Businesses, consumers and the U.S. government are becoming more aware of the prevalence of identity theft; however, it is the banks and other financial services providers that must take more aggressive actions to fight these crimes, according to Gartner, Inc.

The U.S. Federal Trade Commission (FTC) recommends educating consumers to be more careful in disseminating credit information. It said bank regulators should establish "red flags" that creditors should heed when granting credit, and establish stronger criminal penalties and prosecution.

While these actions may be useful, Gartner analysts said it doesn't go far enough. Gartner analysts advocate a more forceful approach that focuses on the source of illegal credit – credit card issuers, cell phone service providers, banks, and retailers and businesses that extend credit. "Many financial and wireless services providers will provide instant credit approvals when applicants answer a few personal questions," said Avivah Litan, vice president and research director for Gartner. "Instead, they should conduct checks for identity theft before issuing loans or other forms of credit."

Some of the problems have also occurred because most of the crimes are not classified as identity thefts. This has resulted in earlier perceptions that identity theft was not as large of a problem.

"Banks and financial services providers should consider reclassifying all loans in which a payment date is missed as identity theft, rather than writing off a billable item as a loss if the bill isn't paid for 180 days," Litan said. "Such action will likely raise creditors' appreciation of identity theft fraud, while reducing their loan and credit losses. It will also likely motivate creditors to attack identity theft fraud with effective solutions, and it will ensure that innocent consumer victims remain innocent until proven guilty. Now, it's the other way around."

A recent Gartner survey showed that seven million U.S. adults, or 3.4 percent of U.S. consumers, were victims of identity theft during the 12 months ending in June 2003. A subsequent FTC study released September 4 confirmed Gartner's findings. Until then, the government was reporting less than 700,000 documented identity theft crimes. Because this crime is often misclassified, the thieves have better than a one in 700 chance of being caught by the federal authorities.

"While our recommendations will likely ease the pain and ramifications of identity theft by making it harder for thieves to get credit, we also realize it won't prevent thieves from stealing identity information for other ends," Litan said.

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