(FRN 304343)

APPLICATION TO REQUEST THAT REQUIREMENTS ARE IMPOSED ON
PREFERRED MORTGAGES LIMITED

Preferred Mot1gages Limited hereby applies. pursuant to Pa11 4A of the Financial Services
and Markets Act 2000. for the requirements set out in the attached docmnent.

Signed: ....
L e Brandon - Chief ExecutiYe

For and on behalf of Preferred Mortgages Limited

Date:
·· · ·~-~~r.. .. ?.?t.~ .....

Prl'fl'ned Mo1·tgages Limited (FRN 304343)

Rl'quireml'nts included in thl' Firm's Pe1·mission at thl' •·equl'st of thl' Finn unde•·
Sl'ction 55L of the Financial Sl'l'licl's and Markets Act 2000

Introduction

1.
These Requirements come into effect immediately.

2.
The temts used in these Requirements have the meanings ascribed to them in AlllleX
A hereto and in the Authority's Handbook of rules and guidance. tmless the context
otheiWise requires.

3.
The Finn has applied to the Authority for these Requirements. The Authority has
consulted with the Pmdential Regulation Authority and the Authority has accepted the
application.

Backg•·ound

4.
The Firm ts an authorised person which imposed excesstve Arrears Fees on
Customers during the Material Time. either directly or through its third party
administrator and agent Acenden which was directed by the Finn to apply such
Arrears Fees in accordance with the Finn's atTears handling policy and tariffs.

5.
Customers who have been charged excessive Arrears Fees dtuing the Material Time
are entitled to be refimded the difference between what it was reasonable to charge
and what was actually charged. plus interest on that difference.

6.
Supervisors at the Authority identified significant concems with the Finn's mortgage
arrears handling and raised these concerns with the Finn. As a result. the Firm has
agreed to establish and operate a constm1er redress scheme on a vohmtary basis.

7.
The method of calculating Redress in these Requirements takes into acconnt:

7.1
the amotutt of monies the Finn is able to make available for the purposes of
Redress (which would not otherwise be a\\u00b7ailable readily or at all):

7.2
the large mmtber of Customers. being approximately 1 1.0 18. who were
subjected to Arrears Fees at the Material Time:

7.3
the cost. difficulty and time it would take to investigate each case individually.
meaning that it would in this matter be appropriate to adopt a proxy for an
assessment of what reasonable charges would have been at the Material Time:

7.4
representations by the Firm to the Authority that the payments and credits set
out below are a fair reflection of the actual loss suffered by Customers in
respect of the AlTears Fees at the Material Tin1e.

8.
The Finn acknowledges that th.is is a muque solution to tlus pat1icular case. Notlung
in these Requirements shall be regarded as establislling a precedent for the
Autl1ority's approach in the event of sinular matters or issues arising in respect of
other aspects of the Firm's business.

9.
The Finn will establish and operate the Scheme jointly with Soutl1em Pacific
Mortgage Limited (FRN 302027); but nothing in these Requirements in1poses any
obligation on the Firm to pay Redress under the Scheme in respect of any Mortgage to
wluch it is not a party.

R~quinm~nts

10.
Under sections 55L and 404F(7) ofFSMA. the following requirements are included in
the Finn's Pemussion:

10.1
the Firm must establish and operate the Scheme (with the assistance of
Acenden if the Firm so wishes). tmder wluch it. either directly or through
Acenden. will deal with matters falling within the Subject Matter of the
Scheme. by:

10 .1.1
making a detemlination tu1der the Scheme, by identifying and
detemuning the Redress due to Customers. no later than 8 July 2015:

10.1.2 paying Redress to Customers by making payments. setting off against
sums othenvise due from the Customers to the Firm or not recovering
or seeking to recover the amotmt that would be payable in Redress if
there were no shortfall. as required by tl1e Scheme. no later than 31
October 2015 tulless paragraphs 14 and 15 apply:

10.1.3
taking such other action as is required m1der the Scheme: and

10.2
Scheme Complaints are to be dealt with by the Ombudsman as described in
Annex B. on the basis that the Scheme corresponds to or is similar to a
constm1er redress scheme under section 404 of FSMA and such complaints fall
to be dealt with (or have been dealt with) tmder the Scheme (unless the Fim1
and Customer agree on or after 1 July 2015 that the Scheme Complaint should
not be dealt with by the Ombudsman in accordance with the Scheme).

