your commitment to support any request for conferees by the Committee on H.R. 458 or 

similar legislation. 

I request that you include this letter and your response in the 

Congressional Record during your consideration of the legislation 

on the House floor. Thank you for your consideration of these matters. 

With best wishes. 

Sincerely, 

DUNCAN HUNTER, 

Chairman. 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, DC, March 16, 2005. 

Hon. DUNCAN HUNTER, 

Chairman, Committee on Armed Services 

Rayburn House Office Building, Washington, DC. 

DEAR CHAIRMAN HUNTER: Thank you for your recent letter regarding your committee’s jurisdictional interest in H.R. 458, the 

Military Personnel Financial Services Protection Act. I appreciate 

all of your efforts to expedite consideration of this important legislation. 

I acknowledge your committee’s jurisdictional interest in section 

11 of the bill as ordered reported by the Committee on Financial 

Services and appreciate your cooperation in allowing speedy consideration of the legislation. I agree that your decision to forego further action on the bill will not prejudice the Committee on Armed 

Services with respect to its jurisdictional prerogatives on this or 

similar legislation. I will support your request for an appropriate 

number of conferees should there be a House-Senate conference on 

this or similar legislation. 

Finally, I will include a copy of your letter and this response in 

Committee’s report on the bill and the Congressional Record when 

the legislation is considered by the House. 

Thank you again for your assistance. 

Yours truly, 

MICHAEL G. OXLEY, 

Chairman. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title 

This section provides the short title for the bill, the ‘‘Military 

Personnel Financial Services Protection Act’’. 

11 

Section 2. Congressional findings 

The section sets forth certain Congressional findings describing 

the need to protect members of the Armed Forces from the sale of 

inappropriate financial products and from abusive and misleading 

sales tactics. 

Section 3. Prohibition on future sales of periodic payment plans 

This section amends section 27 of the Investment Company Act 

of 1940 by prohibiting both the issuance of periodic payment plan 

certificates by registered investment companies and the sales of 

periodic payment plan certificates by registered investment companies and the depositors and underwriters of such companies. This 

section does not alter, invalidate, or affect the rights or obligations 

under any periodic payment plan certificates issued before the 

aforementioned prohibition takes effect. This section also directs 

the Securities and Exchange Commission to submit a report to the 

House Committee on Financial Services and the Senate Committee 

on Banking, Housing, and Urban Affairs within six months of the 

enactment of the legislation regarding any measures taken by a 

broker or dealer to voluntarily refund payments made by military 

personnel on any periodic payment plan certificate, and the 

amounts of such refunds; the sales practices of such brokers or 

dealers on military installations over the past 5 years and any legislative or regulatory recommendations to improve such practices; 

and the revenues generated by such brokers or dealers in the sales 

of periodic payment plan certificates over the past 5 years and 

what products such brokers or dealers market to replace the revenue generated from the sales of periodic payment plan certificates. 

Section 4. Method of maintaining broker/dealer registration, disciplinary, and other data 

This section amends section 15A(i) of the Securities Exchange 

Act of 1934, which requires a registered securities association to 

maintain a toll-free telephone listing to receive inquiries regarding 

disciplinary actions involving its members and their associated persons, and to respond to those inquiries in writing. The amended 

language requires a registered securities association to establish a 

system to collect and maintain registration information, and to establish an easily accessible electronic or other process (in addition 

to the toll-free telephone listing) to respond to inquiries about registration information. 

Registration information will be collected on the association’s 

members and their associated persons, as well as the members and 

associated persons of any registered national securities exchange 

that uses the system for the registration of such persons. The association may charge persons making inquiries, other than an individual investor, reasonable fees for producing a response. 

The registered securities association, in consultation with the 

participating registered national securities exchanges, also will be 

required to adopt rules on the process for making inquiries and responses, and on the establishment of an administrative process for 

disputes that may arise concerning the accuracy of information 

given in responses to inquiries. As under current law, the association and participating exchanges will not be liable to any persons 

for actions taken or omitted in good faith under this provision. 

12 

Section 5. Filings depositories for investment advisors 

This section reorganizes and codifies in the Investment Advisers 

Act of 1940 provisions of the National Securities Markets Improvement Act of 1996, in which Congress directed the Commission to 

establish an electronic filing system, and mandated the creation of 

a public disclosure program, for investment advisers. Pursuant to 

this directive, the Commission designated the NASD to operate the 

electronic filing system for investment advisers, which is called the 

Investment Adviser Registration Depository, and created an Internet-based public disclosure program containing investment adviser 

registration and disciplinary information. 

