IB 

Union Calendar No. 445

108TH CONGRESS 

2D SESSION H. R. 5011

[Report No. 108–725] 

To prevent the sale of abusive insurance and investment products to military 

personnel. 

IN THE HOUSE OF REPRESENTATIVES 

SEPTEMBER 7, 2004

Mr. BURNS (for himself, Mr. SIMPSON, Mr. EDWARDS, Mr. NORWOOD, and 

Mr. WILSON of South Carolina) introduced the following bill; which was 

referred to the Committee on Financial Services 

OCTOBER 5, 2004

Additional sponsors: Mr. BACHUS, Mr. CARTER, Ms. GINNY BROWN-WAITE of 

Florida, and Mr. RYUN of Kansas 

OCTOBER 5, 2004 

Reported with an amendment, committed to the Committee of the Whole 

House on the State of the Union, and ordered to be printed 

[Strike out all after the enacting clause and insert the part printed in italic] 

[For text of introduced bill, see copy of bill as introduced on September 7, 2004] 

A BILL

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 Terror 

8 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 in12 vest 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 dis19 appeared from the civilian market since the 1980’s 

20 due to its excessive sales charges. A 50 percent sales 

21 commission is assessed against the first year of con22 tributions, even though the average commission on 

23 other securities products such as mutual funds is less 

24 than 6 percent on each sale. 
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1 (5) The excessive sales charges of the contractual 

2 plan makes it susceptible to abusive and misleading 

3 sales practices. 

4 (6) Certain life insurance products being offered 

5 to our service members are being improperly mar6 keted as investment products. These products provide 

7 very low death benefits for very high premiums that 

8 are front-loaded in the first few years, making them 

9 completely inappropriate for most military personnel. 

10 (7) Regulation of these securities and life insur11 ance products and their sale on military bases has 

12 been clearly inadequate and requires Congressional 

13 legislation to address. 

14 SEC. 3. PROHIBITION ON FUTURE SALES OF PERIODIC PAY15 MENT PLANS. 

16 (a) AMENDMENT.—Section 27 of the Investment Com17 pany Act of 1940 (15 U.S.C. 80a-27) is amended by adding 

18 at the end the following new subsection: 

19 ‘‘(j) TERMINATION OF SALES.—

20 ‘‘(1) TERMINATION.—Effective 30 days after the 

21 date of enactment of the Military Personnel Financial 

22 Services Protection Act, it shall be unlawful, subject 

23 to subsection (i)—
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1 ‘‘(A) for any registered investment company 

2 to issue any periodic payment plan certificate; 

3 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) of 

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

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

16 SEC. 4. METHOD OF MAINTAINING BROKER/DEALER REG17 ISTRATION, DISCIPLINARY, AND OTHER DATA. 

18 Subsection (i) of section 15A of the Securities Ex19 change Act of 1934 (15 U.S.C. 78o-3(i)) is amended to read 

20 as follows: 

21 ‘‘(i) OBLIGATION TO MAINTAIN REGISTRATION, DIS22 CIPLINARY AND OTHER DATA.—

23 ‘‘(1) MAINTENANCE OF SYSTEM TO RESPOND TO

24 INQUIRIES.—A registered securities association 

25 shall—
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1 ‘‘(A) establish and maintain a system for 

2 collecting and retaining registration informa3 tion; 

4 ‘‘(B) establish and maintain a toll-free tele5 phone listing, and a readily accessible electronic 

6 or other process, to receive and promptly respond 

7 to inquiries regarding—

8 ‘‘(i) registration information on its 

9 members and their associated persons; and 

10 ‘‘(ii) registration information on the 

11 members and their associated persons of 

12 any registered national securities exchange 

13 that uses the system described in subpara14 graph (A) for the registration of its mem15 bers and their associated persons; and 

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

17 making inquiries and the type, scope, and pres18 entation of information to be provided in re19 sponse to such inquiries in consultation with 

20 any registered national securities exchange pro21 viding information pursuant to subparagraph 

22 (B)(ii). 

