[109th Congress Public Law 290]
[From the U.S. Government Printing Office]
[DOCID: f:publ290.109]
[[Page 120 STAT. 1317]]
Public Law 109-290
109th Congress
An Act
To protect members of the Armed Forces from unscrupulous practices
regarding sales of insurance, financial, and investment
products. <<NOTE: Sept. 29, 2006 - [S. 418]>>
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress <<NOTE: Military Personnel
Financial Services Protection Act. 10 USC 992 note.>> assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Military Personnel
Financial Services Protection Act''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
Sec. 2. Congressional findings.
Sec. 3. Definitions.
Sec. 4. Prohibition on future sales of periodic payment plans.
Sec. 5. Required disclosures regarding offers or sales of securities on
military installations.
Sec. 6. Method of maintaining broker and dealer registration,
disciplinary, and other data.
Sec. 7. Filing depositories for investment advisers.
Sec. 8. State insurance and securities jurisdiction on military
installations.
Sec. 9. Required development of military personnel protection standards
regarding insurance sales; administrative coordination.
Sec. 10. Required disclosures regarding life insurance products.
Sec. 11. Improving life insurance product standards.
Sec. 12. Required reporting of disciplinary actions.
Sec. 13. Reporting barred persons selling insurance or securities.
Sec. 14. Study and reports by Inspector General of the Department of
Defense.
SEC. 2. <<NOTE: 10 USC 992 note.>> 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;
[[Page 120 STAT. 1318]]
(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. <<NOTE: 10 USC 992 note.>> 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. <<NOTE: 10 USC 992 note.>> 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.
[[Page 120 STAT. 1319]]
``(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. <<NOTE: 10 USC 992 note.>> REQUIRED DISCLOSURES REGARDING OFFERS
OR SALES OF SECURITIES ON MILITARY INSTALLATIONS.
Section 15A(b) of the Securities Exchange Act of 1934 (15 U.S.C.
78o-3(b)) is amended by inserting immediately after paragraph (13) the
following:
``(14) The rules of the association include provisions
governing the sales, or offers of sales, of securities on the
premises of any military installation to any member of the Armed
Forces or a dependent thereof, which rules require--
``(A) the broker or dealer performing brokerage
services to clearly and conspicuously disclose to
potential investors--
``(i) that the securities offered are not
being offered or provided by the broker or dealer
on behalf of the Federal Government, and that its
offer is not sanctioned, recommended, or
encouraged by the Federal Government; and
``(ii) the identity of the registered broker-
dealer offering the securities;
``(B) such broker or dealer to perform an
appropriate suitability determination, including
consideration of costs
[[Page 120 STAT. 1320]]
and knowledge about securities, prior to making a
recommendation of a security to a member of the Armed
Forces or a dependent thereof; and
``(C) that no person receive any referral fee or
incentive compensation in connection with a sale or
offer of sale of securities, unless such person is an
associated person of a registered broker or dealer and
is qualified pursuant to the rules of a self-regulatory
organization.''.
SEC. 6. <<NOTE: 10 USC 992 note.>> 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) <<NOTE: Communications and tele-
communications.>> 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) <<NOTE: Regulations.>> 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) <<NOTE: Regulations.>> 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.''.
[[Page 120 STAT. 1321]]
SEC. 7. <<NOTE: 10 USC 992 note.>> 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) <<NOTE: Communication and tele-
communications.>> 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. <<NOTE: 10 USC 992 note.>> STATE INSURANCE AND SECURITIES
JURISDICTION ON MILITARY INSTALLATIONS.
(a) <<NOTE: Applicability.>> 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
[[Page 120 STAT. 1322]]
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. <<NOTE: 10 USC 992 note.>> 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) <<NOTE: Deadline.>> 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
[[Page 120 STAT. 1323]]
the enforcement of relevant regulations relating to the sale of
financial products on military installations of the United States.
SEC. 10. <<NOTE: 10 USC 992 note.>> REQUIRED DISCLOSURES REGARDING LIFE
INSURANCE PRODUCTS.
(a) Requirement.--Except as provided in subsection (e), no person
may sell, or offer for sale, any life insurance product to any member of
the Armed Forces or a dependent thereof on a military installation of
the United States, unless a disclosure in accordance with this section
is provided to such member or dependent at the time of the sale or
offer.
(b) Disclosure.--A disclosure in accordance with this section is a
written disclosure that--
(1) states that subsidized life insurance is available to
the member of the Armed Forces from the Federal Government under
the Servicemembers' Group Life Insurance program (also referred
to as ``SGLI''), under subchapter III of chapter 19 of title 38,
United States Code;
(2) states the amount of insurance coverage available under
the SGLI program, together with the costs to the member of the
Armed Forces for such coverage;
(3) states that the life insurance product that is the
subject of the disclosure is not offered or provided by the
Federal Government, and that the Federal Government has in no
way sanctioned, recommended, or encouraged the sale of the life
insurance product being offered;
(4) fully discloses any terms and circumstances under which
amounts accumulated in a savings fund or savings feature under
the life insurance product that is the subject of the disclosure
may be diverted to pay, or reduced to offset, premiums due for
continuation of coverage under such product;
(5) states that no person has received any referral fee or
incentive compensation in connection with the offer or sale of
the life insurance product, unless such person is a licensed
agent of the person engaged in the business of insurance that is
issuing such product;
(6) is made in plain and readily understandable language and
in a type font at least as large as the font used for the
majority of the solicitation material used with respect to or
relating to the life insurance product; and
(7) with respect to a sale or solicitation on Federal land
or facilities located outside of the United States, lists the
address and phone number at which consumer complaints are
received by the State insurance commissioner for the State
having the primary jurisdiction and duty to regulate the sale of
such life insurance products pursuant to section 8.
(c) Voidability.--The sale of a life insurance product in violation
of this section shall be voidable from its inception, at the sole option
of the member of the Armed Forces, or dependent thereof, as applicable,
to whom the product was sold.
(d) Enforcement.--If it is determined by a Federal or State agency,
or in a final court proceeding, that any person has intentionally
violated, or willfully disregarded the provisions of, this section, in
addition to any other penalty under applicable Federal or State law,
such person shall be prohibited from further engaging in the business of
insurance with respect to employees of the Federal Government on Federal
land, except--
[[Page 120 STAT. 1324]]
(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) <<NOTE: Deadline. 10 USC 992 note.>> 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. <<NOTE: 10 USC 992 note.>> REQUIRED REPORTING OF DISCIPLINARY
ACTIONS.
(a) Reporting by Insurers.--Beginning <<NOTE: Effective date.>> 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--
[[Page 120 STAT. 1325]]
(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. <<NOTE: Records. 10 USC 992 note.>> 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 <<NOTE: Deadline.>> 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. <<NOTE: Federal
Register, publication.>> 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 <<NOTE: Deadline.>> 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).
[[Page 120 STAT. 1326]]
(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. <<NOTE: 10 USC 992 note.>> 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.
Approved September 29, 2006.
LEGISLATIVE HISTORY--S. 418 (H.R. 458):
---------------------------------------------------------------------------
SENATE REPORTS: No. 109-282 (Comm. on Banking, Housing, and Urban
Affairs).
CONGRESSIONAL RECORD, Vol. 152 (2006):
July 19, considered and passed Senate.
Sept. 20, 21, considered and passed House.
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