What is Deposit Account Control Agreement (DACAs)

When you extend credit, especially in high-risk scenarios, when the borrower does not have the best financial history, the concern is not just about getting the money back. It extends to whether you can act fast enough to recover it, with legal backing. And for a borrower, proving financial reliability and trustworthiness can mean everything in securing a loan on the best terms possible. 

That’s where DACA finance becomes relevant. Whether you are part of a bank, a lending institution, or someone seeking a loan, it can be essential to know what DACAs are, how they work, and how they can help you out in your particular situation.

What this blog covers:

• What a Deposit Account Control Agreement (DACA) is and why it’s used
• Key components and parties involved in a DACA: borrower, lender, bank, and account custodian
• How DACAs control and secure deposit accounts to mitigate lender risk
• Typical scenarios and industries where DACAs are required
• Best practices for drafting, negotiating, and executing DACAs
• How automation and platforms like Osfin support monitoring and reconciliation related to DACAs

What Is A DACA Account?

As per Article 9 of the Uniform Commercial Code (UCC), A Deposit Account Control Agreement is a legally binding contract between three parties: the lender, the borrower, and the depository bank. A contract like this gives the lender certain control over the borrower's deposit account and thus sets a perfect security interest. 

There are two main types of DACA accounts:

• Blocked (Active) DACA: The lender has immediate and exclusive control of the account. The borrower cannot access funds, and the bank follows the lender’s instructions only.

• Springing (Passive) DACA: The borrower retains access until a default occurs. Once the lender issues a notice of default, control “springs” to the lender, essentially converting it into a blocked DACA.

With DACA, there is no waiting for courts or approvals. If the loan agreement is breached, DACA allows you to access the funds in the deposit account immediately. With this financial security, not only is it easier for you to disburse loans, but for borrowers to prove their financial reliability, too.

How Are DACA Accounts Used?

DACA accounts typically show up in commercial lending, with high stakes.

As a lender, DACA lets you perfect your security interest in the borrower’s deposit account, legally securing your claim to the account’s funds if the borrower defaults.

The agreement’s terms are finalized before all three parties sign. During the period of the agreement, the lender has a “priority” claim on the account’s funds. If the terms state so, the lender can also control the flow of funds in the corresponding account. Under the umbrella of a DACA account, the lender’s risk is reduced, and financial peace of mind for the institution is guaranteed.

How Do DACA Accounts Work?

There are two primary types of DACAs:

• Active DACA: In this case, the lender gets immediate control over the corresponding account. Also called a blocked DACA, the debtor’s access to the account is cut off, and the bank follows the disposition instructions of the lender only.

• Passive DACA: Passive DACA, also called a springing DACA, is the more common of the two options. The bank initially takes instructions from the debtor, but if the lender provides the bank with a notice of default, it stops complying with the instructions of the debtor. This notice, which is the “initial instruction”, essentially converts a passive DACA to an active DACA.

Regardless of specifics, both DACAs make sure that lenders get control of the DACA account if the borrower defaults. 

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When to Use Blocked vs. Springing DACAs (with Real-World Scenarios)

Choosing between a Blocked (Active) and Springing (Passive) DACA isn’t just legal housekeeping, but it’s a credit-risk decision that shapes cash flow, borrower trust, and operational control.

1. Blocked (Active) DACAs

In simple terms, a Blocked (Active) DACA is what you use when control really matters. The lender holds the reins from day one and can access or move funds straight from the borrower’s account if things go sideways. It’s the kind of setup that makes sure the lender gets paid first, no questions asked.

• It’s mostly used in asset-based lending, distressed or workout financing, DIP loans, and any case where the lender’s trust is low.
• It’s perfect when lenders need daily visibility and the ability to sweep funds automatically to cover exposure.

For example, an asset-based lender financing a distributor’s inventory requires all receivable payments to flow into a lender-controlled account. The borrower’s operating account receives advances only after collateral updates are verified.