This section codifies this arrangement, although it requires a 

toll-free telephone listing, or electronic means, for receiving and responding to inquiries for registration information. 

The new provision recognizes that the NASD also operates the 

public disclosure program on behalf of the Commission and conforms the Investment Advisers Act provision to the terms of the Securities Exchange Act of 1934 so that the NASD has immunity 

from liability for actions taken in good faith in operating the investment adviser public disclosure program. 

Section 6. State insurance jurisdiction on military installations 

This section clarifies State jurisdiction over the regulation of the 

business of insurance as conducted on Federal land or facilities in 

the United States and abroad, including military installations. 

State insurance jurisdiction will generally apply to all private insurance activities on Federal land, except to the extent there is direct conflict with applicable and authorized Federal rules or where 

a State law would not apply to the activity even if it were being 

conducted on State land. 

To the extent there is a conflict among State laws that would 

apply to insurance activities conducted on Federal land, the section 

provides that the State law that has priority (and primary enforcement responsibility) is that of the State within which the Federal 

land is located. If the Federal land or facility is located outside of 

the United States (such as in a foreign country), then the State 

with primary jurisdiction is the State that primarily regulates the 

individual or entity engaged in the insurance activity. For the regulation of any activity involving an insurance producer (e.g., agent 

or broker), where the producer is licensed in multiple States and 

there is a conflict among the laws of those States, the law of the 

State that issued the producer’s resident license applies and that 

State is primarily responsible for enforcing its laws against that 

producer. For the regulation of any activity involving any other insurance entity where there is a conflict among State laws that 

would otherwise apply, such as questions regarding an insurance 

product from an insurer licensed in multiple States, then the law 

of the State of the entity’s domicile applies and that State is primarily responsible for enforcing its laws against that entity. 

These provisions are intended to ensure that there are no gaps 

between Federal and State insurance protections for military personnel, that States are able and required to enforce their insurance 

laws with respect to private insurance activities on Federal land, 

and that there is always at least one State that is recognized as 

13 

responsible for regulating any private insurance activity conducted 

on Federal land. 

Section 7. Required development of military personnel protection 

standards regarding insurance sales 

This section expresses the intent of Congress that the States collectively work together with the Secretary of Defense to ensure 

that there are appropriate standards implemented to protect members of the military from dishonest and predatory insurance sales 

practices while on military installations. The goal of this provision 

is to promote the development, identification, and implementation 

of uniform and coordinated protection standards to ensure that 

members of the military are not exposed to abusive sales tactics on 

military installations. The Committee intends the National Association of Insurance Commissioners (NAIC) (or NCOIL or similar 

organization of States) to work collaboratively with the Secretary 

to determine the appropriate regulatory division of insurance protections, under whose jurisdiction each protection should be implemented, and how each protection should be enforced in a coordinated and uniform manner to avoid regulatory gaps or inappropriate inconsistencies. 

To achieve the goal of this section, the Committee expects that 

each State will identify its role in promoting these uniform standards within 12 months of the date of enactment of this legislation. 

The NAIC is expected to work with the Secretary of Defense to determine to what extent the States have implemented appropriate 

and uniform protection standards, and submit a report on how 

these goals have been met to the Committee on Financial Services 

of the House of Representatives and the Committee on Banking, 

Housing, and Urban Affairs of the Senate. The Committee intends 

that this report will include a description of the work of the States 

and the Secretary in balancing responsibilities to ensure coordinated and uniform implementation to avoid any gaps in protecting 

our military personnel from inappropriate insurance products and 

sales practices. 

Section 8. Required disclosures regarding life insurance 

The purpose of this section is to ensure that no life insurance is 

sold to a member of the Armed Forces pursuant to an on-installation solicitation unless certain written disclosures are made first. 

If an insurer or producer solicits insurance on a military installation, then before the sale of the insurance, the insurer or producer 

must disclose to the consumer that the Federal Government has 

not sanctioned, recommended, or encouraged the sale of the product and that subsidized life insurance may be available from the 

Federal Government. If the solicitation is occurring on Federal land 

outside of the United States, then the disclosure must also include 

the address and phone numbers where consumer complaints are received by the appropriate State insurance departments (that primarily regulate the producer and insurer selling the product). The 

disclosure must be made in plain and readily understandable language in a type font at least as large as the font used for the majority of the policy. These written disclosures will help to ensure 

that members of the armed forces make an informed decision beVerDate Aug 04 2004 00:35 Apr 16, 2005 Jkt 039006 PO 00000 Frm 00013 Fmt 6659 Sfmt 6602 E:\HR\OC\HR040.XXX HR040
14 

fore purchasing private life insurance after having been solicited on 

a military installation. 

