* OFT gets powers to crack down on payday loans
* Banks' influence over payments sector to be curbed
* Industry levy would fund new payments policy body
* FSA, BoE to look at changes to new banking licences
By Huw Jones
LONDON, July 19 Britain took steps on Thursday to reduce the power of the country's big banks to set policy for the payments system, which handles trillions of pounds and affects the daily lives of millions of people.
Financial services minister Mark Hoban wants a new body that would be directly supervised by market regulators, ending a system whereby banks, who own the payments networks, also decide policy.
"We need a payments system that responds to the needs of customers and is not just run for the banks," Hoban said.
The payments network, which handles cheques and debit and credit card payments, is currently run by the Payments Council, a self-regulating body set up in 2007. It angered the public in 2009 by deciding to scrap cheques from 2018, offering no real alternative, the government said.
That decision was later reversed but the outcry sparked calls for the banks-funded Council to be reformed to reflect consumer interests, and to be directly supervised.
The government set out several options, including reform of the Council, a step it said would not bring any increased regulatory oversight of payments policy.
It has made it clear it wants a new body, a Payments Strategy Board, which would be funded by an industry levy and directly supervised by the new Financial Conduct Authority (FCA) which will be launched formally in early 2013.
The Council, which had no immediate response to Thursday's announcement, would be shorn of its central policymaking role.
The government said there were several reasons why the Council has not been successful as originally intended in developing new and existing services such as allowing customers to make money transfers within hours rather than days.
"The main reason is the Payments Council is dominated by the UK's largest banks. This allows the largest banks to set the strategic direction for the Payments Council overriding alternate views or stakeholder interests," the government said.
The government is also taking action in other areas to boost competition in UK retail banking as well as crack down on the mis-selling of financial products to vulnerable customers.
The Office of Fair Trading will get powers, with immediate effect, to suspend licenses for firms such as payday lenders who supply credit. Stripping a firm of its licence can currently take years because of the lengthy appeals process.
The volume of payday loans have increased sharply, filling a gap in the market left by the big banks who have reined in lending since the credit crunch in a bid to reduce their risks.
"This is a good step towards ensuring the regulator has the resources it needs, and ensure there is no gap in supervision as these powers transfer to the Financial Conduct Authority," said Richard Lloyd, executive director of Which?, a consumer lobby.
As part of efforts to boost new entrants into the banking sector, the Financial Services Authority and the Bank of England will also review applications for banking licences that were unsuccessful, Hoban said.
This builds on a previous announcement the regulators would check whether rules for new entrants are not overly burdensome.
The government wants more choice in banking which is dominated by the "big four" lenders, HSBC, Lloyds , Barclays and Royal Bank of Scotland.
The Co-operative became a challenger on Thursday when it agreed to buy 632 branches Lloyds must sell because of a state bailout out it received.