Do you ask to see identification when you have a new loan client? I am being told that we can't look at a picture ID because of Fair Lending??? Thanks.

You can - and should - look at an identification document. There are different opinions on keeping a copy of the identification in the credit file but there's no other way to identify someone unknown that I am aware of.

You need to verify who the customer is. Many banks have an Identification/IRS file, which is not a part of the underwriting file.
Examiners will usually perform extra reviews if they see an identification with a picture in the file that goes to underwriting.