You just got your committee approvals for a new relation.  It is a borrower you have been after for some time.  Approvals are fairly standard and call for a secured credit facility with a priority all business asset lien.

The borrower is moving nearly all of its accounts to your bank for cash management too.  But the borrower claims he needs to keep one account at a mutual since he is holding his breath that there will be demutualization and he will hit it big with stock redemption.  You do not have the heart to crush his retirement dreams so you let him keep that other account.

How can you comply with your approvals and get a perfected security interest on that deposit account?

Follow the UCC. Creation/Attachment/Perfection (by Control)

Under the UCC the security interest must be created and attached to the collateral for a valid security interest.  The loan and security documents will allow you, as lender, to create and attached the collateral – all business assets of borrower.

To enforce your security interest in the deposit account as to third parties the security interest must be perfected.

A security interest in accounts can be perfected by taking control over the account.  Almost all of the borrower’s accounts will be at your bank – you have control over these and nothing further may be necessary for perfection.

For the account at the mutual you will need, as the UCC terms it, an authenticated record.  This can be done through a deposit account control agreement.  The agreement will grant you the lender “control” of the account and voila your security interest is perfected.

The Deposit Account Control Agreement.  What’s It All About?

The deposit account control agreement sets out the mutual’s rights and duties relating to the account and the mutual, in this case, agrees to comply with directions from you, the lender, without consent of your borrower.  You likely will not have to give any instructions unless there is an event of default.

Most banks have their own forms that they will permit secured lenders and their borrowers to use for their bank.  However, not every bank teller will know about the existence of this form.

The deposit account control agreement typically includes the following key provisions:

• A representation from the borrower that the account is a “deposit account”

• A representation from the mutual that it is a “bank” as defined in the UCC

• A covenant from the mutual that it agrees to comply with your instructions without further consent by the borrower.

• A covenant that the mutual will not enter into another deposit account control agreement with any other third party or any other agreement relating to the borrower’s account.

You Did It

If you get the deal you have been keen on for some time and your borrower wants to keep an account outside of your bank, don’t sweat it – perfect it.