Banking First-Party Fraud Guide
August 21, 2025
This article is part of "Eye on Fraud by IronVest," an ongoing series on banking fraud where we explore the latest banking scams and fraud impacting financial institutions worldwide.
Our banking first-party fraud guide walks you through the most costly and misunderstood fraud schemes targeting banks in 2025.
First‑party fraud now accounts for over one‑third of all losses in financial services, with global write‑offs set to exceed $100 billion this year alone. Yet too often these schemes slip under the radar, misclassified as simple chargebacks or customer disputes.
In this guide, you’ll learn:
What first‑party fraud looks like (to bank fraud teams). The tactics fraudsters use to exploit “legitimate” accounts.
Why it’s on the rise. IIndustry research shows spiralling loss rates.
How first-party/friendly fraud impacts your bank’s revenue. The real costs, hidden fees, operational strains, and reputational risks banks face.
Below, we’ve gathered seven recent first-party fraud case studies, each illustrating a different form of first‑party fraud and explaining exactly how it unfolds.
What Is First-Party Fraud In Banking?
First-party fraud in banking occurs when a real customer or someone posing as one uses their own identity or account to defraud a bank.
It’s different from third-party fraud, where a stranger pretends to be the customer.
Because the person committing first-party fraud is known to the bank, it’s sometimes referred to as “friendly fraud.” They might do something that appears normal, such as disputing a charge on their card or building up a credit history.
The problem is that the transaction they’re disputing is real. The customer got the product or service, but they lied to get their money back or suddenly took out a massive loan they never intended to pay.
Somewhat confusingly, first-party fraud can also be enabled by another party, not just the party committing the fraud.
If a scammer can convince a victim to commit fraud (with or without the victim's knowledge that it is fraud), they can create a first-party fraud incident through someone else.
However, most often, first-party fraud involves a real customer doing something under their own power to defraud you, such as:
Applying for loans or credit with no intent or ability to repay.
Overstating income or employment to gain approval.
Maxing out credit lines across multiple banks simultaneously.
Abusing disputes and chargebacks to gain back legitimate spend.
7 First-Party Fraud Banking Examples You Need to Know In 2025
Below, we highlight seven first-party fraud examples in banking to help you see what first-party fraud looks like in 2025.
1. Deposit manipulation through a bank’s policy loophole
Deposit manipulation occurs when a bank account holder credits unfunded or counterfeit items to a genuine account and then withdraws the funds before the settlement is completed. This gap in clearing times allows the customer to convert provisional credit into real cash.
Deposit manipulation fraud example
In October 2024, JPMorgan Chase sued four customers from Texas, California, and Florida who withdrew about $661,000 after a viral “Chase Bank glitch” allowed counterfeit checks to clear instantly at ATMs.
These kinds of scams often spread quickly because fraudsters use social networks and messaging platforms to promote their schemes. Their aim is to go viral.
When the so-called “Infinite Money Glitch” gained traction through platforms like Telegram, mentions of Fidelity spiked by 300% in top fraud channels.
Viral amplification increases the number of participants in a particular fraud and makes it very hard for financial institutions to respond at scale.
2. Purchase return authorization (PRA) fraud
PRA schemes exploit the normal process of issuing a card refund.
A rogue merchant terminal issues a “return” to a card that never made an original purchase, pushing bank funds straight into the fraudster’s own account.
There are thousands of examples of this kind of first-party fraud occurring daily.
PRA fraud example
Recently, Visa’s Payment Fraud Disruption Unit saw a 164% jump in PRA investigations in less than a year.
Visa noted that the massive jump in PRA incidents was being driven by small merchants acting as return mules. Each incident credited live card numbers for goods that were never bought, draining issuer and acquirer balances.
3. Mortgage income misrepresentation
Application misrepresentation relies on false income, employment, or debt statements that persuade a lender to approve credit that would fail under accurate data.
It occurs when an individual uses fake information to scam a bank into granting loans that would not be approved under normal circumstances.
Misrepresentation fraud is typically done by individuals, but can also be enabled at scale by rogue mortgage brokers or advisers.
Mortgage income misrepresentation fraud example
On , a UK court handed down suspended prison terms to mortgage broker Larry Barreto and accountant Tassib Hussain after they used forged payslips and tax returns to secure 11 mortgages worth approximately £3 million (around $4 million) for unqualified borrowers.
4. Classic credit-card “bust-out” fraud
Bust-out fraud starts with normal credit lines that build trust. Then, once trust has been established with the bank, the customer hits every available limit and vanishes or defaults, leaving the bank with the entire exposure.
Bust-out fraud can also be enabled with synthetic identities that are used to create fake personas that draw credit lines.
