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. 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. An admission by the custodian bank that DACA must certify the lender`s “control”; A statement from the deposit-making bank that the accounts concerned are “deposit accounts”; An agreement by the deposit-taking bank not to change the name or number of the deposit account without the lender`s written consent; An agreement between the deposit bank and the borrower to notify the lender before the closing of the deposit accounts and allow the lender to adopt a new DACA for all deposit accounts in which the borrower could defer cash security; and – An agreement of the deposit bank to subordinate all the pledge fees it has to the account and waive its right of clearing on the deposit account, with the exception of the amount of deposits credited to the account that are not repaid and the ordinary service charges charged by the deposit bank. 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. These agreements apply in all cases in addition to the guarantee agreement by which the borrower grants a security interest on his deposit accounts.
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. Such an agreement gives the lender “control” of the deposit account required for perfection under the UCC. There are two main forms of DACA, both of which are sufficient for control and perfection under the UCC. A “blocked” control agreement provides that the borrower does not have access to the funds of the (s) account and that the lender has full control of the funds. The more frequent “Springing” control agreement provides that the borrower can access the account or accounts until the lender sends the custodian bank an exclusive notice of control. As a general rule, such disclosure can only be made by the lender if the borrower is late for the underlying loan.
Once such a notification has been made, the deposit bank must stop following the borrower`s instructions regarding the deposit account or accounts and follow the lender`s instructions. Typically, a DACA jumping as an exhibition contains a form of exclusive control communication.