108TH CONGRESS

2D SESSION H. R. 5011

AN ACT

To prevent the sale of abusive insurance and

investment products to military personnel.

108TH CONGRESS

2D SESSION H. R. 5011

AN ACT

To prevent the sale of abusive insurance and investment

products to military personnel.

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

2 This Act may be cited as the ‘‘Military Personnel Fi3 nancial Services Protection Act’’.

4 SEC. 2. CONGRESSIONAL FINDINGS.

5 The Congress finds the following:

6 (1) Our military personnel perform great sac7 rifices in protecting our Nation in the War on Ter8 ror and promoting democracy abroad.

9 (2) Our brave men and women in uniform de10 serve to be offered first-rate financial products in

11 order to provide for their families and to save and

12 invest for retirement.

13 (3) Our military personnel are being offered

14 high-cost securities and life insurance products by

15 some financial services companies engaging in abu16 sive and misleading sales practices.

17 (4) One securities product being offered to our

18 service members, the contractual plan, has largely

19 disappeared from the civilian market since the 1980s

20 due to its excessive sales charges and the emergence

21 of low-cost products. A 50-percent sales commission

22 is typically assessed against the first year of con23 tributions made under a contractual plan, even

24 though the average commission on other securities

25 products such as mutual funds is less than 6 percent

26 on each sale.
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1 (5) The excessive sales charge of the contrac2 tual plan makes it susceptible to abusive and mis3 leading sales practices.

4 (6) Certain life insurance products being of5 fered to our service members are being improperly

6 marketed as investment products. These products

7 provide very low death benefits for very high pre8 miums that are front-loaded in the first few years,

9 making them completely inappropriate for most mili10 tary personnel.

11 (7) Regulation of these securities and life insur12 ance products and their sale on military bases has

13 been clearly inadequate and requires Congressional

14 legislation to address.

15 SEC. 3. PROHIBITION ON FUTURE SALES OF PERIODIC PAY16 MENT PLANS.

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

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

19 adding at the end the following new subsection:

20 ‘‘(j) TERMINATION OF SALES.—

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

22 the date of enactment of the Military Personnel Fi23 nancial Services Protection Act, it shall be unlawful,

24 subject to subsection (i)—
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1 ‘‘(A) for any registered investment com2 pany to issue any periodic payment plan certifi3 cate; or

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

5 or underwriter for any such company, or any

6 other person, to sell such a certificate.

7 ‘‘(2) NO INVALIDATION OF EXISTING CERTIFI8 CATES.—Paragraph (1) shall not be construed to

9 alter, invalidate, or otherwise affect any rights or ob10 ligations, including rights of redemption, under any

11 periodic payment plan certificate issued and sold be12 fore 30 days after such date of enactment.’’.

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

14 of such Act is amended by striking ‘‘section 26(e)’’ each

15 place it appears and inserting ‘‘section 26(f)’’.

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

17 REVENUES FROM PERIODIC PAYMENT PLANS.—Within 6

18 months after the date of enactment of this Act, the Securi19 ties and Exchange Commission shall submit to the Com20 mittee on Financial Services of the House of Representa21 tives and the Committee on Banking, Housing, and Urban

22 Affairs of the Senate, a report describing—

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

24 registered with the Securities and Exchange Com25 mission pursuant to section 15(b) of the Securities
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1 Exchange Act of 1934 (15 U.S.C. 78o(b)) to volun2 tarily refund payments made by military service

3 members on any periodic payment plan certificate,

4 and the amounts of such refunds;

5 (2) after such consultation with the Secretary

6 of Defense as the Commission considers appropriate,

7 the sales practices of such brokers or dealers on

8 military installations over the past 5 years and any

9 legislative or regulatory recommendations to improve

10 such practices; and

11 (3) the revenues generated by such brokers or

12 dealers in the sales of periodic payment plan certifi13 cates over the past 5 years and what products such

14 brokers or dealers market to replace the revenue

15 generated from the sales of periodic payment plan

16 certificates prohibited under subsection (a) of this

17 section.

