$100B in Losses: How First-Party Fraud Hits Lenders Hard

In first-party fraud, the fraudsters may not be who you suspect. In this type of fraud, the bad guys are the borrowers or applicants. 

“They might misrepresent their identity, inflate income, fabricate employment, or simply have no intention of repaying,” Alisdair Faulkner, Chief Executive Officer and Co-founder of Darwinium, told us.

First-party fraud is widespread and a key issue that financial institutions, including subprime lenders, need to face. 

“Also referred to as ‘friendly fraud’ or ‘opportunistic fraud,’ it accounts for more than a third of all reported fraud in recent years, making it one of the most prominent types of frauds,” Daniel Barta, a Principal Fraud and Financial Crimes Consultant at SAS Institute, shared with us.

According to a Cybercrime Report from LexisNexis Risk Solutions, first-party fraud is now the leading type of fraud globally, representing 36% of all reported fraud in 2024.

Providers of Buy Now, Pay Later and financial institutions were among the companies reporting an uptick in first-party fraud, according to LexisNexis Risk Solutions. 

How big a problem is first-party fraud in the U.S.? According to Socure, a digital indentity verification platform, U.S. businesses face $100 billion in first-party fraud losses. That is some serious fraud loss and one that businesses and lenders will want to address as soon as possible.

Two common types of first-party fraud are loan stacking and credit washing. 

Loan stacking is high-velocity borrowing, for example submitting multiple applications across lenders before credit files have time to update, said Faulkner. Stackers exploit the lag between application and bureau refresh, often with no intention of repaying any of it, she said. 

Then, there’s credit washing, which involves removing legitimate negative information from a credit file, typically through repeated disputes or false identity-theft claims, Faulkner said. “The goal is to appear less risky than reality.”

With income and employment misrepresentation, the fraudster creates a false employment narrative. 

“Applicants inflate income, falsify employment, claim false job titles, or create fake employers,” said Ali Zane, Chief Executive Officer and Credit Consultant at Imax Credit Repair, told us. 

With bust-out fraud, scammers take the time to build a payment history.

“Fraudsters build a genuine payment history over months, then simultaneously max out all credit lines and disappear,” Zane said.

Auto lenders faced about $9.2 billion in fraud loss exposure with first-party fraud accounting for 69% of this total exposure in 2024, according to Point Predictive’s 2025 Auto Lending Fraud Trends Report.

While dramatic cases of organized crime ring stealing identities make headlines, Point Predictive’s data reveals that the true story behind most auto lending fraud is an array of misrepresentations, said Frank McKenna, Chief Innovation Officer of Point Predictive, in a press release.

“Borrowers using their own names who inflate their income, misrepresent their employment, utilize credit washing techniques, or create new credit profiles with Credit Profile Numbers (CPNs) account for the overwhelming majority of fraud risk, yet these patterns often go undetected,” said McKenna.

What can subprime lenders do to protect themselves from first-party fraud? Be diligent from the first moment of a credit application.

Barta said that performing proper due diligence starting at account or relationship initiation is a critical step in managing first-party fraud. That requires the use of both internal and external data and advanced analytics. Knowing your customer from a fraud perspective is essential, he said. 

Monitor each applicant’s personal data carefully looking for signs of fraud.

“Analysis of applicant data (name, address, email address, phone numbers, etc.) can shed light on the identity of the applicant,” Barta advised. “Has the phone number, email and name been seen together in the past? Has any data point been used frequently in the recent past or does it have a history of fraud?”

Without proper diligence, subprime lenders can face greater risk for first-party fraud from new applicants and borrowers.

When a lending organization neglects to perform sufficient due diligence on new accounts and new borrowers, it exposes the lender to higher fraud and credit losses. Credit line charge-offs go straight to a company’s bottom line, Barta said.

“And this cuts two ways. Rising credit line charge-offs often leads lenders to tighten credit screening, which can increase their rate of false positives. Declining legitimate borrowers as a result of heightened scrutiny also adversely impacts profitability.”

First-party fraud, fraud perpetrated by a borrower or applicant, is widespread and affects auto lenders, subprime lenders and other financial institutions. To prevent this type of fraud, lenders must assess each new applicant’s information carefully to avoid being tricked by a fraudster.