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108th CONGRESS
2d Session
S. 2905
To protect members of the Armed Forces from unscrupulous practices
regarding sales of insurance, financial, and investment products.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
October 6, 2004
Mr. Enzi (for himself, Mrs. Clinton, Mr. Hagel, and Mr. Schumer)
introduced the following bill; which was read twice and referred to the
Committee on Banking, Housing, and Urban Affairs
_______________________________________________________________________
A BILL
To protect members of the Armed Forces from unscrupulous practices
regarding sales of insurance, financial, and investment products.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Military Personnel Financial
Services Protection Act''.
SEC. 2. CONGRESSIONAL FINDINGS.
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 1980s, due to its excessive sales
charges. A 50 percent sales commission is assessed against the
first year of contributions, even though the average commission
on other securities products such as mutual funds is less than
6 percent on each sale.
(5) The excessive sales charges of the contractual plan
makes it susceptible to abusive and misleading sales practices.
(6) Certain life insurance products being offered to our
service members are being improperly marketed as investment
products. These products provide very low death benefits for
very high premiums that are front-loaded in the first few
years, making them completely inappropriate for most military
personnel.
(7) Regulation of these securities and life insurance
products and their sale on military bases has been clearly
inadequate and requires Congressional legislation to address.
SEC. 3. PROHIBITION ON FUTURE SALES OF PERIODIC PAYMENT PLANS.
(a) Amendment.--Section 27 of the Investment Company Act of 1940
(15 U.S.C. 80a-27) is amended by adding at the end the following new
subsection:
``(j) Termination of Sales.--
``(1) Termination.--Effective 30 days after the date of
enactment of the Military Personnel Financial Services
Protection Act, it shall be unlawful, subject to subsection
(i)--
``(A) for any registered investment company to
issue any periodic payment plan certificate; or
``(B) for such company, or any depositor of or
underwriter for any such company, or any other person,
to sell such a certificate.
``(2) No invalidation of existing certificates.--Paragraph
(1) shall not be construed to alter, invalidate, or otherwise
affect any rights or obligations, including rights of
redemption, under any periodic payment plan certificate issued
and sold before 30 days after such date of enactment.''.
(b) Technical Amendment.--Section 27(i)(2)(B) of the Investment
Company Act of 1940 (15 U.S.C. 80a-27(i)(2)(B)) is amended by striking
``section 26(e)'' each place it appears and inserting ``section
26(f)''.
(c) Report on Refunds, Sales Practices, and Revenues From Periodic
Payment Plans.--Within 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 past
5 years and any legislative or regulatory recommendations to
improve such practices; and
(3) the revenues generated by such brokers or dealers in
the sales of periodic payment plan certificates over the past 5
years and what products such brokers or dealers market to
replace the revenue generated from the sales of periodic
payment plan certificates prohibited under subsection (a) of
this section.
SEC. 4. METHOD OF MAINTAINING BROKER AND DEALER REGISTRATION,
DISCIPLINARY, AND OTHER DATA.
Section 15A(i) of the Securities Exchange Act of 1934 (15 U.S.C.
78o-3(i)) is amended to read as follows:
``(i) Obligation to Maintain Registration, Disciplinary, and Other
Data.--
``(1) Maintenance of system to respond to inquiries.--A
registered securities association shall--
``(A) establish and maintain a system for
collecting and retaining registration information;
``(B) establish and maintain a toll-free telephone
listing, and a readily accessible electronic or other
process, to receive and promptly respond to inquiries
regarding--
``(i) registration information on its
members and their associated persons; and
``(ii) registration information on the
members and their associated persons of any
registered national securities exchange that
uses the system described in subparagraph (A)
for the registration of its members and their
associated persons; and
``(C) adopt rules governing the process for making
inquiries and the type, scope, and presentation of
information to be provided in response to such
inquiries in consultation with any registered national
securities exchange providing information pursuant to
subparagraph (B)(ii).
``(2) Recovery of costs.--A registered securities
association may charge persons making inquiries described in
paragraph (1)(B), other than individual investors, reasonable
fees for responses to such inquiries.
