Published September 21, 2006
WASHINGTON – Servicemen and women would be shielded from people pushing inferior or overpriced financial service and insurance packages under legislation ready for President Bush's signature.
The measure, which was given final congressional clearance in the House Thursday, would allow state insurance regulators to better enforce state and federal law on military bases.
It also would also ban discredited financial products that are no longer available on civilian markets but are still sold to people in the service, who tend to be younger and less schooled in financial matters.
The House approved the bill on a 418-3 vote. The Senate passed it on a voice vote in July.
The chief House sponsor, Rep. Geoff Davis, R-Ky., said that as a former combat arms officer he was among the service members losing thousands of dollars from deceptively advertised investments.
"It was not until I got out of the Army and into the business world that I discovered how uncompetitive these products were when compared to other investment opportunities. However it was too late. My wife and I lost nearly half our life savings on this so-called investment."
Sen. Mike Enzi, R-Wyo., who sponsored the Senate bill with Sen. Hillary Clinton, D-N.Y., noted cases where service members were sold life insurance policies with low benefits and premiums as high as 14 times what is available to enlisted personnel under the Servicemembers' Group Life Insurance program.
One investment banned under the bill, called periodic payment plans, is similar to mutual funds but charges commissions of up to 50 percent in the first year and penalizes those who stop investing in the plan.
The National Association of Securities Dealers, the brokerage industry's self-policing organization, last February announced a $6.8 million program to provide financial training programs for military spouses and financial counselors located on bases.
The program was in response to complaints from Congress and elsewhere that soldiers fighting in Iraq were being subjected to high-pressure sales tactics by financial service salesmen. The program was financed by fines imposed on a Texas company that was accused of selling high-fee mutual funds to military officers.
The legislation also sets up a registry to track investment advisers and brokers to help inform military personnel about sellers with suspect credentials.
A similar House bill that passed in June, 2005, included language to protect military members from abusive lending practices, but the Senate-passed bill did not take up the lending issue.
At a Senate Banking Committee hearing last week, a Pentagon official urged Congress to limit interest rates on payday loans under which service members, often only 18 or 19 years old, get loans with astronomical interest rates to tide them over until the next payday.
Davis has opposed language in the Senate version of a pending defense spending bill that would cap annual interest rates for payday loans at 36 percent. His chief of staff, Justin Brasell, said the Senate provision, sponsored by Sen. James Talent, R-Mo., and Bill Nelson, D-Fla., covers only payday lending and "we want to see a comprehensive approach that will cover all predatory lenders."
Brasell said Davis would work to pass predatory lending legislation, either in the defense bill or as independent legislation. His approach has met some opposition from military and consumer groups who say it sets no specific caps on exorbitant interest rates.