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First party fraud is not a new phenomenon. However, the technology and automation used today combined with the sub prime mortgage crisis and limited defenses against organised crime makes it easier and easier for fraudsters to slip under the radar.
First party fraud – when a customer applies for and accepts credit with no intention of repayment – is now being recognised across the financial industry and is receiving serious attention and investment by numerous banks. First party fraud applicants can use synthetic identification, or misrepresent their real identity, which is different from third party or identity fraud when the criminal uses another persons identifying information.
Most first party fraud is currently written off as a credit loss. The financial industry has historically only recognized fraud when there is a victim. Since the customer commits first party fraud and the only victim is the financial institution, the loss is managed by the collections department and considered a bad debt. First party fraud includes advances fraud, bust out fraud, application fraud, friendly fraud and sleeper fraud.
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