[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