You asked for a brief summary of the major provisions of the Military Personnel Financial Services Protection Act (PL 109-290).

SUMMARY

PL 109-290 was signed into law on September 29, 2006. The law aims to regulate the marketing and sale of securities and life insurance products on military bases. Among other things, it:

1. bans the sale of securities products called periodic payment plans (also known as contractual plans and systematic investment plans) (§ 4);

2. declares that any state law, regulation, or order on insurance applies to insurance or securities activities conducted on federal property, including military bases, except where it directly conflicts with federal law, regulation, or directives (§ 8);

3. requires insurers and producers of life insurance products to make certain disclosures when selling or soliciting securities or life insurance products on military bases (§§ 5 & 10);

4. requires insurance companies to inform military personnel about subsidized life insurance offered by the federal government when marketing and selling insurance policies to them (§ 10);

5. requires the Defense Department (DOD) to maintain a current list, readily available to base commanders and state regulators, of brokers and agents barred from doing business on military bases or who have engaged in prohibited acts (§ 13);

6. requires registered securities associations to maintain and provide public access (electronic or other) to certain information on brokers and dealers, including disciplinary, regulatory, judicial, and arbitration actions (§§ 6 & 7);

7. requires (a) state insurance regulators to work with DOD to develop and implement appropriate insurance sales standards to protect service members from dishonest and predatory insurance sales practices on military bases and (b) gives each state one year to identify its role in promoting the standards uniformly (§ 9);

8. urges the National Association of Insurance Commissioners (NAIC) to determine the extent to which states have met the above requirement and report the results to Congress (§ 9) and study and report to Congress ways to improve the quality and sale of life insurance products sold or marked on military bases (§ 11); and

9. beginning one year after the act's effective date, bars insurers from entering or renewing any contract with any one that sells or markets life insurance products on military bases unless the insurer has implemented a system to report disciplinary actions to the state insurance commissioner where the insurer is domiciled (§ 12).

INSURANCE DISCLOSURES (§ 10)

With minor exceptions, the act prohibits selling or marketing life insurance to service members on military bases unless certain written disclosures are made to the buyer. A proper disclosure must:

1. state that the federal government provides subsidized life insurance to service members under the Servicemembers' Group Life Insurance (SGLI) program, and the amount and cost of the SGLI coverage available;

2. state that the federal government does not sanction, recommend, or encourage purchase of the life insurance product being sold;

3. fully disclose 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 continued coverage under the product;

4. state that no one has received any referral fee or incentive compensation for offering to sell the product, unless the person is a licensed agent of the person issuing the product;

5. be in plain and readily understandable language; and

6. for sales or solicitations on federal land or facilities located outside the U. S. , list the address and phone number at which consumer complaints are received by the state insurance regulator.

Life insurance sold in violation of these provisions is void from its inception, at the service member's option. If the court, state, or federal agency finds that a seller intentionally violated or willfully disregarded the provisions, the agency must bar the violator from selling insurance to federal employees on federal property, in addition to imposing any other penalty under state or federal law. The provision does not apply to existing policies.

SECURITIES DISCLOSURES (§ 5)

Brokers or dealers performing brokerage services must (1) clearly and conspicuously disclose the identity of the registered broker-dealer offering the securities and (2) inform potential investors that the securities offered are not being offered by or provided on behalf of the federal government and are not sanctioned, recommended, or encouraged by the federal government.

The broker or dealer must perform an appropriate suitability determination, including consideration of costs and knowledge of securities, before recommending a security to the service member or dependent; and no one may receive any referral fee or incentive for selling or offering to sell securities, unless the person is associated with a registered broker or dealer and is qualified as a self-regulatory organization.

REQUIRED REPORTING OF DISCIPLINARY ACTIONS (§ 12)

Reporting by Insurers

Beginning one year after the act's effective date, insurers are barred entering or renewing any contract with any one that sells or markets life insurance products on military bases unless the insurer has implemented a system to report to the state insurance commissioner where the insurer is domiciled:

1. any disciplinary actions taken by the state or federal government entity with respect to sales or marketing of life insurance products on military bases that the insurer knows or, in the exercise of due diligence, should have known about; or

2. any significant disciplinary action taken by the insurer with respect to sales or solicitations of life insurance products on a military installation in the U. S.

Reporting by States

The act urges states, within one year of the act's effective date, to collectively implement a system to:

1. receive reports of disciplinary actions taken by insurers or state or federal government entities against people who sell life insurance products on U. S. military bases in violation of the above provisions and

2. disseminate the information to all other states and DOD.

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