[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 418 Reported in Senate (RS)]
Calendar No. 518
109th CONGRESS
2d Session
S. 418
[Report No. 109-282]
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, Mr. Schumer, Mr.
Kennedy, Mr. Bingaman, Mr. Wyden, Mr. Durbin, Mr. Bunning, Mr. Nelson
of Florida, Mr. Reed, and Mr. Dodd) introduced the following bill;
which was read twice and referred to the Committee on Banking, Housing,
and Urban Affairs
July 13, 2006
Reported by Mr. Shelby, with an amendment
[Strike out all after the enacting clause and insert the part printed
in italic]
_______________________________________________________________________
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,
<DELETED>SECTION 1. SHORT TITLE.</DELETED>
<DELETED> This Act may be cited as the ``Military Personnel
Financial Services Protection Act''.</DELETED>
<DELETED>SEC. 2. CONGRESSIONAL FINDINGS.</DELETED>
<DELETED> Congress finds the following:</DELETED>
<DELETED> (1) Our military personnel perform great
sacrifices in protecting our Nation in the War on Terror and
promoting democracy abroad.</DELETED>
<DELETED> (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.</DELETED>
<DELETED> (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.</DELETED>
<DELETED> (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.</DELETED>
<DELETED> (5) The excessive sales charges of the contractual
plan makes it susceptible to abusive and misleading sales
practices.</DELETED>
<DELETED> (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.</DELETED>
<DELETED> (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.</DELETED>
<DELETED>SEC. 3. PROHIBITION ON FUTURE SALES OF PERIODIC PAYMENT
PLANS.</DELETED>
<DELETED> (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:</DELETED>
<DELETED> ``(j) Termination of Sales.--</DELETED>
<DELETED> ``(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)--</DELETED>
<DELETED> ``(A) for any registered investment
company to issue any periodic payment plan certificate;
or</DELETED>
<DELETED> ``(B) for such company, or any depositor
of or underwriter for any such company, or any other
person, to sell such a certificate.</DELETED>
<DELETED> ``(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.''.</DELETED>
<DELETED> (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)''.</DELETED>
<DELETED> (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--</DELETED>
<DELETED> (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;</DELETED>
<DELETED> (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</DELETED>
<DELETED> (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).</DELETED>
<DELETED>SEC. 4. METHOD OF MAINTAINING BROKER AND DEALER REGISTRATION,
DISCIPLINARY, AND OTHER DATA.</DELETED>
<DELETED> Section 15A(i) of the Securities Exchange Act of 1934 (15
U.S.C. 78o-3(i)) is amended to read as follows:</DELETED>
<DELETED> ``(i) Obligation to Maintain Registration, Disciplinary,
and Other Data.--</DELETED>
<DELETED> ``(1) Maintenance of system to respond to
inquiries.--A registered securities association shall--
</DELETED>
<DELETED> ``(A) establish and maintain a system for
collecting and retaining registration
information;</DELETED>
<DELETED> ``(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--</DELETED>
<DELETED> ``(i) registration information on
its members and their associated persons;
and</DELETED>
<DELETED> ``(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</DELETED>
<DELETED> ``(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).</DELETED>
<DELETED> ``(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.</DELETED>
<DELETED> ``(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).</DELETED>
<DELETED> ``(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.</DELETED>
<DELETED> ``(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.''.</DELETED>
<DELETED>SEC. 5. FILING DEPOSITORIES FOR INVESTMENT ADVISERS.</DELETED>
<DELETED> (a) Investment Advisers.--Section 204 of the Investment
Advisers Act of 1940 (15 U.S.C. 80b-4) is amended--</DELETED>
<DELETED> (1) by striking ``Every investment'' and inserting
the following:</DELETED>
<DELETED> ``(a) In General.--Every investment''; and</DELETED>
<DELETED> (2) by adding at the end the following:</DELETED>
<DELETED> ``(b) Filing Depositories.--The Commission may, by rule,
require an investment adviser--</DELETED>
<DELETED> ``(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</DELETED>
<DELETED> ``(2) to pay the reasonable costs associated with
such filing and the establishment and maintenance of the
systems required by subsection (c).</DELETED>
<DELETED> ``(c) Access to Disciplinary and Other Information.--
</DELETED>
<DELETED> ``(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.</DELETED>
<DELETED> ``(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).</DELETED>
<DELETED> ``(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.''.</DELETED>
<DELETED> (b) Conforming Amendments.--</DELETED>
<DELETED> (1) Section 203A of the Investment Advisers Act of
1940 (15 U.S.C. 80b-3a) is amended--</DELETED>
<DELETED> (A) by striking subsection (d);
and</DELETED>
<DELETED> (B) by redesignating subsection (e) as
subsection (d).</DELETED>
<DELETED> (2) Section 306 of the National Securities Markets
Improvement Act of 1996 (15 U.S.C. 80b-10, note) is
repealed.</DELETED>
<DELETED>SEC. 6. STATE INSURANCE JURISDICTION ON MILITARY
INSTALLATIONS.</DELETED>
<DELETED> (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--</DELETED>
<DELETED> (1) directly conflicts with any applicable Federal
law, regulation, or authorized directive; or</DELETED>
<DELETED> (2) would not apply if such activity were
conducted on State land.</DELETED>
<DELETED> (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--</DELETED>
<DELETED> (1) the State within which the Federal land or
facility is located; or</DELETED>
<DELETED> (2) if the Federal land or facility is located
outside of the United States, the State in which--</DELETED>
<DELETED> (A) in the case of an individual engaged
