[House Report 108-725]
[From the U.S. Government Publishing Office]



108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     108-725

======================================================================



 
          MILITARY PERSONNEL FINANCIAL SERVICES PROTECTION ACT

                                _______
                                

October 5, 2004.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

  Mr. Oxley, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                             together with

                           SUPPLEMENTAL VIEWS

                        [To accompany H.R. 5011]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Financial Services, to whom was referred the 
bill (H.R. 5011) to prevent the sale of abusive insurance and 
investment products to military personnel, having considered 
the same, report favorably thereon with an amendment and 
recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
Amendment........................................................     2
Purpose and Summary..............................................     7
Background and Need for Legislation..............................     7
Hearings.........................................................     9
Committee Consideration..........................................     9
Committee Votes..................................................     9
Committee Oversight Findings.....................................    10
Performance Goals and Objectives.................................    10
New Budget Authority, Entitlement Authority, and Tax Expenditures    10
Committee Cost Estimate..........................................    11
Congressional Budget Office Estimate.............................    11
Federal Mandates Statement.......................................    12
Advisory Committee Statement.....................................    12
Constitutional Authority Statement...............................    12
Applicability to Legislative Branch..............................    12
Exchange of Committee Correspondence.............................    12
Section-by-Section Analysis of the Legislation...................    13
Changes in Existing Law Made by the Bill, as Reported............    18
Supplemental Views...............................................    23

                               Amendment


  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

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

SEC. 2. CONGRESSIONAL FINDINGS.

  The Congress finds the following:
          (1) Our military personnel perform great sacrifices in 
        protecting our Nation in the War on Terror and promoting 
        democracy abroad.
          (2) Our brave men and women in uniform deserve to be offered 
        first-rate financial products in order to provide for their 
        families and to save and invest for retirement.
          (3) Our military personnel are being offered high-cost 
        securities and life insurance products by some financial 
        services companies engaging in abusive and misleading sales 
        practices.
          (4) One securities product being offered to our service 
        members, the contractual plan, has largely disappeared from the 
        civilian market since the 1980's due to its excessive sales 
        charges. A 50 percent sales commission is assessed against the 
        first year of contributions, even though the average commission 
        on other securities products such as mutual funds is less than 
        6 percent on each sale.
          (5) The excessive sales charges of the contractual plan makes 
        it susceptible to abusive and misleading sales practices.
          (6) Certain life insurance products being offered to our 
        service members are being improperly marketed as investment 
        products. These products provide very low death benefits for 
        very high premiums that are front-loaded in the first few 
        years, making them completely inappropriate for most military 
        personnel.
          (7) Regulation of these securities and life insurance 
        products and their sale on military bases has been clearly 
        inadequate and requires Congressional legislation to address.

SEC. 3. PROHIBITION ON FUTURE SALES OF PERIODIC PAYMENT PLANS.

  (a) Amendment.--Section 27 of the Investment Company Act of 1940 (15 
U.S.C. 80a-27) is amended by adding at the end the following new 
subsection:
  ``(j) Termination of Sales.--
          ``(1) Termination.--Effective 30 days after the date of 
        enactment of the Military Personnel Financial Services 
        Protection Act, it shall be unlawful, subject to subsection 
        (i)--
                  ``(A) for any registered investment company to issue 
                any periodic payment plan certificate; or
                  ``(B) for such company, or any depositor of or 
                underwriter for any such company, or any other person, 
                to sell such a certificate.
          ``(2) No invalidation of existing certificates.--Paragraph 
        (1) shall not be construed to alter, invalidate, or otherwise 
        affect any rights or obligations, including rights of 
        redemption, under any periodic payment plan certificate issued 
        and sold before 30 days after such date of enactment.''.
  (b) Technical Amendment.--Section 27(i)(2)(B) of such Act is amended 
by striking ``section 26(e)'' each place it appears and inserting 
``section 26(f)''.

SEC. 4. METHOD OF MAINTAINING BROKER/DEALER REGISTRATION, DISCIPLINARY, 
                    AND OTHER DATA.

  Subsection (i) of section 15A 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.--Such an association may charge 
        persons making inquiries, other than individual investors, 
        reasonable fees for responses to such inquiries.
          ``(3) Process for disputed information.--Such an 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 of liability.--Such an association, or an 
        exchange reporting information to such an association, shall 
        not have any liability to any person for any actions taken or 
        omitted in good faith under this subsection.
          ``(5) Definition.--For purposes of this subsection, the term 
        `registration information' means the information reported in 
        connection with the registration or licensing of brokers and 
        dealers and their associated persons, including disciplinary 
        actions, regulatory, judicial, and arbitration proceedings, and 
        other information required by law, or exchange or association 
        rule, and the source and status of such information.''.

SEC. 5. FILING DEPOSITORIES FOR INVESTMENT ADVISERS.

  (a) Amendment.--Section 204 of the Investment Advisers Act of 1940 
(15 U.S.C. 80b-4) is amended--
          (1) by striking ``Every investment'' and inserting the 
        following: ``(a) In General.--Every investment''; and
          (2) by adding at the end the following:
  ``(b) Filing Depositories.--The Commission may, by rule, require an 
investment adviser--
          ``(1) to file with the Commission any fee, application, 
        report, or notice required to be filed by this title or the 
        rules issued under this title through any entity designated by 
        the Commission for that purpose; and
          ``(2) to pay the reasonable costs associated with such filing 
        and the establishment and maintenance of the systems required 
        by subsection (c).
  ``(c) Access to Disciplinary and Other Information.--
          ``(1) Maintenance of system to respond to inquiries.--The 
        Commission shall require the entity designated by the 
        Commission under subsection (b)(1) to establish and maintain a 
        toll-free telephone listing, or a readily accessible electronic 
        or other process, to receive and promptly respond to inquiries 
        regarding registration information (including disciplinary 
        actions, regulatory, judicial, and arbitration proceedings, and 
        other information required by law or rule to be reported) 
        involving investment advisers and persons associated with 
        investment advisers.
          ``(2) Recovery of costs.--An entity designated by the 
        Commission under subsection (b)(1) may charge persons making 
        inquiries, other than individual investors, reasonable fees for 
        responses to inquiries made under paragraph (1).
          ``(3) Limitation on liability.--An entity designated by the 
        Commission under subsection (b)(1) shall not have any liability 
        to any person for any actions taken or omitted in good faith 
        under this subsection.''.
  (b) Conforming Amendments.--
          (1) Section 203A of the Investment Advisers Act of 1940 (15 
        U.S.C. 80b-3a) is amended--
                  (A) by striking subsection (d); and
                  (B) by redesignating subsection (e) as subsection 
                (d).
          (2) Section 306 of the National Securities Markets 
        Improvement Act of 1996 (15 U.S.C. 80b-10, note; P.L. 104-290; 
        110 Stat. 3439) is repealed.

