Deposit Account Control Agreement Template: Key Clauses and Triggers

A deposit account control agreement template needs to do one job well: satisfy UCC Article 9’s control requirement so the lender’s security interest in the borrower’s bank account is actually perfected. Everything else in the document — waivers, notices, indemnities, termination language — exists to allocate risk around that core function. A workable template covers the control grant, the bank’s waiver of setoff, trigger-notice mechanics for springing structures, governing law tied to the bank’s jurisdiction, indemnification of the bank, and clean termination. Under UCC Article 9, control is the only way to perfect a security interest in a deposit account; a standard financing statement will not do it.¹

Identify the Three Parties and the Specific Account

Every DACA has exactly three signatories. The secured party (the lender) extends credit and takes the security interest. The debtor (the borrower) owns the account and pledges it as collateral. The bank maintains the account and agrees to follow the secured party’s instructions regarding the funds.²

The bank’s signature is what separates a DACA from an ordinary security agreement. Without the bank agreeing, in an authenticated record, to comply with the secured party’s disposition instructions without further consent from the debtor, the lender has no mechanism to reach the money.³ The template must identify the account by number and account name so there is no ambiguity about which funds are pledged. Perfection attaches to that specific account at that specific bank; a vague description is a drafting error.

Decide Between a Blocked and Springing Structure

This decision comes before the clause-by-clause drafting because it changes several of the clauses.

Blocked (Active) DACA

A blocked DACA gives the secured party immediate, exclusive control from the moment the agreement is signed. The debtor cannot withdraw, transfer, or direct funds without the lender’s approval. It is used for reserve accounts, escrow arrangements, and deals where the borrower’s financial condition warrants constant oversight. The cost is operational friction: every transaction routes through the lender.

Springing (Passive) DACA

The springing structure is far more common. The borrower keeps normal access to the account until a trigger event — usually a default, missed payment, or covenant breach — causes the secured party to send an activation notice. From that point, the bank stops honoring the debtor’s instructions and takes direction only from the lender. Perfection still runs from the day the DACA is signed, not the day the notice is sent, because UCC 9-104(b) confirms that control exists even while the debtor retains disposition rights.³

Draft the Control Grant to Track UCC 9-104

This is the heart of the agreement. The clause must state that the bank will comply with the secured party’s instructions directing disposition of funds in the deposit account without further consent from the debtor.³ Track the statute’s language closely. Courts look at whether the agreement actually satisfies Section 9-104(a)(2), and creative drafting here can undermine the entire document.

Include a Bank Waiver and Subordination Clause

UCC 9-327 gives the bank maintaining the account priority over conflicting security interests held by outside secured parties with control.⁴ That means the bank’s own claims — overdraft lines, loan offsets, fee recovery — could sit ahead of the lender’s interest by default. The waiver clause fixes this by having the bank subordinate any security interest, lien, or right of setoff it holds to the secured party’s interest.

Banks typically negotiate narrow carve-outs. Common ones include the right to debit for returned items (checks credited before they cleared) and the right to collect customary maintenance or service fees.⁵ Some also reserve the right to deduct early withdrawal penalties on CDs. These are reasonable. What to resist is a broad exception allowing the bank to offset any claim against the debtor, which would swallow the waiver.

The contractual waiver is what actually protects the lender here. UCC 9-340 independently allows a bank to exercise recoupment or setoff against a deposit account even when a security interest is perfected by control, unless the secured party obtained control by becoming the bank’s customer under Section 9-104(a)(3).⁶ In a typical three-party structure, statute alone will not solve the priority problem. The clause has to.

Specify the Trigger Notice Mechanics

For a springing DACA, the template must define exactly how the secured party activates exclusive control. Cover:

Format of the notice: written, on letterhead, signed by an authorized officer of the secured party.
Delivery method: overnight courier, email to a designated address, or both.
Timing of the bank’s response: most agreements require the bank to stop following the debtor’s instructions immediately or within one business day of receipt.
The bank’s right to rely on the notice without verifying whether a default actually occurred. Banks do not want to adjudicate disputes between borrowers and lenders, and lenders should not want them to.

