On June 26, Illinois Governor J.B. Pritzker signed Senate Bill 3561, enacting the Buy-Now-Pay-Later Loan Consumer Protection Act, a new law establishing a licensing and regulatory framework for buy now, pay later (BNPL) providers. The Act requires covered providers to obtain a license from the Illinois Department of Financial and Professional Regulation and establishes new requirements governing underwriting, disclosures, servicing, and consumer protections.
The Act reaches more than traditional BNPL lenders by covering certain entities that arrange, facilitate, purchase, or service BNPL loans, while also including anti-evasion provisions for disguised lending arrangements. Although the Act takes effect immediately, covered providers generally have until January 1, 2028, to comply. Specifically, the Act:
- Requires licensing and ongoing regulatory oversight. Covered BNPL providers must obtain and annually renew a license, satisfy financial responsibility and surety bond requirements, and become subject to the Department's examination, reporting, and enforcement authority. Certain entities already licensed under specified Illinois lending statutes are exempt from obtaining a separate BNPL license but must still comply with the Act's substantive requirements.
- Imposes underwriting and repayment standards. Before extending credit, providers must perform reasonable risk-based underwriting, evaluate a consumer's ability to repay, maintain written underwriting policies, and disclose the factors considered during underwriting. The Act also prohibits the use of social network or group creditworthiness data when evaluating borrowers.
- Establishes consumer disclosure and servicing requirements. Providers must disclose key loan terms, maintain procedures for handling billing disputes and merchant refunds, and provide consumers with protections similar to certain credit card dispute rights. The Act also prohibits mandatory automatic payments, limits repeated ACH debit attempts after insufficient funds notifications, and prohibits tips and expedited payment fees.
- Expands enforcement authority over BNPL lending. Covered loans remain subject to the Illinois Predatory Loan Prevention Act's interest rate cap, loans made by unlicensed providers are deemed void, and violations constitute unlawful practices under the Illinois Consumer Fraud and Deceptive Business Practices Act.
Putting It Into Practice: Illinois’s enactment follows New York’s recent move to regulate BNPL providers (previously discussed here) and reflects continued momentum toward state-specific oversight of the industry. Companies offering BNPL products should evaluate whether their programs fall within the Act's scope, assess applicable licensing obligations, and begin updating underwriting, servicing, and compliance procedures well before the January 1, 2028 compliance deadline.