SEC. 6. STATE INSURANCE JURISDICTION ON MILITARY INSTALLATIONS.

  (a) Clarification of Jurisdiction.--Any law, regulation, or order of 
a State with respect to regulating the business of insurance shall 
apply to insurance activities conducted on Federal land or facilities 
in the United States and abroad, including military installations, 
except to the extent that such law, regulation, or order--
          (1) directly conflicts with any applicable Federal law, 
        regulation, or authorized directive; or
          (2) would not apply if such activity were conducted on State 
        land.
  (b) Primary State Jurisdiction.--To the extent that multiple State 
laws would otherwise apply pursuant to subsection (a) to an insurance 
activity of an individual or entity on Federal land or facilities, the 
State having the primary duty to regulate such activity and whose laws 
shall apply to such activity in the case of a conflict shall be--
          (1) the State within which the Federal land or facility is 
        located; or
          (2) if the Federal land or facility is located outside of the 
        United States, the State in which--
                  (A) in the case of an individual engaged in the 
                business of insurance, such individual has been issued 
                a resident license; or
                  (B) in the case of an entity engaged in the business 
                of insurance, such entity is domiciled.

SEC. 7. REQUIRED DEVELOPMENT OF MILITARY PERSONNEL PROTECTION STANDARDS 
                    REGARDING INSURANCE SALES.

  (a) State Standards.--The 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 
        militaryinstallation 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 within 12 months 
        after the date of the enactment of this Act.
  (b) State Report.--It is the sense of the Congress that the NAIC 
should, after consultation with the Secretary of Defense and within 12 
months after the date of the enactment of this Act, conduct a study to 
determine the extent to which the States have met the requirement of 
subsection (a) and report such study to the Committee on Financial 
Services of the House of Representatives and the Committee on Banking, 
Housing, and Urban Affairs of the Senate.

SEC. 8. REQUIRED DISCLOSURES REGARDING LIFE INSURANCE.

  (a) Requirement.--Except as provided in subsection (d), no insurer or 
producer may sell or solicit, in person, any life insurance product to 
any member of the Armed Forces on a military installation of the United 
States unless a disclosure in accordance with this section is provided 
to such member before the sale of such insurance.
  (b) Disclosure.--A disclosure in accordance with this section is a 
written disclosure that--
          (1) states that subsidized life insurance may be available to 
        the member of the Armed Forces from the Federal Government;
          (2) states that the United States Government has in no way 
        sanctioned, recommended, or encouraged the sale of the product 
        being offered;
          (3) is made in plain and readily understandable language and 
        in a type font at least as large as the font used for the 
        majority of the policy; and
          (4) with respect to a sale or solicitation on Federal land or 
        facilities located outside of the United States by an 
        individual or entity engaged in the business of insurance, 
        except to the extent otherwise specifically provided by the 
        laws of such State in reference to this Act, lists the address 
        and phone number where consumer complaints are received by the 
        State insurance commissioner for the State in which the 
        individual has been issued a resident license or the entity is 
        domiciled, as applicable.
  (c) Enforcement.--If it is determined by a State or Federal agency, 
or in a final court proceeding, that any individual or entity has 
intentionally failed to provide a disclosure required by this section, 
such individual or entity shall be prohibited from further engaging in 
the business of insurance with respect to employees of the Federal 
Government on Federal land, except--
          (1) with respect to existing policies; and
          (2) to the extent required by the Federal Government pursuant 
        to previous commitments.
  (d) Exceptions.--
          (1) Federal and state insurance activity.--This section shall 
        not apply to insurance activities--
                  (A) specifically contracted by or through the Federal 
                Government or any State government; or
                  (B) specifically exempted from the applicability of 
                this Act by a Federal or State law, regulation, or 
                order that specifically refers to this paragraph.
          (2) Uniform state standards.--If a majority of the States 
        have adopted, in materially identical form, a standard setting 
        forth the disclosures required under this section that apply to 
        insurance solicitations and sales to military personnel on 
        military installations of the United States, after the 
        expiration of the 2-year period beginning on such majority 
        adoption, such standard shall apply in lieu of the requirements 
        of this section to all insurance solicitations and sales to 
        military personnel on military installations, with respect to 
        such States, to the extent that such standards do not directly 
        conflict with any applicable authorized Federal regulation or 
        directive.
          (3) Materially identical form.--For purposes of this 
        subsection, standards adopted by more than one State shall be 
        considered to have materially identical form to the extent that 
        such standards require or prohibit identical conduct with 
        respect to the same activity, notwithstanding that the 
        standards may differ with respect to conduct required or 
        prohibited with respect to other activities.

SEC. 9. IMPROVING LIFE INSURANCE PRODUCT STANDARDS.

  (a) In General.--It is the sense of the Congress that the NAIC 
should, after consultation with the Secretary of Defense and within 12 
months after the date of the enactment of this Act, conduct a study and 
submit a report to the Committee on Financial Services of the House of 
Representatives and the Committee on Banking, Housing, and Urban 
Affairs of the Senate on ways of improving the quality of and sale of 
life insurance products sold by insurers and producers on military 
installations of the United States, which may include limiting sales 
authority to companies and producers that are certified as meeting 
appropriate best practices procedures or creating standards for 
products specifically designed for members of the Armed Forces 
regardless of the sales location.
  (b) Conditional GAO Report.--If the NAIC does not submit the report 
to the committees 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 within 6 months after the 
expiration of the period referred to in subsection (a).

SEC. 10. REQUIRED REPORTING OF DISCIPLINED INSURANCE AGENTS.

  (a) Reporting by Insurers.--After the expiration of the 2-year period 
beginning on the date of the enactment of this Act, no insurer may 
enter into or renew a contractual relationship with a producer that 
solicits or sells life insurance on military installations of the 
United States unless the insurer has implemented a system to report, to 
the State insurance commissioner of the State of the domicile of the 
insurer and the State of residence of the insurance producer, 
disciplinary actions taken against the producer with respect to the 
producer's sales or solicitation of insurance on a military 
installation of the United States, as follows:
          (1) Any disciplinary action taken by any government entity 
        that the insurer knows has been taken.
          (2) Any significant disciplinary action taken by the insurer.
  (b) Reporting by States.--It is the sense of the Congress that within 
2 years after the date of the enactment of this Act, the States should 
collectively implement a system to--
          (1) receive reports of disciplinary actions taken against 
        insurance producers by insurers or government entities with 
        respect to the producers' sale or solicitation of insurance on 
        a military installation; and
          (2) disseminate such information to all other States and to 
        the Secretary of Defense.

SEC. 11. REGISTRY OF BARRED INSURANCE AGENTS AND FINANCIAL ADVISORS.