23 ‘‘(2) RECOVERY OF COSTS.—Such an association 

24 may charge persons making inquiries, other than in-
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1 dividual investors, reasonable fees for responses to 

2 such inquiries. 

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

4 Such an association shall adopt rules establishing an 

5 administrative process for disputing the accuracy of 

6 information provided in response to inquiries under 

7 this subsection in consultation with any registered 

8 national securities exchange providing information 

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

10 ‘‘(4) LIMITATION OF LIABILITY.—Such an asso11 ciation, or an exchange reporting information to such 

12 an association, shall not have any liability to any 

13 person for any actions taken or omitted in good faith 

14 under this subsection. 

15 ‘‘(5) DEFINITION.—For purposes of this sub16 section, the term ‘registration information’ means the 

17 information reported in connection with the registra18 tion or licensing of brokers and dealers and their as19 sociated persons, including disciplinary actions, regu20 latory, judicial, and arbitration proceedings, and 

21 other information required by law, or exchange or as22 sociation rule, and the source and status of such in23 formation.’’. 
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1 SEC. 5. FILING DEPOSITORIES FOR INVESTMENT ADVISERS. 

2 (a) AMENDMENT.—Section 204 of the Investment Ad3 visers Act of 1940 (15 U.S.C. 80b-4) is amended—

4 (1) by striking ‘‘Every investment’’ and insert5 ing the following: ‘‘(a) IN GENERAL.—Every invest6 ment’’; and 

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

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

9 by rule, require an investment adviser—

10 ‘‘(1) to file with the Commission any fee, appli11 cation, report, or notice required to be filed by this 

12 title or the rules issued under this title through any 

13 entity designated by the Commission for that purpose; 

14 and 

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

16 such filing and the establishment and maintenance of 

17 the systems required by subsection (c). 

18 ‘‘(c) ACCESS TO DISCIPLINARY AND OTHER INFORMA19 TION.—

20 ‘‘(1) MAINTENANCE OF SYSTEM TO RESPOND TO

21 INQUIRIES.—The Commission shall require the entity 

22 designated by the Commission under subsection (b)(1) 

23 to establish and maintain a toll-free telephone listing, 

24 or a readily accessible electronic or other process, to 

25 receive and promptly respond to inquiries regarding 

26 registration information (including disciplinary ac-
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1 tions, regulatory, judicial, and arbitration pro2 ceedings, and other information required by law or 

3 rule to be reported) involving investment advisers and 

4 persons associated with investment advisers. 

5 ‘‘(2) RECOVERY OF COSTS.—An entity des6 ignated by the Commission under subsection (b)(1) 

7 may charge persons making inquiries, other than in8 dividual investors, reasonable fees for responses to in9 quiries made under paragraph (1). 

10 ‘‘(3) LIMITATION ON LIABILITY.—An entity des11 ignated by the Commission under subsection (b)(1) 

12 shall not have any liability to any person for any ac13 tions taken or omitted in good faith under this sub14 section.’’. 

15 (b) CONFORMING AMENDMENTS.—

16 (1) Section 203A of the Investment Advisers Act 

17 of 1940 (15 U.S.C. 80b-3a) is amended—

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

19 (B) by redesignating subsection (e) as sub20 section (d). 

21 (2) Section 306 of the National Securities Mar22 kets Improvement Act of 1996 (15 U.S.C. 80b-10, 

23 note; P.L. 104–290; 110 Stat. 3439) is repealed.
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1 SEC. 6. STATE INSURANCE JURISDICTION ON MILITARY IN2 STALLATIONS. 

3 (a) CLARIFICATION OF JURISDICTION.—Any law, reg4 ulation, or order of a State with respect to regulating the 

5 business of insurance shall apply to insurance activities 

6 conducted on Federal land or facilities in the United States 

7 and abroad, including military installations, except to the 

8 extent that such law, regulation, or order—

9 (1) directly conflicts with any applicable Federal 

10 law, regulation, or authorized directive; or 

11 (2) would not apply if such activity were con12 ducted on State land. 

