UPDATE 4-Wells Fargo consumer lending head axed after disparaging regulators -source

-source@ (Adds details on circumstances of Codel's departure, regulators' debate over severance payments)

NEW YORK/WASHINGTON Nov 17 (Reuters) - Wells Fargo & Co fired Franklin Codel, its head of consumer lending, over a conversation he had with a former employee about compensation in which he disparaged U.S. regulators, a person familiar with the matter said on Friday.

Codel's abrupt departure comes as the bank grapples with the fallout from a sales scandal in which thousands of employees enrolled perhaps millions of customers in products they did not want or need.

Wells Fargo is now subject to tighter regulatory oversight and faces ongoing probes and lawsuits due to the scandal. As a result, once top Wells Fargo executives became aware of Codel's comments, they felt they needed to take action, the source said

After being promoted as part of a broader management shakeup last year, Codel had become a key executive in the bank's effort to make things right with customers and fix operational flaws that led to a hard-charging sales culture.

In announcing the dismissal earlier on Friday, Wells Fargo said it expects to name a replacement by year-end.

As part of a $190 million settlement Wells Fargo reached with regulators in September 2016, payouts to departing employees must be cleared by the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corp (FDIC).

They have approved payouts for hundreds of former Wells Fargo employees since that time, but have disagreed on a handful of executives. The decision process can sometimes take months, frustrating former employees waiting for deferred stock or severance.

The conversation that led to Codel's departure was with a former employee about his payout that regulators had to approve, three people with the matter told Reuters. They requested anonymity to discuss sensitive nonpublic information.

During the conversation, which took place in recent weeks, Codel said something negative about regulators, one of the people said. The ex-employee alerted management to the comments, and Codel was swiftly fired, the people said.

Reuters could not immediately learn the identity of the employee or precisely what Codel said about regulators. Reuters was not immediately able to reach Codel for comment.

Earlier on Friday, Wells Fargo said it dismissed Codel because his behavior "was contrary to the company's policies and expectations of its senior leaders during a communication he had with a former team member regarding that team member's earlier termination."

Wells Fargo spokesman Tom Goyda declined to elaborate on the communication.

"We hold our executives to high standards regardless of the regulatory environment, and if something was done that was improper, that would have applied regardless of the scrutiny that we're under," he told Reuters in a statement.

Wells Fargo, the third-largest U.S. bank, has been mired in scandal since the settlement, which involved thousands of employees enrolling customers into credit card and deposit accounts without their knowledge to meet sales targets.

Since then, it has faced more lawsuits and probes, detailed more sales practices issues in other businesses, and the number of phony accounts has grown to as many as 3.5 million. Codel had been overseeing efforts to fix problems related to auto lending and mortgages that Wells Fargo unveiled in August.

People who know Codel described him as an ethical person who had a careless interaction with a former employee.

Wells Fargo Chief Executive Tim Sloan described it as a "difficult" situation in the company statement. Sloan will be the boss of Codel's direct reports until a replacement is found.

Those reports include Michael DeVito, interim head of Wells Fargo Home Lending; Laura Schupbach, head of Wells Fargo Dealer Services; John Rasmussen, head of Personal Lending; and Laurie Nordquist, head of Personal and Small Business Insurance. (Reporting by Dan Freed in New York and Patrick Rucker in Washington; Additional reporting by Nikhil Subba in Bengaluru; Writing by Lauren Tara LaCapra; Editing by Meredith Mazzilli)