Subj~rt matt~1· and dm·ation of Sch~m~

11.
The Scheme applies to the level of An·ears Fees which the Finn, or on its behalf and
at its direction Acenden. applied during the Material Time on Customers in respect of
and in cotmection with Mortgages. More particularly, the Scheme applies to the
Subject Matter of the Scheme. The imposition of the Arrears Fees formed part of the
Finn's regulated mortgage activities since 31 October 2004 inclushe.

12.
The Scheme starts on 1 July 2015 and has no end date.

Custome•· identification

13.
l11e Finn will carry out an investigation to identify each Customer by no later than 8
July 2015.

14.
l11e Finn will use all reasonable endea\\u00b7ours to trace Forn1er Customers for whom no
Ctlll'ent contact details are held. TI1ese endeaYom·s will include a filii reYiew of the
Finn's and Acendeu·s records and any other releYant records that the Finn properly
has access to:
matching closed accotmt records with any held elsewhere in the
Lehmans group of companies and in relation to which the Firm may properly seek or
obtain access or information; and using an external tracing agency to access key
external databases. Ifby 31 October 2015 such reasonable endeavours haYe failed to
result in such Fonner Customers being traced then. subject to paragraph 15 below. the
Finn will be mtder no fi.lrther obligation in relation to the Scheme in respect of such
Forn1er Customers.

15.
If the Fim1 subsequently makes contact with or is contacted by a Fom1er Customer
who was not traced m1der paragraph 14- for example. if the Finn subsequently learns
of or obtains the Fom1er Customer's contact details- the Firm will then be bmmd to
apply the Scheme to that Fom1er Customer (insofat· as and to the extent that the
Scheme applies): and will pay or credit any Redress due to that Fom1er Customer
within 8 weeks of such contact. and (subject to paragraph 28) paragraph 27
(explanatory letter) or paragraph 33 (Redress Detemlination) will apply as
appropriate.

Redress

Redress detemiination

16.
l11e Finn agrees to detemline. by no later than 8 July 2015. the Redress payable to. or
otherwise due to the credit of. Existing Customers and Fom1er Customers by adding:

16.1
the difference bet\.veen the AMF actually charged and £65. for each mouth
dtuing the period from 1 Jamuuy 2010 to 2 April2011 that the AMF exceeded
£65. plus 8% sin1ple interest per annum on such difference. by applying the
following formula for each excessiYe fee payment:

(AMF - £65) + ((AMF - £65) x 0.08 x Ntmiber of Days from the date on
which the fee was paid or applied tmtil the date of the refi.md/365):

16.2
the difference bet\veen the LMF actually charged and £80. for each month
during the period 1 January 2009 to 31 August 2012 (inclusiYe) that the LMF
exceeded £80. plus 8% simple interest per anmun on such difference. by
applying the following formula for each relevant excessive fee payment:

(LMF - £80) + ((LMF- £80) x 0.08 x Number of Days from the date on which
the fee \\as paid or applied until the date of the reftmd/365);

16.3
the difference between the RMF actually charged and:

16.3.1 £500. for each month during 2009 where the RMF exceeded £500.

16.3.2
£525. for each month from January 2010 - April 2011 where the
RMF exceeded £525. and

16.3 .3
£546. for each month from April 2011 - August 2012 where the RMF
exceeded £546.

plus 8% simple interest per rumum on ru1y such difference.

by applying the following fonnulae for each excessive fee payment:

(i)
From 1 Jrumary 2009 to 31 December 2009:

(RMF- £500) + ((RMF- £500) x 0.08 x Ntuuber of Days from the date
on which the fee was paid or applied until the date of the refund/365)~

(ii)
From I Jrumary 2010 to 3 April2011:

(RMF - £525) + ((RMF - £525) x 0.08 x Ntuuber of Days from the
date on which the fee was paid or applied tmtil the date of the
refi.md/365):

(iii)
From4 Apri12011 to 31 August 2012:

(RMF- £546) + ((RMF- £546) x 0.08 x Ntunber of Days from the date
on which the fee was paid or applied until the date of the refund/365).

