II 

109TH CONGRESS 

1ST SESSION S. 418 

To protect members of the Armed Forces from unscrupulous practices 

regarding sales of insurance, financial, and investment products. 

IN THE SENATE OF THE UNITED STATES 

FEBRUARY 17, 2005 

Mr. ENZI (for himself, Mrs. CLINTON, Mr. HAGEL, and Mr. SCHUMER) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs 

A BILL

To protect members of the Armed Forces from unscrupulous 

practices regarding sales of insurance, financial, and investment products.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Military Personnel Fi5 nancial Services Protection Act’’. 

6 SEC. 2. CONGRESSIONAL FINDINGS. 

7 Congress finds the following: 
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1 (1) Our military personnel perform great sac2 rifices in protecting our Nation in the War on Ter3 ror and promoting democracy abroad. 

4 (2) Our brave men and women in uniform de5 serve to be offered first-rate financial products in 

6 order to provide for their families and to save and 

7 invest for retirement. 

8 (3) Our military personnel are being offered 

9 high-cost securities and life insurance products by 

10 some financial services companies engaging in abu11 sive and misleading sales practices. 

12 (4) One securities product being offered to our 

13 service members, the contractual plan, has largely 

14 disappeared from the civilian market since the 

15 1980s, due to its excessive sales charges. A 50 per16 cent sales commission is assessed against the first 

17 year of contributions, even though the average com18 mission on other securities products such as mutual 

19 funds is less than 6 percent on each sale. 

20 (5) The excessive sales charges of the contrac21 tual plan makes it susceptible to abusive and mis22 leading sales practices. 

23 (6) Certain life insurance products being of24 fered to our service members are being improperly 

25 marketed as investment products. These products 
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1 provide very low death benefits for very high pre2 miums that are front-loaded in the first few years, 

3 making them completely inappropriate for most mili4 tary personnel. 

5 (7) Regulation of these securities and life insur6 ance products and their sale on military bases has 

7 been clearly inadequate and requires Congressional 

8 legislation to address. 

9 SEC. 3. PROHIBITION ON FUTURE SALES OF PERIODIC PAY10 MENT PLANS. 

11 (a) AMENDMENT.—Section 27 of the Investment 

12 Company Act of 1940 (15 U.S.C. 80a–27) is amended by 

13 adding at the end the following new subsection: 

14 ‘‘(j) TERMINATION OF SALES.— 

15 ‘‘(1) TERMINATION.—Effective 30 days after 

16 the date of enactment of the Military Personnel Fi17 nancial Services Protection Act, it shall be unlawful, 

18 subject to subsection (i)— 

19 ‘‘(A) for any registered investment com20 pany to issue any periodic payment plan certifi21 cate; or 

22 ‘‘(B) for such company, or any depositor of 

23 or underwriter for any such company, or any 

24 other person, to sell such a certificate. 
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1 ‘‘(2) NO INVALIDATION OF EXISTING CERTIFI2 CATES.—Paragraph (1) shall not be construed to 

3 alter, invalidate, or otherwise affect any rights or ob4 ligations, including rights of redemption, under any 

5 periodic payment plan certificate issued and sold be6 fore 30 days after such date of enactment.’’. 

7 (b) TECHNICAL AMENDMENT.—Section 27(i)(2)(B) 

8 of the Investment Company Act of 1940 (15 U.S.C. 80a–

9 27(i)(2)(B)) is amended by striking ‘‘section 26(e)’’ each 

10 place that term appears and inserting ‘‘section 26(f)’’. 

11 (c) REPORT ON REFUNDS, SALES PRACTICES, AND

12 REVENUES FROM PERIODIC PAYMENT PLANS.—Not later 

13 than 6 months after the date of enactment of this Act, 

14 the Securities and Exchange Commission shall submit to 

15 the Committee on Financial Services of the House of Rep16 resentatives and the Committee on Banking, Housing, and 

17 Urban Affairs of the Senate, a report describing— 

18 (1) any measures taken by a broker or dealer 

19 registered with the Securities and Exchange Com20 mission pursuant to section 15(b) of the Securities 

21 Exchange Act of 1934 (15 U.S.C. 78 o(b)) to volun22 tarily refund payments made by military service 

23 members on any periodic payment plan certificate, 

24 and the amounts of such refunds; 
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1 (2) after such consultation with the Secretary 

2 of Defense, as the Commission considers appro3 priate, the sales practices of such brokers or dealers 

4 on military installations over the past 5 years and 

5 any legislative or regulatory recommendations to im6 prove such practices; and 

7 (3) the revenues generated by such brokers or 

8 dealers in the sales of periodic payment plan certifi9 cates over the past 5 years and what products such 

10 brokers or dealers market to replace the revenue 

11 generated from the sales of periodic payment plan 

12 certificates prohibited under subsection (a). 

