Security Documents Deposit Account Control Agreement
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. 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. 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. 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. 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. 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. Regions have a centralized and experienced account control team that can offer a number of benefits to lenders and clients as well as their law firms. 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.