[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.