Fonner Customers and Shortfall Customers

17.
Where a F onner Customer has repaid in full all amotmts due in respect of the
Customer's Mot1gage. the Redress shall be paid to the Customer by electronic tratlSfer
directly into the Customer's bank account or. \\here tllis is not possible. by cheque.

18.
Where in relation to a Shortfall Customer the amotmt of Redress exceeds the ruuom1t
of the rele\'atlt shortfall. the balru1ce of the Redress shall be paid to the Former
Customer by electr01lic transfer directly into the Customer's brulk account or. where
tllis is not possible. by cheque.

19.
Tins paragraph applies where in relation to a Shortfall Customer:

20.

19.1
the releYatlt shortfall exceeds the amotmt of Redress: and

19.2
the Finn takes any steps to recm·er the rele\atlt shortfall from the Shortfall
Customer.

The following provisiollS apply to a Shortfall Customer to whom paragraph 19
applies:

20.1
The Finn tmconditionally and irre\\u00b7ocably agrees not to seek to recover or to
recover (in either case. on its own or through a debt collection agent) an
amom1t equal to the amom1t of Redress less the htterest Component. For the
avoidance of doubt. where in relation to the Shortfall Customer the Finn has
appointed a debt collection agent to recover the relevant shortfall. the Finn
shall notify the agent of the revised shortfall amotmt.

20.2
If the Customer proposes to repay the relevant shortfall (as adjusted in
accordance with paragraph 20.1). the Finn will, if the Customer so elects.
reduce the amount of the relevant shortfall owed by that Customer by an
amonnt equi\\u00b7alent to the h1terest Component. save that interest will be
calculated from the date on which the relevant excessive fee payment was paid
or applied to the date on which the relevru.1t shottfall is repaid by the Customer.

Existing Customers

21.
For Existing Customers. the Redress shall be applied in the following order:

21.1
first. against any outstanding Other Amounts Due (if any): and

21.2
then. the balance will be reft.mded to the Customer.

22.
This means that where an Existing Customer has no outstanding Other Amot.mts Due.
the Redress shall be paid to the Existing Customer by electronic traJ.lsfer directly into
the Customer's bank accotmt or. where this is not possible. by cheque.

23.
Where an Existing Customer has outstanding Other Amot.mts Due, the Redress shall
be first applied against the outstanding Other Amotmts Due. If and to the extent that
the Redress exceeds the outstanding Other Amotmts Due. the balru.tce shall be paid to
the Existing Customer by cheque or by electronic transfer directly into a Customer's
bank accotmt.

Redress payments

24.
Before making any payments to a Customer by electronic transfer. the Finn must
verify that the bank accotmt details ru.·e correct.

25.
The Finn may arrange for a third party (such as Acenden) to facilitate the payment of
the Redress to Customers on its behalf. but paragraph 26 will still apply.

26.
TI1e Finn will make all payments. credits ru.1d reductions pursuru.1t to paragraphs 17 to
25 aboveonorbefore31 October2015. muess paragraphs 14and 15 apply.

Explanato1·y lette1· to arrompany Red1·ess

27.
Before or at the same time as the Finn pays Redress to a Customer, the Film will send
an explanatory letter to the Customer in substantially the fmm of the appropriate
template letter attached at A.tmex C. The explanatory letter will include the following:

27.1
a brief summary of the Finn's obligations tmder the Scheme:

27.2
an explanation that the payment or credit (as the case may be) has been
calculated and made in accordance the Scheme.

28.
For the aYoidance of doubt. the Finn is not required to send an explanatory letter in
accordance with paragraph 27 in relation to a Shortfall Customer where the Firm has
detennined that the releYant shortfall exceeds the amotmt of Redress.

29.
If. after these Requirements come into effect. a Customer makes a Scheme Complaint
before an explanatory letter is sent. the Finn does not need to send an explanatory
letter. This is because. as set out below. the Finn will instead send the Customer a
Redress Determination or final response.

Srheme Complaints about Mortgages made by a Customer to the Fil·m OI' Arenden

30.
From and including the date that these Requirements come into effect (being 1 July
20 15). DISP l.l.llAR shall apply in respect of any Scheme Complaint made by a
Customer to the Finn or to Acenden.

