Deposit Account Control Agreements

Deposit Account Control Agreement: What You Need to Know

A deposit account control agreement, also known as a DAC or DCA, is an agreement between a borrower, lender and bank that provides the lender with control over the borrower’s deposit account at the bank. This type of agreement is often used in commercial lending transactions, where the lender wants to ensure that funds are available to repay the loan.

What is a deposit account?

A deposit account is a bank account that holds money for a specific purpose, such as personal savings, business transactions or to support a loan. A deposit account can be a checking account, savings account, or money market account. When it comes to commercial lending, deposit accounts are often used as collateral to secure the loan.

What is a deposit account control agreement?

A deposit account control agreement is a legal document that sets out the terms and conditions that govern the lender`s control over the borrower`s deposit account. The agreement is entered into by the borrower, the lender and the bank where the deposit account is held.

The terms of the agreement typically include provisions that allow the lender to direct and control the deposit account, including:

1. The right to withdraw funds from the deposit account to pay off the loan balance.

2. The right to require the bank to freeze the account in the event of a default by the borrower.

3. The power to redirect payments received by the borrower to pay off the loan.

Why is a deposit account control agreement important?

A deposit account control agreement is an essential part of commercial lending transactions because it ensures that the lender has control over the funds used to secure the loan. The agreement protects the lender from the risk that the borrower will divert funds from the deposit account or withdraw funds that have been pledged as collateral.

In addition, a deposit account control agreement can be an essential tool for managing the risk of fraud. By giving the lender control over the deposit account, the bank can ensure that only authorized payments are made from the account and that the funds are used only for the intended purpose.

How to Enter into a Deposit Account Control Agreement

If you are a borrower or a lender seeking to enter into a deposit account control agreement, you will need to work with your bank to draft and execute the agreement. The process includes the following steps:

1. Identify the deposit account to be used as collateral for the loan.

2. Draft the deposit account control agreement with the bank.

3. Review and sign the agreement with the bank and the other parties involved.

4. Ensure compliance with state and federal laws governing deposit account control agreements.

In conclusion, a deposit account control agreement is a critical document that all parties in a commercial lending transaction should understand thoroughly. This agreement provides a layer of protection for the lender, ensuring that the funds used to secure the loan are available and used for the intended purpose. By working with experienced legal counsel and your bank, you can ensure that your deposit account control agreement is drafted accurately and that all parties understand their rights and obligations under the agreement.

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