Illinois Establishes Regulatory Framework For Buy Now, Pay Later Lenders
By CU Today Staff —
SPRINGFIELD, Ill.—Illinois has become one of the first states to adopt a comprehensive regulatory framework for the rapidly expanding buy now, pay later (BNPL) industry after Gov. JB Pritzker signed the Buy-Now-Pay-Later Loan Consumer Protection Act into law.
The measure requires BNPL providers to register with the state, establishes consumer protection standards and places the sector under the oversight of the Illinois Department of Financial and Professional Regulation. The law takes effect immediately, although providers have until Jan. 1, 2028, to comply with its licensing requirements, according to the governor's office and industry reporting.
The legislation applies to short-term closed-end BNPL loans generally repaid in four or fewer installments or within 120 days. It requires lenders to evaluate a consumer's ability to repay, provide clear disclosures, maintain processes for refunds and dispute resolution, and bars repeated attempts to debit a consumer's account after an initial payment failure. The law also subjects covered lenders to Illinois' 36% interest-rate cap and gives state regulators authority over certain fees, according to the National Consumer Law Center (NCLC).
Supporters said the measure fills a growing regulatory gap as BNPL financing becomes more widely used for everyday purchases. NCLC Senior Attorney Lauren Saunders said Illinois lawmakers acted to address risks including hidden charges, unaffordable lending and inadequate consumer protections, particularly as federal oversight of the sector has become less certain. Illinois follows earlier actions in California and New York, making it one of the first states to establish a broad regulatory regime specifically tailored to BNPL providers.
The law exempts merchants that merely offer BNPL financing through licensed providers and passive investors that do not originate, underwrite or service loans. Existing BNPL providers operating in Illinois before Jan. 1, 2028, that submit timely license applications will be permitted to continue operating while their applications are under review, according to the legislation.
Originally reported by CU Today.