[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5011 Reported in House (RH)]

                                                 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.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Military Personnel Financial 
Services Protection Act''.

SEC. 2. CONGRESSIONAL FINDINGS.

    The Congress finds the following:
            (1) Our military personnel perform great sacrifices in 
        protecting our Nation in the War on Terror and promoting 
        democracy abroad.
            (2) Our brave men and women in uniform deserve to be 
        offered first-rate financial products in order to provide for 
        their families and to save and invest for retirement.
            (3) Our military personnel are being offered high-cost 
        securities and life insurance products by some financial 
        services companies engaging in abusive and misleading sales 
        practices.
            (4) One securities product being offered to our service 
        members, the contractual plan, has largely disappeared from the 
        civilian market since the 1980's due to its excessive sales 
        charges. A 50 percent sales commission is assessed against the 
        first year of contributions, even though the average commission 
        on other securities products such as mutual funds is less than 
        6 percent on each sale.
            (5) The excessive sales charges of the contractual plan 
        makes it susceptible to abusive and misleading sales practices.
            (6) Certain life insurance products being offered to our 
        service members are being improperly marketed as investment 
        products. These products provide very low death benefits for 
        very high premiums that are front-loaded in the first few 
        years, making them completely inappropriate for most military 
        personnel.
            (7) Regulation of these securities and life insurance 
        products and their sale on military bases has been clearly 
        inadequate and requires Congressional legislation to address.

SEC. 3. PROHIBITION ON FUTURE SALES OF PERIODIC PAYMENT PLANS.

    (a) Amendment.--Section 27 of the Investment Company Act of 1940 
(15 U.S.C. 80a-27) is amended by adding at the end the following new 
subsection:
    ``(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.''.
    (b) Technical Amendment.--Section 27(i)(2)(B) of such Act is 
amended by striking ``section 26(e)'' each place it appears and 
inserting ``section 26(f)''.

SEC. 4. METHOD OF MAINTAINING BROKER/DEALER REGISTRATION, DISCIPLINARY, 
              AND OTHER DATA.

    Subsection (i) of section 15A of the Securities Exchange Act of 
1934 (15 U.S.C. 78o-3(i)) is amended to read as follows:
    ``(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 
        other information required by law, or exchange or association 
        rule, and the source and status of such information.''.

SEC. 5. FILING DEPOSITORIES FOR INVESTMENT ADVISERS.

    (a) Amendment.--Section 204 of the Investment Advisers Act of 1940 
(15 U.S.C. 80b-4) is amended--
            (1) by striking ``Every investment'' and inserting the 
        following: ``(a) In General.--Every investment''; and
            (2) by adding at the end the following:
    ``(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 
        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.''.
    (b) Conforming Amendments.--
            (1) Section 203A of the Investment Advisers Act of 1940 (15 
        U.S.C. 80b-3a) is amended--
                    (A) by striking subsection (d); and
                    (B) by redesignating subsection (e) as subsection 
                (d).
            (2) Section 306 of the National Securities Markets 
        Improvement Act of 1996 (15 U.S.C. 80b-10, note; P.L. 104-290; 
        110 Stat. 3439) is repealed.

SEC. 6. STATE INSURANCE JURISDICTION ON MILITARY INSTALLATIONS.

    (a) Clarification of Jurisdiction.--Any law, regulation, or order 
of a State with respect to regulating the business of insurance shall 
apply to insurance activities conducted on Federal land or facilities 
in the United States and abroad, including military installations, 
except to the extent that such law, regulation, or order--
            (1) directly conflicts with any applicable Federal law, 
        regulation, or authorized directive; or
            (2) would not apply if such activity were conducted on 
        State land.
    (b) Primary State Jurisdiction.--To the extent that multiple State 
laws would otherwise apply pursuant to subsection (a) to an insurance 
activity of an individual or entity on Federal land or facilities, the 
State having the primary duty to regulate such activity and whose laws 
shall apply to such activity in the case of a conflict shall be--
            (1) the State within which the Federal land or facility is 
        located; or
            (2) if the Federal land or facility is located outside of 
        the United States, the State in which--
                    (A) in the case of an individual engaged in the 
                business of insurance, such individual has been issued 
                a resident license; or
                    (B) in the case of an entity engaged in the 
                business of insurance, such entity is domiciled.

SEC. 7. REQUIRED DEVELOPMENT OF MILITARY PERSONNEL PROTECTION STANDARDS 
              REGARDING INSURANCE SALES.

    (a) State Standards.--The Congress intends that--
            (1) the States collectively work with the Secretary of 
        Defense to ensure implementation of appropriate standards to 
        protect members of the Armed Forces from dishonest and 
        predatory insurance sales practices while on a military 
        installation of the United States (including installations 
        located outside of the United States); and
            (2) each State identify its role in promoting the standards 
        described in paragraph (1) in a uniform manner within 12 months 
        after the date of the enactment of this Act.
    (b) State Report.--It is the sense of the Congress that the NAIC 
should, after consultation with the Secretary of Defense and within 12 
months after the date of the enactment of this Act, conduct a study to 
determine the extent to which the States have met the requirement of 
subsection (a) and report such study to the Committee on Financial 
Services of the House of Representatives and the Committee on Banking, 
Housing, and Urban Affairs of the Senate.