18 SEC. 4. METHOD OF MAINTAINING BROKER/DEALER REG19 ISTRATION, DISCIPLINARY, AND OTHER

20 DATA.

21 Subsection (i) of section 15A of the Securities Ex22 change Act of 1934 (15 U.S.C. 78o–3(i)) is amended to

23 read as follows:

24 ‘‘(i) OBLIGATION TO MAINTAIN REGISTRATION, DIS25 CIPLINARY AND OTHER DATA.—
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1 ‘‘(1) MAINTENANCE OF SYSTEM TO RESPOND

2 TO INQUIRIES.—A registered securities association

3 shall—

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

5 collecting and retaining registration informa6 tion;

7 ‘‘(B) establish and maintain a toll-free

8 telephone listing, and a readily accessible elec9 tronic or other process, to receive and promptly

10 respond to inquiries regarding—

11 ‘‘(i) registration information on its

12 members and their associated persons; and

13 ‘‘(ii) registration information on the

14 members and their associated persons of

15 any registered national securities exchange

16 that uses the system described in subpara17 graph (A) for the registration of its mem18 bers and their associated persons; and

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

20 making inquiries and the type, scope, and pres21 entation of information to be provided in re22 sponse to such inquiries in consultation with

23 any registered national securities exchange pro24 viding information pursuant to subparagraph

25 (B)(ii).
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1 ‘‘(2) RECOVERY OF COSTS.—Such an associa2 tion may charge persons making inquiries, other

3 than individual investors, reasonable fees for re4 sponses to such inquiries.

5 ‘‘(3) PROCESS FOR DISPUTED INFORMATION.—

6 Such an association shall adopt rules establishing an

7 administrative process for disputing the accuracy of

8 information provided in response to inquiries under

9 this subsection in consultation with any registered

10 national securities exchange providing information

11 pursuant to paragraph (1)(B)(ii).

12 ‘‘(4) LIMITATION OF LIABILITY.—Such an asso13 ciation, or an exchange reporting information to

14 such an association, shall not have any liability to

15 any person for any actions taken or omitted in good

16 faith under this subsection.

17 ‘‘(5) DEFINITION.—For purposes of this sub18 section, the term ‘registration information’ means

19 the information reported in connection with the reg20 istration or licensing of brokers and dealers and

21 their associated persons, including disciplinary ac22 tions, regulatory, judicial, and arbitration pro23 ceedings, and other information required by law, or

24 exchange or association rule, and the source and sta25 tus of such information.’’.
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1 SEC. 5. FILING DEPOSITORIES FOR INVESTMENT ADVIS2 ERS.

3 (a) AMENDMENT.—Section 204 of the Investment

4 Advisers Act of 1940 (15 U.S.C. 80b-4) is amended—

5 (1) by striking ‘‘Every investment’’ and insert6 ing the following:

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

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

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

10 by rule, require an investment adviser—

11 ‘‘(1) to file with the Commission any fee, appli12 cation, report, or notice required to be filed by this

13 title or the rules issued under this title through any

14 entity designated by the Commission for that pur15 pose; and

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

17 such filing and the establishment and maintenance

18 of the systems required by subsection (c).

19 ‘‘(c) ACCESS TO DISCIPLINARY AND OTHER INFOR20 MATION.—

21 ‘‘(1) MAINTENANCE OF SYSTEM TO RESPOND

22 TO INQUIRIES.—The Commission shall require the

23 entity designated by the Commission under sub24 section (b)(1) to establish and maintain a toll-free

25 telephone listing, or a readily accessible electronic or

26 other process, to receive and promptly respond to in-
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1 quiries regarding registration information (including

2 disciplinary actions, regulatory, judicial, and arbitra3 tion proceedings, and other information required by

4 law or rule to be reported) involving investment ad5 visers and persons associated with investment advis6 ers.

