A deposit account control agreement (DACA) is a contract among a business, the bank holding its deposit account and a secured party, such as a factor or lender. It gives the secured party "control" of the account, which is the way to perfect a security interest in a deposit account under the Uniform Commercial Code.
How it works in factoring
Filing a UCC-1 does not perfect a security interest in a deposit account used as original collateral; control does. Under UCC 9-104, one way to get control is an agreement in which the bank agrees to follow the secured party's instructions about the account without further consent from the account owner.
DACAs come in two general forms:
- Springing (or shared): the business keeps using the account normally until the secured party sends a notice of exclusive control, typically after a default.
- Blocked (or active): the secured party controls the account from the start, and funds are swept to it on a schedule.
Factors use DACAs when customer payments flow into the seller's own account, such as in non-notification factoring, or when a client has been receiving misdirected payments. In healthcare factoring, a deposit account in the provider's name with a sweep arrangement is a common structure because of Medicare's anti-assignment rules.
What to check
- Which type of control is being granted, and what triggers a switch
- Bank fees for setting up and maintaining the DACA
- How the agreement ends when the factoring relationship is paid off