Illinois Revamps the Scope of its Collection Agency Licensing Law

Illinois is making important changes to the scope of the state’s Collection Agency Act and the reach of its collection agency licensing obligation. Recent amendments to the state’s collection agency licensing law that go into effect on January 1, 2026 make significant changes to the exemptions under the law, and the new legislation appears to resolve historical ambiguity related to the statute’s application to persons collecting debts that they originated and own (“first-party” collectors).

SB 2457’s Definition of a Collection Agency

Like many other states, Illinois requires a license to engage in the business of a collection agency. Until the enactment of Senate Bill 2457 on August 1, 2025, the Illinois Collection Agency Act defined a collection agency in a relatively broad manner, as any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in the collection of a debt.

When SB 2457 takes effect on January 1, 2026, a collection agency will no longer expressly include a person who engages in the collection of a debt “on behalf of himself.” With the repeal of this language, there should be less uncertainty around whether a collection agency would include first-party debt collectors such as loan or finance companies that collect on accounts they originate and hold in their portfolios. Upon amendment, most acts that define a collection agency (with the exception of acting as a “debt buyer”) will be unambiguously limited to activities performed on behalf of another party or in connection with a debt owed to another party, i.e., third-party debt collectors.

As amended, a collection agency that is subject to licensing and regulation under the Illinois Collection Agency Act will include, at a high level, any person who, in the ordinary course of business, regularly:

• Engages in the business of collection of any debt for others;
• Takes assignment of debts from a 20% or more owner of the assignee for collection purposes;
• Sells a system of collection letters;
• Engages in buying debt;
• Uses a fictitious name to collect its own accounts; or
• Engages in the business of collecting bounced checks.

Beyond the changes to the statutory definition of a collection agency, the legislation also makes some significant changes to the exemptions from the Collection Agency Act, which are narrowed in some ways and broadened in others.  The legislation simultaneously removes the Illinois Collection Agency Act from the state’s Regulatory Sunset Act, which would have repealed the Collection Agency Act on January 1, 2026.

Old and New Exemptions

The enumerated persons that were, and will remain, exempt from the Collection Agency Act include: banks and credit unions and affiliates and subsidiaries thereof; abstract companies doing escrow business; real estate brokers when acting in the pursuit of their profession; licensed attorneys; insurance companies; and persons under contract to notify a creditor’s debtors of a debt using only the creditor’s name, among others. The statute’s reciprocal licensing exemption for collection agencies licensed in another state and conducting all collection business with Illinois debtors through interstate communications is also retained.

SB 2457 narrows the existing exemption for certain persons whose collection activities are purely incidental to another business. The existing exemption currently applies to persons whose collection activities are confined to collections that are directly related to a non-collection agency business generally, including certain enumerated businesses. As amended, the exemption will be narrowed to capture only the enumerated businesses and not any other persons that also collect only as an incident to their primary business, unless they are specifically listed as exempt.

In addition, the existing exemption for a person licensed under the Illinois Residential Mortgage License Act (“RMLA”)—the state’s mortgage finance licensing statute—is narrowed under the new legislation so that it applies to an RMLA licensee only “when engaged in activity authorized under that Act” and not in other circumstances (such as when the RMLA licensee engages in a separate debt collection business or collects non-mortgage debts). In addition, the bill repeals the existing exemption for “financing and lending institutions” (which are not specifically defined in the current law).

On the other hand, SB 2457 enacts several new exemptions from the collection statute and accompanying licensing obligation that may be significant for some companies. As amended, the law will exempt (among others):

• Retail sellers collecting on retail installment contracts or retail charge agreements originated by the retail seller;
• Persons licensed pursuant to the Illinois Sales Finance Agency Act when engaged in collection of accounts purchased or loans they made pursuant to that Act;
• Persons licensed pursuant to the Illinois Student Loan Servicing Act when engaged in activity authorized under that Act;
• Persons licensed pursuant to the Illinois Consumer Installment Loan Act when engaged in collection of loans that they originated under that Act;
• Persons engaged in the business of originating loans of money pursuant to the Interest Act when engaged in collecting loans that they originated under that Act;
• Motor vehicle retail sellers collecting motor vehicle retail installment contracts originated by the motor vehicle retail seller;
• Any person licensed pursuant to the Consumer Legal Funding Act when engaged in activity authorized by that Act;
• Any person licensed pursuant to the Pawnbroker Regulation Act of 2023 when engaged in activity authorized by that Act; and
• Any person identified by the Department by rule.

Takeaways

The net effect of SB 2457’s amendments on the universe of exempt and non-exempt entities is likely to be mixed. A potentially broad category of “financing and lending institutions” will no longer be expressly exempt, and the scope of the exemption for RMLA licensees is being made narrower. However, most first-party debt collectors will be excluded from needing a collection agency license in Illinois, and a broad range of persons licensed or regulated under a variety of Illinois financial services laws will be newly exempt. These amendments appear to reflect a motivation by the Illinois legislature to minimize instances of duplicative regulation or licensing for entities that are already regulated under Illinois law, which will be a welcome gesture for companies doing business in Illinois.

Companies already regulated or licensed under other relevant Illinois laws should determine whether they may be able to surrender their Illinois collection agency license if they find themselves subject to a new exemption that allows them to do so, and companies relying on an existing exemption from licensing should consider reviewing the new law to determine whether their activities will require a license as of January 1, 2026.