If we run a credit report for an applicant and there is an ID Theft alert on their report stating "Do not extend credit without first contacting me at xxx-xxx-xxxx, and that person is sitting in front of you, who is going to answer the phone???

Ask for ID, ask questions that you can later compare with factors from the individual's credit report, and call the phone number later in the day or the next day to confirm. But don't fund the loan until you have possitively established that the person in front of you is the person whose identity is being used.

Ditto. It sounds ridiculous, but that's the way the act was written.