  (a) Establishment.--The Secretary of Defense shall establish a 
registry of insurance agents and financial advisors that have been 
barred or banned from doing business on any or all military 
installations of the United States. The registry shall be operational 
not later than the expiration of the 90-day period beginning on the 
date of the enactment of this Act.
  (b) Updating.--The Secretary shall update and maintain such registry 
in a manner that ensures the registry is at all times current and 
accessible.
  (c) Registry.--The registry established under this section shall--
          (1) include the name, address, and other identifying 
        information of each insurance agent or financial advisor that, 
        at such time, is barred, banned, or otherwise limited in any 
        manner that is not generally applicable to all such agents or 
        advisors with respect to doing business on any or all military 
        installations of the United States; and
          (2) be easily accessible and searchable by--
                  (A) appropriate personnel for purposes of enforcing 
                any such bar, ban, or limitation; and
                  (B) appropriate Federal and State agencies 
                responsible for financial and insurance regulation.
  (d) Notice to Financial Regulators.--The Secretary shall promptly 
notify the appropriate Federal and State agencies responsible for 
financial and insurance regulation, upon the inclusion or removal of an 
insurance agent or financial advisor in or from the registry 
established under this section, of such inclusion or removal, 
respectively.
  (e) Appeals.--The Secretary shall provide for any such agent or 
advisor to appeal to the Secretary their erroneous inclusion in such 
registry and for a prompt determination of any such appeal.
  (f) Regulations.--
          (1) In general.--The Secretary shall issue regulations in 
        accordance with this subsection providing for--
                  (A) the establishment and maintenance of the registry 
                under this section; and
                  (B) the establishment and operation of the procedure 
                for appeals under subsection (e).
          (2) Proposed regulations and submission to congress.--Not 
        later than the expiration of the 30-day period beginning on the 
        date of the enactment of this Act, the Secretary 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 upon such submission 
        to the appropriate Committees.
          (3) Final regulations.--Not later than 60 days after the date 
        of the enactment of this Act, the Secretary shall submit to the 
        appropriate Committees a copy of the regulations under this 
        section to be published as final, which shall become effective 
        upon the expiration of the 30-day period beginning upon 
        submission to the appropriate Committees.
  (g) Definitions.--For purposes of this section:
          (1) Appropriate committees.--The term ``appropriate 
        Committees'' means--
                  (A) the Committee on Financial Services and the 
                Committee on Armed Services of the House of 
                Representatives; and
                  (B) the Committee on Banking, Housing, and Urban 
                Affairs and the Committee on Armed Services of the 
                Senate.
          (2) Military installation.--The term ``military installation 
        of the United States'' includes installations located outside 
        of the United States.
          (3) Secretary.--The term ``Secretary'' means the Secretary of 
        Defense.

SEC. 12. SENSE OF CONGRESS.

   It is the sense of the Congress that the Federal and State agencies 
responsible for insurance and securities regulation should provide 
advice to the appropriate Federal entities to consider--
          (1) significantly increasing the life insurance coverage made 
        available through the Federal Government to members of the 
        Armed Forces;
          (2) implementing appropriate procedures to encourage members 
        of the Armed Forces to improve their financial literacy and 
        obtain objective financial counseling before purchasing 
        additional life insurance coverage or investments beyond those 
        provided by the Federal Government; and
          (3) improving the benefits and matching contributions 
        provided under the Thrift Savings Plan to members of the Armed 
        Forces.

SEC. 13. DEFINITIONS.

  For purposes of this Act, the following definitions shall apply:
          (1) Entity.--The term ``entity'' includes insurers.
          (2) Individual.--The term ``individual'' includes insurance 
        agents and producers.
          (3) NAIC.--The term ``NAIC'' means the National Association 
        of Insurance Commissioners.
          (4) State insurance commissioner.--The term ``State insurance 
        commissioner'' means, with respect to a State, the officer, 
        agency, or other entity of the State that has primary 
        regulatory authority over the business of insurance and over 
        any person engaged in the business of insurance, to the extent 
        of such business activities, in such State.

                          Purpose and Summary

    H.R. 5011, the Military Personnel Financial Services 
Protection Act, will protect military services members from the 
sale of questionable financial products, curb abusive sales 
practices on military installations, and ensure regulatory 
oversight of financial services sales on military 
installations. Specifically, H.R. 5011 bans the sale of 
contractual plans, requires written disclosures in conjunction 
with certain on-installation sales or solicitations, encourages 
the development of improved products for military personnel, 
and improves regulatory oversight by coordinating and 
encouraging contact among insurance companies, Federal and 
State regulators, and the Secretary of Defense.
    To further protect military personnel, a registry of barred 
and banned agents will be established and maintained by the 
Secretary of Defense, and the registry information is to be 
made readily available to the appropriate Federal and State 
regulators. The Secretary of Defense is directed to notify the 
appropriate regulatory authorities when an individual is added 
to or removed from the registry.

