Hard Deposit Account Control Agreement

Deposit Account Control Agreement (DACA) – A tripartite agreement between a client (debtor), an insured party (lender) and a bank that allows the lender to enhance a security interest in the client`s funds by taking control of the deposit account (UCC No. 9-104). 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. Such an agreement gives the lender “control” of the deposit account required for perfection under the UCC. A custodian institution that gives up a DACA is faced with significant obligations, both to the guaranteed party and to its deposit client. When a deposit-making institution fails to meet its obligations, this may reduce the value of the lender`s deposit guarantee funds. If the rights and obligations of all parties to the DACA are not clearly defined or if changes to the DACA change the standard implementation process of a deposit-taking institution, a deposit-taking institution may inadvertently take action that could also reduce the value of the lender`s deposit guarantee amount. It is therefore essential that a deposit-taking institution carefully assess whether there are gaps in its own DACA verification and implementation process.

Active Deposit Account Control Agreement – A control agreement that orders the bank to accept the instructions of the secured party (not the debtor). 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. It is important that a filing institution evaluates its DACA forms and the DACA verification and implementation process from time to time to ensure that it is not exposed unnecessarily. Vorys has extensive experience in representing deposit-taking institutions in the structuring, negotiation and implementation of DACA and can assist you in your DACA assessment. Please contact us for any questions on how to better protect yourself from possible DACA liability. A lender can establish “control” in one of the following ways: (i) the borrower holds his deposit account directly with the lender; 2. The lender becomes the effective owner of the borrower`s deposit accounts with the borrower`s custodian banks; or (3) the lender and borrower enter into a deposit account control agreement (known as DACA) with the borrower`s deposit bank.