On June 25, Illinois enacted the Buy-Now-Pay-Later Loan Consumer Protection Act, creating a licensing and supervisory framework for lenders that offer or make buy-now-pay-later (BNPL) loans to consumers in the state. The law defines a BNPL loan as closed-end credit provided to a consumer at the time of a transaction in connection with a particular purchase of goods or services if the loan is payable in four or fewer installments or has a term of 120 days or less, including loans with or without interest or finance charges. The definition excludes certain seller-financed credit, motor vehicle loans, residential mortgage loans, and inventory financing. The law generally requires licensure for persons that offer, make, buy interests in, arrange, or service BNPL loans. The law exempts banks and other specified financial institutions, certain merchants and merchant platforms, and passive investors that do not participate in origination, underwriting, servicing or control of servicing.

The law requires lenders to use reasonable risk-based underwriting standards, consider a borrower’s ability to repay, and disclose underwriting factors in a “clear and conspicuous manner.” Lenders also must provide clear and conspicuous disclosures when extending a specific loan offer, which include how to file a complaint with the Division of Financial Institutions (DFI), loan terms such as costs and repayment schedule, and underwriting factors. The law further requires “fair and transparent” dispute and refund processes, applies credit-card dispute rights and unauthorized-charge protections under TILA to BNPL loans, prohibits lenders from requiring automatic payments or credit card payments, limits repeated ACH debit attempts, permits consumers to pay off loans at any time without additional fees other than accrued interest, and bars tips and expedited payment fees.

The law also includes anti-evasion provisions such that it applies to, among others, persons that use devices, subterfuges or pretenses to evade the statute; facilitate, aid or abet violations; or act through exempt entities while holding the “predominant economic interest” in the loan.

The law states that no person is required to comply before January 1, 2028, or a later date set by rule, provides provisional-license treatment for certain existing providers that apply by January 1, 2028, establishes that violations are unlawful practices under the Consumer Fraud and Deceptive Business Practices Act, and provides that loans made by unlicensed persons that are not exempt are null and void and may not be collected.