13 SEC. 4. METHOD OF MAINTAINING BROKER AND DEALER 

14 REGISTRATION, DISCIPLINARY, AND OTHER 

15 DATA. 

16 Section 15A(i) of the Securities Exchange Act of 

17 1934 (15 U.S.C. 78o–3(i)) is amended to read as follows: 

18 ‘‘(i) OBLIGATION TO MAINTAIN REGISTRATION, DIS19 CIPLINARY, AND OTHER DATA.— 

20 ‘‘(1) MAINTENANCE OF SYSTEM TO RESPOND

21 TO INQUIRIES.—A registered securities association 

22 shall— 

23 ‘‘(A) establish and maintain a system for 

24 collecting and retaining registration informa25 tion; 
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1 ‘‘(B) establish and maintain a toll-free 

2 telephone listing, and a readily accessible elec3 tronic or other process, to receive and promptly 

4 respond to inquiries regarding— 

5 ‘‘(i) registration information on its 

6 members and their associated persons; and 

7 ‘‘(ii) registration information on the 

8 members and their associated persons of 

9 any registered national securities exchange 

10 that uses the system described in subpara11 graph (A) for the registration of its mem12 bers and their associated persons; and 

13 ‘‘(C) adopt rules governing the process for 

14 making inquiries and the type, scope, and pres15 entation of information to be provided in re16 sponse to such inquiries in consultation with 

17 any registered national securities exchange pro18 viding information pursuant to subparagraph 

19 (B)(ii). 

20 ‘‘(2) RECOVERY OF COSTS.—A registered secu21 rities association may charge persons making inquir22 ies described in paragraph (1)(B), other than indi23 vidual investors, reasonable fees for responses to 

24 such inquiries. 
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1 ‘‘(3) PROCESS FOR DISPUTED INFORMATION.—

2 Each registered securities association shall adopt 

3 rules establishing an administrative process for dis4 puting the accuracy of information provided in re5 sponse to inquiries under this subsection in consulta6 tion with any registered national securities exchange 

7 providing information pursuant to paragraph 

8 (1)(B)(ii). 

9 ‘‘(4) LIMITATION ON LIABILITY.—A registered 

10 securities association, or an exchange reporting in11 formation to such an association, shall not have any 

12 liability to any person for any actions taken or omit13 ted in good faith under this subsection. 

14 ‘‘(5) DEFINITION.—For purposes of this sub15 section, the term ‘registration information’ means 

16 the information reported in connection with the reg17 istration or licensing of brokers and dealers and 

18 their associated persons, including disciplinary ac19 tions, regulatory, judicial, and arbitration pro20 ceedings, and other information required by law, or 

21 exchange or association rule, and the source and sta22 tus of such information.’’. 
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1 SEC. 5. FILING DEPOSITORIES FOR INVESTMENT ADVIS2 ERS. 

3 (a) INVESTMENT ADVISERS.—Section 204 of the In4 vestment Advisers Act of 1940 (15 U.S.C. 80b–4) is 

5 amended— 

6 (1) by striking ‘‘Every investment’’ and insert7 ing the following: 

8 ‘‘(a) IN GENERAL.—Every investment’’; and 

9 (2) by adding at the end the following: 

10 ‘‘(b) FILING DEPOSITORIES.—The Commission may, 

11 by rule, require an investment adviser— 

12 ‘‘(1) to file with the Commission any fee, appli13 cation, report, or notice required to be filed by this 

14 title or the rules issued under this title through any 

15 entity designated by the Commission for that pur16 pose; and 

17 ‘‘(2) to pay the reasonable costs associated with 

18 such filing and the establishment and maintenance 

19 of the systems required by subsection (c). 

20 ‘‘(c) ACCESS TO DISCIPLINARY AND OTHER INFOR21 MATION.— 

22 ‘‘(1) MAINTENANCE OF SYSTEM TO RESPOND

23 TO INQUIRIES.—The Commission shall require the 

24 entity designated by the Commission under sub25 section (b)(1) to establish and maintain a toll-free 

26 telephone listing, or a readily accessible electronic or 
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1 other process, to receive and promptly respond to in2 quiries regarding registration information (including 

3 disciplinary actions, regulatory, judicial, and arbitra4 tion proceedings, and other information required by 

5 law or rule to be reported) involving investment ad6 visers and persons associated with investment advis7 ers. 

