SPRINGFIELD, Ill. (AP) — Illinois has enacted one of the nation’s most comprehensive laws regulating buy now, pay later lending, requiring providers to obtain state licenses, assess borrowers’ ability to repay and provide stronger consumer protections as the rapidly growing payment option comes under increasing scrutiny.
Gov. JB Pritzker signed the Buy-Now-Pay-Later Loan Consumer Protection Act on Thursday, making Illinois the second state, after New York, to adopt a broad regulatory framework specifically governing the industry, according to Payments Dive. California previously required major buy now, pay later providers to obtain lending licenses under existing state lending laws but did not enact a comparable standalone regulatory framework. Payments Dive reported that Illinois’ law takes effect immediately, although providers have until Jan. 1, 2028, to comply with licensing requirements.
The law requires companies offering buy now, pay later loans to obtain licenses from the Illinois Department of Financial and Professional Regulation, provide clear disclosures regarding loan costs and repayment terms, establish procedures for resolving consumer disputes and refunds, and evaluate a borrower’s ability to repay before extending credit, according to Payments Dive and the Illinois General Assembly’s bill summary. Violations also may be prosecuted under the state’s Consumer Fraud and Deceptive Business Practices Act.
‘Clear Rules & Standards’
“As these products become more common, we have a responsibility to ensure that consumers have the information they need and that lenders operate under clear rules and standards,” Pritzker said before signing the measure, according to Payments Dive.
The legislation comes as buy now, pay later financing has expanded rapidly beyond discretionary retail purchases into everyday household spending. Consumer advocates have warned that the products can encourage borrowers to accumulate multiple loans simultaneously, increasing the risk of financial distress.
According to Payments Dive, the Illinois law also requires lenders to create fair dispute resolution and refund processes and to disclose borrowing costs more clearly to consumers.
The National Consumer Law Center praised the legislation, saying it addresses concerns including hidden fees, unaffordable lending and consumer disputes over returned or undelivered merchandise. The organization said the measure limits BNPL loans to Illinois’ existing 36% interest-rate cap, authorizes regulators to limit late fees and other charges, prohibits repeated attempts to debit consumers’ bank accounts after insufficient funds, and extends credit card-style protections for billing disputes and refunds to BNPL borrowers.
Warnings Around ‘Loan Stacking’
Supporters also said the law responds to the growing use of installment loans for essential purchases. State Sen. Michael Hastings, the bill’s sponsor, said consumers have increasingly been exposed to hidden costs and “loan stacking,” in which borrowers take out multiple buy now, pay later loans from different providers simultaneously. According to Hastings, citing a LendingTree survey, more than four in 10 BNPL users reported making a late payment on at least one loan during the past year.
The measure also reflects a broader shift toward state oversight of the BNPL industry as federal regulation remains in flux. The Consumer Financial Protection Bureau issued an interpretive rule in 2024 applying certain credit card protections to BNPL providers, but enforcement has since become uncertain under the Trump administration, prompting several states to pursue their own regulatory frameworks.