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

14 that multiple State laws would otherwise apply pursuant 

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

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

17 primary duty to regulate such activity and whose laws shall 

18 apply to such activity in the case of a conflict shall be—

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

20 facility is located; or 

21 (2) if the Federal land or facility is located out22 side of the United States, the State in which—

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

24 the business of insurance, such individual has 

25 been issued a resident license; or 
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1 (B) in the case of an entity engaged in the 

2 business of insurance, such entity is domiciled. 

3 SEC. 7. REQUIRED DEVELOPMENT OF MILITARY PER4 SONNEL PROTECTION STANDARDS REGARD5 ING INSURANCE SALES. 

6 (a) STATE STANDARDS.—The Congress intends that—

7 (1) the States collectively work with the Sec8 retary of Defense to ensure implementation of appro9 priate standards to protect members of the Armed 

10 Forces from dishonest and predatory insurance sales 

11 practices while on a military installation of the 

12 United States (including installations located outside 

13 of the United States); and 

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

15 standards described in paragraph (1) in a uniform 

16 manner within 12 months after the date of the enact17 ment of this Act. 

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

19 that the NAIC should, after consultation with the Secretary 

20 of Defense and within 12 months after the date of the enact21 ment of this Act, conduct a study to determine the extent 

22 to which the States have met the requirement of subsection 

23 (a) and report such study to the Committee on Financial 

24 Services of the House of Representatives and the Committee 

25 on Banking, Housing, and Urban Affairs of the Senate. 
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1 SEC. 8. REQUIRED DISCLOSURES REGARDING LIFE INSUR2 ANCE. 

3 (a) REQUIREMENT.—Except as provided in subsection 

4 (d), no insurer or producer may sell or solicit, in person, 

5 any life insurance product to any member of the Armed 

6 Forces on a military installation of the United States unless 

7 a disclosure in accordance with this section is provided to 

8 such member before the sale of such insurance. 

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

10 this section is a written disclosure that—

11 (1) states that subsidized life insurance may be 

12 available to the member of the Armed Forces from the 

13 Federal Government; 

14 (2) states that the United States Government has 

15 in no way sanctioned, recommended, or encouraged 

16 the sale of the product being offered; 

17 (3) is made in plain and readily understandable 

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

19 font used for the majority of the policy; and 

20 (4) with respect to a sale or solicitation on Fed21 eral land or facilities located outside of the United 

22 States by an individual or entity engaged in the busi23 ness of insurance, except to the extent otherwise spe24 cifically provided by the laws of such State in ref25 erence to this Act, lists the address and phone number 

26 where consumer complaints are received by the State 
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1 insurance commissioner for the State in which the in2 dividual has been issued a resident license or the enti3 ty is domiciled, as applicable. 

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

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

6 individual or entity has intentionally failed to provide a 

7 disclosure required by this section, such individual or entity 

8 shall be prohibited from further engaging in the business 

9 of insurance with respect to employees of the Federal Gov10 ernment on Federal land, except—

11 (1) with respect to existing policies; and 

12 (2) to the extent required by the Federal Govern13 ment pursuant to previous commitments. 

14 (d) EXCEPTIONS.—

15 (1) FEDERAL AND STATE INSURANCE ACTIV16 ITY.—This section shall not apply to insurance ac17 tivities—

18 (A) specifically contracted by or through the 

19 Federal Government or any State government; or 

20 (B) specifically exempted from the applica21 bility of this Act by a Federal or State law, reg22 ulation, or order that specifically refers to this 

23 paragraph. 

24 (2) UNIFORM STATE STANDARDS.—If a majority 

25 of the States have adopted, in materially identical
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1 form, a standard setting forth the disclosures required 

2 under this section that apply to insurance solicita3 tions and sales to military personnel on military in4 stallations of the United States, after the expiration 

5 of the 2-year period beginning on such majority adop6 tion, such standard shall apply in lieu of the require7 ments of this section to all insurance solicitations and 

8 sales to military personnel on military installations, 

9 with respect to such States, to the extent that such 

10 standards do not directly conflict with any applicable 

11 authorized Federal regulation or directive. 