8 ‘‘(2) RECOVERY OF COSTS.—An entity des9 ignated by the Commission under subsection (b)(1) 

10 may charge persons making inquiries, other than in11 dividual investors, reasonable fees for responses to 

12 inquiries described in paragraph (1). 

13 ‘‘(3) LIMITATION ON LIABILITY.—An entity 

14 designated by the Commission under subsection 

15 (b)(1) shall not have any liability to any person for 

16 any actions taken or omitted in good faith under 

17 this subsection.’’. 

18 (b) CONFORMING AMENDMENTS.— 

19 (1) Section 203A of the Investment Advisers 

20 Act of 1940 (15 U.S.C. 80b–3a) is amended— 

21 (A) by striking subsection (d); and 

22 (B) by redesignating subsection (e) as sub23 section (d). 
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1 (2) Section 306 of the National Securities Mar2 kets Improvement Act of 1996 (15 U.S.C. 80b–10, 

3 note) is repealed. 

4 SEC. 6. STATE INSURANCE JURISDICTION ON MILITARY IN5 STALLATIONS. 

6 (a) CLARIFICATION OF JURISDICTION.—Any law, 

7 regulation, or order of a State with respect to regulating 

8 the business of insurance shall apply to insurance activi9 ties conducted on Federal land or facilities in the United 

10 States and abroad, including military installations, except 

11 to the extent that such law, regulation, or order— 

12 (1) directly conflicts with any applicable Fed13 eral law, regulation, or authorized directive; or 

14 (2) would not apply if such activity were con15 ducted on State land. 

16 (b) PRIMARY STATE JURISDICTION.—To the extent 

17 that multiple State laws would otherwise apply pursuant 

18 to subsection (a) to an insurance activity of an individual 

19 or entity on Federal land or facilities, the State having 

20 the primary duty to regulate such activity and the laws 

21 of which shall apply to such activity in the case of a con22 flict shall be— 

23 (1) the State within which the Federal land or 

24 facility is located; or 
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1 (2) if the Federal land or facility is located out2 side of the United States, the State in which— 

3 (A) in the case of an individual engaged in 

4 the business of insurance, such individual has 

5 been issued a resident license; or 

6 (B) in the case of an entity engaged in the 

7 business of insurance, such entity is domiciled. 

8 SEC. 7. REQUIRED DEVELOPMENT OF MILITARY PER9 SONNEL PROTECTION STANDARDS REGARD10 ING INSURANCE SALES. 

11 (a) STATE STANDARDS.—Congress intends that— 

12 (1) the States collectively work with the Sec13 retary of Defense to ensure implementation of ap14 propriate standards to protect members of the 

15 Armed Forces from dishonest and predatory insur16 ance sales practices while on a military installation 

17 of the United States (including installations located 

18 outside of the United States); and 

19 (2) each State identify its role in promoting the 

20 standards described in paragraph (1) in a uniform 

21 manner, not later than 12 months after the date of 

22 enactment of this Act. 

23 (b) STATE REPORT.—It is the sense of Congress that 

24 the NAIC should, after consultation with the Secretary of 

25 Defense and, not later than 12 months after the date of 
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1 enactment of this Act, conduct a study to determine the 

2 extent to which the States have met the requirement of 

3 subsection (a), and report the results of such study to the 

4 Committee on Financial Services of the House of Rep5 resentatives and the Committee on Banking, Housing, and 

6 Urban Affairs of the Senate. 

7 SEC. 8. REQUIRED DISCLOSURES REGARDING LIFE INSUR8 ANCE. 

9 (a) REQUIREMENT.—Except as provided in sub10 section (d), no insurer or producer may sell or solicit, in 

11 person, any life insurance product to any member of the 

12 Armed Forces on a military installation of the United 

13 States, unless a disclosure in accordance with this section 

14 is provided to such member before the sale of such insur15 ance. 

16 (b) DISCLOSURE.—A disclosure in accordance with 

17 this section is a written disclosure that— 

18 (1) states that subsidized life insurance may be 

19 available to the member of the Armed Forces from 

20 the Federal Government; 

21 (2) states that the United States Government 

22 has in no way sanctioned, recommended, or encour23 aged the sale of the product being offered; 
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1 (3) is made in plain and readily understandable 

2 language and in a type font at least as large as the 

3 font used for the majority of the policy; and 

4 (4) with respect to a sale or solicitation on Fed5 eral land or facilities located outside of the United 

6 States by an individual or entity engaged in the 

7 business of insurance, except to the extent otherwise 

8 specifically provided by the laws of such State in ref9 erence to this Act, lists the address and phone num10 ber where consumer complaints are received by the 

11 State insurance commissioner for the State in which 

12 the individual has been issued a resident license or 

13 the entity is domiciled, as applicable. 

