Illinois expands regulatory reach with sweeping BNPL licensing law

Illinois has passed landmark legislation bringing Buy Now Pay Later (BNPL) providers under a formal licensing system. This move signals the end of the “wild west” era for the BNPL industry in America.

Background: BNPL’s rapid growth, regulation lags behind

BNPL exploded during the pandemic as consumers sought flexible payment options. Apps like Afterpay, Klarna, and Affirm became popular choices for Gen Z and Millennials.

Problems emerged

• Lack of transparency: Users don’t fully understand late fees or effective interest rates
• Debt trap: Many young people borrow beyond their repayment capacity
• Data privacy: Collecting purchase data without clear consent
• Fragmented regulation: Different rules in each state, or no regulation at all

Illinois leads with SB2028

The SB2028 law establishes a comprehensive framework:

1. Licensing requirements

All BNPL providers must:

• Obtain a license from the Department of Financial and Professional Regulation
• Meet minimum capital requirements
• Submit periodic reports

2. Consumer protections

• Cap on late fees: Limit the fees that can be charged
• Clear disclosure: Must display APR equivalent
• Cooling-off period: Users can cancel within 3 days at no cost
• Income verification: Must assess repayment capacity before approval

3. Data restrictions

• Limits on data collection
• Prohibits sharing data with third parties without explicit consent
• Requires data minimization

Impact on the BNPL industry

Increased compliance costs

BNPL companies will need to:

• Invest in compliance teams
• Build reporting systems
• Train employees
• Conduct regular audits

Estimated: Compliance costs could increase 15-25% for each provider.

Expected consolidation

• Small players: May not bear compliance costs, potentially exiting the market
• Large players (Affirm, Klarna, Afterpay): Already have compliance infrastructure, competitive advantage
• New entrants: Much higher barriers to entry

Innovation shift

Instead of competing on “easy credit,” companies will compete on:

• Better user experience
• Transparent pricing
• Responsible lending features
• Integration with merchant ecosystems

Lessons for Vietnam and Japan markets

Vietnam: Early lessons

Vietnam is witnessing BNPL development through e-wallets and fintech. While there’s no specific regulation yet, the State Bank is closely monitoring.

Opportunities:

• Build framework from the start, avoiding America’s mistakes
• Learn from Illinois SB2028
• Balance between innovation and consumer protection

Challenges:

• Lack of data on BNPL usage patterns
• Need coordination between State Bank, Ministry of Industry and Trade, and other parties
• Education for users on responsible borrowing

Japan: Regulation exists, needs updating

Japan has regulations for installment payments but mainly focuses on interest rates. The new BNPL model needs:

1. Updated definitions: Is BNPL a “loan” or “payment service”?
2. Cross-border considerations: Many providers are foreign companies
3. Digital-first approach: Regulation must fit mobile-first behavior

Comparison with other states

Illinois is not alone. The trend of regulatory tightening is spreading:

• California: Considering similar legislation
• New York: Already has guidance for BNPL providers
• Texas: Focus on disclosure requirements
• Federal level: CFPB is increasing supervision

Future of BNPL regulation

Short-term (1-2 years)

• More states will follow Illinois
• Federal framework may emerge
• Industry self-regulation strengthens

Long-term (3-5 years)

• Industry consolidation, only 5-7 major players remain
• BNPL becomes a regulated financial product
• Integration with traditional credit reporting
• AI-driven responsible lending becomes standard

Conclusion

Illinois SB2028 is not the “death of BNPL” but the “maturation of BNPL.” The industry will continue to develop but within a clearer framework, better protecting consumers.

For Vietnamese and Japanese businesses, now is the time to:

1. Monitor regulatory trends from the US and EU
2. Build compliance capability early
3. Design responsible BNPL products from the start
4. Collaborate with regulators to shape appropriate frameworks

BNPL has proven its value proposition. Now it’s time to build sustainable, responsible business models for the long-term future.

---

Source: Illinois Expands Regulatory Reach with Sweeping BNPL Licensing Law — PYMNTS, September 7, 2026