Understanding the Many Faces of First-Party Fraud

The world of lending is riddled with various forms of fraud, posing significant risks to lenders and distorting the financial ecosystem. Among these is first-party fraud, often referred to as “Fraud for Car” in the auto world. This category of fraud involves borrowers who misrepresent information to gain loan approval. The implications of such actions, even when not driven by malicious intent, are serious and multifaceted.
First-party fraud in lending manifests in several distinct ways, each with its own characteristics and implications:
Income Misrepresentation:
This involves the intentional and material misrepresentation of a borrower’s stated income. It’s a common practice, but undeniably fraudulent. Borrowers may inflate their income to meet Payment to Income (PTI) or Debt to Income (DTI) requirements. Unfortunately, such misrepresentations often lead to early loan defaults due to the borrower’s inability to afford payments.
Employment Misrepresentation:
Here, borrowers falsify their employment status. This can range from an unemployed individual claiming employment to self-employed borrowers presenting themselves as W2 earners, and even extends to the use of entirely fake employers. Many involved in this type of fraud are coached by credit repair industries, which provide verification of employment (VOE) services.
Synthetic Identity:
Synthetic identities used in first-party fraud vary greatly. They are often utilized by new immigrants or individuals misled by credit repair companies using Credit Privacy Numbers (CPNs). Their goal is to secure loan approval through false identities, albeit with the intention of repaying the loan.
Straw Borrower:
This occurs when the primary borrower purchases a vehicle for someone else without disclosing this fact. It increases risk for lenders, who remain unaware of the actual driver or vehicle location. A variation of this is subleasing fraud, where the vehicle is bought to be sublet on platforms like Turo.
Credit Washing:
This involves disputing legitimate, derogatory credit lines as identity theft. Due to FCRA guidelines, lenders must investigate and respond to these disputes within 30 calendar days of receipt. The ease of dispute through systems like eOscar often overwhelms lenders, leading to wrongful acceptance of identity theft claims. This artificially enhances the borrower’s credit history and score.
Bust Out:
Less common than its third-party counterpart, first-party bust out fraud is essentially pre-planned bankruptcy. It involves the rapid accumulation of credit with no intention to repay. The consumer is opening tradelines without the intention to claim bankruptcy in the near future or may attempt to wash their credit by disputing tradelines.
Artificial Paydown:
This is a known auto loan scheme. Borrowers use bad checks to pay down or off the loan, hoping to sell or trade-in the car for profit before the check bounces. The intention is to deceive both the bank and the dealer into believing the loan has been satisfied and to release the lien against the car.
First-party fraud in lending is a complex issue with multiple facets. Understanding these different types of fraud is crucial for lenders to effectively manage risks and maintain the integrity of the finance market. At Point Predictive, we’re committed to providing insights and solutions to combat these fraudulent activities, safeguarding the interests of lenders and the financial industry as a whole.
The next steps to protect against first-party fraud
Fortunately, there are tools to help lenders identify first-party fraud. Point Predictive’s solutions rely on machine learning and natural intelligence to identify current fraud trends and mitigate risks for clients.
To learn more about our solutions and how they can benefit you, talk to one of our solution experts.




