The first instruction — An instruction given to the bank comes from the lender, which orders it to stop following the debtor`s instructions. The initial statement often contains a disposition order from the secure part, which allows the insured party to manage the flow of money from the deposit account. Regions have a centralized and experienced account control team that can offer a number of benefits to lenders and clients as well as their law firms. Secure Part (Lender) – part of a DACA that borrows funds and obtains a perfect security interest on the debtor`s deposit account when executing the contract. UCC No. 9-104 — The “Single Code of Trade” section that deals with deposit account control. This section enhances the security interests on deposit accounts as an original guarantee. Deposit account control agreements (DACAs) are too often misjudged by a deposit-taking institution that signs them. It is all too common for a custodial institution to lack appropriate controls, including the involvement of consultants, if any, to protect the interests of the custodian institution when signing and implementing a DACA. This is in stark contrast to lenders who typically hire consultants to thoroughly audit and process DACA, to ensure that the lender`s security interest in all deposit accounts is enhanced, and to transfer exposure to the deposit facility under the DACA. The result is that a deposit-making institution may be exposed to significantly higher risk than is necessary when the DAC closes.
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. The first step a deposit bank needs to take to protect itself is to start with a good DACA form. DACA forms made available to a depository by a lender are not established taking into account the unique operational, commercial and legal needs of the custodian institution. And they are more likely to contain provisions that are more favourable to lenders than the industry market. By creating and emphasizing the use of its own DACA form, a filing institution can be assured that its individual operational needs are taken into account, including communication information and the time provided for the implementation of other parties` instructions.
In addition, individuals who implement DAC with the custodian become more familiar with the depository`s obligations under the DACA using their own form, which reduces the likelihood of an error or error in implementation. Often, those responsible for implementing the DAC are not familiar with the verification and interpretation of the agreements. As a result, an unknown DACA form will be difficult to interpret to understand all of the custodian bank`s obligations.