14 (c) ENFORCEMENT.—If it is determined by a State 

15 or Federal agency, or in a final court proceeding, that any 

16 individual or entity has intentionally failed to provide a 

17 disclosure required by this section, such individual or enti18 ty shall be prohibited from further engaging in the busi19 ness of insurance with respect to employees of the Federal 

20 Government on Federal land, except— 

21 (1) with respect to existing policies; and 

22 (2) to the extent required by the Federal Gov23 ernment pursuant to previous commitments. 

24 (d) EXCEPTIONS.— 
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1 (1) FEDERAL AND STATE INSURANCE ACTIV2 ITY.—This section shall not apply to insurance ac3 tivities— 

4 (A) specifically contracted by or through 

5 the Federal Government or any State govern6 ment; or 

7 (B) specifically exempted from the applica8 bility of this Act by a Federal or State law, reg9 ulation, or order that specifically refers to this 

10 paragraph. 

11 (2) UNIFORM STATE STANDARDS.—If a major12 ity of the States have adopted, in materially iden13 tical form, a standard setting forth the disclosures 

14 required under this section that apply to insurance 

15 solicitations and sales to military personnel on mili16 tary installations of the United States, after the ex17 piration of the 2-year period beginning on the date 

18 of such majority adoption, such standard shall apply 

19 in lieu of the requirements of this section to all in20 surance solicitations and sales to military personnel 

21 on military installations, with respect to such States, 

22 to the extent that such standards do not directly 

23 conflict with any applicable authorized Federal regu24 lation or directive. 
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1 (3) MATERIALLY IDENTICAL FORM.—For pur2 poses of this subsection, standards adopted by more 

3 than one State shall be considered to have materially 

4 identical form to the extent that such standards re5 quire or prohibit identical conduct with respect to 

6 the same activity, notwithstanding that the stand7 ards may differ with respect to conduct required or 

8 prohibited with respect to other activities. 

9 SEC. 9. IMPROVING LIFE INSURANCE PRODUCT STAND10 ARDS. 

11 (a) IN GENERAL.—It is the sense of Congress that 

12 the NAIC should, after consultation with the Secretary of 

13 Defense, and not later than 12 months after the date of 

14 enactment of this Act, conduct a study and submit a re15 port to the Committee on Financial Services of the House 

16 of Representatives and the Committee on Banking, Hous17 ing, and Urban Affairs of the Senate on ways of improving 

18 the quality of and sale of life insurance products sold by 

19 insurers and producers on military installations of the 

20 United States, which may include limiting sales authority 

21 to companies and producers that are certified as meeting 

22 appropriate best practices procedures or creating stand23 ards for products specifically designed for members of the 

24 Armed Forces regardless of the sales location. 
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1 (b) CONDITIONAL GAO REPORT.—If the NAIC does 

2 not submit the report as described in subsection (a), the 

3 Comptroller General of the United States shall study any 

4 proposals that have been made to improve the quality and 

5 sale of life insurance products sold by insurers and pro6 ducers on military installations of the United States and 

7 report to the Committee on Financial Services of the 

8 House of Representatives and the Committee on Banking, 

9 Housing, and Urban Affairs of the Senate on such pro10 posals not later than 6 months after the expiration of the 

11 period referred to in subsection (a). 

12 SEC. 10. REQUIRED REPORTING OF DISCIPLINED INSUR13 ANCE AGENTS. 

14 (a) REPORTING BY INSURERS.—After the expiration 

15 of the 2-year period beginning on the date of enactment 

16 of this Act, no insurer may enter into or renew a contrac17 tual relationship with a producer that solicits or sells life 

18 insurance on military installations of the United States, 

19 unless the insurer has implemented a system to report, 

20 to the State insurance commissioner of the State of the 

21 domicile of the insurer and the State of residence of the 

22 insurance producer, disciplinary actions taken against the 

23 producer with respect to the producer’s sales or solicita24 tion of insurance on a military installation of the United 

25 States, as follows: 
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1 (1) Any disciplinary action taken by any gov2 ernment entity that the insurer knows has been 

3 taken. 

4 (2) Any significant disciplinary action taken by 

5 the insurer. 