31.
If the Finn recei\\u00b7es a Scheme Complaint. within fiye business days of receipt of the
complaint or within fiye business days of the date that these Requirements come into
effect. whicbeYer is the later, the Finn will send the Customer a letter acknowledging
the complaint and then:

31.1
the Film will send the Customer a Redress Determination within 8 weeks of
receipt of the Scheme Complaint. if the Finn has not yet sent the complainant
an explanatory letter under paragraph 27: and paragraph 27 will cease to apply
n1 respect of that Customer:

31.2
the Finn will send the Customer a Redress Detennination and written
conumulication n1 accordance with paragraph 33 within 4 weeks of receipt of
the Scheme Complaint. if the complainant has already received an explanatory
letter tmder paragraph 27.

32.
If it has not already done so. the Film will calculate Redress in accordance with
paragraph 16 abO\\u00b7e and will make payment or credit in the manner set out in
paragraphs 17 to 25 aboYe at the same tin1e as it sends a Redress Determination.

33.
The written collllnwucation from the Finn containing the Redress Detennination will
be in substantially the form of the appropriate template letter attached at Almex D.
The wlitten conmuuucation from the Finn containing the Redress Detennination will:

33.1
infom1 the complainant that the Finn has dealt with the subject matter of the
complaint in accordance with the Scheme:

33.2
set out the results of the Finn's detenninationtmder the Scheme:

33.3
explain why the subject matter of the complaint falls within the Scheme:

33.4
enclose a copy of the Ombudsman's standard explanatory leaflet:

33.5
inform the complainant that. if the Customer remains dissatisfied with the
Finn's response. he may refer his complaint to the Ombudsman. and subject to
paragraph 34. must do so witllln six months from the date of the submission of
the complaint by including the following statement:

·•You havt" tht" l'ight to nfl"l' your complaint to tht> Financial Ombudsman
St>rvict>, frl"P of chal'gt> - but you must do so within six months of tht> datt>
of this lt>ttt>l".

If you do not refer your complaint in time. the Ombudsman will not be able to
consider your complaint and so will only be able to do so in very limited
circtm1Stances. For example. if the Ombudsman believes that the delay was as
a result of exceptional circtUllStances.''

33.6
explain that the Ombudsman can only look at whether the matter was dealt
with in accordance with the Scheme (tmless paragraph 34 applies).

34.
If on or after 1 July 2015 the Fim1 and the Customer agree that the Scheme Complaint
should not be dealt with by the Ombudsman in accordance with the Scheme then-

34.1
neither paragraph 33.5 nor paragraph 33.6 will apply; and

34.2
the written conumuucation from the Finn containing the Redress
Detemlination will-

34.2.1 explain that if the Customer remains dissatisfied with the Firm's
response. he may refer his complaint to the Ombudsman

34.2.2
explain that the complaint will be dealt with by the Ombudsman by
reference to what is fair and reasonable in all the circun1Stances of the
case:

34.2.3
explain that the Fi.nu may agree that the complaint can be dealt with
by the Ombudsman even though the relevant time limits for referring
the complaint to the Ombudsman may have expired: and

34.2.4
include the appropriate wording :fi:om DISP 1 Annex 3R.

Gent>nl p1·ovisions about aU complaints

35.
The Finn must establish and maintain a fair and intelligent filtering of complaints to
identify whether a complaint (or any part of a complaint) receiYed (whether before or
after the date that these Requirements come into effect) that has not yet been resolYed
is a Scheme Complaint.

36.
If the Finn or Acenden (on behalf of the Finn) receive a complaint from a Customer
that (in whole or in part) falls outside the Subject Matter of the Scheme. the Finn will
resolve the complaint (or that part of the complaint) in accordance with their
obligations tmder DISP 1. The Firm's final response will infonu the complainant
that. to the extent the complaint is not a Scheme Complaint. that the complainant may
refer it to the Ombudsman to be detennined in accordance with what is fair and
reasonable in all the circumstances of the case.

Tl'anspal't>ncy

3 7.
The FCA will publish these Requirements on its website.