Penalties have been provided as an enforcement tool for the intentional failure to provide written disclosures. If it is determined 

by a State or Federal agency, or in a final court proceeding, that 

the individual or entity intentionally failed to provide a disclosure 

as required by this section, then that individual or entity will be 

prohibited from engaging in the business of insurance on Federal 

facilities. These penalties do not apply to insurance activities that 

are specifically contracted by or through the Federal or any State 

Government or are specifically exempted from the applicability of 

this legislation by Federal or State law, regulation, or order that 

specifically refers to this section. 

States are encouraged to develop and adopt, in materially identical form, a standard setting forth the requirements for disclosures 

under this section that apply to the business of insurance as sold 

to military personnel on military installations. The goal is to make 

this section dynamic to respond to future developments and to 

allow the States to develop their own standards. If standards are 

developed by a majority of the States, then those standards will 

apply in lieu of the requirements of this section for activities governed by those States (so long as there is no direct conflict with 

any Federal requirement other than this section). For purposes of 

this provision, the term ‘‘materially identical form’’ means that 

with respect to a particular activity in question, the exact same 

conduct is required or prohibited or otherwise regulated in exactly 

the same manner. The disclosures required by the majority of 

States may differ from or exceed the disclosures provided for in this 

section, as long as such disclosures are uniform in all material respects across all those States. 

Section 9. Improving life insurance product standards 

This section requests that the NAIC work with the Secretary of 

Defense to study and report to Congress on ways to improve the 

quality and sale of life insurance products sold by insurers and life 

insurance agents on military installations. This section is intended 

to focus the States and the Secretary on stopping not only abusive 

and misleading sales practices, but also inappropriate products 

from being sold to the men and women protecting the United 

States. Among other solutions, Congress intends that the study 

consider limiting sales authority to companies and producers that 

are certified as meeting appropriate best practices (such as the Insurance Marketplace Standards Association), and developing appropriate standards to stop bad products from being targeted to military personnel regardless of whether they are on or off installation. 

If the NAIC does not submit the report to the Committees of jurisdiction as directed by this section, then the Comptroller General of 

the United States must report to Congress on any proposals that 

have been made by relevant parties to improve the quality and sale 

of life insurance products sold to military personnel. 

Section 10. Required reporting of disciplined insurance agents 

This section effectively requires insurers whose producers are soliciting life insurance on military installations to implement a system to report to the appropriate insurance department any discipliVerDate Aug 04 2004 00:35 Apr 16, 2005 Jkt 039006 PO 00000 Frm 00014 Fmt 6659 Sfmt 6602 E:\HR\OC\HR040.XXX HR040
15 

nary actions taken against any of those producers by the military 

that the insurer is aware of, as well as any significant disciplinary 

action imposed by the insurer. The term ‘‘significant’’ is intended 

by the Committee to distinguish disciplinary actions for infractions 

that have bearing on the likelihood of a producer to engage in improper sales activities as opposed to minor actions that have no 

bearing on the producer’s integrity or conduct and that would not 

otherwise be appropriate to report to a State. 

This section also expresses the intent of Congress that the States 

collectively implement a system to receive reports of disciplinary 

actions taken against producers with respect to sales on military 

installations, and to disseminate information on disciplinary actions among themselves and the Secretary of Defense. 

These provisions, along with section 11, are intended to prevent 

life insurance producers disciplined at one military installation 

from continuing to sell insurance at other Federal facilities, by ensuring that information on disciplinary actions against producers is 

being effectively communicated among all the relevant parties. The 

Committee expects the States to fulfill the requirements of this section by using the Producer Database (PDB) system of the National 

Insurance Producer Registry, a non-profit affiliate of the NAIC that 

most State insurance departments rely on to both share information regarding the licensing status of producers and make that information available to insurers. The Committee intends that all 

States utilize the PDB or a similar system, and improve PDB to 

be able to receive and share relevant information on producer licensing status with the Secretary of Defense. 

Section 11. Registry of barred insurance agents and financial advisors 

This section directs the Secretary of Defense to create and maintain a registry of banned or barred financial advisors and life insurance agents. The Secretary of Defense will be responsible for 

updating and maintaining the registry, which will provide the 

name, address, and other identifying information of the banned or 

barred agent or advisor. The registry must be accessible and 

searchable by local installation commanders and appropriate Federal and State financial regulators. 