7 ‘‘(2) RECOVERY OF COSTS.—An entity des8 ignated by the Commission under subsection (b)(1)

9 may charge persons making inquiries, other than in10 dividual investors, reasonable fees for responses to

11 inquiries made under paragraph (1).

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

13 designated by the Commission under subsection

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

15 any actions taken or omitted in good faith under

16 this subsection.’’.

17 (b) CONFORMING AMENDMENTS.—

18 (1) Section 203A of the Investment Advisers

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

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

21 (B) by redesignating subsection (e) as sub22 section (d).

23 (2) Section 306 of the National Securities Mar24 kets Improvement Act of 1996 (15 U.S.C. 80b–10,
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1 note; Public Law 104–290; 110 Stat. 3439) is re2 pealed.

3 SEC. 6. STATE INSURANCE JURISDICTION ON MILITARY IN4 STALLATIONS.

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

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

7 the business of insurance shall apply to insurance activi8 ties conducted on Federal land or facilities in the United

9 States and abroad, including military installations, except

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

11 (1) directly conflicts with any applicable Fed12 eral law, regulation, or authorized directive; or

13 (2) would not apply if such activity were con14 ducted on State land.

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

16 that multiple State laws would otherwise apply pursuant

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

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

19 the primary duty to regulate such activity and whose laws

20 shall apply to such activity in the case of a conflict shall

21 be—

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

23 facility is located; or

24 (2) if the Federal land or facility is located out25 side of the United States, the State in which—
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1 (A) in the case of an individual engaged in

2 the business of insurance, such individual has

3 been issued a resident license; or

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

5 business of insurance, such entity is domiciled.

6 SEC. 7. REQUIRED DEVELOPMENT OF MILITARY PER7 SONNEL PROTECTION STANDARDS REGARD8 ING INSURANCE SALES.

9 (a) STATE STANDARDS.—The Congress intends

10 that—

11 (1) the States collectively work with the Sec12 retary of Defense to ensure implementation of ap13 propriate standards to protect members of the

14 Armed Forces from dishonest and predatory insur15 ance sales practices while on a military installation

16 of the United States (including installations located

17 outside of the United States); and

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

19 standards described in paragraph (1) in a uniform

20 manner within 12 months after the date of the en21 actment of this Act.

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

23 that the NAIC should, after consultation with the Sec24 retary of Defense and within 12 months after the date

25 of the enactment of this Act, conduct a study to determine
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1 the extent to which the States have met the requirement

2 of subsection (a) and report such study to the Committee

3 on Financial Services of the House of Representatives and

4 the Committee on Banking, Housing, and Urban Affairs

5 of the Senate.

6 SEC. 8. REQUIRED DISCLOSURES REGARDING LIFE INSUR7 ANCE.

8 (a) REQUIREMENT.—Except as provided in sub9 section (d), no insurer or producer may sell or solicit, in

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

11 Armed Forces on a military installation of the United

12 States unless a disclosure in accordance with this section

13 is provided to such member before the sale of such insur14 ance.

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

16 this section is a written disclosure that—

17 (1) states that subsidized life insurance may be

18 available to the member of the Armed Forces from

19 the Federal Government;

20 (2) states that the United States Government

21 has in no way sanctioned, recommended, or encour22 aged the sale of the product being offered;

23 (3) is made in plain and readily understandable

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

25 font used for the majority of the policy; and
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1 (4) with respect to a sale or solicitation on Fed2 eral land or facilities located outside of the United

3 States by an individual or entity engaged in the

4 business of insurance, except to the extent otherwise

5 specifically provided by the laws of such State in ref6 erence to this Act, lists the address and phone num7 ber where consumer complaints are received by the

8 State insurance commissioner for the State in which

9 the individual has been issued a resident license or

10 the entity is domiciled, as applicable.