1.
In these Requirements. the following tenus haYe the following meanings:

a)
•'Acenden'' means Acenden Limited. formerly trading as Capstone Mortgage
Services and the Finn· s third party a
b)
"AMF' means the monthly &Tears mru1agement fee imposed in the period
from 1 January 2010 ru1d 2 April 2011. by or on behalf of the Firm. on
Customers in respect of their Mortgage:

c)
"Anears Fee" meatlS ru1y or all of the AMF. LMF ru1d or RMF:

d)
.. Autho•·ity" means the body col])orate fonnerly known as the Financial
Se1Tices Authority and renamed on 1 April 2013 as the Financial Conduct
Authority:

e)
"Customer" means an Existing Customer and/or a Former Customer as the
context requires:

f)
•'Existing Custome•·" meru1s someone who is currently a customer (within the
meaning of the Authority's Handbook) of the Finn who has entered into ru1d at
the time of payment of Redress still has a Mortgage: and on whom Arrears
Fees were imposed by or on behalf of the Finn during the Material Time:

g) "Firm" meatlS Preferred Mortgages Limited (FRN 304343):

h)
"Former Customer'' means a customer (within the meaning of the
Authority's Handbook) of the Firm and who had entered into a Mortgage but
at the time of payment of Redress no longer has one. either because it has been
repaid in full or because it has been enforced or amo1u1ts due have been
written off and on whom An·ears Fees were imposed by or 011 behalf of the
Finn during the Material Time:

i)
•'FSMA" means the Financial Services ru1d Markets Act 2000 (as amended):

j)
"lntenst Component" means that an1otmt of the Redress which represents
interest of 8% sin1ple interest per amum1 on the differeuce between what it was
reasonable to charge in relation to the Arrears Fees and what was actually
charged as calculated in accordance with paragraph 16:

k)
.. LMF' means the monthly litigation management fee imposed during the
Material Time. by or on behalf of the Finn. on customers in respect of their
Mortgage:

1)
•'Matelial Time" meru1s I January 2009 to 31 August 2012 inclusiYe:

m)
"Mo•·tgagf'" means a regulated mortgage contract (as defined in the
Authority's Handbook of mles and guidance) entered into on or after 31
October 2004. between the Finn and a Customer:

n)
''Ombudsman" means the Financial Ombudsman Service:

o)
''Othf'r Amounts Du«!'" means the balance showing on the Customer's
Mortgage accmmt as 'Other Amowtts Due' but only in so far as that balance is
comprised of the AMF. LMF. RMF and late payment fees:

p)
"Pf'I'Dlission'' means the Finn's pemnssion under Pru14A ofFSMA:

q)
"Rf'dt·f'ss'' means the amotmt calculated in accordru1ce with paragraph 16
aboYe as payable to or otherwise due to the credit of a Customer:

r)
"Rf'drf'ss Df'tf'l'mination" means a written comnuuncation from the Fim1 to a
Customer in respect of a Scheme Complaint which:

(i)
sets out the results of the Fim1's detemnnationt.mder the Scheme:

(ii)
encloses a copy of the Ombudsman's standat·d explru1atory leaflet: and

(iii)
infonns the complainrutt that if he is dissatisfied. he may make a
complaint to the Ombudsman and must do so within six months:

s)
"thf'Sf' Rf'quh·f'mf'nts" means the requirements and proYisions in this
docwnent including its rumexes;

t)
"RMF' meatlS the monthly repossession management fee imposed during the
Material Time. by or on behalf of the Finn. on customers in respect of their
Mortgage:

u)
"Srhf'mf'" means the redress scheme winch the Fim1 is required to establish
atld operate under these Requirements. which is a constmler redress scheme
for the purposes of DISP: winch has as its subject matter the Subject Matter:
and further details of which are set out in paragraphs 10 to 36 aboYe:

v)
"Srhf'mf' Complaint" means a complaint made by a Customer to the Firm. or
to Acenden (on behalf of the Finn):

(i)
which falls within the Subject Matter of the Scheme: and

(ii)
was received by the Finn-

(I)
after the date of these Requirements: or

(2)
no more than 8 weeks before the date of these Requirements.
where at the date of these Requirements. the Finn had not sent
a final response to the complainant.

