LONDON, May 8 (Reuters) - Britain's financial watchdog said on Wednesday it was considering a formal redress scheme to compensate thousands of consumers that were potentially overcharged for motor finance.

A watchdog-ordered redress scheme would force companies that overcharged for motor finance to pay compensation to clients.

"It's one of the options based on the evidence that we receive," Financial Conduct Authority CEO Nikhil Rathi told parliament's Treasury Committee.

Rathi said the watchdog is scrutinising motor finance complaints and initial court rulings, and asking firms in the sector for data, before announcing next steps in September.

"We will then take a view as to what further action may be needed," Rathi said.

Some lenders like Lloyds Bank have already begun setting aside cash to cover potential costs from claims.

"I think it's unlikely from our work that we're going to find nothing to report, but I also would not want the committee to think that this is going to be on the same scale as PPI," Rathi said.

PPI, or the mis-selling of payment protection insurance by banks, was one of Britain's costliest financial scandals with lenders paying over 38 billion pounds ($47.47 billion) in compensation.

Rathi said that 78% of households in Britain own a car and there is a need to make sure the country still has a functioning motor finance market.

($1 = 0.8005 pounds) (Reporting by Huw Jones; Editing by Aurora Ellis)