Set Governing Law to Match the Bank’s Jurisdiction

UCC 9-304 requires that the local law of the bank’s jurisdiction governs perfection and priority of a security interest in a deposit account. The statute establishes a hierarchy for determining that jurisdiction: first, one expressly designated in the deposit account agreement; then the jurisdiction whose law governs that agreement; then the jurisdiction of the office where the account is maintained; and finally, the location of the bank’s chief executive office.⁷ The governing law clause in your DACA should align with this hierarchy. Picking a jurisdiction that does not match the bank’s location under 9-304 creates confusion about which state’s law controls perfection, and confusion about perfection is what the DACA exists to eliminate.

Include Bank Indemnification and Liability Limits

The bank is essentially a stakeholder. It gains nothing from the arrangement except new obligations and potential liability, so virtually every bank requires the secured party to indemnify it against losses arising from following the secured party’s disposition instructions.⁸

The USDA’s model DACA terms show the standard liability carve-outs. The bank is not liable for failing to follow an instruction that does not meet the agreed format, arrives before a specified outside time, would require a transfer method not available under the debtor’s existing account agreements, or would cause the bank to violate a law, regulation, or court order.² These protections are commercially reasonable, and pushing back on them usually just delays closing.

Spell Out Termination

The template should say how the agreement ends. The standard approach: once the underlying debt is fully satisfied, the secured party sends a written termination notice to the bank stating that the control agreement is no longer in effect and the bank should accept instructions solely from the account holder. Require the secured party to send that notice within a specified number of days after payoff. Without a clear termination mechanism, a borrower can end up with a lingering control agreement on an account long after the loan is gone, which creates problems if the borrower tries to pledge the same account to a new lender.

Expect the Bank to Insist on Its Own Form

Most national and regional banks have their own mandatory DACA forms and will not accept a lender’s custom template.⁸ The bank’s form protects the bank first: indemnification will be broad, liability limits aggressive, and the setoff waiver possibly narrower than a lender would draft on its own.

Your template still has two uses. Where the bank will negotiate, it is the starting point. Where the bank will not, it becomes a checklist for reviewing the bank’s form clause by clause, catching gaps and provisions that conflict with the loan documents. The two provisions to scrutinize hardest in any bank-provided form are the scope of the setoff waiver and whether the indemnification extends to parties who should not bear it.

Build in Protections for Ongoing Perfection

The DACA becomes legally effective when all three parties authenticate it, and the security interest is perfected at that moment with no filing required.¹ Perfection is tied to that specific account at that specific bank, though. If the debtor closes the account, changes the number, or moves funds to a different institution, the DACA no longer covers those funds, and the secured party has to execute an amendment or a new agreement.

Two drafting responses. First, the loan documents should prohibit the debtor from closing or materially changing the controlled account without the secured party’s consent. Second, the DACA itself should include a bank notice obligation: the bank informs the secured party if it receives instructions to close the account or if the account number changes due to a system migration. Bank mergers create a related risk; if the depository is acquired, confirm whether the surviving entity will honor the existing DACA or require a new one.

One last drafting consideration. A security interest perfected by control of a deposit account does not automatically follow funds once they leave the account. Proceeds are governed by separate UCC rules with their own perfection requirements, so a springing DACA cannot help a lender whose borrower drains the account before the trigger notice arrives. Blocked structures eliminate this exposure. Springing structures do not, which is why many lenders pair a springing DACA with financial covenants requiring the debtor to keep a minimum balance in the controlled account.

1
Legal Information Institute. Uniform Commercial Code 9-312 – Perfection of Security Interests in Chattel Paper, Deposit Accounts, and Other Collateral
2
U.S. Department of Agriculture. General Terms for the Deposit Account Control Agreement
3
Legal Information Institute. Uniform Commercial Code 9-104 – Control of Deposit Account
4
Legal Information Institute. Uniform Commercial Code 9-327 – Priority of Security Interests in Deposit Account
5
U.S. Securities and Exchange Commission. Exhibit 10.4 Deposit Account Control Agreement
6
Justia Law. Delaware Code Title 6 Article 9 Part 3 Section 9-340
7
Legal Information Institute. Uniform Commercial Code 9-304 – Law Governing Perfection and Priority of Security Interests in Deposit Accounts
8
Regulations.gov. Deposit Account Control Agreement (DACA) Section 232