Hugh Pickens writes "Despite all the new fraud alert tools and increased awareness of the perils of identity theft, incidence of the crime remains at 2003 levels, with about 10 million Americans falling victim every year. Now the NY Times reports that there may be a simple reason for the persistence of ID theft: lenders are too willing to extend credit to just about anybody, even when there are big red flags that indicate fraud. Chris Jay Hoofnagle at UC Berkeley worked with a small sample of six ID theft victims and delved into how they were defrauded. Of 16 applications presented by imposters to obtain credit or medical services, almost all were rife with errors that should have suggested fraud — yet in all 16 cases, credit or services were granted anyway. 'Identity theft remains so prevalent because it is less costly to tolerate fraud,' writes Hoofnagle. 'Adopting more aggressive and expensive anti-fraud measures is extremely costly and jeopardizes customer acquisition efforts.' Hoofnagle says business decisions leave individuals and merchants with some of the externalities of identity theft as victims spend their own money, and more often, valuable personal time dealing with the problem. Hoofnagle suggests that lenders contribute to a fund that will compensate victims for the loss of their time in resolving their ID theft problems."