Without trying to sound alarmist, the trend watchers at Payment Systems Inc. are urging bank card issuers to prepare now for the next recession.

"Whether it happens one year or two years from now, we're bound to repeat the experience of the last one," said Allen R. DeCotiis, president of the research and consulting firm, referring to the relatively brief but memorable economic downturn of 1990-91.

"We learned there were things we could have done differently to influence change," Mr. DeCotiis said last week. And because those measures should have been taken before the fact, he said, now is the time to be proactive.

"If you have a plan on the shelf and a recession lasts X amount of time, then at X minus 1 you can implement the plan and preempt the competition," Mr. DeCotiis said. The right combination of market targeting and pricing could help an issuer "gain and sustain a competitive advantage over a two- to three-year time frame, which is a long time in this industry."

At a meeting of PSI clients and guests last week in New York, Mr. DeCotiis recounted some of the lessons of the eight-month, 1990-91 recession and how they might apply to forward planning for the next cycle. It was the first and only such downturn, he pointed out, in the period when bank credit cards had achieved a measure of business "maturity."

Among the conclusions: Credit losses rose as soon as the recession hit, but the effect on sales volume and balances was slower; consumers at first cut back mainly on spending for big-ticket items; lower interest rates were a boon to card industry growth, but they didn't have an impact for two years.

Mr. DeCotiis urged issuers not to wait for signals from the Fed to cut interest rates because changes in fed funds lag recoveries.

"Preemptive rate competition" on credit cards can leave competitors in the dust, he said, but he warned that "timing is everything . . . Premature action can mean extending low-margin credit to consumers on the edge of default; act too late, and you will have lost ground to others who were willing to take risks at the right time."

While Mr. DeCotiis was relating credit card strategy to the broader economy, PSI vice president and card program research director Stephen M. Szekely was telling them not to get taken in by chronic doomsayers.

Mr. Szekely pointed out that the Tampa-based research and consulting firm, since last year a subsidiary of NFO Research Inc., never shared the pessimism of "analysts and opinion leaders" who thought the consumer credit business would never get better than it was before 1992.

"At our conference in May 1992, the word 'crisis' came up a lot," Mr. Szekely said. "Volume and balance growth were flat; losses were up 80% over two years; and competition was getting nasty."

In the face of widespread bearishness, "we were bullish - in a reserved way," the researcher recalled. "We saw the market and the credit card business as fundamentally sound. But the business turned out to be even better than our expectations because we didn't anticipate interest rates lower than the prime, or losses that grew more slowly than balances."

"The industry charged ahead and was so good at what it did, it prospered," Mr. Szekely said. "Those who listened to the bulls prospered," mainly by exploiting the card industry's 80-20 rule: that the best 20% of customers contribute the bulk of volumes and credit balances and, hence, profits.

Mr. Szekely chided economists and the news media for what he sees as a bias against consumer credit that was never more pronounced than in 1991 and 1992. Business publications still regularly warn - illogically, he said - that credit cards are a profit bubble waiting to burst.

He called 1994 "a year of unprecedented growth," with at least 60 million new bank card accounts opened, $50 billion in net new balances, and $100 billion in new charge volume. The receivables growth was about equal to total credit card outstandings in 1983.

He said 1994's growth rates were as high as 20% because of a "catchup effect" from the last recession but said 1995 growth could approach that level "with aggressive stimulus" by card marketers.

The PSI researcher contended that younger consumers view credit cards as an efficient means of leverage against future income. "It works for them, and it works for the economy," Mr. Szekely said. "Who are the opinion leaders to say they can't manage their finances in this way?

"There is no shame in organizations' offering or consumers' using credit cards. It makes economic sense to defer payment, and when costs don't make sense, consumers back off. Even in the worst case, 98% of them pay back on time, and few things in our economy work at 98% efficiency."

Economic forecasters at WEFA Group may be buying into the more bullish view. In an April report, Andree-Anne Desmedt and Arvinder Singh debunked the theory that consumer credit would be the next "instrument of doom."

"While it is true that installment debt as a percent of income has risen rapidly since 1993 (from about 15.7% to 17.7%), it is not unusual in a recovery cycle," they said. "If experience is any guide, the debt-to-income ratio should plateau close to 18% or 19%."

The WEFA economists also said there was no recession in 1985 and 1986, despite a debt spike, and with their interest rates substantially lower than in the 1980s, consumers' debt burden is more manageable.

But the card industry soon may be on the receiving end of a bearish attack in the form of a new book, "The Credit Card Catastrophe," due out June 1 from Barricade Books. The author is Matty Simmons, one of the first employees of Diners Club, who after 17 years there went on to a career in publishing (National Lampoon) and Hollywood ("Animal House" and the "Vacation" movies).

His thesis is that, since Diners Club's modest beginning as a pay-as- you-go travel and entertainment card, banks have created the potential for a "total credit card age" - but will be victims of their own success unless they "wise up" and use "care and judgment" instead of "greed and stupidity."

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