The Secretary of Defense is further required to promptly notify 

the appropriate Federal and State regulators when an individual 

has been added to or removed from the registry. The Secretary of 

Defense is also responsible for implementing an appeal process, 

and for issuing regulations to ensure the maintenance and operation of the registry. 

The Committee intends this section to provide local installation 

commanders with adequate information to make access determinations for life insurance producers. The Committee expects the Secretary to fulfill the notification requirement by providing and receiving information through an electronic system networked with 

the NAIC’s PDB or other similar system established by the States 

pursuant to section 10, as well as any similar systems created by 

the Securities and Exchange Commission or the NASD, to ensure 

that installation commanders, the Secretary, the appropriate securities and insurance regulators, and financial companies share inVerDate Aug 04 2004 00:35 Apr 16, 2005 Jkt 039006 PO 00000 Frm 00015 Fmt 6659 Sfmt 6602 E:\HR\OC\HR040.XXX HR040
16 

formation regarding disciplinary actions taken against producers 

and advisors to prevent the migration of rogue salespersons. 

Section 12. Sense of Congress 

This section indicates the sense of Congress that the Federal and 

State agencies responsible for regulation of insurance and securities should provide advice to the appropriate Federal entities to 

consider significantly increasing the life insurance coverage made 

available through the Federal Government to members of the military, encouraging greater financial literacy and objective financial 

counseling for military service members, and improving the benefits and matching contributions under the Thrift Savings Plan for 

military personnel. 

Section 13. Definitions 

This section defines certain terms used in the legislation. 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italics, 

existing law in which no change is proposed is shown in roman): 

SECTION 27 OF THE INVESTMENT COMPANY ACT OF 

1940 

PERIODIC PAYMENT PLANS

SEC. 27. (a) * * * 

* * * * * * * 

(i)(1) * * * 

(2) It shall be unlawful for any registered separate account funding variable insurance contracts, or for the sponsoring 

insurance company of such account, to sell any such contract unless— 

(A) such contract is a redeemable security; and 

(B) the insurance company complies with section ø26(e)¿ 

26(f) and any rules or regulations issued by the Commission 

under section ø26(e)¿ 26(f). 

(j) TERMINATION OF SALES.— 

(1) TERMINATION.—Effective 30 days after the date of enactment of the Military Personnel Financial Services Protection 

Act, it shall be unlawful, subject to subsection (i)— 

(A) for any registered investment company to issue any 

periodic payment plan certificate; or 

(B) for such company, or any depositor of or underwriter 

for any such company, or any other person, to sell such a 

certificate. 

(2) NO INVALIDATION OF EXISTING CERTIFICATES.—Paragraph 

(1) shall not be construed to alter, invalidate, or otherwise affect 

any rights or obligations, including rights of redemption, under 

any periodic payment plan certificate issued and sold before 30 

days after such date of enactment. 

17 

SECTION 15A OF THE SECURITIES EXCHANGE ACT OF 

1934 

REGISTERED SECURITIES ASSOCIATIONS

SEC. 15A. (a) * * * 

* * * * * * * 

ø(i) A registered securities association shall, within one year 

from the date of enactment of this section, (1) establish and maintain a toll-free telephone listing to receive inquiries regarding disciplinary actions involving its members and their associated persons, and (2) promptly respond to such inquiries in writing. Such 

association may charge persons, other than individual investors, 

reasonable fees for written responses to such inquiries. Such an association shall not have any liability to any person for any actions 

taken or omitted in good faith under this paragraph.¿ 

(i) OBLIGATION TO MAINTAIN REGISTRATION, DISCIPLINARY AND

OTHER DATA.— (1) MAINTENANCE OF SYSTEM TO RESPOND TO INQUIRIES.—A 

registered securities association shall— 

(A) establish and maintain a system for collecting and retaining registration information; 

(B) establish and maintain a toll-free telephone listing, 

and a readily accessible electronic or other process, to receive and promptly respond to inquiries regarding— 

(i) registration information on its members and their 

associated persons; and 

(ii) registration information on the members and 

their associated persons of any registered national securities exchange that uses the system described in subparagraph (A) for the registration of its members and 

their associated persons; and 

(C) adopt rules governing the process for making inquiries and the type, scope, and presentation of information to 

be provided in response to such inquiries in consultation 

with any registered national securities exchange providing 

information pursuant to subparagraph (B)(ii). 

