Maryland Legal Alert for Financial Services

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Maryland Legal Alert - August 2008


September 30, 2008 is the deadline for banks to comply with Regulation R, which was adopted by the Securities and Exchange Commission and the Federal Reserve System last September. Regulation R implements the exemptions for banks, thrifts, and trust companies from the definition of “broker” under the Securities Exchange Act of 1934 that were added by the Gramm-Leach-Bliley Act in 2000. These exemptions provide that a bank will not be deemed a “broker” when it engages in certain securities activities, such as (among others) referring customers to brokers under a networking arrangement, effecting certain trust department transactions, effecting certain sweep account transactions, and effecting certain safekeeping and custody transactions. Regulation R imposes conditions on these activities, including limitations on the manner in which employees are paid and the amount of those payments (e.g., referral fees). By September 30, 2008, banks either need to ensure that those activities comply with Regulation R or need to push them out to a registered broker. Generally, the broker exemptions are not available to subsidiaries and affiliates of banks. For example, institutions that conduct networking activities through a subsidiary or affiliate must transfer those activities to the bank to be sure that the subsidiary or affiliate is not acting as an unregistered broker. If you would like more information about Regulation R and how it impacts your institution, please contact Andy Bulgin.


Many businesses, including Maryland businesses, maintain “deferred compensation” plans (basically, programs that call for compensation to be earned in one year but paid in another year). Section 409A of the Internal Revenue Code generally provides that amounts for which payment is deferred under non-qualified deferred compensation plans will be included currently in gross income to the extent not subject to a substantial risk of forfeiture and not previously included in gross income, unless certain deferral and distribution requirements are satisfied. The deadline for complying with these Section 409A requirements is fast approaching. By December 31, 2008, employers must make the necessary changes to existing documents or adopt new documents if none currently exist. If deferred compensation plans are not operating in accordance with IRS regulations by January 1, 2009, plan participants could face unexpected accelerated recognition of taxable income, imposition of interest on taxes due on accelerated income, and significant penalty tax. Our Employee Benefits Practice Group can assist your business with compliance. Please contact Matt Mellin if you have any questions about Section 409A.


Effective July 23, 2008, Maryland rules governing residential property foreclosure were revised. Click here for a copy of the new rules. The changes reflect requirements imposed by Maryland's new foreclosure law, which became effective for foreclosures filed on or after April 4, 2008. Perhaps more significant than these changes, a special subcommittee of the Court of Appeals' Standing Committee on Rules of Practice and Procedure has been established to consider and recommend further and more drastic changes in Maryland's foreclosure rules. Issues being considered, among others, are: whether to allow discovery in foreclosure actions; clarification of the courts' ability to enjoin foreclosure sales; and expansion of the courts' authority regarding the posting of bonds. These new rules appear to be on a fast track and we anticipate further changes this year. For more information, please contact Chris Rahl.


We are slogging through the 700-page federal housing legislation signed by the President on July 30 and note that it contains some provisions not immediately covered in the mainstream press. For example, this law establishes a nationwide licensing registry for mortgage loan originators. Acceptable State licensing regimes will be used for compliance in some cases. It also imposes new Truth in Lending Act disclosure requirements for loans secured by consumer dwellings and increases TILA's civil penalties for closed-end loans secured by real property or dwellings. Effective dates for these changes are about 12 months away. For more information, please contact Chris Rahl.

Pursuant to U.S. Treasury Department Regulations, we are advising you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including attachments and enclosures, is not intended to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or ii) promoting, marketing or recommending to another party any tax-related matters addressed herein. No written opinion of a Gordon Feinblatt attorney on a federal tax issue should be understood to suggest a more likely than not favorable outcome unless the words “more likely than not” are actually used in the opinion.

© 2008 Gordon Feinblatt, LLC. MARYLAND LEGAL ALERT is intended for informational purposes only and is not legal advice to any person, entity or firm. The material included in MARYLAND LEGAL ALERT is obtained from a variety of public sources.