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WASHINGTON — The House on Tuesday approved new regulations on the sales of financial products to military personnel, including ending sales of front-loaded investment plans criticized by federal regulators and military officials.

The bill, which passed 405-2, also includes a number of reforms already under consideration by the Defense Department that are designed to protect servicemembers from misleading marketing and unscrupulous lenders.

It would create a registry of lenders and insurance companies that violate military restrictions on sales to troops and would prevent companies from contacting troops’ commanding officers when trying to collect late loan payments.

Bill sponsor Rep. Geoff Davis, R-Ky., told his colleagues before Tuesday’s vote that action was necessary to curtail “abusive and coercive sales tactics” on military bases.

He said that as a young soldier he bought into several mutual funds and insurance plans even though they made little financial sense for him because they were endorsed by retired officers and presented to him while he was on base.

“We cannot allow these abusive practices to continue,” he said. “We must not ask the men and women of our armed services to make sacrifices for our security without doing all that we can to protect their financial futures.”

Last fall, First Command Financial Services stopped selling its systemic investment plans after federal investigators found sales agents were misleading customers about the funds’ high costs and financial benefits. The House bill would ban those types of periodic payment investments outright.

Rep. Rahm Emanuel, D-Ill., a former investment bank director, said the funds have nearly disappeared from the civilian market already because of their unpopularity, since their first-year commission costs usually amount to nearly half of all first-year contributions. But the products are still sold to military customers.

The Congressional Budget Office estimates the ban will cost the insurance industry about $35 million in sales.

The bill also requires that all life insurance sales include language informing servicemembers that subsidized military life insurance is available, and that the government has not “sanctioned, recommended or encouraged” sale of the extra insurance.

Restrictions on instant loan companies’ marketing were supported by the Community Financial Services Association of America, the industry’s trade group.

Association spokesman Steven Schlein said the industry has already adopted many of the rules, such as limiting the use of service logos and implied military support in its marketing.

The bill also requires that instant loan companies, which often issue loans for one- and two-week periods, inform military customers that they may be eligible for grants or no-interest loans through their military branch or service support organizations.

The measure still must be debated and passed by the Senate and signed by President Bush before it becomes law.


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