``(3) Process for disputed information.--Each registered
securities association shall adopt rules establishing an
administrative process for disputing the accuracy of
information provided in response to inquiries under this
subsection in consultation with any registered national
securities exchange providing information pursuant to paragraph
(1)(B)(ii).
``(4) Limitation on liability.--A registered securities
association, or an exchange reporting information to such an
association, shall not have any liability to any person for any
actions taken or omitted in good faith under this subsection.
``(5) Definition.--For purposes of this subsection, the
term `registration information' means the information reported
in connection with the registration or licensing of brokers and
dealers and their associated persons, including disciplinary
actions, regulatory, judicial, and arbitration proceedings, and
other information required by law, or exchange or association
rule, and the source and status of such information.''.
SEC. 5. FILING DEPOSITORIES FOR INVESTMENT ADVISERS.
(a) Investment Advisers.--Section 204 of the Investment Advisers
Act of 1940 (15 U.S.C. 80b-4) is amended--
(1) by striking ``Every investment'' and inserting the
following:
``(a) In General.--Every investment''; and
(2) by adding at the end the following:
``(b) Filing Depositories.--The Commission may, by rule, require an
investment adviser--
``(1) to file with the Commission any fee, application,
report, or notice required to be filed by this title or the
rules issued under this title through any entity designated by
the Commission for that purpose; and
``(2) to pay the reasonable costs associated with such
filing and the establishment and maintenance of the systems
required by subsection (c).
``(c) Access to Disciplinary and Other Information.--
``(1) Maintenance of system to respond to inquiries.--The
Commission shall require the entity designated by the
Commission under subsection (b)(1) to establish and maintain a
toll-free telephone listing, or a readily accessible electronic
or other process, to receive and promptly respond to inquiries
regarding registration information (including disciplinary
actions, regulatory, judicial, and arbitration proceedings, and
other information required by law or rule to be reported)
involving investment advisers and persons associated with
investment advisers.
``(2) Recovery of costs.--An entity designated by the
Commission under subsection (b)(1) may charge persons making
inquiries, other than individual investors, reasonable fees for
responses to inquiries described in paragraph (1).
``(3) Limitation on liability.--An entity designated by the
Commission under subsection (b)(1) shall not have any liability
to any person for any actions taken or omitted in good faith
under this subsection.''.
(b) Conforming Amendments.--
(1) Section 203A of the Investment Advisers Act of 1940 (15
U.S.C. 80b-3a) is amended--
(A) by striking subsection (d); and
(B) by redesignating subsection (e) as subsection
(d).
(2) Section 306 of the National Securities Markets
Improvement Act of 1996 (15 U.S.C. 80b-10, note) is repealed.
SEC. 6. STATE INSURANCE JURISDICTION ON MILITARY INSTALLATIONS.
(a) Clarification of Jurisdiction.--Any law, regulation, or order
of a State with respect to regulating the business of insurance shall
apply to insurance activities conducted on Federal land or facilities
in the United States and abroad, including military installations,
except to the extent that such law, regulation, or order--
(1) directly conflicts with any applicable Federal law,
regulation, or authorized directive; or
(2) would not apply if such activity were conducted on
State land.
(b) Primary State Jurisdiction.--To the extent that multiple State
laws would otherwise apply pursuant to subsection (a) to an insurance
activity of an individual or entity on Federal land or facilities, the
State having the primary duty to regulate such activity and the laws of
which shall apply to such activity in the case of a conflict shall be--
(1) the State within which the Federal land or facility is
located; or
(2) if the Federal land or facility is located outside of
the United States, the State in which--
(A) in the case of an individual engaged in the
business of insurance, such individual has been issued
a resident license; or
(B) in the case of an entity engaged in the
business of insurance, such entity is domiciled.
SEC. 7. REQUIRED DEVELOPMENT OF MILITARY PERSONNEL PROTECTION STANDARDS
REGARDING INSURANCE SALES.
(a) State Standards.--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 military
installation of the United States (including installations
located outside of the United States); and
(2) each State identify its role in promoting the standards
described in paragraph (1) in a uniform manner 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 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
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