                  Background and Need for Legislation

    There is an extensive history of abusive and misleading 
marketing and sales of financial services products on military 
installations. Problems have included abusive and coercive 
sales tactics, expensive and outdated products, and a lack of 
uniform regulatory oversight for on-installation sales.
    A Pentagon-commissioned study by General Thomas Cuthbert 
and a separate Navy Judge Advocate General Corps report by Lt. 
Wayne Hildreth documented the problem of abusive sales 
practices of life insurance agents on military installations 
both domestically and abroad (Final Report, Insurance 
Solicitation on Department of Defense Installations, May 15, 
2000; Litigation Report Investigation of NCOA Standard 
Procedures For Selling Insurance, November 19, 1997). These 
reports detailed improper solicitation on installation, using 
fraternal military organizations to sell insurance products, a 
lack of uniform oversight or regulation of insurance sales on 
installation, and routine and systemic violations of Department 
of Defense rules. These reports were followed by a series of 
articles in the New York Times in the summer of 2004 that 
alleged abusive sales practices on several military 
installations throughout the country and overseas.
    A 1986 Department of Defense Directive limits personal 
commercial solicitations to licensed and approved entities with 
specific appointments (DoD Directive 1344.7, Sect. 6.1). The 
Directive prohibits, among other practices, solicitation of 
recruits, trainees, and transient personnel in a ``mass'' or 
``captive'' audience, using misleading advertising and sales 
literature, and giving the appearance that the Department of 
Defense endorses any particular company (DoD Directive 1344.7, 
Sect. 6.4). Despite these prohibitions, according to the New 
York Times, ``agents have made misleading pitches to `captive' 
audiences * * * posed as counselors on veterans benefits and 
independent financial advisers [and] solicited soldiers in 
their barracks or while they were on duty, [which are all] 
violations of Defense Department regulations.'' (``Basic 
Training Doesn't Guard Against Insurance Pitch to G.I.'s'', 
Diana Henriques, New York Times, July 20, 2004.)
    Witnesses at a September 9, 2004 Capital Markets 
subcommittee hearing on military personnel finances criticized 
the sales practices documented by the New York Times articles. 
Mr. David F. Woods, CEO of the National Association of 
Insurance and Financial Advisors, testified that, ``We condemn 
* * * deceptive, and unethical sales practices and have 
consistently worked to eliminate them from sales on and off 
base.'' (Hearing entitled ``G.I. Finances: Protecting Those Who 
Protect Us'' before the House Subcommittee on Capital Markets, 
September 9, 2004, written testimony of David F. Woods, p. 3). 
In addition to criticizing the sales practices, witnesses 
before the Subcommittee discussed the lack of regulatory 
oversight for on-installation sales. As another witness 
testified, ``We are convinced that the reason these issues 
continue to come up is because of the lack of clarity over who 
has the authority to oversee such sales and the absence of 
clear procedures to ensure the highest standards for dealing 
with men and women in uniform.'' (Hearing, written testimony of 
Hon. Frank Keating, President and CEO, American Council of Life 
Insurers, p. 4.)
    In addition to improper and unethical sales practices, 
witnesses at the Subcommittee hearing criticized the securities 
and life insurance products being sold, suggesting that better 
investments were available for any individual and the products 
were particularly unsuitable for most members of the armed 
services. For example, Ms. Elizabeth Jetton, President of the 
Financial Planning Association, testified that the American 
Amicable Insurance Company's sales tactic of pitching insurance 
as a retirement vehicle was ``misguided and misleading'' and 
that ``any disinterested third party would have a very 
difficult time justifying [such] insurance as a rational 
retirement investment for the typical serviceman.'' (Hearing, 
written testimony of Ms. Elisabeth W. Jetton, CFP, on behalf of 
the Financial Planning Association, p. 5.) Mr. Mercer Bullard, 
President and Founder of Fund Democracy, testified that, ``it 
is particularly offensive that insurance agents peddle 
overpriced, unsuitable products to the men and women who daily 
put their lives on the line for America's defense * * *''. 
(Hearing, written testimony of Mr. Mercer E. Bullard, President 
of Fund Democracy, Inc. and Assistant Professor of Law, 
University of Mississippi School of Law, p. 3.)
    The Subcommittee investigation in preparation for the 
hearing revealed that one financial services company was 
targeting military personnel with the sale of contractual plans 
(or periodic payment plans), an obscure financial product 
invested in mutual funds. These plans largely disappeared from 
the civilian market over two decades ago due to their excessive 
sales charges and the emergence of low-cost competitive 
products. In fact, in a mutual fund market that has over 7 
trillion dollars invested, these plans account for only 
approximately 11 billion dollars of which 90 percent are held 
by military personnel. The plans have first-year sales charges 
of 50 percent, an astronomical figure considering that the 
average sales charges on mutual fund sales rarely exceed 6.5 
percent, and it is uncommon for any investor in the civilian 
market to pay more than 6 percent in the first year. (Hearing, 
Jetton, p. 7.)

                                Hearings

    The Subcommittee on Capital Markets, Insurance and 
Government Sponsored Entities held a hearing on financial 
practices and sales to the military entitled ``G.I. Finances: 
Protecting Those Who Protect Us'' on September 9, 2004. The 
Subcommittee received testimony from the following witnesses: 
Specialist Brandon Conger, United States Army; Ms. Elizabeth W. 
Jetton, President, Financial Planning Association; Mr. Mercer 
Bullard, Founder and Chief Executive Officer, Fund Democracy, 
Inc.; Mr. Lamar C. Smith, Chairman and Chief Executive Officer, 
First Command Financial Planning, Inc.; Mr. Joe W. Dunlap, 
Executive Vice President, American Amicable Life Insurance 
Company of Texas; Mr. David Woods, Chief Executive Officer, 
National Association of Insurance and Financial Agents; Hon. 
Frank Keating, President and Chief Executive Officer, American 
Council of Life Insurers.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
September 29, 2004 and ordered H.R. 5011, the Military 
Personnel Financial Services Protection Act, favorably reported 
to the House with an amendment by a record vote of 68 yeas and 
no nays (Record vote no. 25).

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. A 
motion by Mr. Oxley to report the bill to the House with a 
favorable recommendation was agreed to by a record vote of 68 
yeas and no nays (Record vote no. 25). The names of members 
voting for and against follow.

----------------------------------------------------------------------------------------------------------------
         Representative             Aye       Nay     Present     Representative      Aye       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Oxley......................        X   ........  .........  Mr. Frank (MA)...        X   ........  .........
Mr. Leach......................        X   ........  .........  Mr. Kanjorski....        X   ........  .........
Mr. Baker......................        X   ........  .........  Ms. Waters.......        X   ........  .........
Mr. Bachus.....................        X   ........  .........  Mr. Sanders......        X   ........  .........
Mr. Castle.....................        X   ........  .........  Mrs. Maloney.....        X   ........  .........
Mr. King.......................        X   ........  .........  Mr. Gutierrez....        X   ........  .........
Mr. Royce......................        X   ........  .........  Ms. Velazquez....        X   ........  .........
Mr. Lucas (OK).................  ........  ........  .........  Mr. Watt.........        X   ........  .........
Mr. Ney........................        X   ........  .........  Mr. Ackerman.....        X   ........  .........
Mrs. Kelly.....................        X   ........  .........  Ms. Hooley (OR)..        X   ........  .........
Mr. Paul.......................  ........  ........  .........  Ms. Carson (IN)..        X   ........  .........
Mr. Gillmor....................        X   ........  .........  Mr. Sherman......        X   ........  .........
Mr. Ryun (KS)..................        X   ........  .........  Mr. Meeks (NY)...        X   ........  .........
Mr. LaTourette.................        X   ........  .........  Ms. Lee..........        X   ........  .........
Mr. Manzullo...................        X   ........  .........  Mr. Inslee.......        X   ........  .........
Mr. Jones (NC).................        X   ........  .........  Mr. Moore........        X
Mr. Ose........................        X   ........  .........  Mr. Capuano......        X   ........  .........
Mrs. Biggert...................        X   ........  .........  Mr. Ford.........        X   ........  .........
Mr. Green (WI).................        X   ........  .........  Mr. Hinojosa.....        X   ........  .........
Mr. Toomey.....................        X   ........  .........  Mr. Lucas (KY)...        X   ........  .........
Mr. Shays......................        X   ........  .........  Mr. Crowley......        X   ........  .........
Mr. Shadegg....................        X   ........  .........  Mr. Clay.........        X   ........  .........
Mr. Fossella...................        X   ........  .........  Mr. Israel.......        X   ........  .........
Mr. Gary G. Miller (CA)........        X   ........  .........  Mr. Ross.........        X   ........  .........
Ms. Hart.......................        X   ........  .........  Mrs. McCarthy            X   ........  .........
                                                                 (NY).
Mrs. Capito....................        X   ........  .........  Mr. Baca.........        X   ........  .........
Mr. Tiberi.....................        X   ........  .........  Mr. Matheson.....        X   ........  .........
Mr. Kennedy (MN)...............        X   ........  .........  Mr. Lynch........        X   ........  .........
Mr. Feeney.....................        X   ........  .........  Mr. Miller (NC)..        X   ........  .........
Mr. Hensarling.................        X   ........  .........  Mr. Emanuel......        X   ........  .........
Mr. Garrett (NJ)...............        X   ........  .........  Mr. Scott (GA)...        X   ........  .........
Mr. Murphy.....................        X   ........  .........  Mr. Davis (AL)...        X   ........  .........
Ms. Ginny Brown-Waite (FL).....        X   ........  .........  Mr. Bell.........        X   ........  .........
Mr. Barrett (SC)...............        X   ........  .........
Ms. Harris.....................        X   ........  .........
Mr. Renzi......................        X   ........  .........
Mr. Gerlach....................        X   ........  .........
----------------------------------------------------------------------------------------------------------------
* Mr. Sanders is an independent, but caucuses with the Democratic Caucus.

