The agreement can also be considered an advantageous document for the lender because it allows the lender to have a secured right to a guarantee on the borrower`s deposit accounts with the same bank or financial institution. In the United States, the payment account control agreement is necessary to enhance UCC security. In other countries, the rules may be different, but ultimately, lenders need some security from borrowers in exchange for a loan and cash is one of the most important collateral. Lenders prefer cash as collateral over any other collateral arrangement. DDCA allows lenders to have control over borrowers` deposit funds and provide a commitment to the fund. For a secure lender, cash is often the most critical piece of security. Borrowers hold cash deposit accounts with a bank. Therefore, a lender will want to obtain sophisticated security on these deposit accounts in order to have advanced security on that money. CDU No.
9-104 — The „Single Commercial Code“ section dealing with the control of the deposit account. This section reinforces collateral on current accounts as an initial guarantee. Article 9 of the Uniform Commercial Code (CDU) defines a deposit account as a claim, time, savings, savings account or 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 taking „control“ of the account. Deposit account control agreements are tripartite agreements between a lender, a borrower and a bank. These are often mentioned in other, sometimes better known terms, such as . B „lock-in box agreements“, „control agreements“, „account control agreements“ or „ACA“. (However, these are not „fiduciary arrangements.“) Debtor (Customer) — As one of three parties to DACA, the debtor provides the security and receives the deposits to the deposit account.
The Uniform Commercial Code (UCC) defines a deposit account as an account receivable, time, saving, saving or similar held with a bank. This excludes investment properties or accounts represented by an instrument. Unlike most types of collateral, depositing a UCC-1 funding statement does not perfect a privilege on a deposit account. A lender can only complete a lien on a borrower`s deposit account by taking „control“ of the account, which requires one of the following agreements: (1) the borrower maintains his or her deposit account directly with the lender; (2) the lender becomes the beneficial owner of the borrower`s custodian accounts with the borrower`s custodian banks; or (3) the parties enter into a Deposit Account Control Agreement (DACA) with the borrower`s custodian bank. The alternative (3) is often the only viable option. This would be in addition to the guarantee contract whereby the borrower pledges his cash deposit accounts to the lender as collateral for the loan. In addition, the right banking partner is crucial for urgent transactions. A strong banking partner can act quickly to implement DACA between all parties. The bank service level agreements (SLAs) required to secure CASSs can range from days to weeks. Working with a bank that understands time sensitivity and strives to operate within your constraints is essential to ensure the smooth running of transactions. As part of its due diligence process, the lender should request information about the custodian banks where the borrower`s deposit accounts are held, the purpose of each account, and the amount of money the borrower keeps in each account.
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 lender becomes the beneficial owner of the borrower`s custodian 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 apply in any event in addition to the creation of security by which the borrower grants a security right in its deposit accounts. First of all, working with a trusted bank is paramount. The right banking partner is willing to work with the parties to ensure that the terms of the contract are in line with the situation. Once the specific terms of a DACA have been established, a banking partner must comply with all the points set out in the agreement. It`s important to have a partner who understands and follows all the nuances of a particular DACA, especially since DAACs are designed for specific transactions. Although custodians use different forms of DACA, they are quite standardized and are rarely the subject of much negotiation or discussion. As a result, they are a simple and effective – and often the only – way to obtain advanced security on a deposit account. A private equity firm (lender) lends $30 million to a commercial real estate developer (borrower) who will use the funds to develop a new luxury hotel on vacant land. The lender sets up a DACA at the borrower`s commercial bank and then finances the loan. The borrower has the total loan of $30 million, but DACA gives the lender some degree of control over how and when the funds are distributed.
Each custodian bank often has its own form of DACA, although the elements listed above are common to each form. CAACs are being discussed and negotiated. Therefore, borrowers and lenders should realize that it may take some time before a DACA is agreed to and signed by all parties so that the lender can obtain an advanced security on a deposit account. Under the terms of DACA, the borrower may or may not have direct access to the funds in the account. In „uncalled“ or „jumper“ DAACs, borrowers can access funds; in „accessible“ or „blocked“ CAECs, borrowers are not allowed to do so. However, it is important to note that a lender may change these terms – either by „invocation“ or „irrevocation“ – at its sole discretion as often as it wishes. It is possible to include multiple accounts in a DACA, but they must all have called the same status or not. A Deposit Account Control Agreement (DACA), also known as a Control Agreement, is a tripartite agreement between a depositing customer (the debtor), the lender of a depositing customer (the secured party) and a bank. UCC § 9-104 – The „Uniform Commercial Code“ section, which deals with „Deposit Account Control“. This section allows you to perfect the collateral on deposit accounts as an original guarantee.
In a DACA, a borrower grants a lender security on their specific account with a bank. This allows a lender to have overall control over the distribution of funds for its loan and provides some protection to the lender in the event of the borrower defaulting. The lender has the ability to control the flow of money from the account to the borrower, freeze it if necessary and give its own instructions. Why do lenders use deposit account control agreements? Often, customers do not account for their deposits with their lenders and some lenders do not offer deposit accounts. Lenders are putting in place deposit account control agreements as an additional layer of protection against defaults and to help them repay their loans….