[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 418 Enrolled Bill (ENR)]
S.418
One Hundred Ninth Congress
of the
United States of America
AT THE SECOND SESSION
Begun and held at the City of Washington on Tuesday,
the third day of January, two thousand and six
An Act
To protect members of the Armed Forces from unscrupulous practices
regarding sales of insurance, financial, and investment products.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Military Personnel
Financial Services Protection Act''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
Sec. 2. Congressional findings.
Sec. 3. Definitions.
Sec. 4. Prohibition on future sales of periodic payment plans.
Sec. 5. Required disclosures regarding offers or sales of securities on
military installations.
Sec. 6. Method of maintaining broker and dealer registration,
disciplinary, and other data.
Sec. 7. Filing depositories for investment advisers.
Sec. 8. State insurance and securities jurisdiction on military
installations.
Sec. 9. Required development of military personnel protection standards
regarding insurance sales; administrative coordination.
Sec. 10. Required disclosures regarding life insurance products.
Sec. 11. Improving life insurance product standards.
Sec. 12. Required reporting of disciplinary actions.
Sec. 13. Reporting barred persons selling insurance or securities.
Sec. 14. Study and reports by Inspector General of the Department of
Defense.
SEC. 2. CONGRESSIONAL FINDINGS.
Congress finds that--
(1) members of the Armed Forces perform great sacrifices in
protecting our Nation in the War on Terror;
(2) the 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) members of the Armed Forces 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 offered to service members, known as
the ``mutual fund contractual plan'', largely disappeared from the
civilian market in the 1980s, due to excessive sales charges;
(5) with respect to a mutual fund contractual plan, a 50
percent sales commission is assessed against the first year of
contributions, despite an average commission on other securities
products of less than 6 percent on each sale;
(6) excessive sales charges allow abusive and misleading sales
practices in connection with mutual fund contractual plan;
(7) certain life insurance products being offered to members of
the Armed Forces are improperly marketed as investment products,
providing minimal death benefits in exchange for excessive premiums
that are front-loaded in the first few years, making them entirely
inappropriate for most military personnel; and
(8) the need for regulation of the marketing and sale of
securities and life insurance products on military bases
necessitates Congressional action.
SEC. 3. DEFINITIONS.
For purposes of this Act, the following definitions shall apply:
(1) Life insurance product.--
(A) In general.--The term ``life insurance product'' means
any product, including individual and group life insurance,
funding agreements, and annuities, that provides insurance for
which the probabilities of the duration of human life or the
rate of mortality are an element or condition of insurance.
(B) Included insurance.--The term ``life insurance
product'' includes the granting of--
(i) endowment benefits;
(ii) additional benefits in the event of death by
accident or accidental means;
(iii) disability income benefits;
(iv) additional disability benefits that operate to
safeguard the contract from lapse or to provide a special
surrender value, or special benefit in the event of total
and permanent disability;
(v) benefits that provide payment or reimbursement for
long-term home health care, or long-term care in a nursing
home or other related facility;
(vi) burial insurance; and
(vii) optional modes of settlement or proceeds of life
insurance.
(C) Exclusions.--Such term does not include workers
compensation insurance, medical indemnity health insurance, or
property and casualty insurance.
(2) NAIC.--The term ``NAIC'' means the National Association of
Insurance Commissioners (or any successor thereto).
SEC. 4. 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 the Investment
Company Act of 1940 (15 U.S.C. 80a-27(i)(2)(B)) is amended by striking
``section 26(e)'' each place that term appears and inserting ``section
26(f)''.
(c) Report on Refunds, Sales Practices, and Revenues From Periodic
Payment Plans.--Not later than 6 months after the date of enactment of
this Act, the Securities and Exchange Commission shall submit to the
Committee on Financial Services of the House of Representatives and the
Committee on Banking, Housing, and Urban Affairs of the Senate, a
report describing--
(1) any measures taken by a broker or dealer registered with
the Securities and Exchange Commission pursuant to section 15(b) of
the Securities Exchange Act of 1934 (15 U.S.C. 78o(b)) to
voluntarily refund payments made by military service members on any
periodic payment plan certificate, and the amounts of such refunds;
(2) after such consultation with the Secretary of Defense, as
the Commission considers appropriate, the sales practices of such
brokers or dealers on military installations over the 5 years
preceding the date of submission of the report and any legislative
or regulatory recommendations to improve such practices; and
(3) the revenues generated by such brokers or dealers in the
sales of periodic payment plan certificates over the 5 years
preceding the date of submission of the report, and the products
marketed by such brokers or dealers to replace the revenue
generated from the sales of periodic payment plan certificates
prohibited under subsection (a).
