Under UCC 9-104, a lender obtains control of a borrower’s deposit account in one of three ways: the depository bank itself holds the security interest, all three parties sign a deposit account control agreement, or the lender becomes the bank’s customer on the account.1Legal Information Institute. Uniform Commercial Code 9-104 – Control of Deposit Account Control is the only way to perfect a security interest in a deposit account. A lender who skips it is treated as unsecured if the borrower defaults or files for bankruptcy.2Legal Information Institute. Uniform Commercial Code 9-312 – Perfection of Security Interests in Chattel Paper, Deposit Accounts, Documents, Goods Covered by Documents, Investment Property, Letter-of-Credit Rights, and Money
What Counts as a Deposit Account
UCC 9-102(a)(29) defines a deposit account as any demand, time, savings, passbook, or similar account maintained at a bank.3D.C. Law Library. DC Code 28:9-102 – Definitions and Index of Definitions Standard business checking and savings accounts fall inside that definition. Investment property such as a brokerage account, and accounts evidenced by a physical instrument such as a paper certificate of deposit, do not. Those asset types are perfected under different UCC rules, and calling them deposit accounts can leave a lender with nothing enforceable.
One boundary matters before going further. Article 9 does not apply to an assignment of a deposit account in a consumer transaction.4Legal Information Institute. Uniform Commercial Code 9-109 – Scope The 9-104 control framework governs commercial lending. A security interest taken in an individual’s personal bank account for a personal, family, or household purpose is outside its scope.
Why Filing Doesn’t Work
For most collateral, a lender perfects by filing a UCC-1 financing statement. Deposit accounts are the exception. The code prohibits perfection by filing and requires control.2Legal Information Institute. Uniform Commercial Code 9-312 – Perfection of Security Interests in Chattel Paper, Deposit Accounts, Documents, Goods Covered by Documents, Investment Property, Letter-of-Credit Rights, and Money A public filing does nothing to keep a borrower from draining an account overnight. Control forces the lender to put an actual mechanism in place. A lender relying on a financing statement alone stands behind virtually every other secured creditor in a priority fight or a bankruptcy.
Method One: The Depository Bank Is the Lender
Under 9-104(a)(1), a bank that maintains the account automatically has control if it also holds the security interest.1Legal Information Institute. Uniform Commercial Code 9-104 – Control of Deposit Account No agreement, no filing. This is the common shape of a loan made by the same institution that houses the operating account. The bank already runs the ledger, can freeze funds, block withdrawals, and apply balances to outstanding debt without coordinating with anyone. Other creditors are on constructive notice that the bank holding a borrower’s money may claim a security interest in it.5D.C. Law Library. DC Code 28:9-104 – Control of Deposit Account
Method Two: A Deposit Account Control Agreement
When the lender is not the bank, it needs to pull the bank into the deal. UCC 9-104(a)(2) requires an authenticated record signed by the borrower, the lender, and the bank in which the bank agrees to follow the lender’s instructions about the account without further permission from the borrower.1Legal Information Institute. Uniform Commercial Code 9-104 – Control of Deposit Account The document is known as a deposit account control agreement, or DACA. All three signatures are non-negotiable. A lender that reaches agreement only with the borrower has not established control and is unperfected.
Blocked and Springing Versions
A blocked (or “active”) DACA locks the borrower out of the account from day one. The lender has full authority over the funds, and the borrower cannot move money without the lender’s approval. This structure fits high-risk deals where the lender wants no chance of depletion.
A springing DACA lets the borrower keep using the account normally. The bank switches over to taking the lender’s instructions only after the lender sends a notice of exclusive control, usually triggered by a default. Both versions perfect the security interest.
The Borrower’s Withdrawal Rights
Control exists even if the borrower keeps the right to direct funds out of the account. UCC 9-104(b) says so directly.1Legal Information Institute. Uniform Commercial Code 9-104 – Control of Deposit Account That is what makes a springing DACA work: perfection dates from the signing of the agreement, not from the day the lender actually takes over. Ongoing borrower access does not undermine the lender’s position.
Method Three: The Lender Becomes the Bank’s Customer
Under 9-104(a)(3), the lender can become the bank’s customer with respect to the account.1Legal Information Institute. Uniform Commercial Code 9-104 – Control of Deposit Account In practice, the lender is added to the account or the funds move into an account in the lender’s name, and the bank treats the lender as the account holder. The lender can withdraw or transfer at will. The borrower loses independent access, and the lender’s control is self-evident to any court or competing creditor. Banks require the usual account-opening documentation to complete the transfer.
Priority Among Competing Lenders
A single deposit account can back more than one security interest. UCC 9-327 sets the hierarchy. Any lender with control beats any lender without it.6Legal Information Institute. Uniform Commercial Code 9-327 – Priority of Security Interests in Deposit Account Among lenders that each have control through a DACA, priority runs in the order control was obtained: first in time, first in right.
The depository bank sits in a privileged place. Its security interest generally beats every other lender’s regardless of timing, because it has automatic control under 9-104(a)(1).6Legal Information Institute. Uniform Commercial Code 9-327 – Priority of Security Interests in Deposit Account There is one exception. A lender that has become the bank’s customer under 9-104(a)(3) leapfrogs even the bank. It is the only mechanism in the code that subordinates the depository bank’s own interest.
The Bank’s Set-Off Right
Banks routinely exercise set-off, pulling funds from a deposit account to cover a separate debt the account holder owes the bank. Under UCC 9-340(a), a bank can generally exercise set-off against a deposit account even when another lender holds a security interest in it.7D.C. Law Library. DC Code 28:9-340 – Effectiveness of Right of Recoupment or Set-off Against Deposit Account For a lender relying on a DACA, that is a real exposure: the bank can sweep the account to satisfy its own claim before the lender reaches the money.
UCC 9-340(c) carves out one exception. A bank’s set-off is ineffective against a lender whose security interest is perfected by control under 9-104(a)(3), the customer method.7D.C. Law Library. DC Code 28:9-340 – Effectiveness of Right of Recoupment or Set-off Against Deposit Account The protection applies when the set-off is based on a claim against the borrower, not against the lender. A DACA offers no shield here, and that gap often drives the choice of method in higher-stakes deals.
What Perfected Control Buys in Bankruptcy
When a borrower files for bankruptcy, a deposit account subject to a perfected security interest is “cash collateral” under federal bankruptcy law.8Office of the Law Revision Counsel. 11 USC 363 – Use, Sale, or Lease of Property The trustee cannot use, sell, or lease it unless the lender consents or the court authorizes it after a hearing, and the trustee must segregate and separately account for any cash collateral held.
The perfected lender can ask the court to prohibit or condition use of the funds, or to require adequate protection such as replacement liens or periodic cash payments.8Office of the Law Revision Counsel. 11 USC 363 – Use, Sale, or Lease of Property A lender without control is unperfected and drops into the unsecured pool.
Releasing Control After Payoff
Once the loan is paid, the lender is obligated to release control. For a DACA, the lender sends a written termination to the bank, and the bank resumes taking instructions from the borrower alone. Where the lender became the bank’s customer, the lender is removed from the account or the funds move back into an account held solely in the borrower’s name. Confirm the termination in writing. A stale control agreement can interfere with new financing or with the borrower’s own cash management.