In general, a Deposit Account Control Agreement (DACA) is an agreement that allows a secured party to perfect a security interest in a borrower’s deposit account when the secured party is not the bank holding the deposit account. Whether to sign a DACA is a business decision for your bank, and we recommend reviewing the terms of your customer’s DACA with bank counsel to assess the risks involved with signing it.
Under the Illinois Uniform Commercial Code (UCC), a security interest in a deposit account may be perfected by obtaining control over the deposit account, and when the secured party is not the bank holding the account, control must be established through a signed agreement between the debtor, secured party, and the bank holding the debtor’s deposit account.
To establish control, the agreement must provide that “the bank will comply with instructions originated by the secured party directing disposition of the funds in the deposit account without further consent by the debtor.” The UCC Comments also clarify that arrangements giving rise to control may or may not allow the debtor to access the funds in the deposit account at the secured party’s discretion. DACAs also may be subject to other specified conditions – such as a requirement that the secured party’s instructions be accompanied by a certification that the debtor is in default.
Consequently, we recommend reviewing the specific terms of your customer’s DACA with your bank counsel to determine what your bank’s duties would be. We also have included two articles on DACAs in the resources below.
For resources related to our guidance, please see:
- Illinois UCC, 810 ILCS 5/9-312(b)(1) (“[A] security interest in a deposit account may be perfected only by control under Section 9-314.”)
- Illinois UCC, 810 ILCS 5/9-314(a) (“A security interest in investment property, deposit accounts, electronic chattel paper, letter-of-credit rights, electronic documents, or beneficial interests in Illinois land trusts may be perfected by control of the collateral under Section 7-106, 9-104, 9-105, 9-106, 9-107, or 9-107.1.”)
- Illinois UCC, 810 ILCS 5/9-104 (“Requirements for control. A secured party has control of a deposit account if: (1) the secured party is the bank with which the deposit account is maintained; (2) the debtor, secured party, and bank have agreed in an authenticated record that the bank will comply with instructions originated by the secured party directing disposition of the funds in the deposit account without further consent by the debtor
- UCC Comments, § 9-104(b), Comment 3 (“Although the arrangements giving rise to control may themselves prevent, or may enable the secured party at its discretion to prevent, the debtor from reaching the funds on deposit, subsection (b) makes clear that the debtor’s ability to reach the funds is not inconsistent with ‘control.’”)
- UCC Comments, § 9-104(b), Comment 3 (“Under subsection (a)(2), a secured party may obtain control by obtaining the bank’s authenticated agreement that it will comply with the secured party’s instructions without further consent by the debtor. . . . An agreement to comply with the secured party’s instructions suffices for ‘control’ of a deposit account under this section even if the bank’s agreement is subject to specified conditions, e.g., that the secured party’s instructions are accompanied by a certification that the debtor is in default. (Of course, if the condition is the debtor’s further consent, the statute explicitly provides that the agreement would not confer control.)”)
- First Republic, What are Deposit Account Control Agreements (DACAs) — and Why are They Important (May 3, 2021)