A debate over whether federal terror lists are wrongly singling out innocent Americans has been revived in a recent report suggesting that landlords, employers and even health insurers are vetting people against a Treasury Department terror list and not always getting it right.

The Lawyers Committee for Civil Rights of the San Francisco Bay Area alleges that more Americans than ever are being mistakenly connected to the Treasury Department's Office of Foreign Assets Control (OFAC) list of persons and companies engaging in or affiliated with terrorism.

The Treasury Department acknowledges that mistakes can happen, but says the list's benefits make the program worth continuing.

"We have seen success, being able to choke off terror financing and proliferation financing," Molly Millerwise, a spokeswoman for OFAC told FOXNews.com. "It's hard to set markers. Your success is the attack that didn’t happen. But it’s making it harder for terrorists to make, move and store money."

The report, titled "How a Treasury Department Terrorist Watchlist Ensnares Everyday Customers," acknowledges that "few people in the United States are actually on the list. ... But because many of the names on the OFAC list are common Muslim or Latino names -- such as 'Mohammed Ali' or 'Carlos Sanchez' -- people in this country with similar names are being snagged."

Click here to read the report (pdf).

The result, the report's authors conclude, is that "a growing number of Americans have endured stigma and lost opportunities in ordinary consumer settings" like buying a car or home, even online retail purchases.

Skeptics of the report say that the problem of "false positives" generated by the list of Specially Designated Nationals and Blocked Persons (SDN) is not nearly as big as the report suggests, and the benefits of tracking terror funds post-Sept. 11, 2001, far outweigh the small number of people snared by the list.

"I find it hard to believe that this is a national issue," said James Carafano, homeland security expert for the Heritage Foundation. "There are a lot of urban legends out there. You would have to show me the data to support it."

The lawyers' report does not include data, noting that it learned through a Freedom of Information request that "the Treasury Department does not keep count of complaints received from individuals mistakenly flagged by OFAC screening," nor does it maintain a formal procedure of recourse to set records straight, causing delays and denials of service, perhaps multiple times before the problem is cleared up.

But the report offers anecdotal examples. For instance, a couple with common Latino names trying to purchase a home had to get a Lawyers Committee for Civil Rights attorney involved before they could convince the title company they were not the people on the OFAC list. Unlike most of the other entries, the list had no identifying information like a date or place of birth to distinguish the couple from the terrorist-affiliated names.

In another example, Tom and Nanci Kubbany lost out on their new home because of an erroneous red flag on his credit report. "It's so surreal, I still can't believe it now," said Tom Kubbany, who is of Syrian descent. His middle name is the common name Hassan, which the report states is one of the aliases used by a supposed third son of the late Iraqi dictator Saddam Hussein. The Kubbanys are still trying to get a home loan.

The American Civil Liberties Union said that like the federal “no-fly list,” individuals with common names such as "Ali," "Mohammed," "Ahmed," "Ortiz" and "Ramirez" are getting caught in a web and it’s often hard for them to avoid getting repeatedly snagged. The experience is often humiliating and burdensome, he said.

"I'm not sure we are giving proper protection for people with common surnames," said Tim Sparapani, legislative counsel for the ACLU, who says there is no proof that the treasury list -- about 6,000 names and companies strong, including aliases -- is thwarting major terrorist activities.

"We have a great burden on our businesses and huge burden on our individuals and I'm not sure we're getting the best bang for our buck," he said.

Molly Millerwise, spokeswoman for OFAC in the Treasury Department, could not provide the exact amount of assets frozen or transactions blocked in the last year, nor the number of mistakes generated by businesses vetting Americans against the SDN list.

However, she said the OFAC hotline remains the primary avenue for complaints by people and vendors who believe they've received the wrong match. The hotline got 90,000 calls last year, Millerwise said. Those calls include inquiries from vendors checking customer data.

As for terror funds, the Treasury Department’s most recent Terrorist Assets Report, reports that as of 2005, the government has blocked $13.7 million in terror funds specifically through persons and entities listed on the SDN. The vast majority of names on the list reside outside of the United States and are broadly affiliated with terrorists and drug cartels.

The same report indicates that in 2005, the U.S was blocking a total of $479 million in funds connected to six countries listed as state sponsors of terrorism.

As far as false positives go, Millerwise pointed out that most names and entities on the list -- many of which were added after the Sept. 11 attacks -- come with identifying information like passport numbers and birth dates and places so as to avoid mistaken identity.

"We, of course, get accidents of false positives," she said. "That's something we've been focused on, and working at including more and more identifier information as we can."

But according to the Treasury Department Web site, while all U.S businesses and financial institutions are required to ensure they are not doing business with anyone connected to terrorism, the onus is largely on vendors to clarify -- through the hotline -- whether they have a legitimate "hit" on the OFAC list if they use it.

Aside from the hotline, OFAC suggests that any individual who believes he or she is the victim of an erroneous alert should contact the credit agency that issued the red flag to get it erased.

Ed Hasbrouck, travel writer and privacy expert, who has been monitoring the same type of problems with the nation's no-fly list, said the bureaucratic slog and the heightened sensitivity to the terrorist "taint" is causing vendors to cut off customers before they can fully verify the names are a true match.

Penalties for anyone in the U.S. doing business with a person or entity connected to terrorism can reach as high as $10 million and 30 years in jail. While businesses are not mandated to use the SDN list every time they make a transaction, many companies, including health insurers, landlords and even retail companies, do and often employ private services or software that vet customers against the list.

When vendors take shortcuts, or don't double check information, innocent people get the short end of the stick, said Hasbrouck.

"I think it's totally understandable (how this happens). But it's not good, not acceptable," he said.

Daveed Gartenstein-Ross, a terrorism expert for the Center for the Defense of Democracies, said the “terror watch list” system for tracking terrorists and their supporters is a good one, but recent problems indicate that it could be refined.

"The more people see the machinations of the War on Terror as bureaucratic and unresponsive," the less seriously they are going to take it, he said. "I'm a believer that we are facing a pretty grave threat, and we need to take measures to combat it. But often it can be done more intelligently than it is."

The Associated Press contributed to this report