On June 25, Illinois Governor JB Pritzker signed into law the Buy-Now-Pay-Later Loan Consumer Protection Act, establishing a licensing and regulatory framework for buy-now-pay-later (BNPL) lenders operating in Illinois. The Act, which the legislature passed unanimously, took effect immediately upon becoming law, though compliance is not required until January 1, 2028.

Overview

The new law creates a dedicated licensing and oversight structure for BNPL lending, administered by the Illinois Department of Financial and Professional Regulation (DFPR), Division of Financial Institutions. The Act will require BNPL lenders to assess their compliance obligations well in advance of the 2028 effective date.

Who Is Covered

The Act applies broadly to any person that offers or makes a BNPL loan, buys a whole or partial interest in a BNPL loan, arranges a BNPL loan for a third party, or acts as an agent in making a BNPL loan to a consumer in Illinois, regardless of the medium used. Servicers of covered loans are also subject to the Act.

A “buy-now-pay-later loan” is defined as closed-end credit extended to a consumer at the time of a specific purchase of goods or services that is either payable in four or fewer installments or has a term of 120 days or less. The definition covers both interest-free installment loans and loans that carry interest or finance charges. Excluded from coverage are motor vehicle loans, residential mortgage loans, and loans to sellers of goods for inventory purchases.

The Act includes an anti-evasion provision that subjects to its requirements any person holding the predominant economic interest in a loan, marketing or facilitating a loan while retaining a right of first refusal to purchase it, or otherwise structuring a transaction to evade the Act’s requirements. This provision is relevant to bank partnership arrangements and other third-party origination structures.

Banks, savings banks, savings and loan associations, credit unions, and insurance companies organized under state or federal law are exempt from the Act. Merchants and merchant platforms that make BNPL loans available through an agreement with a licensed lender, but do not originate, underwrite, service, or hold an ownership interest in any loan, are also exempt.

Licensing Requirements

No person may engage in the BNPL lending business in Illinois without a license from the DFPR Secretary. The initial and annual renewal license fee is $5,000, subject to modification by the Secretary by rule after one year. Applicants must also post a surety bond of at least $50,000. The Secretary may use a multistate licensing system for licensing, examinations, and other regulatory purposes.

Persons already holding a license under the Consumer Installment Loan Act, Collection Agency Act, or Sales Finance Agency Act are not required to obtain a separate BNPL license but must otherwise comply with the Act’s requirements and notify the DFPR at the time of license renewal that they are conducting BNPL activity.

Safe Harbor for Existing Lenders

Persons that were providing BNPL loans in Illinois before January 1, 2028, and that submit a license application on or before January 1, 2028, will be deemed provisional licensees authorized to continue operating until the DFPR acts on the application.

Operational Requirements

The Act establishes a number of operational requirements for licensed BNPL lenders. Key provisions include:

  • Disclosures. At the time of extending a specific loan offer, lenders must provide clear and conspicuous disclosures of loan terms, including cost and repayment schedule, in compliance with Regulation Z and the federal Truth in Lending Act. The law also requires disclosing whether the transaction will or will not be reported to a credit reporting agency, and requires lenders to disclose underwriting factors at the time of the offer to the consumer.
  • Underwriting. Lenders must perform reasonable risk-based underwriting before extending a loan, including an assessment of the consumer’s outstanding loans with the lender and consideration of the consumer’s ability to repay. Lenders must maintain and disclose their underwriting policies and procedures, though proprietary underwriting models, anti-fraud criteria, and trade secrets need not be disclosed publicly. The Act also prohibits the use of social network credit data in underwriting decisions.
  • Dispute resolution. Lenders must maintain readily available and prominently disclosed dispute resolution processes and apply to BNPL loans the dispute rights and unauthorized charges requirements applicable to credit cards under the federal Truth in Lending Act.
  • Refunds. Lenders must maintain policies and procedures for providing refunds or credits for returned goods or services purchased in connection with a loan.
  • Payment practices. Lenders may not require consumers to authorize automatic payments or require payment by credit card. Lenders may not attempt to debit a consumer’s account more than twice or when the lender has reason to believe insufficient funds are present without obtaining additional express consumer approval.
  • Prepayment. Consumers may pay off their loan at any time, and lenders may not charge any additional fee or finance charge, other than accrued interest, upon early payoff or refinance.
  • Fee limitations. Lenders may not accept tips, expedited payment fees, or other fees identified by the DFPR by rule. The DFPR may also limit other fees, charges, or payments by rule.
  • Rate cap. All BNPL loans are subject to the rate cap established under the Illinois Predatory Loan Prevention Act.

Enforcement

The DFPR Secretary has broad examination, investigation, subpoena, and enforcement authority, including the ability to impose civil penalties of up to $25,000 per offense, issue cease and desist orders, suspend or revoke licenses, and seek injunctive relief through the Attorney General. Violations of the Act also constitute unlawful practices under the Illinois Consumer Fraud and Deceptive Business Practices Act. Loans made by unlicensed, non-exempt lenders are null and void, and no person may collect any principal, fees, interest, or charges on such loans.