Article 9 of the Uniform Commercial Code (CDU) defines a deposit account as a claim, a time, a savings account, a savings account or a similar account held with a bank. Unlike most types of collateral, depositing a UCC-1 funding statement does not perfect a privilege on a deposit account. A lender can only perfect a lien on a deposit account by acquiring “control” over the account. The first step a custodian needs to take to protect themselves is to start with a good DACA form. DACA forms provided to a custodian institution by a lender are not created taking into account the unique operational, business and legal needs of the depositary institution. And most likely, they will include provisions that are more favorable to lenders than the industry market. By creating and emphasizing the use of its own DACA form, a depositary institution can be confident that its unique operational needs are being taken into account, including notification information and time spent implementing instructions from other parties. In addition, through the systematic use of a separate form, individuals implementing CAACs in the custodian institution are more aware of the depositary institution`s obligations under DACA, making it less likely that an error or oversight will be executed. Often, those responsible for implementing CAACs are not familiar with the review and interpretation of agreements.
Therefore, an unknown DACA form will be difficult to interpret in order to understand all the obligations of the custodian bank. If the custodian bank`s form is used consistently, any lawyer negotiating a DACA for the depositary institution can report changes to DACA that may change the depositary institution`s obligations. Why do lenders use deposit account control agreements? Often, customers do not host their deposits with their lenders and some lenders do not offer deposit accounts. Lenders make arrangements to control deposit accounts as an additional protection against defaults and to help them repay their loans. The lender should receive a DACA from any third-party bank where the borrower has a deposit account. A custodian bank that signs a DACA agrees to follow the lender`s instructions regarding the money deposited by the borrower without further action or consent from the borrower. Such an agreement gives the lender “control” over the deposit account necessary for perfection under the UCC. UCC § 9-104 — The section of the Uniform Commercial Code dealing with “control of the deposit account”. This section allows you to refine the collateral on deposit accounts as an initial guarantee. Deposit Account Audit Agreements (CAACs) are too often little taken into account by a depositary institution that signs them. It is all too common for a custodian institution to lack the right controls, including hiring a lawyer to advise, if necessary, to protect the interests of the custodian institution when signing and implementing an ACSS.
This is in stark contrast to lenders, who typically hire an advisor to carefully review and process DACA to ensure that the lender`s collateral on deposit accounts is refined and that exposure under DACA is transferred to the custodian institution. .