Illinois has enacted one of the nation’s broadest state regulatory frameworks for buy now, pay later (BNPL) providers, adopting a law that extends well beyond traditional lenders to capture a wide range of companies participating in the BNPL ecosystem.
Gov. J.B. Pritzker on June 25 signed the Buy-Now-Pay-Later Loan Consumer Protection Act, creating a comprehensive licensing, supervisory and enforcement regime for BNPL providers operating in the state. The law takes effect Jan. 1, 2028, unless state regulators establish a later implementation date through rulemaking. According to a Ballard Spahr client alert, Illinois joins a small group of states adopting legislation specifically tailored to BNPL products rather than relying on existing consumer lending statutes.
The defining feature of the new law is its expansive definition of a BNPL loan and the equally broad range of entities that may be required to obtain a state license.
The statute defines a BNPL loan as closed-end consumer credit provided in connection with the purchase of specific goods or services that is either repayable in four or fewer installments or has a term of 120 days or less. Significantly, the definition covers both traditional interest-free BNPL products as well as products that charge interest, finance charges or both. The Illinois Department of Financial and Professional Regulation is also authorized to expand the definition further through future rulemaking.
Although the law excludes several categories of credit, including most seller-financed transactions, car loans, residential mortgages and merchant inventory financing, Ballard Spahr said the legislation nevertheless casts an unusually wide regulatory net.
Subject to limited exemptions, any person engaging in regulated BNPL activities must obtain a license from the Illinois Department of Financial and Professional Regulation. The requirement extends not only to companies that originate BNPL loans, but also to firms that purchase all or part of a BNPL loan, arrange loans for third parties, act as agents in making BNPL loans or service the loans after origination. License applicants must submit detailed information concerning ownership, management, financial condition, business operations and regulatory history, including audited financial statements.
The Act exempts federally and state regulated depository institutions, including banks, savings institutions and credit unions, as well as insurance companies. Merchants and online merchant platforms generally remain exempt when they simply make licensed or exempt lenders’ BNPL products available without originating, underwriting, servicing or retaining ownership interests in the loans. However, Ballard Spahr noted that the statute does not expressly exempt holders of Illinois Consumer Installment Loan licenses, although regulators may create additional exemptions by rule.
Related: Buy Now Pay Later and Regulation
Ballard flags the statute’s anti-evasion provisions as perhaps its most significant feature. Those provisions authorize regulators to look beyond formal contractual arrangements and determine whether a transaction constitutes a disguised loan designed to evade the law.
Under the Act, an entity may be treated as the lender even if it claims to act only as an agent or service provider for an otherwise exempt institution. Regulators may conclude a company is the true lender if it holds the predominant economic interest in the loan, markets or arranges the financing while retaining purchase rights to the receivables, or if the overall structure appears designed to circumvent the statute. Ballard said these provisions closely mirror “true lender” doctrines that have emerged in other state lending laws and could have significant implications for bank-fintech partnerships.
The law also grants Illinois regulators extensive supervisory authority, including the power to examine licensees and affiliates, issue subpoenas, investigate complaints, halt unlawful practices, suspend or revoke licenses, impose fines and adopt implementing regulations. Licensees that fail to respond to regulatory requests may face civil penalties of up to $1,000 per day. Loans made by entities that are neither licensed nor exempt are deemed void and unenforceable.
Ballard Spahr said companies participating anywhere in the BNPL ecosystem should begin evaluating whether their activities require Illinois licensure and whether existing business structures, particularly bank-fintech partnerships, could be affected by the Act’s expansive anti-evasion and true-lender provisions as regulators develop implementing rules.