    The following amendments were considered by the Committee:
    An amendment in the nature of a substitute by Mr. Oxley, 
no. 1, providing investors with access to information on 
disciplinary actions regarding broker dealers, clarifying State 
jurisdiction for sales on overseas military installations, 
encouraging States to develop sales protection standards, 
requiring additional disclosures, and requiring reporting of 
agent disciplinary actions, was agreed to by a voice vote.
    An amendment to the amendment in the nature of a substitute 
by Mr. Ryun, no. 1a, requiring the Secretary of Defense to 
establish and maintain a registry of all agents and financial 
advisors that have been barred or banned from doing business on 
a military installation that is easily accessible and 
searchable by the appropriate authorities, was agreed to by a 
voice vote.
    An amendment to the amendment offered by Mr. Ryun by Mr. 
Israel, no. 1a1, requiring the Secretary of Defense to promptly 
notify theappropriate Federal and State regulators upon the 
inclusion or removal of an insurance agent or financial advisor from 
the registry, was agreed to by a voice vote.
    An amendment to the amendment in the nature of a substitute 
by Mr. Kanjorski, no. 1b, amending the findings, was withdrawn.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee held a hearing and made 
findings that are reflected in this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    The Secretary of Defense and State and Federal financial 
regulators will use the authority granted by this legislation 
to protect members of the military from abusive sales practices 
on military installations. Further, the Secretary of Defense 
will use the authority granted by this legislation to create 
and maintain a registry of agents and broker/dealers who have 
been banned or barred from selling financial services products 
on military installations.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee finds that this 
legislation would result in no new budget authority, 
entitlement authority, or tax expenditures or revenues.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                   Washington, DC, October 4, 2004.
Hon. Michael G. Oxley,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 5011, the Military 
Personnel Financial Services Protection Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Melissa E. 
Zimmerman (for federal costs), and Sarah Puro (for the state 
and local impact).
            Sincerely,
                                         Robert A. Sunshine
                               (For Douglas Holtz-Eakin, Director).
    Enclosure.

H.R. 5011--Military Personnel Financial Services Protection Act

    H.R. 5011 would ban the sale of mutual funds sold through 
contractual plans. The bill also would require insurance 
companies to provide certain notices about insurance policies 
offered by the U.S. government when selling an insurance policy 
to servicemembers or while marketing on military installations. 
The bill would require the Department of Defense to maintain a 
list of agents and advisors barred from doing business on 
military installations. Finally, the bill would amend 
securities law to require registered securities associations to 
provide public access to certain consumer information and to 
file certain financial information with the Securities and 
Exchange Commission.
    CBO estimates that implementing H.R. 5011 would not result 
in a significant cost to the federal government and would not 
affect direct spending or revenues.
    H.R. 5011 contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA), and any costs to 
state, local, or tribal government would be voluntary. The bill 
would encourage state insurance regulators to coordinate with 
the Department of Defense in order to protect military 
personnel from predatory life insurance schemes. Based on 
information from state insurance commissioners, CBO estimates 
that the costs of such cooperation would not be significant.
    H.R. 5011 would impose private-sector mandates as defined 
in UMRA on registered investment companies, registered 
securities associations, investment advisors, and those selling 
life insurance products to members of the Armed Forces on 
military installations of the United States. CBO's estimate of 
the cost of those private-sector mandates will be detailed in a 
separate statement.
    The CBO staff contacts for this estimate are Melissa E. 
Zimmerman (for federal costs), and Sarah Puro (for the state 
and local impact. This estimate was approved by Robert A. 
Sunshine, Assistant Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional Authority of Congress to enact this legislation 
is provided by Article 1, section 8, clause 1 (relating to the 
general welfare of the United States) and clause 3 (relating to 
the power to regulate interstate commerce).

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

                  Exchange of Committee Correspondence

                       Committee on Armed Services,
                                  House of Representatives,
                                   Washington, DC, October 4, 2004.
Hon. Michael G. Oxley,
Chairman, Committee on Financial Services,
Rayburn House Office Building.
    Dear Mr. Chairman: On September 29, 2004, the Committee on 
Financial Services reported H.R. 5011, a bill to prevent the 
sale of abusive insurance and investment products to military 
personnel. As you know, H.R. 5011, as ordered reported, 
contained provisions within the jurisdiction of the Committee 
on Armed Services.
    Because of your willingness to consult with this Committee, 
and because of your desire to move this legislation 
expeditiously, I will waive consideration of the bill by the 
Committee on Armed Services. By agreeing to waive this 
consideration of the bill, the Committee does not waive its 
jurisdiction over H.R. 5011. In addition, should a conference 
be convened on this legislation, the Committee reserves its 
authority to seek conferees on any provisions of the bill that 
are within its jurisdiction. I ask for your commitment to 
support any request for conferees by the Committee on H.R. 5011 
or similar legislation.
    I request that you include this letter and your response in 
the Congressional Record during your consideration of the 
legislation on the House floor. Thank you for your 
consideration of these matters.
    With best wishes.
            Sincerely,
                                             Duncan Hunter,
                                                          Chairman.
                                ------                                

                          House of Representatives,
                           Committee on Financial Services,
                                   Washington, DC, October 4, 2004.
Hon. Duncan Hunter,
Chairman, Committee on Armed Services, Rayburn House Office Building, 
        Washington, DC.
    Dear Chairman Hunter: Thank you for your recent letter 
regarding your committee's jurisdictional interest in H.R. 
5011, the Military Personnel Financial Services Protection Act. 
I appreciate all of your efforts to expedite consideration of 
this important legislation.
    I acknowledge your committee's jurisdictional interest in 
section 11 of the bill as ordered reported by the Committee on 
Financial Services and appreciate your cooperation in allowing 
speedy consideration of the legislation. I agree that your 
decision to forego further action on the bill will not 
prejudice the Committee on Armed Services with respect to its 
jurisdictional prerogatives on this or similar legislation. I 
will support your request for an appropriate number of 
conferees should there be a House-Senate conference on this or 
similar legislation.
    Finally, I will include a copy of your letter and this 
response in the Committee's report on the bill and the 
Congressional Record when the legislation is considered by the 
House.
    Thank you again for your assistance.
            Sincerely,
                                          Michael G. Oxley,
                                                          Chairman.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This section provides the short title for the bill, the 
``Military Personnel Financial Services Protection Act''.

