The following post is provided by Experian, a MeridianLink® Marketplace partner.
For U.S. business leaders, first‑party fraud (FPF) is both a top concern and a persistent blind spot. In Experian’s 2025 U.S. Identity & Fraud Report, improving FPF detection ranked as one of businesses’ top five priorities, with 30% saying FPF increased stress on their operations. Yet, despite FPF’s impact, only 35% said they could confidently identify FPF when it occurred.
For credit unions, where member relationships are built on trust and transparency, the inability to identify FPF causes member experience and portfolio performance to suffer. Experian’s latest research uncovered a clear opportunity to improve credit unions’ ability to identify deception early and accurately. But, before breaking down what it is and why it works, it’s important to first understand what makes FPF such a challenge—and why it’s one worth investing in.
Why separating fraud from credit loss matters—and why so many credit unions struggle
At origination, intent is invisible. Traditional rule sets predict repayment capacity, not deception, which is why first‑party fraud often fly under the radar. Fraudsters also emulate prime behaviors, further disguising signals that legacy scorecards expect from trustworthy applicants.
For credit unions, the stakes are higher. If members facing financial distress are met with the same suspicion as a fraudster, satisfaction and trust in their credit union relationship erodes quickly. Credit unions must be able to distinguish deception from distress: Let trustworthy members move seamlessly, respond to those in distress appropriately, and reserve extreme action only for those who intend to deceive.
The cost of first‑party fraud (and misclassification of losses)
Across financial providers, average annual losses from first‑party fraud surpass $36 million. Misclassifying even a fraction of FPF losses as credit risk distorts models, inflates reserves, and misguides strategy. Charge‑off losses occurring within six months of an account opening are 20%+ higher than losses happening after 12 months — evidence that early losses are more likely to be fraud‑driven than tied to true repayment hardship.
Among straight-roll charge-offs, losses soar even higher. These can be 50%+ higher, a hallmark of bust‑out or premeditated fraud. Fraudsters also disproportionately target borrowers who appear low‑risk: average losses in prime segments can double those in subprime by 100%+.
Credit unions’ key to FPF detection
In Experian’s analysis, a clear indicator emerged as the most reliable way to separate fraud from credit risk early: first-payment default (FPD), referring to borrowers who become 90+ days delinquent within six months of booking. This behavior points to premeditated non‑repayment, not financial hardship: Members experiencing distress typically do everything possible to make their first payment, or correct a mistake quickly, to avoid fees, credit damage, and stress. Fraudsters, conversely, never pay because they never planned to.
Two key traits make FPD an effective high ground for credit unions to combat FPF from. First, FPD emerges almost immediately, giving credit unions an early indicator of deception. Second, FPD is the most common type of FPF, meaning an FPD-based strategy uncovers more fraudsters — and does so faster — than any other fraud type.
In recent years, fraudsters have gravitated towards FPD to quickly steal funds. Between 2021 and 2023, financial institutions’ FPD losses rose 33%. During that same period, the average per‑instance FPD loss grew 18%, and the overall FPD fraud rate increased 11%. For credit unions managing diverse portfolios, FPD losses vary greatly by product: Average FPD losses for auto lending now exceed $21.5K per instance, more than double early‑period levels, while credit‑card losses remain below $2.5K per instance.
The credit union playbook for FPF prevention
First‑party fraud prevention for credit unions has two non‑negotiables: preserve a low‑friction experience for legitimate members and stop fraudsters quickly to prevent losses from snowballing. By adopting an FPD-based approach to FPF prevention, credit unions can achieve:
- Sharper member‑friendly decisioning: FPD‑driven models help separate fraudsters from genuine applicants, preserving a smooth experience for members.
- Cleaner segmentation and healthier balance sheets: Using FPD to properly classify first-party fraud improves risk models, strengthens reserve accuracy, and increases confidence in portfolio quality.
- Higher savings potential in high‑severity portfolios: Auto lending, where losses can be substantial, offers large ROI with improvements in early detection.
Want to learn more? Find us on stage at MeridianLink Live in “First‑Party Fraud: The Most Common Culprit” on May 12 from 10:30 a.m.–10:55 a.m.
About the data: Data in this blog comes from Experian’s latest FPF report, which analyzes 2023 losses across various portfolios. For a deeper look, read the full report.