12 (3) MATERIALLY IDENTICAL FORM.—For pur13 poses of this subsection, standards adopted by more 

14 than one State shall be considered to have materially 

15 identical form to the extent that such standards re16 quire or prohibit identical conduct with respect to the 

17 same activity, notwithstanding that the standards 

18 may differ with respect to conduct required or prohib19 ited with respect to other activities. 

20 SEC. 9. IMPROVING LIFE INSURANCE PRODUCT STAND21 ARDS. 

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

23 the NAIC should, after consultation with the Secretary of 

24 Defense and within 12 months after the date of the enact25 ment of this Act, conduct a study and submit a report to 
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1 the Committee on Financial Services of the House of Rep2 resentatives and the Committee on Banking, Housing, and 

3 Urban Affairs of the Senate on ways of improving the qual4 ity of and sale of life insurance products sold by insurers 

5 and producers on military installations of the United 

6 States, which may include limiting sales authority to com7 panies and producers that are certified as meeting appro8 priate best practices procedures or creating standards for 

9 products specifically designed for members of the Armed 

10 Forces regardless of the sales location. 

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

12 not submit the report to the committees as described in sub13 section (a), the Comptroller General of the United States 

14 shall study any proposals that have been made to improve 

15 the quality and sale of life insurance products sold by insur16 ers and producers on military installations of the United 

17 States and report to the Committee on Financial Services 

18 of the House of Representatives and the Committee on 

19 Banking, Housing, and Urban Affairs of the Senate on such 

20 proposals within 6 months after the expiration of the period 

21 referred to in subsection (a). 

22 SEC. 10. REQUIRED REPORTING OF DISCIPLINED INSUR23 ANCE AGENTS. 

24 (a) REPORTING BY INSURERS.—After the expiration of 

25 the 2-year period beginning on the date of the enactment 
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1 of this Act, no insurer may enter into or renew a contrac2 tual relationship with a producer that solicits or sells life 

3 insurance on military installations of the United States un4 less the insurer has implemented a system to report, to the 

5 State insurance commissioner of the State of the domicile 

6 of the insurer and the State of residence of the insurance 

7 producer, disciplinary actions taken against the producer 

8 with respect to the producer’s sales or solicitation of insur9 ance on a military installation of the United States, as fol10 lows: 

11 (1) Any disciplinary action taken by any gov12 ernment entity that the insurer knows has been taken. 

13 (2) Any significant disciplinary action taken by 

14 the insurer. 

15 (b) REPORTING BY STATES.—It is the sense of the Con16 gress that within 2 years after the date of the enactment 

17 of this Act, the States should collectively implement a sys18 tem to—

19 (1) receive reports of disciplinary actions taken 

20 against insurance producers by insurers or govern21 ment entities with respect to the producers’ sale or so22 licitation of insurance on a military installation; and 

23 (2) disseminate such information to all other 

24 States and to the Secretary of Defense. 
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1 SEC. 11. REGISTRY OF BARRED INSURANCE AGENTS AND 

2 FINANCIAL ADVISORS. 

3 (a) ESTABLISHMENT.—The Secretary of Defense shall 

4 establish a registry of insurance agents and financial advi5 sors that have been barred or banned from doing business 

6 on any or all military installations of the United States. 

7 The registry shall be operational not later than the expira8 tion of the 90-day period beginning on the date of the enact9 ment of this Act. 

10 (b) UPDATING.—The Secretary shall update and 

11 maintain such registry in a manner that ensures the reg12 istry is at all times current and accessible. 

13 (c) REGISTRY.—The registry established under this 

14 section shall—

15 (1) include the name, address, and other identi16 fying information of each insurance agent or finan17 cial advisor that, at such time, is barred, banned, or 

18 otherwise limited in any manner that is not generally 

19 applicable to all such agents or advisors with respect 

20 to doing business on any or all military installations 

21 of the United States; and 

22 (2) be easily accessible and searchable by—

23 (A) appropriate personnel for purposes of 

24 enforcing any such bar, ban, or limitation; and
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1 (B) appropriate Federal and State agencies 

2 responsible for financial and insurance regula3 tion. 