Section 2. Congressional findings

    The section sets forth certain Congressional findings 
describing the need to protect members of the Armed Forces from 
the sale of inappropriate financial products and from abusive 
and misleading sales tactics.

Section 3. Prohibition on future sales of periodic payment plans

    This section amends section 27 of the Investment Company 
Act of 1940 by prohibiting both the issuance of periodic 
payment plan certificates by registered investment companies 
and the sales of periodic payment plan certificates by 
registered investment companies and the depositors and 
underwriters of such companies. This section does not alter, 
invalidate, or affect the rights or obligations under any 
periodic payment plan certificates issued before the 
aforementioned prohibition takes effect.

Section 4. Method of maintaining broker/dealer registration, 
        disciplinary, and other data

    This section amends section 15A(i) of the Securities 
Exchange Act of 1934, which requires a registered securities 
association to maintain a toll-free telephone listing to 
receive inquiries regarding disciplinary actions involving its 
members and their associated persons, and to respond to those 
inquiries in writing. The amended language requires a 
registered securities association to establish a system to 
collect and maintain registration information, and to establish 
an easily accessible electronic or other process (in addition 
to the toll-free telephone listing) to respond to inquiries 
about registration information.
    Registration information will be collected on the 
association's members and their associated persons, as well as 
the members and associated persons of any registered national 
securities exchange that uses the system for the registration 
of such persons. The association may charge persons making 
inquiries, other than an individual investor, reasonable fees 
for producing a response.
    The registered securities association, in consultation with 
the participating registered national securities exchanges, 
also will be required to adopt rules on the process for making 
inquiries and responses, and on the establishment of an 
administrative process for disputes that may arise concerning 
the accuracy of information given in responses to inquiries. As 
under current law, the association and participating exchanges 
will not be liable to any persons for actions taken or omitted 
in good faith under this provision.

Section 5. Filings depositories for investment advisors

    This section reorganizes and codifies in the Investment 
Advisers Act of 1940 provisions of the National Securities 
Markets Improvement Act of 1996, in which Congress directed the 
Commission to establish an electronic filing system, and 
mandated the creation of a public disclosure program, for 
investment advisers. Pursuant to this directive, the Commission 
designated the NASD to operate the electronic filing system for 
investment advisers, which is called the Investment Adviser 
Registration Depository, and created an Internet-based public 
disclosure program containing investment adviser registration 
and disciplinary information.
    This section codifies this arrangement, although it 
requires a toll-free telephone listing, or electronic means, 
for receiving and responding to inquiries for registration 
information.
    The new provision recognizes that the NASD also operates 
the public disclosure program on behalf of the Commission and 
conforms the Investment Advisers Act provision to the terms of 
the Securities Exchange Act of 1934 so that the NASD has 
immunity from liability for actions taken in good faith in 
operating the investment adviser public disclosure program.

Section 6. State insurance jurisdiction on military installations

    This section clarifies State jurisdiction over the 
regulation of the business of insurance as conducted on Federal 
land or facilities in the United States and abroad, including 
military installations. State insurance jurisdiction will 
generally apply to all private insurance activities on Federal 
land, except to the extent there is direct conflict with 
applicable and authorized Federal rules or where a State law 
would not apply to the activity even if it were being conducted 
on State land.
    To the extent there is a conflict among State laws that 
would apply to insurance activities conducted on Federal land, 
the section provides that the State law that has priority (and 
primary enforcement responsibility) is that of the State within 
which the Federal land is located. If the Federal land or 
facility is located outside of the United States (such as in a 
foreign country), then the State with primary jurisdiction is 
the State that primarily regulates the individual or 
entityengaged in the insurance activity. For the regulation of any 
activity involving an insurance producer (e.g., agent or broker), where 
the producer is licensed in multiple States and there is a conflict 
among the laws of those States, the law of the State that issued the 
producer's resident license applies and that State is primarily 
responsible for enforcing its laws against that producer. For the 
regulation of any activity involving any other insurance entity where 
there is a conflict among State laws that would otherwise apply, such 
as questions regarding an insurance product from an insurer licensed in 
multiple States, then the law of the State of the entity's domicile 
applies and that State is primarily responsible for enforcing its laws 
against that entity.
    These provisions are intended to ensure that there are no 
gaps between Federal and State insurance protections for 
military personnel, that States are able and required to 
enforce their insurance laws with respect to private insurance 
activities on Federal land, and that there is always at least 
one State that is recognized as responsible for regulating any 
private insurance activity conducted on Federal land.

Section 7. Required development of military personnel protection 
        standards regarding insurance sales

    This section expresses the intent of Congress that the 
States collectively work together with the Secretary of Defense 
to ensure that there are appropriate standards implemented to 
protect members of the military from dishonest and predatory 
insurance sales practices while on military installations. The 
goal of this provision is to promote the development, 
identification, and implementation of uniform and coordinated 
protection standards to ensure that members of the military are 
not exposed to abusive sales tactics on military installations. 
The Committee intends the National Association of Insurance 
Commissioners (NAIC) (or NCOIL or similar organization of 
States) to work collaboratively with the Secretary to determine 
the appropriate regulatory division of insurance protections, 
under whose jurisdiction each protection should be implemented, 
and how each protection should be enforced in a coordinated and 
uniform manner to avoid regulatory gaps or inappropriate 
inconsistencies.
    To achieve the goal of this section, the Committee expects 
that each State will identify its role in promoting these 
uniform standards within 12 months of the date of enactment of 
this legislation. The NAIC is expected to work with the 
Secretary of Defense to determine to what extent the States 
have implemented appropriate and uniform protection standards, 
and submit a report on how these goals have been met to the 
Committee on Financial Services of the House of Representatives 
and the Committee on Banking, Housing, and Urban Affairs of the 
Senate. The Committee intends that this report will include a 
description of the work of the States and the Secretary in 
balancing responsibilities to ensure coordinated and uniform 
implementation to avoid any gaps in protecting our military 
personnel from inappropriate insurance products and sales 
practices.

