Illinois BNPL Law Targets Fees, Interest, and Disputes

Buy now, pay later loans can look like an easy way to cover groceries, rent, or everyday purchases when money is tight. But Illinois lawmakers say those short-term payment plans need stronger guardrails, especially for borrowers who may already be struggling with credit.

Illinois Governor J.B. Pritzker signed legislation June 25 that can help people avoid some of the pitfalls that can accompany the use of BNPL solutions. 

The law will require BNPL providers to be licensed or registered with state regulators, cap interest at 36%, give regulators authority over certain fees, and add consumer protections around disputes and repayment ability.

A press release from the National Consumer Law Center (NCLC) on the law suggests that people with subprime credit scores rely on BNPL more than other borrowers. Lauren Saunders, Senior Attorney at the NCLC, reveals in the release why this is the right law at the right time.

“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,” Saunders said.

Consumer advocates have argued that states may need to play a larger role in policing consumer finance products as the CFPB takes a less aggressive regulatory posture.

The Illinois law resembles one passed in New York in 2025, according to Payments Dive. And the first state that explicitly required buy now, pay later providers to have licenses was California, the NCLC said. 

California, Illinois, and New York are among the nation’s largest states, so their BNPL rules could affect a significant share of consumers and may draw attention from lawmakers in other states.

A Closer Look at the Law’s Details

Once compliance begins, the Illinois law will apply to closed-end BNPL loans with four or fewer installments or terms of 120 days or less. It puts a limit of 36% on the interest rates that BNPL loans come with and also allows the state regulator to limit other charges, such as late fees, that providers may seek to collect from BNPL users.

Other key points of the law are that it requires lenders to have a license and to consider a consumer’s ability to pay back the amount they borrowed. Both of these measures can help people with bad credit. 

Consumers may turn to buy now, pay later solutions when they don’t have access to other lending products.

And while using a BNPL program may seem like the best route to take in a given moment, those with poor credit don’t want to be stuck with excessively high interest rates, late charges, or other fees long after they’ve made their purchase.

“As (BNPL) loans become ubiquitous, we’re pleased to see the Illinois legislature … step up to fill gaps in federal and state protections, especially with the dismantling of the (CFPB).” — Lauren Saunders, National Consumer Law Center

The Illinois law also gives rights to BNPL users similar to those available to credit card customers when errors or disputes occur. That’s important because — whatever a consumer’s preferred method of payment is — it can be reassuring to know that you have access to protections on your purchases if something goes wrong.

Saunders indicated in the NCLC release that current practices make laws such as the one Governor Pritzker just signed vital to consumers’ financial health. She said that BNPL loans “are being pitched for vital necessities such as rent.”

And Matt Marshall, a Communications Specialist for the Illinois Senate Democratic Caucus, further explained in an email to Payments Dive why lawmakers in the state sought the legislation at this time.

“More families are now using these ‘convenient’ plans for groceries (29% and rising), rent, and daily essentials just to make ends meet,” Marshall wrote.

For borrowers with limited credit options, the Illinois law could make BNPL less of a gray area and more like a regulated form of credit — with clearer rules for fees, disputes, and repayment.