For a secure lender, cash is often the most critical piece of security. Borrowers hold cash deposit accounts in a bank. Thus, a lender will want to obtain a sophisticated security interest for these deposit accounts in order to have an advanced security interest in this cash. The first instruction — An instruction given to the bank comes from the lender, which orders it to stop following the debtor`s instructions. The initial statement often contains a disposition order from the secure part, which allows the insured party to manage the flow of money from the deposit account. Advanced Security Interests – During the execution of the DACA, the insured party will be granted an advanced security interest that granted it, under the Single Code of Commerce, exclusive rights to control the debtor`s deposit account. Secure Part (Lender) – part of a DACA that borrows funds and obtains a perfect security interest on the debtor`s deposit account when executing the contract. Debtor (client) – As one of the three parts of the DACA, the debtor provides the security and receives the deposits into the deposit account. A deposit account control agreement (DACA), also known as a control agreement, is a tripartite agreement between a deposit client (the debtor), a client`s lender (the guaranteed party) and a bank. Why do lenders use account management agreements? Clients often do not host their deposits with their lenders and some lenders do not offer deposit accounts. Lenders enter into deposit account control agreements such as an additional level of default protection and loan repayment assistance. First, there are two types of account control agreements: assets and liabilities.
Instructions – An instruction to the bank that manages the sale of funds in the account. UCC No. 9-104 — The “Single Code of Trade” section that deals with deposit account control. This section enhances the security interests on deposit accounts as an original guarantee. Article 9 of the Single Code of Trade (UCC) defines a deposit account as a claim, time, savings, passport or similar account held in a bank. Unlike most types of guarantees, filing a UCC-1 financing return is not a perfect pledge to an account account. A lender can only perfect a pledge right to an account by obtaining “control” over the account. Each custodian bank often has its own form of DACA, although the above elements are common to each form.
The DAC is the subject of discussions and negotiations. Therefore, borrowers and lenders should be aware that it may take some time before a DACA is agreed and signed by all parties, so that the lender can obtain a perfect security interest on a deposit account. The lender should obtain a DACA from each third-party bank from which the borrower has a deposit account. A deposit bank that signs a DACA agrees to follow the lender`s instructions regarding the borrower`s money paid, without the borrower taking further action or the borrower`s agreement.