Deposit Account Control Agreements (DACAs)
Introduction
The purpose of this guide is to provide clients with information on how Deposit Account Control Agreements (“DACAs”) are handled on the Unit platform.
A DACA is a tri-party legal agreement entered into by an accountholder (could be a client or their end-customer), a secured party (the party with the right to enforce the DACA), and a bank partner. A DACA provides the secured party with various rights, including the following:
Right to instruct the bank to restrict the accountholder’s access to the deposit account and related funds.
Right to instruct the bank to implement the disposition of the funds in the deposit account without further consent by the accountholder.
DACAs can be used for a variety of purposes. Most often, they’re used by a secured party to perfect a security interest in the deposit account and related funds of an accountholder by establishing control over the account in connection with a separate commercial relationship, such as a loan or other financing agreement between the secured party and the accountholder.
For example, a lender may sign a DACA with a borrower stating that, if the borrower doesn’t make required loan repayments, the lender gains control of the bank account and the funds in it. Offering this type of protection to the lender is an important lending structure and can allow for more favorable lending terms.
There are three types of DACAs that Unit and select bank partners can support:
A DACA on a client’s own operating accounts (between a third party secured party and a Unit client)
A DACA on end-customers’ accounts imposed by client (often used when a client is providing financing to its end users and is the secured party)
A DACA on end-customers’ accounts where the secured party is a third party with no technical relationship to the bank or Unit
By entering into a DACA, a bank agrees to restrict access to the bank account and related funds of an accountholder when requested by the secured party, and to follow other instructions of the secured party regarding the account, in accordance with the terms of the DACA. In some cases, a secured party might authorize a third party as an agent to provide instructions to the bank on the secured party’s behalf.
Unit’s DACA API and the DACA functionality on the Unit platform provides bank partners with the ability to properly operationalize the DACA controls laid out in the DACA itself.
Enabling DACA Functionality
The DACA functionality on the Unit platform is disabled by default. Please contact your Success Manager to enable this functionality.
Prior to enabling DACA functionality, Unit and your bank partner must approve the intended DACA use case as well as the legal agreement.
Unit and your bank partner require copies of all DACAs that are entered into. Your Success Manager can provide you with information about how to transmit copies of DACAs to Unit and what form of end-user consent the bank will require before agreeing to enter into the DACAs.
As further explained in the docs, there are three DACA-related actions enabled by the Unit platform via three different API endpoints:
- Entering into a DACA
- Activating a DACA
- Deactivating a DACA
Each of these will be described below. You are responsible for all DACA-related instructions you provide to Unit and your bank partner, including without limitation all instructions provided via API.
Entering into a DACA
In order to manage an account under a DACA on the Unit platform, the account needs to have an “Operator” with permission to move funds outside of the account based on the secured party’s instructions. The bank partner will be the sole Operator in most cases.
Upon the execution of a DACA, the Operator will change the status of an account either by using the DACA entered API endpoint or via the Operator’s dashboard. This will put the account in “Entered” status.
Activating a DACA
In order to activate a DACA, the secured party (whether it is a client or a third party) will begin exercising its rights under a DACA by first notifying the bank partner that it is taking such actions.
Once a secured party has notified the bank partner that it is exercising its control rights, the Operator will change the status of an account using the DACA activate API endpoint or the Operator’s dashboard. Only accounts that are already subject to a DACA through the “DACA entered” API endpoint can be activated via DACA API.
Activating a DACA will prevent funds from being withdrawn from the account through either accountholder initiated actions (i.e., cards, ACH/Wire origination) or external attempts (received ACH debits). This is to ensure that money is not leaving an account with an activated DACA without the consent of the secured party.
In some cases, a secured party may wish to activate the DACA at the opening of the deposit account. In other cases, activation of the DACA may be triggered by another event, such as if a borrower defaults on its loan with a lender.
While a DACA is activated, your bank partner will comply with any and all valid instructions from the secured party. These instructions can be received via API or any other communications channel agreed on by your bank partner in accordance with the DACA.
Deactivating a DACA
When the secured party wishes to terminate the DACA, the Operator will change the status of the account using the DACA deactivate API endpoint.
Using this endpoint will:
Return the account's dacaStatus to Entered.
Unfreeze all account's cards that were frozen due to the DACA.
Remove the restrictions on ACH, Wire and Book (when funds are debited from the DACA account).
Remove the restriction on incoming ACH debit payments.
In some instances, in accordance with the DACA agreement, an account may be closed upon the termination of the DACA.