(2) RECOVERY OF COSTS.—Such an association may charge 

persons making inquiries, other than individual investors, reasonable fees for responses to such inquiries. 

(3) PROCESS FOR DISPUTED INFORMATION.—Such an association shall adopt rules establishing an administrative process for 

disputing the accuracy of information provided in response to 

inquiries under this subsection in consultation with any registered national securities exchange providing information pursuant to paragraph (1)(B)(ii). 

(4) LIMITATION OF LIABILITY.—Such an association, or an exchange reporting information to such an association, shall not 

have any liability to any person for any actions taken or omitted in good faith under this subsection. 

(5) DEFINITION.—For purposes of this subsection, the term 

‘‘registration information’’ means the information reported in 

connection with the registration or licensing of brokers and 

dealers and their associated persons, including disciplinary actions, regulatory, judicial, and arbitration proceedings, and 

18 

other information required by law, or exchange or association 

rule, and the source and status of such information. 

* * * * * * * 

INVESTMENT ADVISERS ACT OF 1940 

TITLE II—INVESTMENT ADVISERS 

* * * * * * * 

SEC. 203A. STATE AND FEDERAL RESPONSIBILITIES. 

(a) * * * 

* * * * * * * 

ø(d) FILING DEPOSITORIES.—The Commission may, by rule, require an investment adviser— 

ø(1) to file with the Commission any fee, application, report, 

or notice required by this title or by the rules issued under this 

title through any entity designated by the Commission for that 

purpose; and 

ø(2) to pay the reasonable costs associated with such filing.¿ 

ø(e)¿ (d) STATE ASSISTANCE.—Upon request of the securities commissioner (or any agency or officer performing like functions) of any 

State, the Commission may provide such training, technical 

assistance, or other reasonable assistance in connection with the 

regulation of investment advisers by the State. 

ANNUAL AND OTHER REPORTS

SEC. 204. øEvery investment¿ 

(a) IN GENERAL.—Every investment adviser who makes use of the 

mails or of any means or instrumentality of interstate commerce in 

connection with his or its business as an investment adviser (other 

than one specifically exempted from registration pursuant to section 203(b) of this title), shall make and keep for prescribed periods 

such records (as defined in section 3(a)(37) of the Securities Exchange Act of 1934), furnish such copies thereof, and make and disseminate such reports as the Commission, by rule, may prescribe 

as necessary or appropriate in the public interest or for the protection of investors. All records (as so defined) of such investment advisers are subject at any time, or from time to time, to such reasonable periodic, special, or other examinations by representatives of 

the Commission as the Commission deems necessary or appropriate in the public interest or for the protection of investors. 

(b) FILING DEPOSITORIES.—The Commission may, by rule, require 

an investment adviser— 

(1) to file with the Commission any fee, application, report, 

or notice required to be filed by this title or the rules issued 

under this title through any entity designated by the Commission for that purpose; and 

(2) to pay the reasonable costs associated with such filing and 

the establishment and maintenance of the systems required by 

subsection (c). 

(c) ACCESS TO DISCIPLINARY AND OTHER INFORMATION.— 

(1) MAINTENANCE OF SYSTEM TO RESPOND TO INQUIRIES.— 

The Commission shall require the entity designated by the 

19 

Commission under subsection (b)(1) to establish and maintain 

a toll-free telephone listing, or a readily accessible electronic or 

other process, to receive and promptly respond to inquiries regarding registration information (including disciplinary actions, regulatory, judicial, and arbitration proceedings, and 

other information required by law or rule to be reported) involving investment advisers and persons associated with investment 

advisers. 

(2) RECOVERY OF COSTS.—An entity designated by the Commission under subsection (b)(1) may charge persons making inquiries, other than individual investors, reasonable fees for responses to inquiries made under paragraph (1). 

(3) LIMITATION ON LIABILITY.—An entity designated by the 

Commission under subsection (b)(1) shall not have any liability 

to any person for any actions taken or omitted in good faith 

under this subsection. 

* * * * * * * 

SECTION 306 OF THE NATIONAL SECURITIES MARKETS 

IMPROVEMENT ACT OF 1996 

øSEC. 306. INVESTOR ACCESS TO INFORMATION. 

øThe Commission shall— 

ø(1) provide for the establishment and maintenance of a 

readily accessible telephonic or other electronic process to receive inquiries regarding disciplinary actions and proceedings 

involving investment advisers and persons associated with investment advisers; and 

ø(2) provide for prompt response to any inquiry described in 

paragraph (1).¿ 

Æ