Secured Party (Lender) – A party to a DACA that lends funds and receives an advanced security on the debtor`s deposit account when the agreement is signed. The lender should receive a DACA from any third-party bank where the borrower has a deposit account. A custodian bank that signs a DACA agrees to follow the lender`s instructions regarding the money deposited by the borrower without further action or consent from the borrower. Such an agreement gives the lender “control” over the deposit account necessary for perfection under the UCC. Article 9 of the Uniform Commercial Code (CDU) defines a deposit account as a claim, a time, a savings account, a savings account or a similar account held with a bank. Unlike most types of collateral, depositing a UCC-1 funding statement does not perfect a privilege on a deposit account. A lender can only perfect a lien on a deposit account by acquiring “control” over the account. Deposit Account Control Agreement (DACA) – A tripartite agreement between a customer (debtor), a secured party (lender) and a bank that allows the lender to perfect a security right in the customer`s funds by taking control of the deposit account (UCC § 9-104). A lender may establish “control” in one of the following ways: (i) the borrower maintains his or her deposit account directly with the lender; (2) the creditor becomes the beneficial owner of the borrower`s deposit accounts with the borrower`s custodian banks; or (3) the lender and borrower enter into an agreement with the borrower`s custodian bank to control the deposit account (called DACA). These agreements are in addition in any case to the guarantee contract by which the borrower grants a hedging participation in his current accounts. Regions has an experienced and centralized deposit account control team that can provide a number of benefits to lenders and clients, as well as their law firms. There are two main forms of DAAC, each of which may be sufficient for the purposes of control and perfection within the framework of the UCC. A “blocked” control agreement states that the borrower does not have access to funds from deposit accounts and that the lender has full control over the funds.
The most common “elastic” control agreement provides that the borrower can access current accounts until the lender provides the depositary with an exclusive control notice. As a general rule, such termination can only be made by the lender if the borrower is in default under the underlying loan. Once such notice has been made, the custodian bank must cease to comply with the borrower`s instructions regarding the current account(s) and follow the lender`s instructions. Typically, an elastic DACA as an exhibition includes some form of exclusive control notification. Why do lenders use deposit account control agreements? Often, customers do not host their deposits with their lenders and some lenders do not offer deposit accounts. Lenders make arrangements to control deposit accounts as an additional protection against defaults and to help them repay their loans….