Section 8. Required disclosures regarding life insurance

    The purpose of this section is to ensure that no life 
insurance is sold to a member of the Armed Forces pursuant to 
an on-installation solicitation unless certain written 
disclosures are made first. If an insurer or producer solicits 
insurance on a military installation, then before the sale of 
the insurance, the insurer or producer must disclose to the 
consumer that the Federal Government has not sanctioned, 
recommended, or encouraged the sale of the product and that 
subsidized life insurance may be available from the Federal 
Government. If the solicitation is occurring on Federal land 
outside of the United States, then the disclosure must also 
include the address and phone numbers where consumer complaints 
are received by the appropriate State insurance departments 
(that primarily regulate the producer and insurer selling the 
product). The disclosure must be made in plain and readily 
understandable language in a type font at least as large as the 
font used for the majority of the policy. These written 
disclosures will help to ensure that members of the armed 
forces make an informed decision before purchasing private life 
insurance after having been solicited on a military 
installation.
    Penalties have been provided as an enforcement tool for the 
intentional failure to provide written disclosures. If it is 
determined by a State or Federal agency, or in a final court 
proceeding, that the individual or entity intentionally failed 
to provide a disclosure as required by this section, then that 
individual or entity will be prohibited from engaging in the 
business of insurance on Federal facilities. These penalties do 
not apply to insurance activities that are specifically 
contracted by or through the Federal or any State Government or 
are specifically exempted from the applicability of this 
legislation by Federal or State law, regulation, or order that 
specifically refers to this section.
    States are encouraged to develop and adopt, in materially 
identical form, a standard setting forth the requirements for 
disclosures under this section that apply to the business of 
insurance as sold to military personnel on military 
installations. The goal is to make this section dynamic to 
respond to future developments and to allow the States to 
develop their own standards. If standards are developed by 
amajority of the States, then those standards will apply in lieu of the 
requirements of this section for activities governed by those States 
(so long as there is no direct conflict with any Federal requirement 
other than this section). For purposes of this provision, the term 
``materially identical form'' means that with respect to a particular 
activity in question, the exact same conduct is required or prohibited 
or otherwise regulated in exactly the same manner. The disclosures 
required by the majority of States may differ from or exceed the 
disclosures provided for in this section, as long as such disclosures 
are uniform in all material respects across all those States.

Section 9. Improving life insurance product standards

    This section requests that the NAIC work with the Secretary 
of Defense to study and report to Congress on ways to improve 
the quality and sale of life insurance products sold by 
insurers and life insurance agents on military installations. 
This section is intended to focus the States and the Secretary 
on stopping not only abusive and misleading sales practices, 
but also inappropriate products from being sold to the men and 
women protecting the United States. Among other solutions, 
Congress intends that the study consider limiting sales 
authority to companies and producers that are certified as 
meeting appropriate best practices (such as the Insurance 
Marketplace Standards Association), and developing appropriate 
standards to stop bad products from being targeted to military 
personnel regardless of whether they are on or off 
installation. If the NAIC does not submit the report to the 
Committees of jurisdiction as directed by this section, then 
the Comptroller General of the United States must report to 
Congress on any proposals that have been made by relevant 
parties to improve the quality and sale of life insurance 
products sold to military personnel.

Section 10. Required reporting of disciplined insurance agents

    This section effectively requires insurers whose producers 
are soliciting life insurance on military installations to 
implement a system to report to the appropriate insurance 
department any disciplinary actions taken against any of those 
producers by the military that the insurer is aware of, as well 
as any significant disciplinary action imposed by the insurer. 
The term ``significant'' is intended by the Committee to 
distinguish disciplinary actions for infractions that have 
bearing on the likelihood of a producer to engage in improper 
sales activities as opposed to minor actions that have no 
bearing on the producer's integrity or conduct and that would 
not otherwise be appropriate to report to a State.
    This section also expresses the intent of Congress that the 
States collectively implement a system to receive reports of 
disciplinary actions taken against producers with respect to 
sales on military installations, and to disseminate information 
on disciplinary actions among themselves and the Secretary of 
Defense.
    These provisions, along with section 11, are intended to 
prevent life insurance producers disciplined at one military 
installation from continuing to sell insurance at other Federal 
facilities, by ensuring that information on disciplinary 
actions against producers is being effectively communicated 
among all the relevant parties. The Committee expects the 
States to fulfill the requirements of this section by using the 
Producer Database (PDB) system of the National Insurance 
Producer Registry, a non-profit affiliate of the NAIC that most 
State insurance departments rely on to both share information 
regarding the licensing status of producers and make that 
information available to insurers. The Committee intends that 
all States utilize the PDB or a similar system, and improve PDB 
to be able to receive and share relevant information on 
producer licensing status with the Secretary of Defense.

Section 11. Registry of barred insurance agents and financial advisors

    This section directs the Secretary of Defense to create and 
maintain a registry of banned or barred financial advisors and 
life insurance agents. The Secretary of Defense will be 
responsible for updating and maintaining the registry, which 
will provide the name, address, and other identifying 
information of the banned or barred agent or advisor. The 
registry must be accessible and searchable by local 
installation commanders and appropriate Federal and State 
financial regulators.
    The Secretary of Defense is further required to promptly 
notify the appropriate Federal and State regulators when an 
individual has been added to or removed from the registry. The 
Secretary of Defense is also responsible for implementing an 
appeal process, and for issuing regulations to ensure the 
maintenance and operation of the registry.
    The Committee intends this section to provide local 
installation commanders with adequate information to make 
access determinations for life insurance producers. The 
Committee expects the Secretary to fulfill the notification 
requirement by providing and receiving information through an 
electronic system networked with the NAIC's PDB or other 
similar system established by the States pursuant to section 
10, as well as any similar systems created by the Securities 
and Exchange Commission or the NASD, to ensure that 
installation commanders, the Secretary, the appropriate 
securities and insurance regulators, and financial companies 
share information regarding disciplinary actions taken against 
producers and advisors to prevent the migration of rogue 
salespersons.

Section 12. Sense of Congress

    This section indicates the sense of Congress that the 
Federal and State agencies responsible for regulation of 
insurance and securities should provide advice to the 
appropriate Federal entities to consider significantly 
increasing the life insurance coverage made available through 
the Federal Government to members of the military, encouraging 
greater financial literacy and objective financial counseling 
for military service members, and improving the benefits and 
matching contributions under the Thrift Savings Plan for 
military personnel.

