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UPDATE 3-Wells Fargo likely to appoint former community banker to head board -WSJ

-WSJ@ (Adds quote from New York City Comptroller Scott Stringer, background on investors pushing for change)

Aug 10 (Reuters) - Betsy Duke, a former Federal Reserve official and community banker from Virginia, is likely to become chairwoman of the board of Wells Fargo & Co, investors, analysts and two people with knowledge of board discussions told Reuters.

On Thursday, the Wall Street Journal reported that current Chairman Stephen Sanger will step down by early September, with Duke likely to take over as chairwoman.

Wells, the third largest U.S. lender by assets, has been wracked by a sales scandal that has grown beyond millions of unauthorized accounts disclosed nearly a year ago, to other harm to depositors and borrowers.

Investors have agitated for new leadership at the bank's board since an annual meeting in April where investors offered relatively little support for Sanger and other directors.

A spokesman for San Francisco-based Wells Fargo declined to comment. A board spokesman also declined to comment.

Duke became a director in 2015. She was named vice chair last year after the scandal broke and then-Chairman and Chief Executive Officer John Stumpf resigned.

Shareholders who spoke about voting against Sanger complained about the board's stewardship of the company. In recent weeks, some told Reuters they wanted Duke to become chairwoman, citing her regulatory and banking experience.

New York City Comptroller Scott Stringer, who oversees public pension funds that hold roughly 11.6 million Wells Fargo shares, has been among those calling for Sanger's departure.

"This is welcome news," Stringer said in a statement on Thursday.

Duke spent more than three decades as a community banker in Virginia and was a Federal Reserve governor during the 2007-2009 financial crisis. At the Fed, she was a fierce advocate for community banks affected by post-crisis regulations, according to a former colleague there.

Because she comes from small-town lenders rather than large Wall Street institutions, Duke has the bona fides of the earnest Main Street banker Wells Fargo had fashioned its image around before the sales scandal erupted, investors, analysts, colleagues and associates told Reuters.

Duke "has put a lot of leadership and effort into helping us manage a variety of regulatory reform implementations," Wells Fargo Chief Financial Officer John Shrewsberry told Reuters in an interview last month, adding that she has become "more heavily involved" in those reforms.

Last Friday, Wells Fargo said it would pay the U.S. government $108 million to settle allegations that it charged military veterans hidden fees to refinance mortgages.

The scandal erupted last September when it came to light that bank staff had opened accounts for up to 2.1 million customers without their knowledge.

Recently, Wells Fargo admitted it may have charged as many as 570,000 auto borrowers for insurance they did not want, potentially leading to 20,000 wrongful repossessions.

In its latest quarterly financial report last Friday, the bank said it was examining whether it had caused unnecessary financial harm to customers through mortgage fees, frozen deposit accounts and "add-on" products like identity theft protection. (Reporting by Dan Freed in New York; Additional reporting by Ross Kerber in Boston and Aparajita Saxena in Bengaluru; Writing by Lauren Tara LaCapra; Editing by Sai Sachin Ravikumar and Jonathan Oatis)