[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 418 Introduced in Senate (IS)]







109th CONGRESS
  1st Session
                                 S. 418

  To protect members of the Armed Forces from unscrupulous practices 
   regarding sales of insurance, financial, and investment products.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           February 17, 2005

   Mr. Enzi (for himself, Mrs. Clinton, Mr. Hagel, and Mr. Schumer) 
introduced the following bill; which was read twice and referred to the 
            Committee on Banking, Housing, and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
  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.

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

SEC. 2. CONGRESSIONAL FINDINGS.

    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 1980s, 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 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. 78 
        o(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 past 
        5 years 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 past 5 
        years and what products such brokers or dealers market to 
        replace the revenue generated from the sales of periodic 
        payment plan certificates prohibited under subsection (a).

SEC. 4. 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. 5. 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.--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 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) 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) 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 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; 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.--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.

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 the date of 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 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 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 
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 not later than 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 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 Congress that, not 
later than 2 years after the date of 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. 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 of persons 
engaged in the business of securities or insurance that have been 
barred, banned, 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.
    (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 such agencies' jurisdiction; 
        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, ban, 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 
                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 on the date of such submission to the 
                appropriate Committees.
                    (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 a 
                copy of the regulations under this section to be 
                published in final form.
                    (C) Effective date.--Such regulations shall become 
                effective upon the expiration of the 30-day period 
                beginning on the date of such submission to the 
                appropriate Committees.
    (d) Definition.--For purposes of this section, the term 
``appropriate Committees'' 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. 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 
        objectives; and
            (3) improving the benefits and matching contributions 
        provided under the Federal Thrift Savings Plan (established 
        under section 8437 of title 5, United States Code) 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.
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