Illinois Enacts Licensing And Supervisory Framework For Buy Now, Pay Later Providers

On June 25, 2026, Illinois Governor J.B. Pritzker signed into law the Buy-Now-Pay-Later Loan Consumer Protection Act (the “Act”), Public Act 104-475. The legislation establishes a comprehensive licensing and supervisory framework for providers of buy now, pay later (“BNPL”) products operating in Illinois.

The Act, which becomes effective on January 1, 2028 (unless a later effective date is provided by rule), places Illinois among the first states to enact a regulatory regime specifically tailored to BNPL products, although BNPL products are covered by existing laws in a number of states. (See our blog post about New York’s comprehensive BNPL law here. You can also listen to our podcast about the New York law here.) While much of the statute focuses on licensing, examinations, and enforcement, the law also contains expansive anti-evasion provisions that may have significant implications for bank-fintech partnerships and other arrangements involving exempt entities.

Broad Definition of BNPL Loan

The Act defines a “buy-now-pay-later loan” as closed-end credit provided to a consumer in connection with a particular purchase of goods or services that either:

• is payable in four or fewer installments; or
• has a term of 120 days or less.

Importantly, the definition expressly includes both no-interest BNPL products and products that impose interest, finance charges, or both.

The definition excludes several categories of transactions, including:

• seller-financed credit in which the creditor is the merchant selling the goods or services (subject to certain exceptions);
• motor vehicle loans;
• residential mortgage loans; and
• loans made to merchants to finance inventory purchases.

The statute also authorizes the Secretary of Financial and Professional Regulation to identify additional products as BNPL loans by rule.

Licensing Requirement

Subject to certain exemptions, no person may engage in the business regulated by the Act without obtaining a license from the Illinois Department of Financial and Professional Regulation.

The licensing requirement applies broadly to persons that:

• offer or make BNPL loans;
• purchase all or part of a BNPL loan;
• arrange BNPL loans for third parties;
• act as an agent for a third party in making BNPL loans; or
• service BNPL loans.

As with other licenses that Department administers via the NMLS, applicants must submit extensive information regarding their ownership, management, financial condition, business operations, and legal and regulatory history. Among other things, applicants must provide audited financial statements.

Exemptions

The Act exempts a number of entities from its requirements, including:

• banks;
• savings banks;
• savings and loan associations;
• credit unions; and
• insurance companies organized, chartered, or authorized to do business under state or federal law.

In addition, merchants and merchant platforms are generally exempt if they merely make BNPL products available through agreements with licensed or exempt lenders and do not originate, underwrite, service, or retain an ownership interest in the loans.

Passive investors that purchase or hold interests in loans also are exempt, provided they do not otherwise participate in origination, underwriting, servicing, or control servicing activities.

The Act does not expressly exempt an entity that holds a Consumer Installment Loan license, which is required to make consumer purpose loans with rates in excess of 9% (and which would already cover a BNPL loan with a rate in excess of 9%), although the Secretary is also authorized to exempt additional persons or transactions by rule.

Expansive Anti-Evasion Provisions

Perhaps the most noteworthy aspect of the Act is its broad anti-evasion language.

The statute applies not only to entities that directly make BNPL loans, but also to any person that the Department determines is engaged in a transaction that is “in substance a disguised loan or a subterfuge” designed to evade the Act.

Moreover, a person may be deemed to be the lender subject to the Act notwithstanding claims that it is merely acting as an agent or service provider for an exempt entity.

A person may be treated as the lender if, among other things:

• it holds the predominant economic interest in the loan;
• it markets, brokers, arranges, or facilitates the loan and possesses the right or first right of refusal to purchase the loan or receivables; or
• the totality of the circumstances indicates that the transaction has been structured to evade the Act.

The statute identifies several factors supporting a finding that a person is the true lender, including indemnifying an exempt entity against loan-related risks, predominantly designing or controlling the loan program, or purporting to act as an agent for an exempt entity while directly lending in other states.

These provisions closely resemble “true lender” concepts that have appeared in other state lending laws and may attract significant attention from both industry participants and regulators.

Broad Supervisory and Enforcement Authority

The Act grants the Secretary extensive supervisory powers, including authority to:

• conduct examinations of licensees and certain affiliates;
• subpoena documents and witnesses;
• issue orders to halt unsafe, unsound, or unlawful practices;
• investigate complaints;
• impose fines;
• suspend or revoke licenses; and
• adopt rules necessary to administer the Act, protect consumers, and promote fair competition.

In addition, the Secretary may impose civil penalties of up to $1,000 per day against a licensee for failing to respond to regulatory requests or reporting requirements.

Why the Act Matters

The Illinois Buy-Now-Pay-Later Loan Consumer Protection Act is significant for several reasons.

First, it represents one of the earliest comprehensive state efforts to regulate BNPL providers through a dedicated licensing and supervisory framework.

Second, the Act adopts a remarkably broad approach to determining who is subject to regulation, reaching beyond traditional lenders to arrangers, agents, servicers, and other participants in the BNPL ecosystem.

Third, the statute’s anti-evasion and true-lender provisions could have important implications for bank-fintech partnerships and other structures involving exempt entities.

Fourth, loans made by a person not licensed or exempt are void and unenforceable.

Finally, because the Act gives the Department broad rulemaking authority, affected companies should closely monitor future regulations implementing the statute.

Companies participating in the BNPL ecosystem, or otherwise making short term consumer loans, should begin assessing whether they will be required to obtain an Illinois license and whether existing business arrangements could be affected by the Act’s expansive anti-evasion provisions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.