Section 13. Definitions

    This section defines certain terms used in the legislation.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

            SECTION 27 OF THE INVESTMENT COMPANY ACT OF 1940


                         PERIODIC PAYMENT PLANS

  Sec. 27. (a) * * *

           *       *       *       *       *       *       *

  (i)(1) * * *
  (2) It shall be unlawful for any registered separate account 
funding variable insurance contracts, or for the sponsoring 
insurance company of such account, to sell any such contract 
unless--
          (A) such contract is a redeemable security; and
          (B) the insurance company complies with section 
        [26(e)] 26(f) and any rules or regulations issued by 
        the Commission under section [26(e)] 26(f).
  (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.
                              ----------                              


         SECTION 15A OF THE SECURITIES AND EXCHANGE ACT OF 1934

                   REGISTERED SECURITIES ASSOCIATIONS

  Sec. 15A. (a) * * *

           *       *       *       *       *       *       *

  [(i) A registered securities association shall, within one 
year from the date of enactment of this section, (1) establish 
and maintain a toll-free telephone listing to receive inquiries 
regarding disciplinary actions involving its members and their 
associated persons, and (2) promptly respond to such inquiries 
in writing. Such association may charge persons, other than 
individual investors, reasonable fees for written responses to 
such inquiries. Such an association shall not have any 
liability to any person for any actions taken or omitted in 
good faith under this paragraph.]
  (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.--Such an association may 
        charge persons making inquiries, other than individual 
        investors, reasonable fees for responses to such 
        inquiries.
          (3) Process for disputed information.--Such an 
        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 of liability.--Such an 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.

           *       *       *       *       *       *       *

                              ----------                              


                    INVESTMENT ADVISERS ACT OF 1940


TITLE II--INVESTMENT ADVISERS

           *       *       *       *       *       *       *



SEC. 203A. STATE AND FEDERAL RESPONSIBILITIES.

  (a) * * *

           *       *       *       *       *       *       *

  [(d) Filing Depositories.--The Commission may, by rule, 
require an investment adviser--
          [(1) to file with the Commission any fee, 
        application, report, or notice required by this title 
        or by 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.]
  [(e)] (d) State Assistance.--Upon request of the securities 
commissioner (or any agency or officer performing like 
functions) of any State, the Commission may provide such 
training, technical 
assistance, or other reasonable assistance in connection with 
the regulation of investment advisers by the State.

                        ANNUAL AND OTHER REPORTS

  Sec. 204. [Every investment] (a) In General.--Every 
investment adviser who makes use of the mails or of any means 
or instrumentality of interstate commerce in connection with 
his or its business as an investment adviser (other than one 
specifically exempted from registration pursuant to section 
203(b) of this title), shall make and keep for prescribed 
periods such records (as defined in section 3(a)(37) of the 
Securities Exchange Act of 1934), furnish such copies thereof, 
and make and disseminate such reports as the Commission, by 
rule, may prescribe as necessary or appropriate in the public 
interest or for the protection of investors. All records (as so 
defined) of such investment advisers are subject at any time, 
or from time to time, to such reasonable periodic, special, or 
other examinations by representatives of the Commission as the 
Commission deems necessary or appropriate in the public 
interest or for the protection of investors.
  (b) Filing Depositories.--The Commission may, by rule, 
require an investment adviser--
          (1) to file with the Commission any fee, application, 
        report, or notice required to be filed by this title or 
        the rules issued under this title through any entity 
        designated by the Commission for that purpose; and
          (2) to pay the reasonable costs associated with such 
        filing and the establishment and maintenance of the 
        systems required by subsection (c).
  (c) Access to Disciplinary and Other Information.--
          (1) Maintenance of system to respond to inquiries.--
        The Commission shall require the entity designated by 
        the Commission under subsection (b)(1) to establish and 
        maintain a toll-free telephone listing, or a readily 
        accessible electronic or other process, to receive and 
        promptly respond to inquiries regarding registration 
        information (including disciplinary actions, 
        regulatory, judicial, and arbitration proceedings, and 
        other information required by law or rule to be 
        reported) involving investment advisers and persons 
        associated with investment advisers.
          (2) Recovery of costs.--An entity designated by the 
        Commission under subsection (b)(1) may charge persons 
        making inquiries, other than individual investors, 
        reasonable fees for responses to inquiries made under 
        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.

           *       *       *       *       *       *       *

                              ----------                              


 SECTION 306 OF THE NATIONAL SECURITIES MARKETS IMPROVEMENT ACT OF 1996

[SEC. 306. INVESTOR ACCESS TO INFORMATION.

  [The Commission shall--
          [(1) provide for the establishment and maintenance of 
        a readily accessible telephonic or other electronic 
        process to receive inquiries regarding disciplinary 
        actions and proceedings involving investment advisers 
        and persons associated with investment advisers; and
          [(2) provide for prompt response to any inquiry 
        described in paragraph (1).]

                           SUPPLEMENTAL VIEWS

    The Financial Services Committee should be commended for 
moving promptly to examine reports that certain financial 
products are being sold inappropriately to our military 
personnel. An article in the New York Times last week indicates 
that one of the companies that testified at the Sept. 9 hearing 
is already in the process of making refunds.
    However, I am concerned that the Military Personnel 
Financial Services Protection Act (H.R. 5011) does little to 
directly address abuses by those who sell insurance on bases to 
soldiers at formations or other mass meetings. Instead, the 
bill enacts a complete prohibition on so-called contractual or 
periodic payment mutual funds, which, according to the 
testimony received, are sold voluntarily with full disclosure 
to officers at individual meetings held off base.
    This is the first time in recent memory that this committee 
has ever proposed banning a product that is fully permissible 
under current law and that--again according to testimony 
received by the committee--is used by thousands of senior 
military officials to facilitate their financial security. 
Specifically, we have been told that the clients of First 
Command Financial Planning, the Texas-based company principally 
involved in this market, has invested $734.4 million aggregate 
in these accounts in just the last 12 months. The sales charge 
on that amount was about $44 million, or about six percent. 
What is the basis for outlawing a product that over half a 
million individuals, including half the flag officers currently 
on active duty, have freely chosen? Do we really believe that 
individuals charged with the deployment of billions of dollars 
of military equipment, are not sophisticated enough to make 
their own financial decisions?
    When the Congress last looked at this product in 1970, we 
recognized periodic payment mutual funds are a valuable means 
to help encourage savings by people who do not have large 
amounts of discretionary income. I see no evidence in the 
record indicating that the judgment then was incorrect. In 
fact, testimony we recently received indicates that these 
periodic payment mutual funds are working for those military 
members choosing to utilize them.
    Before voting on H.R. 5011, Congress should consider 
whether it is in the best interests of our armed services to 
substitute our judgment for theirs by banning a financial 
product that the armed services' deem well-suited for their 
financial security.
                                                          Ron Paul.

                                  