6 (b) REPORTING BY STATES.—It is the sense of Con7 gress that, not later than 2 years after the date of enact8 ment of this Act, the States should collectively implement 

9 a system to— 

10 (1) receive reports of disciplinary actions taken 

11 against insurance producers by insurers or govern12 ment entities with respect to the producers’ sale or 

13 solicitation of insurance on a military installation; 

14 and 

15 (2) disseminate such information to all other 

16 States and to the Secretary of Defense. 

17 SEC. 11. REPORTING BARRED PERSONS SELLING INSUR18 ANCE OR SECURITIES. 

19 (a) ESTABLISHMENT.—The Secretary of Defense 

20 shall maintain a list of the name, address, and other ap21 propriate information of persons engaged in the business 

22 of securities or insurance that have been barred, banned, 

23 or otherwise limited in any manner that is not generally 

24 applicable to all such type of persons, from any or all mili25 tary installations of the United States. 
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1 (b) NOTICE AND ACCESS.—The Secretary of Defense 

2 shall ensure that— 

3 (1) the appropriate Federal and State agencies 

4 responsible for securities and insurance regulation 

5 are promptly notified upon the inclusion in or re6 moval from the list required by subsection (a) of a 

7 person under such agencies’ jurisdiction; and 

8 (2) the list is kept current and easily acces9 sible— 

10 (A) for use by such agencies; and 

11 (B) for purposes of enforcing or consid12 ering any such bar, ban, or limitation by the 

13 appropriate Federal personnel, including com14 manders of military installations. 

15 (c) REGULATIONS.— 

16 (1) IN GENERAL.—The Secretary of Defense 

17 shall issue regulations in accordance with this sub18 section to provide for the establishment and mainte19 nance of the list required by this section, including 

20 appropriate due process considerations. 

21 (2) TIMING.— 

22 (A) PROPOSED REGULATIONS.—Not later 

23 than the expiration of the 60-day period begin24 ning on the date of enactment of this Act, the 

25 Secretary of Defense shall prepare and submit 
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1 to the appropriate Committees a copy of the 

2 regulations under this subsection that are pro3 posed to be published for comment. The Sec4 retary may not publish such regulations for 

5 comment in the Federal Register until the expi6 ration of the 15-day period beginning on the 

7 date of such submission to the appropriate 

8 Committees. 

9 (B) FINAL REGULATIONS.—Not later than 

10 90 days after the date of enactment of this Act, 

11 the Secretary of Defense shall submit to the ap12 propriate Committees a copy of the regulations 

13 under this section to be published in final form. 

14 (C) EFFECTIVE DATE.—Such regulations 

15 shall become effective upon the expiration of the 

16 30-day period beginning on the date of such 

17 submission to the appropriate Committees. 

18 (d) DEFINITION.—For purposes of this section, the 

19 term ‘‘appropriate Committees’’ means— 

20 (1) the Committee on Financial Services and 

21 the Committee on Armed Services of the House of 

22 Representatives; and 

23 (2) the Committee on Banking, Housing, and 

24 Urban Affairs and the Committee on Armed Serv25 ices of the Senate. 
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1 SEC. 12. SENSE OF CONGRESS. 

2 It is the sense of the Congress that the Federal and 

3 State agencies responsible for insurance and securities 

4 regulation should provide advice to the appropriate Fed5 eral entities to consider— 

6 (1) significantly increasing the life insurance 

7 coverage made available through the Federal Gov8 ernment to members of the Armed Forces; 

9 (2) implementing appropriate procedures to en10 courage members of the Armed Forces to improve 

11 their financial literacy objectives; and 

12 (3) improving the benefits and matching con13 tributions provided under the Federal Thrift Savings 

14 Plan (established under section 8437 of title 5, 

15 United States Code) to members of the Armed 

16 Forces. 

17 SEC. 13. DEFINITIONS. 

18 For purposes of this Act, the following definitions 

19 shall apply: 

20 (1) ENTITY.—The term ‘‘entity’’ includes insur21 ers. 

22 (2) INDIVIDUAL.—The term ‘‘individual’’ in23 cludes insurance agents and producers. 

24 (3) NAIC.—The term ‘‘NAIC’’ means the Na25 tional Association of Insurance Commissioners. 
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1 (4) STATE INSURANCE COMMISSIONER.—The 

2 term ‘‘State insurance commissioner’’ means, with 

3 respect to a State, the officer, agency, or other enti4 ty of the State that has primary regulatory authority 

5 over the business of insurance and over any person 

6 engaged in the business of insurance, to the extent 

7 of such business activities, in such State.

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