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

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

13 individual or entity has intentionally failed to provide a

14 disclosure required by this section, such individual or enti15 ty shall be prohibited from further engaging in the busi16 ness of insurance with respect to employees of the Federal

17 Government on Federal land, except—

18 (1) with respect to existing policies; and

19 (2) to the extent required by the Federal Gov20 ernment pursuant to previous commitments.

21 (d) EXCEPTIONS.—

22 (1) FEDERAL AND STATE INSURANCE ACTIV23 ITY.—This section shall not apply to insurance

24 activities—
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1 (A) specifically contracted by or through

2 the Federal Government or any State govern3 ment; or

4 (B) specifically exempted from the applica5 bility of this Act by a Federal or State law, reg6 ulation, or order that specifically refers to this

7 paragraph.

8 (2) UNIFORM STATE STANDARDS.—If a major9 ity of the States have adopted, in materially iden10 tical form, a standard setting forth the disclosures

11 required under this section that apply to insurance

12 solicitations and sales to military personnel on mili13 tary installations of the United States, after the ex14 piration of the 2-year period beginning on such ma15 jority adoption, such standard shall apply in lieu of

16 the requirements of this section to all insurance so17 licitations and sales to military personnel on military

18 installations, with respect to such States, to the ex19 tent that such standards do not directly conflict with

20 any applicable authorized Federal regulation or di21 rective.

22 (3) MATERIALLY IDENTICAL FORM.—For pur23 poses of this subsection, standards adopted by more

24 than one State shall be considered to have materially

25 identical form to the extent that such standards re-
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1 quire or prohibit identical conduct with respect to

2 the same activity, notwithstanding that the stand3 ards may differ with respect to conduct required or

4 prohibited with respect to other activities.

5 SEC. 9. IMPROVING LIFE INSURANCE PRODUCT STAND6 ARDS.

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

8 that the NAIC should, after consultation with the Sec9 retary of Defense and within 12 months after the date

10 of the enactment of this Act, conduct a study and submit

11 a report to the Committee on Financial Services of the

12 House of Representatives and the Committee on Banking,

13 Housing, and Urban Affairs of the Senate on ways of im14 proving the quality of and sale of life insurance products

15 sold by insurers and producers on military installations

16 of the United States, which may include limiting sales au17 thority to companies and producers that are certified as

18 meeting appropriate best practices procedures or creating

19 standards for products specifically designed for members

20 of the Armed Forces regardless of the sales location.

21 (b) CONDITIONAL GAO REPORT.—If the NAIC does

22 not submit the report to the committees as described in

23 subsection (a), the Comptroller General of the United

24 States shall study any proposals that have been made to

25 improve the quality and sale of life insurance products sold
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1 by insurers and producers on military installations of the

2 United States and report to the Committee on Financial

3 Services of the House of Representatives and the Com4 mittee on Banking, Housing, and Urban Affairs of the

5 Senate on such proposals within 6 months after the expi6 ration of the period referred to in subsection (a).

7 SEC. 10. REQUIRED REPORTING OF DISCIPLINED INSUR8 ANCE AGENTS.

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

10 of the 2-year period beginning on the date of the enact11 ment of this Act, no insurer may enter into or renew a

12 contractual relationship with a producer that solicits or

13 sells life insurance on military installations of the United

14 States unless the insurer has implemented a system to re15 port, to the State insurance commissioner of the State of

16 the domicile of the insurer and the State of residence of

17 the insurance producer, disciplinary actions taken against

18 the producer with respect to the producer’s sales or solici19 tation of insurance on a military installation of the United

20 States, as follows:

21 (1) Any disciplinary action taken by any gov22 ernment entity that the insurer knows has been

23 taken.

