The City watchdog has said potential mis-selling in the car finance industry is unlikely to mirror the lengthy PPI scandal, which led to banks paying out nearly £50bn over more than a decade.

Nikhil Rathi, the chief executive of the Financial Conduct Authority, said he understood there was “uncertainty” about the scale of potential fines and compensation, but he played down comparisons with PPI.

“Some – not us – have sought to draw comparisons with PPI,” Rathi said, referring to comments by consumer champion Martin Lewis, who warned in January that the issue could become the new payment protection insurance scandal.

“In PPI, the regulator’s work took place over many years, and this, and action on redress, dragged on for some time,” Rathi added.

“I do not anticipate this issue playing out as PPI did, not least because we have intervened early in the interests of market orderliness,” he told the Morgan Stanley European Financials Conference in London.

However, Rathi said the FCA’s prompt intervention should assure both industry and consumers that any wrongdoing would be dealt with efficiently.

The FCA is looking into whether consumers had been charged inflated prices for car loans, as a result of open commission arrangements, between 2007 and 2021. It has yet to announce the conclusions of its investigation and said it would set out “next steps” by the end of September.

MoneySavingExpert.com, founded by Martin Lewis, said earlier this month that more than 1m car finance complaint letters had been submitted since he launched its free car finance reclaim tool on 6 February.

PPI was Britain’s costliest and longest-running consumer scandal. As many as 64m policies were sold in the UK – mostly between 1990 and 2010, and some as far back as the 1970s – alongside loans, mortgages, credit cards and other deals.

Regulators started imposing fines in 2006, after finding that the expensive cover was often aggressively pushed and mis-sold by banks, who said the policies would pay out if borrowers fell sick or lost their jobs. But while the policies were profitable for banks, policy exclusions meant that in many cases customers could never make a claim.

The offending lenders continued paying fines and compensation to customers over the scandal until 2019, taking the final industry bill to about £48.5bn.

Meanwhile, some analysts believe the FCA’s new car financing investigation could end up costing a fraction of that total. Analysts at Jefferies believe the industry could be landed with a £13bn bill, while RBC Capital is forecasting total charges of £8bn, down from a previous range of £6bn-£16bn.

“With motor finance, because of the impact on firms, as well as consumers, we want to clarify matters in a more condensed time frame and on a basis that is robust and fair”, Rathi said.

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“Critically, this will depend on firms cooperating fully and providing data comprehensively and promptly as well as potentially the speed of any court processes”.

The FCA boss said the investigation did not stop either consumers or City firms from settling disputes in the courts in the meantime.

His comments came weeks after Lloyds Banking Group put aside £450m for potential fines and compensation to borrowers, which fell far short of estimates by some analysts that believe the final bill for the bank could reach upwards of £2bn.

Lloyds has the biggest exposure to car loans out of the UK’s high street banks, though Barclays and Santander UK may also face significant costs of up to £357m and £1.1bn, respectively, according to RBC. The specialist lender Close Brothers, which suspended its dividend because of uncertainty over the FCA investigation in February, could suffer a £252m hit.

“While certainty is not something I can provide today, and I cannot prejudge what we might find, I can say in my view it is improbable we will find nothing to report as we look at historic motor finance sales. Some firms will be better placed than others,” Rathi said.

“We are working hard to get to the bottom of the facts.”