2. Springing (Passive) DACAs

You turn to Springing (Passive) DACAs when flexibility and trust matter more than control. In this setup, the borrower manages their own account day to day, and the lender only steps in if there’s a default or covenant breach.

• It’s commonly used in venture lending, commercial real estate, and loans to investment-grade or near-investment-grade borrowers.
• It works best when lenders want to protect themselves without disrupting the borrower’s cash flow. Borrowers can easily make payroll, pay vendors, and reinvest in growth without constant oversight.

For example, a venture lender funding a $10M SaaS company lets the startup operate freely until a payment is missed. Once that happens, the lender issues a notice to the bank, and control immediately “springs” over, which safeguards the loan while preserving the relationship.

Here’s a simple framework to help you decide which one to use and when:

All About UCC On DACA Account

Let’s explore the legal terms that make DACAs effective: the Uniform Commercial Code (UCC). 

What Is The UCC And How Does It Influence DACA Accounts?

The Uniform Commercial Code, or the UCC, are the laws and guidelines that govern transactions in the United States, across all 50 states. All DACAs need to meet requirements under Article 9 of the UCC. 

Article 9 covers secured transactions, including the use of deposit accounts as collateral. To enforce a claim over a deposit account, a lender must establish control, and that is through a DACA.

The UCC establishes the lender’s legal rights when it comes to the loan’s terms, how to enforce them, and instructions on how to resolve conflicts, if any arise.

UCC And Secured Transactions

Without control, a lender’s interest in a deposit account isn’t perfected.

Perfecting a security interest means making it enforceable against third parties (like other creditors or bankruptcy trustees). Under the UCC, control equals perfection. And control happens through a well-drafted DACA.

Influence Of UCC On DACA Accounts

The UCC's provisions ensure that DACAs are enforceable and provide a clear legal framework for the rights and obligations of all parties involved. There is room for movement based on the particular DACA agreement terms and conditions. Largely, however, DACAs are a reliable control tool for lenders. For one, the UCC allows for perfection of security interest, with priority over other creditors who may have loaned money to the borrower.

How The UCC Affects DACA Operations

Legally, the UCC states that the bank must comply with the lender's instructions for a lender to have control over a deposit account. No further consent from the borrower is needed in such a case. However, this doesn’t happen at the lender's whim and fancy. DACA outlines the terms and the circumstances under which the lender can take these steps.

From how control is triggered to how notices must be delivered, the UCC governs the fine print. If your institution is relying on DACAs in any material volume, UCC compliance is not optional it’s mission-critical. The agreement is only as strong as its legal foundation.

DACA vs. Other Control Agreements

Most people come across the term “control agreement” and think only of DACAs. But lenders don’t just secure cash. They also secure securities and sometimes assets held in custody. It’s a simple rule: different assets mean different control agreements.

Here’s a table to show how each type of control agreement works and when it’s typically used.

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Benefits Of DACA Accounts For Lenders And Borrowers

DACA accounts are perfect because they add a financial safety net for lenders and borrowers in the equation. Here’s how.

For the lenders, DACAs provide security, with a direct claim to the borrower’s deposit account through the bank. In cases of default, the lenders are financially secured. Moreover, they get a “priority in claims” when it comes to the funds in the deposit account. Finally, lenders can monitor activity in the deposit account, adding to peace of mind. 

But this arrangement is not just for the lender’s sake. For borrowers, signing a DACA agreement can make them more attractive and financially reliable, facilitating access to financing. This can also lead to more agreeable loan terms, like lower interest rates. As a borrower, you appear more financially credible.

In other words, DACA accounts represent trust between both parties.

Challenges That Come With DACA Accounts

However, DACA accounts do not come without friction.

1. Complexity:

Every party, lender, borrower, bank, must agree on terms, which often requires back-and-forth legal work.

2. Bank Reluctance:

Not all depository banks are cooperative. Some resist signing DACAs due to liability concerns or operational limitations.

