Illinois Passes Law to Protect Buy Now, Pay Later Borrowers

June 25, 2026 — Press Release

Buy-Now-Pay-Later Lenders Must Be Licensed in Illinois and Clearly Disclose Costs to Borrowers

WASHINGTON – Advocates applauded legislation signed today by Illinois Governor J.B. Pritzker to protect people who take out Buy Now Pay Later (BNPL) loans from hidden charges, unaffordable loans, purchase disputes, and other risks. Most BNPL loans are taken out by people with subprime credit scores and borrowers are disproportionately Black, Hispanic, female, and young.   

“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 the National Consumer Law Center (NCLC). “As buy now, pay later loans become ubiquitous, we’re pleased to see the Illinois legislature, led by Senator Michael Hastings, step up to fill gaps in federal and state protections, especially with the dismantling of the Consumer Financial Protection Bureau (CFPB).”

California was the first state to explicitly require licenses for buy now, pay later lenders, and New York passed the first comprehensive state law. A recent issue brief from NCLC shows how other states can adapt and build on the New York law to strengthen protections for borrowers nationwide. 

The Illinois law covers closed-end loans with four or fewer installments or a term of 120 days or less. Among other protections, the law:

• Limits BNPL loans to the 36% rate cap that covers other lenders in Illinois, and gives the state regulator the authority to limit late fees and other fees.
• Requires lenders to conduct reasonable risk-based underwriting and to consider the borrower’s ability to repay the loan.
• Prohibits lenders from requiring automated payments or attempting to debit a bank account a second time or more if the account has insufficient funds.
• Gives people the same rights in the case of disputes or errors that people have for credit cards under federal law
• Requires a license even for lenders that do not charge interest.

People often get caught in the middle between the BNPL lender and the store if they return a purchase or don’t get what they paid for. And while the typical four-payment BNPL loan promises “no interest,” some charge a range of hidden junk fees. These unaffordable loans and complicated repayment plans can also trigger overdraft fees, exacerbating affordability concerns and driving people deeper into debt. 

Building on the Illinois and New York legislation, states looking to protect residents from harmful BNPL lending practices should ensure that their lending laws cover the different types of BNPL loans, provide clear disclosures, limit fees and interest rates, require assessment of a borrower’s ability to repay, prohibit repeat debiting of bank accounts, and ensure documents are provided in the borrower’s native language, among other key priorities outlined in NCLC’s issue brief. 

Related Resources

• Issue Brief: States Can Protect Buy Now, Pay Later Borrowers, Feb. 9, 2026
• Holiday Shoppers Beware! Dangers Lurk in Buy Now, Pay Later and Deferred Interest Credit Card Offers, Nov. 24, 2025
• Buy Now Pay Later Comments to NY Dept of Financial Services, Sept. 12, 2025
• What Rights Do Buy Now, Pay Later Purchasers Have?, June 26, 2025
• Risks and Advice for Buy Now, Pay Later Borrowers, May 19, 2025