First party fraud: the crime of everyday life

7th March 2024

As we approach the 2024 general election, both sides of the political divide clearly want to stake their claim to be the party of law and order. However, when we look at the political narratives around crime, it is clear that politicians (and indeed the public) view ‘crime’ primarily through a very limited lens of ‘drugs and thugs’ street-level offences.

Within this narrative there seems little room for a debate on the silent crime wave of first party fraud, committed by people who would otherwise consider themselves ‘law-abiding citizens’. Our research shows that this is a growing threat which is hitting a range of sectors, including the credit industry, hard.

Along with other so-called small-scale crimes, such as tax evasion, ‘cash in hand’ working and council tax fraud, these types of societally common place offending are dubbed by the renowned criminologist Susanne Karstedt as the ‘crimes of everyday life’. They are fast becoming a stubborn feature of our society. While individually these offences are often financially smaller in scale than corporate frauds that grab the headlines, collectively they have a cumulative impact that drives up prices for the law-abiding majority.

Therefore, it is important to direct attention to the fact that these crimes are much more prevalent than perhaps politicians or the public themselves would wish to admit, and to start a discussion on how to solve the problem.

Public attitudes to first party fraud

At Cifas we’ve been tracking the course of first party fraud trends over a number of years. Whether a false application for a mortgage, inflated insurance claims or chargeback fraud, it is clear from our research that first party fraud is a growing problem and one which is increasingly being normalised in society.

In our 2023 annual ‘fraud behaviours’ report we surveyed 2,000 people in the UK to find out about their attitudes to first party fraud. The results were staggering; 12% (1 in 8) consumers admitted to committing some form of first party fraud in the previous 12 months. This is up from 10% in 2022 and 8% in 2021.

Within this, some of the results regarding specific types of first party fraud are particularly concerning. For example, 1 in 6 adults note that they, or someone they know, have misled mortgage companies about their annual salary and 1 in 20 have committed chargeback fraud, or knew someone who had. Furthermore, 14% of respondents did not think it was illegal to supply misleading information and 9% thought that this was ‘reasonable’ behaviour.

What the credit industry can do about the rising threat of first party fraud

One could speculate that the growing normalisation of first party fraud evident from our findings is a symptom of societal factors, about which we can do very little, such as our increasingly atomised society and the temptations inherent in our digitalised lives.

However, our research suggests that there are a number of points at which we can intervene to prevent first party fraud becoming normal everyday behaviour and a rising cost of doing business. Cifas research in 2019 identified a potential ‘journey’ towards committing first party fraud, which may help identify some intervention points. The key stages involve:

  • Knowledge – is this fraud?
  • Motivation – what is my reasoning for doing it?
  • Achievability – can I actually do it?
  • Justification – why is it okay for me to do it?
  • Consequences – what will happen and is it worth doing it?

Clearly there is always more to be done by organisations to drive down the ‘achievability’ aspects of this crime, including strengthening internal controls and embedding cross-industry data-sharing within their business models.  However, there is also more that we can do collectively on the other four factors to drive down this threat.

Knowledge: This is an area very much in our control. Our research demonstrates that time and again many people simply don’t know that certain acts constitute ‘fraud’. One way we can tackle this is by delivering a cross-sector public awareness campaign, which makes clear that such acts are not victimless, and that they are ultimately crimes which may result in individuals having difficulties in accessing credit or other products and services in future.

Motivation and Justification: While it is impossible to track individual motivations, it is self-evident that the rising cost of living and pressure on household finances is a contributing factor to the increase in fraud.

According to research reported via Credit Connect, nearly half of consumers say they’ve been more worried about their finances this year. Furthermore, research by the Trussell Trust shows that 3.4 million people claiming Universal Credit have either fallen behind on bills or have had problems meeting credit commitments and are finding it a constant struggle to keep up with them.

In light of this, finding ways to ease the pressure on vulnerable, over-burdened consumers by taking a reasonable approach to credit management and by ensuring the spirit as well as the letter of the new consumer duty regulations are applied, can both reduce the motivations of first party fraud and undermine the justification for doing so. By supporting consumers through difficult circumstances, some people may feel less able to justify fraudulent conduct.

Consequences: It is of course the case that some individuals will never respond to either of these interventions and are intent on funding their lifestyle through first party fraud. Of course, a policing response to every instance of fraud would neither be achievable nor desirable. However, the current state of play, where there is no credible deterrent for persistent wrongdoing, is simply untenable.

It is here where we need to take control of the narrative and work with authorities to supply good quality data and intelligence on the problem. The best way to achieve this, in our view, is to work collectively to identify the ‘highest harm’ individuals. It is here where the type of cross-industry data and intelligence-sharing we facilitate at Cifas can come into play. By sharing data with those law enforcement partners, we can aid their crime assessment and intelligence analysis processes and help target the most prolific offenders.

In summary, the rising evidence of fraud as an acceptable societal behaviour should be a call to arms. It cannot be the case that the law-abiding majority are forced to subsidise first party fraud through higher fees and costs. It also cannot be the case that this issue is placed into the ‘too difficult’ box for industry. By acting collectively and designing a range of well-integrated interventions, we can make a difference and ensure that these harmful crimes become less of an everyday occurrence.

Mike Haley, Chief Executive Officer at Cifas