SEC. 8. REQUIRED DISCLOSURES REGARDING LIFE INSURANCE.

    (a) Requirement.--Except as provided in subsection (d), no insurer 
or producer may sell or solicit, in person, any life insurance product 
to any member of the Armed Forces on a military installation of the 
United States unless a disclosure in accordance with this section is 
provided to such member before the sale of such insurance.
    (b) Disclosure.--A disclosure in accordance with this section is a 
written disclosure that--
            (1) states that subsidized life insurance may be available 
        to the member of the Armed Forces from the Federal Government;
            (2) states that the United States Government has in no way 
        sanctioned, recommended, or encouraged the sale of the product 
        being offered;
            (3) is made in plain and readily understandable language 
        and in a type font at least as large as the font used for the 
        majority of the policy; and
            (4) with respect to a sale or solicitation on Federal land 
        or facilities located outside of the United States by an 
        individual or entity engaged in the business of insurance, 
        except to the extent otherwise specifically provided by the 
        laws of such State in reference to this Act, lists the address 
        and phone number where consumer complaints are received by the 
        State insurance commissioner for the State in which the 
        individual has been issued a resident license or the entity is 
        domiciled, as applicable.
    (c) Enforcement.--If it is determined by a State or Federal agency, 
or in a final court proceeding, that any individual or entity has 
intentionally failed to provide a disclosure required by this section, 
such individual or entity shall be prohibited from further engaging in 
the business of insurance with respect to employees of the Federal 
Government on Federal land, except--
            (1) with respect to existing policies; and
            (2) to the extent required by the Federal Government 
        pursuant to previous commitments.
    (d) Exceptions.--
            (1) Federal and state insurance activity.--This section 
        shall not apply to insurance activities--
                    (A) specifically contracted by or through the 
                Federal Government or any State government; or
                    (B) specifically exempted from the applicability of 
                this Act by a Federal or State law, regulation, or 
                order that specifically refers to this paragraph.
            (2) Uniform state standards.--If a majority of the States 
        have adopted, in materially identical form, a standard setting 
forth the disclosures required under this section that apply to 
insurance solicitations and sales to military personnel on military 
installations of the United States, after the expiration of the 2-year 
period beginning on such majority adoption, such standard shall apply 
in lieu of the requirements of this section to all insurance 
solicitations and sales to military personnel on military 
installations, with respect to such States, to the extent that such 
standards do not directly conflict with any applicable authorized 
Federal regulation or directive.
            (3) Materially identical form.--For purposes of this 
        subsection, standards adopted by more than one State shall be 
        considered to have materially identical form to the extent that 
        such standards require or prohibit identical conduct with 
        respect to the same activity, notwithstanding that the 
        standards may differ with respect to conduct required or 
        prohibited with respect to other activities.

SEC. 9. IMPROVING LIFE INSURANCE PRODUCT STANDARDS.

    (a) In General.--It is the sense of the Congress that the NAIC 
should, after consultation with the Secretary of Defense and within 12 
months after the date of the enactment of this Act, conduct a study and 
submit a report to the Committee on Financial Services of the House of 
Representatives and the Committee on Banking, Housing, and Urban 
Affairs of the Senate on ways of improving the quality of and sale of 
life insurance products sold by insurers and producers on military 
installations of the United States, which may include limiting sales 
authority to companies and producers that are certified as meeting 
appropriate best practices procedures or creating standards for 
products specifically designed for members of the Armed Forces 
regardless of the sales location.
    (b) Conditional GAO Report.--If the NAIC does not submit the report 
to the committees as described in subsection (a), the Comptroller 
General of the United States shall study any proposals that have been 
made to improve the quality and sale of life insurance products sold by 
insurers and producers on military installations of the United States 
and report to the Committee on Financial Services of the House of 
Representatives and the Committee on Banking, Housing, and Urban 
Affairs of the Senate on such proposals within 6 months after the 
expiration of the period referred to in subsection (a).

SEC. 10. REQUIRED REPORTING OF DISCIPLINED INSURANCE AGENTS.

    (a) Reporting by Insurers.--After the expiration of the 2-year 
period beginning on the date of the enactment of this Act, no insurer 
may enter into or renew a contractual relationship with a producer that 
solicits or sells life insurance on military installations of the 
United States unless the insurer has implemented a system to report, to 
the State insurance commissioner of the State of the domicile of the 
insurer and the State of residence of the insurance producer, 
disciplinary actions taken against the producer with respect to the 
producer's sales or solicitation of insurance on a military 
installation of the United States, as follows:
            (1) Any disciplinary action taken by any government entity 
        that the insurer knows has been taken.
            (2) Any significant disciplinary action taken by the 
        insurer.
    (b) Reporting by States.--It is the sense of the Congress that 
within 2 years after the date of the enactment of this Act, the States 
should collectively implement a system to--
            (1) receive reports of disciplinary actions taken against 
        insurance producers by insurers or government entities with 
        respect to the producers' sale or solicitation of insurance on 
        a military installation; and
            (2) disseminate such information to all other States and to 
        the Secretary of Defense.