Bust-out fraud example
In February 2024, Ki Jang of Los Angeles was sentenced to 21 months in federal prison for a bust-out scheme that used multiple accounts opened with doctored Korean passports.
The ring deposited unfunded checks and withdrew $273,800 before settlement, with intended losses near half a million dollars.
5. Refund/chargeback abuse
Chargeback abuse is easily the most well-known type of first-party fraud.
It's what happens when a legitimate cardholder denies or reverses a transaction after keeping the goods or services, exploiting the bank’s trust in its own customer. Here’s an example of how it works:
A person buys an item from an online retailer.
They pay for the item with a credit card.
The item arrives.
The person tells the bank the item never arrived and cancels the transaction.
The person keeps the item anyway.
Chargeback fraud example
Connecticut student Matthew Bergwall pleaded guilty in March 2025 after organising nearly 10,000 false “item not received” claims.
Amazon and other retailers refunded more than $1 million. Prosecutors said attempted losses topped $8 million.
6. Loan stacking through “buy now, pay later” facilities
Loan stacking is when a fraudster gets approval for multiple loans simultaneously.
Buy now, pay later (BNPL) is one of the fastest-growing financial product categories today. However, it is also vulnerable to fraud through loan stacking.
It’s relatively easy for loan stacking fraudsters to exploit real-time approvals at BNPL providers. A borrower opens several microloans within minutes, exhausts each limit, and then fails to make repayment. Traditional bureaus see the new debt only after the damage is done.
Loan stacking fraud example
A January 2025 analysis by the Consumer Financial Protection Bureau (CFPB) of more than 18 million BNPL transactions found that carried multiple pay-in-four loans simultaneously, and one-third used more than one provider, exhibiting classic stacking behavior.
7. Credit-profile washing via mass disputes
Credit washing wipes negative tradelines by flooding bureaus with false identity-theft claims.
Once the file appears clean, the borrower secures new credit and repeats the cycle when those accounts become delinquent.
Credit profile washing example
In August 2023, a $2.66 billion judgment against PGX Holdings, the parent company of Lexington Law, for filing mass disputes and collecting billions in fees while clients used the “cleaned” reports to obtain new credit they never intended to repay.
How to Prevent First-Party Fraud In Banking Without Adding Friction
Proving first-party fraud in banking is challenging because banks rarely have conclusive evidence of who executed a transaction and what they actually approved - device fingerprints, IP addresses, and MFA logs are circumstantial, leading to costly disputes, write-offs, and lengthy investigations.
IronVest ActionID™ addresses this by continuously verifying the presence and binding identity of each high-risk action.
We help banks capture exactly what a customer saw and submitted. The result is tamper-proof evidence that shows the user's intent, making it difficult for users to claim that the bank should reimburse them.
Common First-Party Fraud Schemes Cheat Sheet for Banks
First-party fraud type | How It Works | Real-world banking first-party fraud example |
Deposit manipulation through ATM loophole | Post unfunded or counterfeit items, receive provisional ATM credit, and then withdraw before settlement completes. | Oct 2024: JPMorgan Chase sued four customers after a “Chase Bank glitch” let counterfeit checks clear instantly, netting $661K withdrawals. |
Purchase return authorization fraud | Rogue merchant issues a refund to a card that never made the original purchase, stealing funds directly. | Visa saw a 164% surge in PRA investigations (2024-2025), driven by small‑merchant “return mules” crediting live cards for nonexistent returns. |
Mortgage income misrepresentation | Use forged payslips/tax returns to secure loans that wouldn’t pass legitimate underwriting. | Larry Barreto & accountant Tassib Hussain forged docs for 11 mortgages (~£3 M). |
Credit card “bust-out” | Build normal credit, max out all limits in one burst, then default or vanish, often using synthetic IDs. | Ki Jang (LA) opened accounts with doctored passports, deposited bad checks, withdrew $273,800, aiming for $500K losses. |
Refund/chargeback abuse | Purchase goods or services, then dispute the valid transaction to reclaim funds while keeping the items. | Student Matthew Bergwall pleaded guilty to ~10,000 false “item not received” claims in 2025; retailers refunded >$1 M (attempted $8 M). |
BNPL loan stacking | Open multiple “buy now, pay later” loans in real time, exhaust each limit, then default before bureaus update. | January 2025: CFPB analysis of 18+ million BNPL transactions found that 63% of borrowers carried multiple pay-in-four loans at once, and one-third used more than one provider simultaneously. |
Credit profile washing via mass disputes | Flood bureaus with false ID‑theft disputes to erase negatives, then secure fresh credit repeatedly. | Aug 2023: CFPB won $2.66 B against PGX Holdings (Lexington Law) for mass disputes that “cleaned” reports, enabling new credit abuse. |