A DACA Deposit Account Control Agreement: An Overview
A Deposit Account Control Agreement (DACA) is a type of legal contract between a bank, a borrower, and a lender. This agreement allows a lender to obtain control over the borrower`s deposit account with the bank, ensuring that the funds in the account are used to repay the borrowed funds.
DACA is frequently used in asset-based lending transactions, where a lender provides funds to a borrower against certain assets as collateral. In such cases, the borrower often maintains a deposit account with the bank, into which the borrower`s funds are deposited.
In order to secure the lender`s interest in the collateral, the DACA is in place to give the lender control over the borrower`s deposit account. This means that the lender can access and direct the funds in the account to repay the outstanding loan or to pay a debt service.
The DACA typically includes several provisions, such as:
1. Control over the deposit account: Once the DACA is in place, the lender obtains control over the borrower`s deposit account with the bank. This means that the lender has the right to direct the bank to transfer funds from the account to pay down the outstanding loan balance or to meet other obligations under the loan agreement.
2. Notifications to the borrower: The DACA may require the bank to notify the borrower of any actions taken by the lender to gain control over the deposit account. This notification may be in the form of a written letter or email, or it may be communicated through other means, such as a phone call.
3. Restrictions on the borrower`s use of the account: The DACA may also place certain restrictions on the borrower`s use of the deposit account. For example, the borrower may not be allowed to withdraw funds from the account without the lender`s approval or may be required to maintain a minimum balance in the account.
In conclusion, a DACA Deposit Account Control Agreement is a legal agreement between a bank, borrower, and lender that gives the lender control over the borrower`s deposit account. This agreement is often used in asset-based lending transactions to ensure that the lender is able to access and direct the funds in the account to repay the outstanding loan. As with any legal agreement, it`s important to review and understand the terms and provisions of the DACA before signing.