Wltere part of such a complaint falls within the Subject Matter of the Scheme.
DISP l .l .llAR shall apply in respect of that part~

w)
"Shortfall Customt>l' .. means a Customer in respect of whom all of the
following conditions are met:

(i)
The Customer's property has been repossessed by or on behalf of the
Firm mtder the temiS of a Mortgage~

(ii)
The proceeds of sale of the Customer's repossessed property were
insufficient to discharge the amotmts owing mtder the Mortgage.
including any Arrears Fees~

x)
"Subjt>d Mattt>l'" of the Scheme means any claint. action or other right of any
description howeYer arising:

(i)
in relation to. or in collllection with. the level of An·ears Fees imposed
(and specifically. the excessiYe nature of any Arrears Fees intposed) by
or on behalf of the Finn during the Material Time on a Customer in
respect of and in connection with a Mortgage~ and

(ii)
provided that the Customer has not already complained about the
matter and the complaint has not already been resolved in accordance
with DISP 1.4-1 .6.

Howe\-er. any claim. action or other right of any description howeYer arising
concem.i.ng any other aspect of Arrears Fees, for example whether it was
appropriate to impose one. is outside the Subject Matter of the Scheme.

2.
For the purposes of Almex A. paragraph l(x). a complaint is resolved in accordance
with DISP 1.4-1.6 (and therefore outside the Subject Matter of the Scheme) if:

(i)
the complaint (or part of the complaint) related to the level of one or more of
the AMF. LMF or RMF charged by the Finn during the Material Tinte:

(ii)
the Customer has accepted an offer of redress by the Firm in full and fmal
settlement of the complaint: and

(iii)
that redress has been paid by the Finn to the Customer, or an amotmt equal to
the redress has been set-off against fees otheiWise due from the Customer to
the Finn.

Annf'x B: Cf'rtain complaints to bf' df'alt with by thf' Ombudsman

B.l
The provisions of tlus atmex are included in the Fim1·s Part 4A Pemussion tmder
section 404F(7) ofFSMA.

B.2
Subject to B.7 below. this Annex applies where--

B2.1 a Scheme Complaint is referred to the Ombudsman on or after the date that
these Requirements take effect:

B2.2
within 14 days of the Ombudsman telling the Finn in writing that the
complaint has been refetTed to the Ombudsman. the Firm tells the
Ombudsman in writing that the complaint (or part of the complaint) is a
Scheme Complaint.

B.3
Subject to B.2 aboYe and B.7 below. this Annex applies where--

B3.1
a Customer makes a Scheme Complaint to the Ombudsman in respect of an
act or omission of the Finn and. at the time the Scheme Complaint is made. it
is to be dealt with (or has been dealt with) under the Scheme:

B3 .2
a Customer is not satisfied wid1 a Redress Determination made by the Firm
under the Scheme: or

B3.3
a Customer considers that the Finn has failed to make a Redress
Detemlination in accordance with the Scheme.

B.4
Subject to B.7 below. the Ombudsman is required to detennine the Scheme Complaint
under section 404B of FSMA on the same basis as if the Scheme were a constuner
redress scheme under section 404 of FSMA.

B.5
Broadly (and subject to B. 7 below). this means that the Ombudsman is required to
decide the Scheme Complaint on the basis of what the determination tmder the
Scheme should be. or should have been. instead of 011 the basis of what the
Ombudsman considers to be fair and reasonable in all the circmnstances of the case.

B.6
Where a complaint is made to the Ombudsman in which only part of the complaint is
a Scheme Complaint within paragraphs B.2 and B.3 above, the Ombudsman will deal
with that part of the complaint which is a Scheme Complaint in accordance with
paragraphs B.4 and B.5 abo\"e and will deal with the remainder of the complaint in the
usual way in accordance with DISP.

B7.1 a Scheme Complaint is refe1Ted to the Ombudsman on or after 1 July 2015:
and

B7.2
the Firm and the Customer agree under section 404B(1A) or (2B) of the
Financial Ser\"ices and Markets Act 2000 that the Scheme Complaint should
not be determined by reference to what. in the opinion of the Ombudsman. the
determ.iuatiou tmder dte Scheme should be or should have been.

the Ombudsman will detemrine the Scheme Complaint (or that part of the complaint
which is a Scheme Complaint) on the basis of what the Ombudsman considers to be
fair and reasonable in all the circmustances of the case.