To some payment system strategists, Image Data LLC seemed to have a great way to fight identity theft: Driver's license photos for merchants to compare with people presenting checks or credit cards.
By the middle of last year three states had agreed to sell their photos to the Nashua, N.H., company, which intended to scan them for its True ID system.
But news reports brought the business to a crashing halt. The company became a lightning rod for consumer privacy concerns, and the three states sued to invalidate the contracts.
The lawsuits are still unresolved, but Image Data president and chief executive officer Robert C. Houvener says he has revived his company with a new strategy based on consumers' voluntary participation.
In October, Image Data says, it launched a new pilot with a small merchant and a top-50 bank, which it declined to identify.
The merchant asks people paying by check to hand over their licenses for scanning by a $500 terminal that Image Data is selling. The information is then sent electronically to computers at Image Data. Eventually, people paying by credit card will also be included.
The pilot is more modest than the one Image Data quietly launched in South Carolina in August 1998. There, for nearly six months, no one seemed to care that the company had bought 3.5 million driver's license photos from the state and was using them to verify the identities of people paying by check at 16 merchants.
A similar arrangement was proceeding in Florida and Colorado, though no pilots had begun, when January and February articles in The Washington Post brought to light that Image Data had obtained access to consumers' records without their consent.
The articles also revealed that Image Data had received a $1.5 million grant from the Secret Service, which is responsible for solving identity theft crimes. The idea had been that True ID might help fight terrorism and fraud, including immigration fraud.
The reports caused a media firestorm. Privacy advocates said that consumers should have been asked whether they wanted their photographs used, and that they could fall into the wrong hands. South Carolina, Florida, and Colorado each brought legal action, and the 27-employee company retreated.
"Many of the concerns in the past were about our access to records without the consumer's knowledge," said a spokeswoman, Lorna D. Christie. But now "we have a system based on consumer choice," she said.
Mr. Houvener said Image Data had been working all along on the voluntary system, because some states do not keep driver's license photos on file. The system involved in the latest pilot was "a low-level project" that suddenly became a top priority, he said.
Image Data's pitch to merchants and banks is that True ID will reduce their $25 billion annual tab for identity fraud. Consumers, in addition, would spend less time in checkout lines, and a driver's license would have to be scanned into the system only once.
Mr. Houvener said he expects the voluntary plan to bring it more photos than the state-contract system would have done. The deals with Colorado, Florida, and South Carolina involved 22 million photographs but required enabling state legislation, for which Image Data had lobbied. With the voluntary system "we are not dependent on legislative activities," Mr. Houvener said.
Still, the state plan has not left Image Data unscathed. In Colorado, for example, the company is suing the state to recover the $140,000 it paid for license photos, which Mr. Houvener said were never received.
The company must also deal with the bad impression left with consumers. "The amount of education we must do was brought to our attention," Mr. Houvener said.
The Image Data CEO said he has learned a hard lesson about consumer privacy: That consumers are not aware of the many ways their public records are obtained and used - and get angry when they find out.