in the business of insurance, such individual has been
issued a resident license; or</DELETED>
<DELETED> (B) in the case of an entity engaged in
the business of insurance, such entity is
domiciled.</DELETED>
<DELETED>SEC. 7. REQUIRED DEVELOPMENT OF MILITARY PERSONNEL PROTECTION
STANDARDS REGARDING INSURANCE SALES.</DELETED>
<DELETED> (a) State Standards.--Congress intends that--</DELETED>
<DELETED> (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</DELETED>
<DELETED> (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.</DELETED>
<DELETED> (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.</DELETED>
<DELETED>SEC. 8. REQUIRED DISCLOSURES REGARDING LIFE
INSURANCE.</DELETED>
<DELETED> (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.</DELETED>
<DELETED> (b) Disclosure.--A disclosure in accordance with this
section is a written disclosure that--</DELETED>
<DELETED> (1) states that subsidized life insurance may be
available to the member of the Armed Forces from the Federal
Government;</DELETED>
<DELETED> (2) states that the United States Government has
in no way sanctioned, recommended, or encouraged the sale of
the product being offered;</DELETED>
<DELETED> (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</DELETED>
<DELETED> (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.</DELETED>
<DELETED> (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--</DELETED>
<DELETED> (1) with respect to existing policies;
and</DELETED>
<DELETED> (2) to the extent required by the Federal
Government pursuant to previous commitments.</DELETED>
<DELETED> (d) Exceptions.--</DELETED>
<DELETED> (1) Federal and state insurance activity.--This
section shall not apply to insurance activities--</DELETED>
<DELETED> (A) specifically contracted by or through
the Federal Government or any State government;
or</DELETED>
<DELETED> (B) specifically exempted from the
applicability of this Act by a Federal or State law,
regulation, or order that specifically refers to this
paragraph.</DELETED>
<DELETED> (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.</DELETED>
<DELETED> (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.</DELETED>
<DELETED>SEC. 9. IMPROVING LIFE INSURANCE PRODUCT STANDARDS.</DELETED>
<DELETED> (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.</DELETED>
<DELETED> (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).</DELETED>
<DELETED>SEC. 10. REQUIRED REPORTING OF DISCIPLINED INSURANCE
AGENTS.</DELETED>
<DELETED> (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:</DELETED>
<DELETED> (1) Any disciplinary action taken by any
government entity that the insurer knows has been
taken.</DELETED>
<DELETED> (2) Any significant disciplinary action taken by
the insurer.</DELETED>
<DELETED> (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--</DELETED>
<DELETED> (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</DELETED>
<DELETED> (2) disseminate such information to all other
States and to the Secretary of Defense.</DELETED>
<DELETED>SEC. 11. REPORTING BARRED PERSONS SELLING INSURANCE OR
SECURITIES.</DELETED>
<DELETED> (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.</DELETED>
<DELETED> (b) Notice and Access.--The Secretary of Defense shall
ensure that--</DELETED>
<DELETED> (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</DELETED>
<DELETED> (2) the list is kept current and easily
accessible--</DELETED>
<DELETED> (A) for use by such agencies;
and</DELETED>
<DELETED> (B) for purposes of enforcing or
considering any such bar, ban, or limitation by the
appropriate Federal personnel, including commanders of
military installations.</DELETED>
<DELETED> (c) Regulations.--</DELETED>
<DELETED> (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.</DELETED>
<DELETED> (2) Timing.--</DELETED>
<DELETED> (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.</DELETED>
<DELETED> (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.</DELETED>
<DELETED> (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.</DELETED>
<DELETED> (d) Definition.--For purposes of this section, the term
``appropriate Committees'' means--</DELETED>
<DELETED> (1) the Committee on Financial Services and the
Committee on Armed Services of the House of Representatives;
and</DELETED>
<DELETED> (2) the Committee on Banking, Housing, and Urban
Affairs and the Committee on Armed Services of the
Senate.</DELETED>
<DELETED>SEC. 12. SENSE OF CONGRESS.</DELETED>
<DELETED> 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--
</DELETED>
<DELETED> (1) significantly increasing the life insurance
coverage made available through the Federal Government to
members of the Armed Forces;</DELETED>
<DELETED> (2) implementing appropriate procedures to
encourage members of the Armed Forces to improve their
financial literacy objectives; and</DELETED>
<DELETED> (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.</DELETED>
<DELETED>SEC. 13. DEFINITIONS.</DELETED>
<DELETED> For purposes of this Act, the following definitions shall
apply:</DELETED>
<DELETED> (1) Entity.--The term ``entity'' includes
insurers.</DELETED>
<DELETED> (2) Individual.--The term ``individual'' includes
insurance agents and producers.</DELETED>
<DELETED> (3) NAIC.--The term ``NAIC'' means the National
Association of Insurance Commissioners.</DELETED>
<DELETED> (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.</DELETED>
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.
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 dependant 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 dependant 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 dependant 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.
Calendar No. 518
109th CONGRESS
2d Session
S. 418
[Report No. 109-282]
_______________________________________________________________________
A BILL
To protect members of the Armed Forces from unscrupulous practices
regarding sales of insurance, financial, and investment products.
_______________________________________________________________________
July 13, 2006
Reported with an amendment