Illinois to regulate BNPL

Illinois Governor JB Pritzker signed into law a bill regulating buy now, pay later (BNPl) lenders. The law, which applies to closed-end credit used to finance purchases that are paid off in four or fewer installments, or 120 days or less, is effective immediately. However, BNPL lenders have until Jan. 1, 2028, to be in full compliance.

Lenders are required to register with the state's department of financial and professional regulation and are subject to a 36 percent rate cap. The law also authorizes the state to limit late fees and other fees.

A need for oversight

Additionally, lenders are required to conduct reasonable risk-based underwriting and consider a borrower's ability to repay before approving them for a BNPL loan. Lenders are prohibited from debiting a borrower's bank account a second time if in the first go-around there are insufficient funds. And borrowers are accorded the same dispute resolution rights they have under federal credit card laws.

"Without oversight, these products operate like high-cost lenders dressed up as modern financial tools," Illinois Department of Financial and Professional Regulation Secretary Mario Treto Jr., said in a June 25 press release.

"Times are tough for a lot of people, with rising costs for just about anything consumers might want to buy," said State Representative Robert "Bob" Rita, chief sponsor of the law in the Illinois House of Representatives. "Like any other form of credit, buy-now-pay-later options need sensible, balanced regulation," Rita added.

"The lack of oversight on this industry has led to real consumer risk," said State Senator Michael E. Hastings, chief sponsor of the act in that chamber.

Follows New York's lead

Illinois follows lead of New York, which in 2025 became the first state to pass a comprehensive law explicitly regulating BNPL lenders.

California also regulates BNPL under an interpretive ruling handed down by the state Department of Financial Protection in 2020.

The National Consumer Law Center cheered Gov. Pritzger's action. "Strong protections for buy now pay later loans are important, especially as these loans are being used for everyday expenses like groceries, and are being pitched for vital necessities such as rent," said Lauren Saunders, senior attorney at NCLC.

BNPL has have been gaining steam. A recent report by the website PYMNTS.com put the size of the U.S. BNPL market at $175 billion. That same report estimated that 30 percent of BNPL loans were past due in January.

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