In the end, the best response to the mushrooming identity-theft problem plaguing the nation's banks can be found where personal banking begins: the new-accounts desk.

That humble post, often falling to a junior customer-service employee, is the most crucial link in the series of exchanges that brings a customer onto the roster of a bank's depositors. Increasingly, it is becoming a target for criminals, who have discovered its weak spots.

Banks already working hard to protect their depositors must reassess their new-accounts operations. In the war on fraud, it's the first line of defense against relentless assaults. The long-term viability of the check as a form of payment and source of bank profits hinges on curbing fraud where it begins.

The cost of this problem is staggering. The Federal Trade Commission cited identity theft as the most common consumer complaint last year, affecting more than 500,000 people. Commercial banks' check fraud losses, in which identity theft often plays a central role, totaled $679 million in 1999, up nearly one-third from 1997, according to a recent report by the American Bankers Association. Deposits, by contrast, grew 12% in the same period.

Regulators, backed by laws such as the Gramm-Leach-Bliley Act that toughen the penalties for identity fraud, are becoming more assertive. In May the Office of the Comptroller of the Currency and the Federal Reserve Board issued customer-information security guidelines urging bankers to tighten their verification procedures. One way is to check change-of-address requests and new-account application information with third parties such as consumer reporting agencies and credit bureaus.

The OCC and Fed notices are good reminders that simple procedures can be effective defenses. In this case, the answer lies partly in details at the grass-roots level such as the new-accounts desk. The incentives offered the people there are not in any way tied to reductions in systemwide fraud. Instead, these employees are rewarded, and properly so, for reeling in customers and building the bank's deposit base. If a fraudster somehow is able to open a checking account in someone else's name and writes bad checks, it is too often viewed as someone else's problem.

People bent on committing check fraud know how to work the system, how to strike at its vulnerable spots. At eFunds, we've seen it all. Account applicants are known to apply at 4:25 p.m., just before closing time, hoping that the banker will skip a background inquiry in order to go home on time. We've even heard of people being urged to smear dog excrement on their shoes or foul-smelling perfume on their bodies before entering the bank so the unfortunate new-accounts person will be eager to rush the process and get rid of them.

Tricks like these sound ridiculous, but the evidence of skyrocketing fraud losses suggests they're working. The industry has the means to protect itself in the form of massive databases at consumer reporting agencies that can spot troubled histories in a matter of minutes. Those databases are like muskets left in the armory, however, if they're not deployed. Banks should heed the advice of the OCC and others and submit every new account application to formal scrutiny. It's in their interest - and their customers'.

Mr. Blanchard is chairman and chief executive officer of eFunds Corp. of Scottsdale, Ariz., which operates ChexSystems, a consumer reporting agency for the financial services industry.

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