A control agreement in secured transactions is a three-party contract among a borrower, a lender, and the bank or brokerage holding the borrower’s account, in which the institution agrees to follow the lender’s instructions about the funds or securities in that account. It exists because the Uniform Commercial Code requires “control” for a lender to perfect a security interest in a deposit account, and treats control as the strongest form of perfection for investment property. Without it, a lender who thinks it has collateral in a bank or brokerage account may discover in bankruptcy that it has nothing of the sort.
What “Control” Means Under the UCC
The UCC uses the word “control” as a term of art. For a deposit account, UCC Section 9-104 says a lender has control when the borrower, the lender, and the bank sign a record in which the bank agrees to follow the lender’s instructions about the funds without needing further consent from the borrower.1Legal Information Institute. Uniform Commercial Code 9-104 – Control of Deposit Account Two other routes exist — the lender is itself the bank holding the account, or the lender becomes the bank’s customer on the account — but the tripartite agreement is the mainstream mechanism.
For investment accounts, UCC Section 8-106 uses the same idea: the lender has control when the securities intermediary agrees to follow the lender’s entitlement orders without needing the borrower’s sign-off.2Legal Information Institute. Uniform Commercial Code 8-106 – Control The borrower can keep trading and substituting securities in the account without breaking the lender’s control, which is what makes the arrangement workable for active portfolios.
One boundary worth flagging: a securities intermediary is never required to sign a control agreement, even if the account holder asks. Some brokerages have a standard form ready; others refuse or charge a fee. Lenders usually confirm the intermediary’s willingness early in the deal.
The Two Main Types: DACA and SACA
A Deposit Account Control Agreement, or DACA, covers checking, savings, money market accounts, and certificates of deposit. It is the workhorse of secured lending against cash. A filed UCC financing statement does nothing for a deposit account, so a DACA is not optional if the lender wants a perfected interest in the borrower’s cash.3Legal Information Institute. Uniform Commercial Code 9-312 – Perfection of Security Interests in Chattel Paper, Deposit Accounts, Documents, Goods Covered by Documents, Instruments, Investment Property, Letter-of-Credit Rights, and Money
A Securities Account Control Agreement, or SACA, covers investment accounts at brokerages and other securities intermediaries. Investment property can technically be perfected by filing a financing statement, but a security interest perfected by control always outranks one perfected by filing, so any sophisticated lender insists on a SACA.4Legal Information Institute. Uniform Commercial Code 9-328 – Priority of Security Interests in Investment Property UCC Section 9-314 confirms that control is the perfection method for deposit accounts, investment property, letter-of-credit rights, and electronic chattel paper.5Legal Information Institute. Uniform Commercial Code 9-314 – Perfection by Control
Springing vs. Blocked Control
Control agreements come in two structures, and the choice shapes the borrower’s daily life. In a blocked (or “active”) agreement, the lender has immediate authority over the account. The borrower cannot move funds without the lender’s permission. That is maximum protection for the lender and impractical for any account the borrower uses to run its business.
A springing (or “passive”) agreement is the norm in commercial lending. The borrower keeps normal access, depositing and withdrawing as usual. The lender’s control stays dormant until a triggering event, typically a default. At that point the lender sends a “notice of exclusive control” to the bank or intermediary, and the institution stops taking direction from the borrower and starts taking it from the lender. Most springing DACAs include the form of that notice as an exhibit.
The perfection is the same either way. Under Section 9-104, control exists for perfection purposes even while the borrower retains full day-to-day access to the account.1Legal Information Institute. Uniform Commercial Code 9-104 – Control of Deposit Account The same is true for securities accounts under 8-106.2Legal Information Institute. Uniform Commercial Code 8-106 – Control Some courts have found that a lender who sits on a springing agreement too long after learning of trouble can lose practical priority, so the right to spring is only worth what the lender is willing to exercise.
Perfection and Priority
Perfection is what gives a security interest force against third parties. An unperfected interest may still work between borrower and lender, but it fails against the parties who matter most: a bankruptcy trustee can avoid it entirely, dropping the lender to unsecured status.
The priority rules for deposit accounts in UCC Section 9-327 run in a clean hierarchy. A lender with control beats a lender without it. Among lenders with control, the first to obtain it wins. The bank where the account sits, however, holds an automatic trump: its own security interest beats every other control-holder, unless the competing lender achieved control by actually becoming the bank’s customer on the account.6Legal Information Institute. Uniform Commercial Code 9-327 – Priority of Security Interests in Deposit Account
The Bank’s Own Rights
The bank is not a bystander. Under UCC Section 9-341, its rights and duties on a deposit account are not affected by the creation or perfection of a security interest and remain intact unless the bank agrees otherwise in an authenticated record.7Legal Information Institute. Uniform Commercial Code 9-341 – Banks Rights and Duties with Respect to Deposit Account The control agreement is that record, which is why banks read them carefully.
The main issue is set-off. A bank generally keeps the right to seize funds in the account to cover debts the borrower owes the bank, and that right survives another lender’s perfected interest. The standard fix is a subordination provision in the control agreement, where the bank explicitly waives or subordinates its set-off rights and any lien it holds on the account. Without that language, the bank’s own claims can jump the priority line.
What Goes Into the Agreement
Terms vary by deal, but a few provisions show up in nearly every control agreement:
- An acknowledgment that the lender holds a security interest in the account, so the institution cannot later plead ignorance.
- Disposition instructions specifying how and when the lender can direct the institution regarding the funds or securities, including the form of any notice of exclusive control in a springing structure.
- Subordination of the institution’s own lien or security interest to the lender’s.
- A governing-law clause, which matters because each state adopts its own version of the UCC, sometimes with modifications.
- Limits on the institution’s liability for following the lender’s instructions in good faith, even if those instructions turn out to be wrongful between the borrower and the lender.
Negotiating these often takes longer than drafting the loan itself. Most of the friction lands on the springing-versus-blocked question, the scope of the bank’s subordination, and the trigger and mechanics for a notice of exclusive control.
What Happens Without One
For deposit accounts, skipping the control agreement does not merely weaken the lender’s position. It eliminates perfection. A lender who takes a security interest in a bank account but never obtains a signed DACA has an unperfected interest, enforceable against the borrower in good times and worthless in bankruptcy. A trustee can avoid it, and the lender drops in line with the unsecured creditors. Judgment creditors garnishing the account outside bankruptcy can also reach the funds ahead of the unperfected lender. There is no way to cure this after the borrower files.
For investment property, filing a financing statement gives the lender a perfected interest, but it sits behind any lender that took control.4Legal Information Institute. Uniform Commercial Code 9-328 – Priority of Security Interests in Investment Property Second in line, when the borrower is in distress, usually means empty-handed.
Digital Assets and the 2022 Amendments
Article 12, added to the UCC in the 2022 amendments, creates a framework for “controllable electronic records,” which include cryptocurrency and other digital assets held electronically. A lender can perfect a security interest in these assets by establishing control, and that interest outranks one perfected only by filing. As of early 2026, 33 states have adopted the 2022 amendments, and New York’s version takes effect in June 2026. Lenders dealing with borrowers who hold meaningful digital assets should expect control arrangements for these assets to become standard as adoption spreads.