Bank Control Agreements

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An agreement whereby reciprocity will not be entered into another account control agreement with another third party or another agreement regarding the borrower`s account. First, there are two types of account control agreements: assets and liabilities. Prior to opening or replacing a deposit account, the debtor has: (a) the written authorization of the majority creditors for the opening of such a deposit account and (b) has encouraged each bank or financial institution in which it wishes to open a deposit account to enter into a deposit account control agreement with the secured party in order to give the insured party control of that deposit account. DACs are tripartite agreements between a lender (also known as a guaranteed party), a borrower and a custody institution. The purpose of a DACA is to allow a lender to take control of its borrower`s deposit accounts held by a deposit facility other than the lender, in order to allow the lender to enhance its security interest in deposit accounts. Some DACs are structured so that the lender has exclusive control over deposit accounts immediately after DACA der. Other DADs allow the borrower to access deposits, withdrawals and transfers to deposit accounts until the lender informs the custodian institution that the lender is taking exclusive control and the borrower no longer has access, withdrawn or transferred deposit accounts. 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.

Deposit institutions should have an experienced internal team responsible for implementing all DACs. Relationship officers should not implement DAC, but should be informed of the importance of sending DACA applications through the filing institution`s DACA preparation, verification and enforcement protocol. As long as DACA is carefully prepared and negotiated adequately by the custodian`s advisor, incorrect implementation of a DACA is the primary source of exposure to a custodian institution. The custodian ensures that all necessary checks have been carried out on the corresponding deposit accounts and that the depository is ready to implement and implement all the instructions it receives within the time frame set by the DACA. Small depots, in particular, should be alert to the lack of key personnel and have safeguard procedures in place to ensure that DACA instructions are always implemented in a timely manner. If the deposit establishment. B does not require exclusive control of deposit accounts within the DACA time frame, the deposit-taking institution may be held responsible for all withdrawals made by the borrower from the deposit accounts after the implementation of the exclusive control. 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.

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.