3. Maintenance:

Managing large portfolios of DACAs manually is a compliance risk. A missed notice or faulty filing could make your claim invalid.

4. Legal Nuance:

While the UCC is standardized, local interpretations in the 50 states can vary. If you’re dealing across states, or even internationally, this adds another layer of risk.

5. Reconciliation Challenges:

‍Since multiple parties and legal specifics are involved in DACA accounts, reconciling them can be tough as matching needs to be performed across various sources. This becomes even more challenging if your institution is involved in multiple DACA accounts. 

6. Audits:

‍Similar to reconciliation challenges, audits can be cumbersome because of the nature of DACA accounts. It’s important to keep up with audit deadlines in order to maintain DACA agreements.

If your team is working with DACAs, these operational gaps can become expensive liabilities. In such a case, it might be helpful to automate parts of the process, so that you and your team can focus on what’s important.

Where DACAs are commonly used

You’ll find DACAs wherever lenders need tight control over cash and quick access if things go wrong.

• Commercial lending: Protects working capital and secures credit lines tied to operating accounts.
• Real estate finance: Manages construction draws, rent flows, and reserve accounts with clear cash control.
• Asset-based or structured lending: Locks down receivables and inventory proceeds through lender-controlled accounts.

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Achieve Operational Efficiency with Osfin.ai

In an era of fast finance and rising risk, DACAs offer certainty in uncertainty. Whether you’re lending to a startup, funding a complex real estate project, or issuing loans backed by crypto collateral, DACAs offer one of the cleanest paths to secure your money against risks. However, like any tool, they’re only as effective as the way you use them.

Built to simplify financial operations and loan reconciliations, Osfin.ai reduces the friction at every step of the way. With Osfin’s toolkit, you can reconcile faster, with fewer errors, and stay on top of your auditing schedule with reminders and updates. To top it off, Osfin’s automation capacities scale to as much financial data as you have, reconciling millions of payments across multiple rails in just minutes and helping you achieve compliance with local and international standards. 

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FAQs on (DACA) Deposit Account Control Agreement

1. What is a DACA/Deposit Account Control Agreement?

A DACA is a legal contract that provides a lender control over a borrower's deposit account in case of default, ensuring the lender can access funds for debt recovery.

2. What are the two types of DACAs?

An active DACA (or blocked DACA) gives the lender full control over the deposit account, only the lender can instruct the bank, and the debtor has no say. A passive DACA (or springing DACA) allows the debtor to manage the account until a default occurs. If that happens, the lender can trigger control by sending an “initial instruction,” converting it to an active DACA.

3. What are the four types of deposit accounts?

The four types of deposit accounts are checking accounts, savings accounts, money market accounts, and certificates of deposit (CDs).

4. What is an account control agreement?

An account control agreement is a legal agreement that allows a lender to control a borrower's deposit account. This agreement is used as collateral in loans that are secured.

5. What is a DACA borrower?

A DACA borrower is an individual or business that enters into a DACA agreement with a lender, pledging their deposit account as collateral for a loan. If the borrower defaults, the lender gains control over the account to recover the owed amount.

6. Who prepares a DACA?

A DACA is usually prepared by the lender’s legal team, not the bank. The lender drafts the agreement to secure its control rights, and the borrower and bank review or negotiate standard clauses before signing.

7. Is a DACA mandatory for all loans?

No. A DACA is only required when a lender wants to perfect a security interest in a deposit account held at another bank. It isn’t needed for unsecured loans or when the lender itself holds the borrower’s deposits.

8. How long do DACAs last?

DACAs stay in effect for the entire loan term. They end when the borrower repays the loan in full or when all parties agree to terminate the agreement in writing. There’s no fixed duration beyond the debt obligation.

9. Can DACAs be terminated or amended?

Yes. DACAs can be amended or terminated with written consent from all parties, which generally includes the lender, borrower, and bank. Most agreements automatically end once the loan is repaid and the lender’s security interest is released.

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