SEC. 5. REQUIRED DISCLOSURES REGARDING OFFERS OR SALES OF SECURITIES ON
MILITARY INSTALLATIONS.
Section 15A(b) of the Securities Exchange Act of 1934 (15 U.S.C.
78o-3(b)) is amended by inserting immediately after paragraph (13) the
following:
``(14) The rules of the association include provisions
governing the sales, or offers of sales, of securities on the
premises of any military installation to any member of the Armed
Forces or a dependent thereof, which rules require--
``(A) the broker or dealer performing brokerage services to
clearly and conspicuously disclose to potential investors--
``(i) that the securities offered are not being offered
or provided by the broker or dealer on behalf of the
Federal Government, and that its offer is not sanctioned,
recommended, or encouraged by the Federal Government; and
``(ii) the identity of the registered broker-dealer
offering the securities;
``(B) such broker or dealer to perform an appropriate
suitability determination, including consideration of costs and
knowledge about securities, prior to making a recommendation of
a security to a member of the Armed Forces or a dependent
thereof; and
``(C) that no person receive any referral fee or incentive
compensation in connection with a sale or offer of sale of
securities, unless such person is an associated person of a
registered broker or dealer and is qualified pursuant to the
rules of a self-regulatory organization.''.
SEC. 6. METHOD OF MAINTAINING BROKER AND DEALER REGISTRATION,
DISCIPLINARY, AND OTHER DATA.
Section 15A(i) 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.--A registered securities association
may charge persons making inquiries described in paragraph (1)(B),
other than individual investors, reasonable fees for responses to
such inquiries.
``(3) Process for disputed information.--Each registered
securities 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 on liability.--A registered securities
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. 7. FILING DEPOSITORIES FOR INVESTMENT ADVISERS.
(a) Investment Advisers.--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.--
``(A) In general.--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.
``(B) Applicability.--This subsection shall apply to any
investment adviser (and the persons associated with that
adviser), whether the investment adviser is registered with the
Commission under section 203 or regulated solely by a State, as
described in section 203A.
``(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 described in 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) Investment advisers act of 1940.--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) National securities markets improvement act of 1996.--
Section 306 of the National Securities Markets Improvement Act of
1996 (15 U.S.C. 80b-10, note) is repealed.
SEC. 8. STATE INSURANCE AND SECURITIES JURISDICTION ON MILITARY
INSTALLATIONS.
(a) Clarification of Jurisdiction.--Any provision of law,
regulation, or order of a State with respect to regulating the business
of insurance or securities shall apply to insurance or securities
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
or securities activity of an individual or entity on Federal land or
facilities, the State having the primary duty to regulate such activity
and the laws of which 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;
(B) in the case of an entity engaged in the business of
insurance, such entity is domiciled;
(C) in the case of an individual engaged in the offer or
sale (or both) of securities, such individual is registered or
required to be registered to do business or the person
solicited by such individual resides; or
(D) in the case of an entity engaged in the offer or sale
(or both) of securities, such entity is registered or is
required to be registered to do business or the person
solicited by such entity resides.
SEC. 9. REQUIRED DEVELOPMENT OF MILITARY PERSONNEL PROTECTION STANDARDS
REGARDING INSURANCE SALES; ADMINISTRATIVE COORDINATION.
(a) State Standards.--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, not later than 12
months after the date of enactment of this Act.
(b) State Report.--It is the sense of Congress that the NAIC
should, after consultation with the Secretary of Defense and, not later
than 12 months after the date of enactment of this Act, conduct a study
to determine the extent to which the States have met the requirement of
subsection (a), and report the results of 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.