4 (d) NOTICE TO FINANCIAL REGULATORS.—The Sec5 retary shall promptly notify the appropriate Federal and 

6 State agencies responsible for financial and insurance regu7 lation, upon the inclusion or removal of an insurance agent 

8 or financial advisor in or from the registry established 

9 under this section, of such inclusion or removal, respec10 tively. 

11 (e) APPEALS.—The Secretary shall provide for any 

12 such agent or advisor to appeal to the Secretary their erro13 neous inclusion in such registry and for a prompt deter14 mination of any such appeal. 

15 (f) REGULATIONS.—

16 (1) IN GENERAL.—The Secretary shall issue reg17 ulations in accordance with this subsection providing 

18 for—

19 (A) the establishment and maintenance of 

20 the registry under this section; and 

21 (B) the establishment and operation of the 

22 procedure for appeals under subsection (e). 

23 (2) PROPOSED REGULATIONS AND SUBMISSION

24 TO CONGRESS.—Not later than the expiration of the 

25 30-day period beginning on the date of the enactment 
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1 of this Act, the Secretary shall prepare and submit to 

2 the appropriate Committees a copy of the regulations 

3 under this subsection that are proposed to be pub4 lished for comment. The Secretary may not publish 

5 such regulations for comment in the Federal Register 

6 until the expiration of the 15-day period beginning 

7 upon such submission to the appropriate Committees. 

8 (3) FINAL REGULATIONS.—Not later than 60 

9 days after the date of the enactment of this Act, the 

10 Secretary shall submit to the appropriate Committees 

11 a copy of the regulations under this section to be pub12 lished as final, which shall become effective upon the 

13 expiration of the 30-day period beginning upon sub14 mission to the appropriate Committees. 

15 (g) DEFINITIONS.—For purposes of this section: 

16 (1) APPROPRIATE COMMITTEES.—The term ‘‘ap17 propriate Committees’’ means—

18 (A) the Committee on Financial Services 

19 and the Committee on Armed Services of the 

20 House of Representatives; and 

21 (B) the Committee on Banking, Housing, 

22 and Urban Affairs and the Committee on Armed 

23 Services of the Senate. 
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1 (2) MILITARY INSTALLATION.—The term ‘‘mili2 tary installation of the United States’’ includes in3 stallations located outside of the United States. 

4 (3) SECRETARY.—The term ‘‘Secretary’’ means 

5 the Secretary of Defense. 

6 SEC. 12. SENSE OF CONGRESS. 

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

8 State agencies responsible for insurance and securities regu9 lation should provide advice to the appropriate Federal en10 tities to consider—

11 (1) significantly increasing the life insurance 

12 coverage made available through the Federal Govern13 ment to members of the Armed Forces; 

14 (2) implementing appropriate procedures to en15 courage members of the Armed Forces to improve 

16 their financial literacy and obtain objective financial 

17 counseling before purchasing additional life insurance 

18 coverage or investments beyond those provided by the 

19 Federal Government; and 

20 (3) improving the benefits and matching con21 tributions provided under the Thrift Savings Plan to 

22 members of the Armed Forces. 

23 SEC. 13. DEFINITIONS. 

24 For purposes of this Act, the following definitions shall 

25 apply: 
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1 (1) ENTITY.—The term ‘‘entity’’ includes insur2 ers. 

3 (2) INDIVIDUAL.—The term ‘‘individual’’ in4 cludes insurance agents and producers. 

5 (3) NAIC.—The term ‘‘NAIC’’ means the Na6 tional Association of Insurance Commissioners. 

7 (4) STATE INSURANCE COMMISSIONER.—The 

8 term ‘‘State insurance commissioner’’ means, with re9 spect to a State, the officer, agency, or other entity of 

10 the State that has primary regulatory authority over 

11 the business of insurance and over any person en12 gaged in the business of insurance, to the extent of 

13 such business activities, in such State.

Union Calendar No. 445

108TH CONGRESS 

2D SESSION H. R. 5011

[Report No. 108–725] 

A BILL

To prevent the sale of abusive insurance and 

investment products to military personnel. 

OCTOBER 5, 2004

Reported with an amendment, committed to the Comand ordered to be printed mittee of the Whole House on the State of the Union,