What a deposit account control agreement (DACA) is, how it perfects a lender's security interest in accounts, and how borrowers should respond at closing.
A deposit account control agreement (DACA) is a three-party contract among a borrower, the depository bank, and the lender that establishes the lender’s security interest and control rights over designated deposit accounts. Under the Uniform Commercial Code, a DACA is a primary means by which a lender perfects its collateral in cash balances and prevents the account holder from unilaterally withdrawing funds once control has been exercised. The agreement sets out when the bank will follow the lender’s directions, how triggers like default operate, and the conditions for releasing control.
At loan closing the lender will typically require executed DACAs for operating, reserve, and rent collection accounts to ensure funds are available to satisfy obligations. Borrowers need to coordinate signatures and ensure the depository institution accepts the control language, which sometimes requires negotiations with the bank. The DACA explains the mechanics of sweeps, who may authorize transfers pre- and post-default, and what constitutes a control event. Borrowers should confirm how routine operating needs will be handled and what notices or cures are required to avoid loss of access.
The DACA is critical because it provides the lender a straightforward, legally enforceable method to control deposit accounts that secure the loan, thereby protecting cash collateral and ensuring priority over other creditors. Properly drafted DACAs reduce the risk of later challenges to the lender’s rights and streamline enforcement in a default. For borrowers and account banks, understanding the DACA’s triggers and carve-outs for ordinary business operations is essential to avoid unexpected freezes or administrative burdens on day-to-day cash management.