(c) Administrative Coordination; Sense of Congress.--It is the
sense of the Congress that senior representatives of the Secretary of
Defense, the Securities and Exchange Commission, and the NAIC should
meet not less frequently than twice a year to coordinate their
activities to implement this Act and monitor the enforcement of
relevant regulations relating to the sale of financial products on
military installations of the United States.
SEC. 10. REQUIRED DISCLOSURES REGARDING LIFE INSURANCE PRODUCTS.
(a) Requirement.--Except as provided in subsection (e), no person
may sell, or offer for sale, any life insurance product to any member
of the Armed Forces or a dependent thereof on a military installation
of the United States, unless a disclosure in accordance with this
section is provided to such member or dependent at the time of the sale
or offer.
(b) Disclosure.--A disclosure in accordance with this section is a
written disclosure that--
(1) states that subsidized life insurance is available to the
member of the Armed Forces from the Federal Government under the
Servicemembers' Group Life Insurance program (also referred to as
``SGLI''), under subchapter III of chapter 19 of title 38, United
States Code;
(2) states the amount of insurance coverage available under the
SGLI program, together with the costs to the member of the Armed
Forces for such coverage;
(3) states that the life insurance product that is the subject
of the disclosure is not offered or provided by the Federal
Government, and that the Federal Government has in no way
sanctioned, recommended, or encouraged the sale of the life
insurance product being offered;
(4) fully discloses any terms and circumstances under which
amounts accumulated in a savings fund or savings feature under the
life insurance product that is the subject of the disclosure may be
diverted to pay, or reduced to offset, premiums due for
continuation of coverage under such product;
(5) states that no person has received any referral fee or
incentive compensation in connection with the offer or sale of the
life insurance product, unless such person is a licensed agent of
the person engaged in the business of insurance that is issuing
such product;
(6) 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 solicitation material used with respect to or relating to the
life insurance product; and
(7) with respect to a sale or solicitation on Federal land or
facilities located outside of the United States, lists the address
and phone number at which consumer complaints are received by the
State insurance commissioner for the State having the primary
jurisdiction and duty to regulate the sale of such life insurance
products pursuant to section 8.
(c) Voidability.--The sale of a life insurance product in violation
of this section shall be voidable from its inception, at the sole
option of the member of the Armed Forces, or dependent thereof, as
applicable, to whom the product was sold.
(d) Enforcement.--If it is determined by a Federal or State agency,
or in a final court proceeding, that any person has intentionally
violated, or willfully disregarded the provisions of, this section, in
addition to any other penalty under applicable Federal or State law,
such person 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.
(e) Exceptions.--This section shall not apply to any life insurance
product specifically contracted by or through the Federal Government.
SEC. 11. IMPROVING LIFE INSURANCE PRODUCT STANDARDS.
(a) In General.--It is the sense of Congress that the NAIC should,
after consultation with the Secretary of Defense, and not later than 6
months after the date of enactment of this Act, conduct a study and
submit a report to the Committee on Banking, Housing, and Urban Affairs
of the Senate and the Committee on Financial Services of the House of
Representatives on--
(1) ways of improving the quality of and sale of life insurance
products sold on military installations of the United States, which
may include--
(A) limiting such sales authority to persons that are
certified as meeting appropriate best practices procedures; and
(B) creating standards for products specifically designed
to meet the particular needs of members of the Armed Forces,
regardless of the sales location; and
(2) the extent to which life insurance products marketed to
members of the Armed Forces comply with otherwise applicable
provisions of State law.
(b) Conditional GAO Report.--If the NAIC does not submit the report
as described in subsection (a), the Comptroller General of the United
States shall--
(1) study any proposals that have been made to improve the
quality of and sale of life insurance products sold on military
installations of the United States; and
(2) not later than 6 months after the expiration of the period
referred to in subsection (a), submit a report on such proposals to
the Committee on Banking, Housing, and Urban Affairs of the Senate
and the Committee on Financial Services of the House of
Representatives.
SEC. 12. REQUIRED REPORTING OF DISCIPLINARY ACTIONS.
