A bank account control agreement is a contract between a borrower, the bank where the borrower keeps an account, and a lender (the secured party), in which the bank agrees to follow the lender's instructions about the funds in that account without needing the borrower's further consent. It is how lenders take effective security over cash in a deposit account. In the United States it is usually called a deposit account control agreement (DACA), and a parallel document for brokerage accounts is a securities account control agreement.
The agreement exists because, under Article 9 of the US Uniform Commercial Code (UCC), a security interest in a deposit account held as original collateral can be perfected only by "control", not by filing a financing statement. Control agreements are standard in asset-based loans, senior secured debt, revolving credit facilities and project finance. Other legal systems reach a similar result in different ways, for example through account charges and notices to the bank in England.
Bank account control agreement in plain terms
Suppose you borrow money from a friend and promise that, if you cannot repay, they can take the savings in your bank account. That promise is only useful if the bank will actually listen to your friend when the time comes. Otherwise you could quietly empty the account, or the bank could refuse to deal with someone who is not its customer.
A control agreement solves this. You, your friend and your bank all sign a document in which the bank says: "If your friend tells us to stop letting you withdraw and to send the money to them, we will." Day to day you can usually use the account as normal. The agreement only bites if things go wrong.
Legal basis in the United States
The key provisions are in UCC Article 9 as adopted by each state:
- Section 9-104 defines control of a deposit account. The secured party has control if it is the bank holding the account, if the debtor, secured party and bank have agreed in an authenticated record that the bank will follow the secured party's instructions without further consent from the debtor, or if the secured party becomes the bank's customer on the account.
- Section 9-312(b)(1) provides that a security interest in a deposit account as original collateral may be perfected only by control.
- Section 9-327 gives a secured party with control priority over one without it.
- Section 9-342 states that a bank is not obliged to sign a control agreement, even if its customer asks.
Control under Section 9-104 does not require that the debtor lose the right to withdraw funds, which is what makes the common "springing" form possible.
Types of control agreement
| Type | Borrower access | Typical use |
|---|---|---|
| Springing (shifting) | Full access until the lender sends a notice of exclusive control | Most corporate and asset-based loans |
| Blocked (active) | No access; the bank follows only the lender's instructions | Distressed borrowers, cash collateral accounts, reserve accounts |
A lender usually sends a notice of exclusive control after an event of default, such as a missed payment or a breach of a financial covenant. Agreements are often combined with lockbox or collection account arrangements in asset-based lending, where customer receipts are swept daily to pay down the loan, and they protect the reserve and proceeds accounts used in a cash flow waterfall.
Key negotiated terms
- Bank's rights of setoff. Banks normally keep the right to deduct their own fees, returned items and chargebacks before honouring the lender's claim.
- Response time. The bank asks for a reasonable period, often one or two business days, to act on a notice of exclusive control.
- Indemnities and liability limits. The bank seeks protection against claims from either party for following instructions.
- Termination. The agreement ends when the lender confirms the loan is repaid or the account is released.
Banks often insist on using their own standard form, and negotiating a DACA can delay a loan closing. Multinational borrowers with many accounts face this for every bank, which adds to the work of multi-bank cash management.
Treatment outside the United States
In England and Wales, lenders take a charge over the account and give notice to the account bank, which acknowledges it. Whether the charge is fixed or floating matters greatly in insolvency, and in National Westminster Bank v Spectrum Plus (2005) the House of Lords held that a charge over book debts was floating because the company remained free to use the proceeds paid into its account. Lenders wanting a fixed charge therefore need real control over withdrawals, much as a blocked US agreement provides. Civil-law countries generally use a pledge of the account balance with notice to the bank. In each system, the bank's own lien and setoff rights interact with the lender's security, and debt seniority in a group of lenders is usually settled by an intercreditor agreement.
Risks and limitations
A springing agreement gives the lender security only over what is in the account when it sends notice, so a borrower in difficulty may already have moved cash elsewhere. The agreement covers named accounts only, so cash moved to an uncontrolled account escapes it unless loan covenants forbid this. For borrowers, a blocked account can disrupt payroll and supplier payments, and the presence of control agreements can complicate cash pooling across a group.