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How do DACA accounts work?
A DACA account is typically a tri-party agreement between a bank, its customer (the borrower), and its customer’s secured creditor (the lender).
The DACA serves to perfect a lender’s security interest in the funds in the borrower’s deposit accounts. With a tri-party DACA, a lender can disburse lent funds to an account of the bank that (unless as otherwise noted below) the borrower can use for its business operations.
Types of deposit account control agreements
There are two recognized kinds of DACAs: passive and active.
- Passive DACAs, also called “springing” or “shifting” DACAs: Allow borrowers to use funds disbursed by the lender for its business operations In this situation, the lender does not direct how the funds in the joint account are used. If the borrower defaults on the loan, the lender can assume control over the account and instruct the bank to revoke the borrower’s ability to make transactions using funds in the account.
- Active DACAs, or blocked account control agreements (BACA): Only the lender, not the borrower, can make transactions.
DACA account requirements
All DACAs need to meet requirements under Article 9 of the Uniform Commercial Code (the UCC), the model statute governing secured transactions adopted in all 50 US States. In order to protect a creditor’s security interest in a deposit account, the creditor must establish “control” (a UCC term) of that account, meaning the bank will comply with the lender’s instructions without the borrower’s consent, without additional restrictions from third parties.
Banks often have their own standard DACA templates and the American Bar Association also released a model DACA. In both cases, the DACAs are designed to meet UCC requirements.
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