24 (2) Any significant disciplinary action taken by

25 the insurer.
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1 (b) REPORTING BY STATES.—It is the sense of the

2 Congress that within 2 years after the date of the enact3 ment of this Act, the States should collectively implement

4 a system to—

5 (1) receive reports of disciplinary actions taken

6 against insurance producers by insurers or govern7 ment entities with respect to the producers’ sale or

8 solicitation of insurance on a military installation;

9 and

10 (2) disseminate such information to all other

11 States and to the Secretary of Defense.

12 SEC. 11. REPORTING BARRED PERSONS SELLING INSUR13 ANCE OR SECURITIES.

14 (a) ESTABLISHMENT.—The Secretary of Defense

15 shall maintain a list of the name, address, and other ap16 propriate information of persons engaged in the business

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

18 or otherwise limited in any manner that is not generally

19 applicable to all such type of persons, from any or all mili20 tary installations of the United States.

21 (b) NOTICE AND ACCESS.—The Secretary shall en22 sure that—

23 (1) the appropriate Federal and State agencies

24 responsible for securities and insurance regulation
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1 are promptly notified upon the inclusion or removal

2 of a person under such agencies’ jurisdiction; and

3 (2) the list is kept current and easily

4 accessible—

5 (A) for use by such agencies; and

6 (B) for purposes of enforcing or consid7 ering any such bar, ban, or limitation by the

8 appropriate Federal personnel, including com9 manders of military installations.

10 (c) REGULATIONS.—

11 (1) IN GENERAL.—The Secretary shall issue

12 regulations in accordance with this subsection to

13 provide for the establishment and maintenance of

14 the list under this section, including appropriate due

15 process considerations.

16 (2) TIMING.—

17 (A) PROPOSED REGULATIONS.—Not later

18 than the expiration of the 60-day period begin19 ning on the date of the enactment of this Act,

20 the Secretary shall prepare and submit to the

21 appropriate Committees a copy of the regula22 tions under this subsection that are proposed to

23 be published for comment. The Secretary may

24 not publish such regulations for comment in the

25 Federal Register until the expiration of the 15-
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1 day period beginning upon such submission to

2 the appropriate Committees.

3 (B) FINAL REGULATIONS.—Not later than

4 90 days after the date of the enactment of this

5 Act, the Secretary shall submit to the appro6 priate Committees a copy of the regulations

7 under this section to be published as final.

8 (C) EFFECTIVE DATE.—Such regulations

9 shall become effective upon the expiration of the

10 30-day period beginning upon such submission

11 to the appropriate Committees.

12 (3) DEFINITION.—For the purposes of this sec13 tion, the term ‘‘appropriate Committees’’ means—

14 (A) the Committee on Financial Services

15 and the Committee on Armed Services of the

16 House of Representatives; and

17 (B) the Committee on Banking, Housing,

18 and Urban Affairs and the Committee on

19 Armed Services of the Senate.

20 SEC. 11. SENSE OF CONGRESS.

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

22 State agencies responsible for insurance and securities

23 regulation should provide advice to the appropriate Fed24 eral entities to consider—
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1 (1) significantly increasing the life insurance

2 coverage made available through the Federal Gov3 ernment to members of the Armed Forces;

4 (2) implementing appropriate procedures to en5 courage members of the Armed Forces to improve

6 their financial literacy and obtain objective financial

7 counseling before purchasing additional life insur8 ance coverage or investments beyond those provided

9 by the Federal Government; and

10 (3) improving the benefits and matching con11 tributions provided under the Thrift Savings Plan to

12 members of the Armed Forces.

13 SEC. 12. DEFINITIONS.

14 For purposes of this Act, the following definitions

15 shall apply:

16 (1) ENTITY.—The term ‘‘entity’’ includes insur17 ers.

18 (2) INDIVIDUAL.—The term ‘‘individual’’ in19 cludes insurance agents and producers.

20 (3) NAIC.—The term ‘‘NAIC’’ means the Na21 tional Association of Insurance Commissioners.

22 (4) STATE INSURANCE COMMISSIONER.—The

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

24 respect to a State, the officer, agency, or other enti25 ty of the State that has primary regulatory authority
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1 over the business of insurance and over any person

2 engaged in the business of insurance, to the extent

3 of such business activities, in such State.

Passed the House of Representatives October 5,

2004.

Attest:

Clerk.