SEC. 11. REGISTRY OF BARRED INSURANCE AGENTS AND FINANCIAL ADVISORS.

    (a) Establishment.--The Secretary of Defense shall establish a 
registry of insurance agents and financial advisors that have been 
barred or banned from doing business on any or all military 
installations of the United States. The registry shall be operational 
not later than the expiration of the 90-day period beginning on the 
date of the enactment of this Act.
    (b) Updating.--The Secretary shall update and maintain such 
registry in a manner that ensures the registry is at all times current 
and accessible.
    (c) Registry.--The registry established under this section shall--
            (1) include the name, address, and other identifying 
        information of each insurance agent or financial advisor that, 
        at such time, is barred, banned, or otherwise limited in any 
        manner that is not generally applicable to all such agents or 
        advisors with respect to doing business on any or all military 
        installations of the United States; and
            (2) be easily accessible and searchable by--
                    (A) appropriate personnel for purposes of enforcing 
                any such bar, ban, or limitation; and
                    (B) appropriate Federal and State agencies 
                responsible for financial and insurance regulation.
    (d) Notice to Financial Regulators.--The Secretary shall promptly 
notify the appropriate Federal and State agencies responsible for 
financial and insurance regulation, upon the inclusion or removal of an 
insurance agent or financial advisor in or from the registry 
established under this section, of such inclusion or removal, 
respectively.
    (e) Appeals.--The Secretary shall provide for any such agent or 
advisor to appeal to the Secretary their erroneous inclusion in such 
registry and for a prompt determination of any such appeal.
    (f) Regulations.--
            (1) In general.--The Secretary shall issue regulations in 
        accordance with this subsection providing for--
                    (A) the establishment and maintenance of the 
                registry under this section; and
                    (B) the establishment and operation of the 
                procedure for appeals under subsection (e).
            (2) Proposed regulations and submission to congress.--Not 
        later than the expiration of the 30-day period beginning on the 
        date of the enactment of this Act, the Secretary shall prepare 
        and submit to the appropriate Committees a copy of the 
        regulations under this subsection that are proposed to be 
        published for comment. The Secretary may not publish such 
        regulations for comment in the Federal Register until the 
        expiration of the 15-day period beginning upon such submission 
        to the appropriate Committees.
            (3) Final regulations.--Not later than 60 days after the 
        date of the enactment of this Act, the Secretary shall submit 
        to the appropriate Committees a copy of the regulations under 
        this section to be published as final, which shall become 
        effective upon the expiration of the 30-day period beginning 
        upon submission to the appropriate Committees.
    (g) Definitions.--For purposes of this section:
            (1) Appropriate committees.--The term ``appropriate 
        Committees'' means--
                    (A) the Committee on Financial Services and the 
                Committee on Armed Services of the House of 
                Representatives; and
                    (B) the Committee on Banking, Housing, and Urban 
                Affairs and the Committee on Armed Services of the 
                Senate.
            (2) Military installation.--The term ``military 
        installation of the United States'' includes installations 
        located outside of the United States.
            (3) Secretary.--The term ``Secretary'' means the Secretary 
        of Defense.

SEC. 12. SENSE OF CONGRESS.

     It is the sense of the Congress that the Federal and State 
agencies responsible for insurance and securities regulation should 
provide advice to the appropriate Federal entities to consider--
            (1) significantly increasing the life insurance coverage 
        made available through the Federal Government to members of the 
        Armed Forces;
            (2) implementing appropriate procedures to encourage 
        members of the Armed Forces to improve their financial literacy 
        and obtain objective financial counseling before purchasing 
        additional life insurance coverage or investments beyond those 
        provided by the Federal Government; and
            (3) improving the benefits and matching contributions 
        provided under the Thrift Savings Plan to members of the Armed 
        Forces.

SEC. 13. DEFINITIONS.

    For purposes of this Act, the following definitions shall apply:
            (1) Entity.--The term ``entity'' includes insurers.
            (2) Individual.--The term ``individual'' includes insurance 
        agents and producers.
            (3) NAIC.--The term ``NAIC'' means the National Association 
        of Insurance Commissioners.
            (4) State insurance commissioner.--The term ``State 
        insurance commissioner'' means, with respect to a State, the 
        officer, agency, or other entity of the State that has primary 
        regulatory authority over the business of insurance and over 
        any person engaged in the business of insurance, to the extent 
        of 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 Committee of the Whole 
       House on the State of the Union, and ordered to be printed