(a) Reporting by Insurers.--Beginning 1 year after the date of
enactment of this Act, no insurer may enter into or renew a contractual
relationship with any other person that sells or solicits the sale of
any life insurance product on any military installation of the United
States, unless the insurer has implemented a system to report to the
State insurance commissioner of the State of domicile of the insurer
and the State of residence of that other person--
(1) any disciplinary action taken by any Federal or State
government entity with respect to sales or solicitations of life
insurance products on a military installation that the insurer
knows, or in the exercise of due diligence should have known, to
have been taken; and
(2) any significant disciplinary action taken by the insurer
with respect to sales or solicitations of life insurance products
on a military installation of the United States.
(b) Reporting by States.--It is the sense of Congress that, not
later than 1 year after the date of enactment of this Act, the States
should collectively implement a system to--
(1) receive reports of disciplinary actions taken against
persons that sell or solicit the sale of any life insurance product
on any military installation of the United States by insurers or
Federal or State government entities with respect to such sales or
solicitations; and
(2) disseminate such information to all other States and to the
Secretary of Defense.
(c) Definition.--As used in this section, the term ``insurer''
means a person engaged in the business of insurance.
SEC. 13. REPORTING BARRED PERSONS SELLING INSURANCE OR SECURITIES.
(a) Establishment.--The Secretary of Defense shall maintain a list
of the name, address, and other appropriate information relating to
persons engaged in the business of securities or insurance that have
been barred or otherwise limited in any manner that is not generally
applicable to all such type of persons, from any or all military
installations of the United States, or that have engaged in any
transaction that is prohibited by this Act.
(b) Notice and Access.--The Secretary of Defense shall ensure
that--
(1) the appropriate Federal and State agencies responsible for
securities and insurance regulation are promptly notified upon the
inclusion in or removal from the list required by subsection (a) of
a person under the jurisdiction of one or more of such agencies;
and
(2) the list is kept current and easily accessible--
(A) for use by such agencies; and
(B) for purposes of enforcing or considering any such bar
or limitation by the appropriate Federal personnel, including
commanders of military installations.
(c) Regulations.--
(1) In general.--The Secretary of Defense shall issue
regulations in accordance with this subsection to provide for the
establishment and maintenance of the list required by this section,
including appropriate due process considerations.
(2) Timing.--
(A) Proposed regulations.--Not later than the expiration of
the 60-day period beginning on the date of enactment of this
Act, the Secretary of Defense shall prepare and submit to the
appropriate Committees of Congress a copy of the regulations
required by 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 on the date of such submission to the
appropriate Committees of Congress.
(B) Final regulations.--Not later than 90 days after the
date of enactment of this Act, the Secretary of Defense shall
submit to the appropriate Committees of Congress a copy of the
regulations under this section to be published in final form.
(C) Effective date.--Final regulations under this paragraph
shall become effective 30 days after the date of their
submission to the appropriate Committees of Congress under
subparagraph (B).
(d) Definition.--For purposes of this section, the term
``appropriate Committees of Congress'' means--
(1) the Committee on Financial Services and the Committee on
Armed Services of the House of Representatives; and
(2) the Committee on Banking, Housing, and Urban Affairs and
the Committee on Armed Services of the Senate.
SEC. 14. STUDY AND REPORTS BY INSPECTOR GENERAL OF THE DEPARTMENT OF
DEFENSE.
(a) Study.--The Inspector General of the Department of Defense
shall conduct a study on the impact of Department of Defense
Instruction 1344.07 (as in effect on the date of enactment of this Act)
and the reforms included in this Act on the quality and suitability of
sales of securities and insurance products marketed or otherwise
offered to members of the Armed Forces.
(b) Reports.--Not later than 12 months after the date of enactment
of this Act, the Inspector General of the Department of Defense shall
submit an initial report on the results of the study conducted under
subsection (a) to the Committee on Banking, Housing, and Urban Affairs
of the Senate and the Committee on Financial Services of the House of
Representatives, and shall submit followup reports to those committees
on December 31, 2008 and December 31, 2010.
Speaker of the House of Representatives.
Vice President of the United States and
President of the Senate.