Illinois Has Revised Its Collection Agency Act Effective January 1, 2026

Illinois has significantly revised and extended its Collection Agency Act through Senate Bill 2457, with the main changes taking effect January 1, 2026. These amendments both narrow and expand who must be licensed, clarify treatment of first‑party collectors and debt buyers, and strengthen enforcement powers.​

What changed on January 1, 2026

• The Act was removed from the Regulatory Sunset Act, so it no longer automatically repeals on January 1, 2026 and continues in force under the new framework.​

• The statutory definition of a collection agency was revised so that most true first‑party collectors (collecting only debts they originated and still own) are no longer treated as “collection agencies” requiring a license, except where they fit other specified categories such as “debt buyer” or use a fictitious name.​

• The law now more clearly distinguishes between third‑party debt collectors collecting for others and entities collecting their own accounts, reducing historic ambiguity over licensing for first‑party lenders and finance companies.​

Licensing scope and exemptions

• Core licensing still applies to persons who, in the ordinary course of business, collect debts for others, take assignment of debts for collection, engage in buying debt, sell systems of collection letters, collect bounced checks, or use a fictitious name to collect their own accounts.​

• Some broad historic exemptions were narrowed, including the general exemption for “financing and lending institutions” and for licensees under the Illinois Residential Mortgage License Act when acting outside their mortgage‑licensed activities.​

• At the same time, new or clarified exemptions now cover several specifically regulated first‑party actors (for example, certain retail sellers, sales finance agencies, student loan servicers, consumer installment lenders, motor‑vehicle retail sellers, pawnbrokers, and other entities when collecting their own originations or acting within the scope of their own licensing statutes).​

Out‑of‑state agencies and unlicensed activity

• The amendments clarify that an out‑of‑state collection agency may collect from Illinois debtors without an Illinois license only if it is licensed in its home state, conducts all Illinois collections solely through interstate communications, and Illinois grants reciprocal privileges to that state.​

• Unlicensed practice provisions and IDFPR enforcement tools were updated, and the Department’s authority to investigate and act against unlicensed collection activity was reinforced.​

Enforcement, penalties, and procedures

• IDFPR’s disciplinary and enforcement powers were expanded, including the ability to impose administrative fines up to 10,000 dollars per violation for certain misconduct.​

• The Act now includes updated procedures for investigations, hearings, consent orders, electronic service of notices, and rehearings/appeals, giving the regulator more flexible and modern process tools.​

Related 2026 consumer‑protection changes

• Separate but related 2025 legislation amending the Collection Agency Act addresses “coerced debt,” giving individuals a mechanism to avoid liability for certain debts incurred through coercion or abuse, with provisions effective in 2026 as part of a broader set of consumer‑law updates.​

• These coerced‑debt provisions complement the revised licensing and enforcement framework and are intended to enhance protections for vulnerable consumers facing abusive debt‑collection situations.​