As the holiday shopping season begins, retailers are deploying new technology designed to crack down on one of the industry's biggest frustrations — customers who abuse return and exchange policies.

Retailers such as Guess Inc., Staples Inc., Sports Authority Inc. and Limited Brands Inc. are among those using software called Verify-1, a product of Return Exchange, based in Irvine, Calif. The closely held company helps retailers decide whether to deny returns or exchanges using a program that monitors a shopper's track record of bringing items back.

Such tactics are raising the ire of shoppers and privacy-rights groups who say the new technology is often an unnecessary and intrusive violation of consumer rights.

Retailers say they are on the lookout for various forms of fraud, including "serial wardrobers" who buy an outfit, wear it once or twice and return it; shoplifters who return stolen merchandise; employees who steal items and return them for cash; price switchers, who change price tags on items, then return one item for the higher amount; and shoppers who use fake or old receipts when making a return.

Return Exchange's Verify-1 system works like this: When a customer wants to return an item, the sales clerk asks for his or her driver's license or other form of state-issued identification, and swipes it into a machine much like those used to make credit card or ATM purchases. The shopper's name, address and birthdate is logged into a database. The program records details about the transaction, such as the store number, the amount of the return, the date, time and item description.

All that information is stored on Return Exchange's server in Santa Ana, Calif. Most transactions end there. But if a customer's "return behavior" seems out of the ordinary, the transaction is rejected and the consumer is given a receipt that instructs him or her to call the company's toll-free number for a copy of a report detailing their return activity. Shoppers can also request that Return Exchange investigate the rejected return. The program keeps tallies of the type of transactions, the total amount of the returns and the number of exchanges.

The company says the data are available only to Return Exchange, the customer and executives at the retailer. Other personal information, such as a shopper's physical characteristics, is not recorded.

Return Exchange was co-founded by executives who previously worked at companies that tried to prevent credit-card and check fraud. Verify-1 first went on the market in March 1999, and its latest version is the result of a $20 million development project that culled the efforts of software engineers, statisticians and Arthur Andersen consultants. Since its inception, company executives say Return Exchange has grown to an estimated $10 million a year business — with its software used in at least one store in every mall in America.