What is first-party fraud and how could it affect you?

The thought of fraud can inspire images of shadowy figures hacking into bank accounts or devising elaborate scams. But fraud isn’t always as clear-cut as you might think.

In fact, some of the most common types of fraud happen much closer to home – and often involve ordinary people making choices they don’t even realise are against the law.

A recent study by fraud prevention service Cifas revealed some surprising insights into how the public views fraud, with nearly half of participants believing that first-party fraud is ‘reasonable’ in certain circumstances. But what exactly is first-party fraud?

 What is first-party fraud?

First-party fraud is when someone knowingly provides false or misleading information to gain financial advantage, such as being accepted for a loan or getting better rates. Unlike third-party fraud, where the identity or personal details of an unsuspecting victim is stolen, first-party fraud is committed by the legitimate account holder or applicant themselves.

Examples of first-party fraud include: 

• Lying on a loan application: Exaggerating your income or hiding existing debts to secure a loan or credit card. 

• ‘Fronting’ in insurance: Listing someone other than the main driver as the primary policyholder to get a cheaper car insurance premium. 

• False claims: Making up or exaggerating the details of a loss or accident to receive a payout from an insurance company. 

• ‘Friendly fraud’ in e-commerce: Disputing legitimate transactions with your bank to receive a refund, like claiming a product wasn’t delivered or wasn’t as described. 

While these actions might seem to some like harmless workarounds or loopholes, they’re all considered forms of fraud – and could carry consequences.

While first-party fraud wouldn’t show on your credit report, you can still spot early signs of other types of fraud with Checkmyfile – and uncover the steps to grow your credit score, no matter what your current number is. Sign up now with a 30-day free trial, then it’s £14.99 a month – cancel online anytime.

The grey area of fraud perception

Cifas’ research highlights a gap between perception and reality when it comes to first-party fraud. For example, 36% of participants said they don’t think asset conversion fraud (when someone sells something they’ve bought on finance before paying it off) is illegal. Meanwhile, 19% believe that mobile phone insurance fraud (claiming for a device that was never lost or stolen) is an okay thing to do.

Why is this happening? Well, Cifas say that first-party fraud is often wrongly seen as a ‘victimless crime’. But even if there isn’t a direct, visible victim, the effects of first-party fraud can be widespread.  

The most common types of first-party fraud

The research found that the most common fraud was falsely claiming a package hasn’t arrived, to get a refund, with 19% of those surveyed admitting it. This was followed by lying about qualifications on a CV (18%) and deliberately continuing to claim Single Person Discount to reduce a council tax bill after permanently moving in with a partner (16%).  

How could first-party fraud affect you?

Engaging in first-party fraud can lead to serious financial and legal consequences, including: 

• Legal action: First-party fraud is illegal. You could face fines, prosecution, and even a criminal record depending on the severity of the fraud. 

• Financial loss: You may be asked to repay money obtained through fraudulent means, and you could lose access to certain financial products or services. 

• Higher costs for everyone: When fraud is committed, businesses often raise prices or tighten their lending criteria to cover their losses. This affects honest customers as well as fraudulent ones. 

Avoiding accidental fraud

If you’re reading this thinking you’ve unwittingly done some of these things – you’re not alone. First-party fraud isn’t always intentional. The nitty gritty of financial terms and conditions can be confusing, and mistakes and misunderstandings happen. Here are some tips to avoid slipping into fraudulent territory by mistake:  

• Be honest and accurate: When filling out applications for credit, loans, or insurance, always provide truthful and accurate information. 

• Read the fine print: Make sure you understand the terms and conditions of any financial agreements you sign. 

• Ask if you’re not sure: If something doesn’t seem clear, reach out to the lender for clarification. It’s better to ask questions upfront than to assume and risk potential fraud. 

Final thoughts

Remember that first-party fraud could carry significant consequences. It’s far from just a white lie or a way to ‘beat the system’. And while it may seem like a victimless crime to some, the impact can be felt by businesses and your future self. Understanding what counts as fraud and staying transparent in how you handle your finances is the best way to avoid breaking the law.