Account Control Agreement Template for the United States
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What is a Account Control Agreement?
Account Control Agreements are essential instruments in secured lending transactions where deposit accounts or securities accounts serve as collateral. These agreements, governed by U.S. law and particularly the UCC, enable lenders to perfect their security interests and establish control over the collateral accounts. The Account Control Agreement creates a framework where the account bank agrees to follow the secured party's instructions regarding the account without requiring the account owner's consent, typically after receipt of a notice of exclusive control following a default or similar triggering event.
Frequently Asked Questions
Is an Account Control Agreement legally binding in the United States?
Yes, Account Control Agreements are legally binding contracts in the United States when properly executed by all three parties (account owner, secured party, and account bank). These agreements are governed by the Uniform Commercial Code (UCC) Article 9 and establish enforceable control rights over deposit or securities accounts as collateral.
Can a lender seize my bank account without an Account Control Agreement?
Without an Account Control Agreement, a lender cannot perfect a security interest in your deposit account under UCC Article 9, making it much harder for them to claim the account as collateral. However, they may still have other remedies available depending on your loan agreement and state law.
How does an Account Control Agreement differ from a security agreement?
A security agreement creates the security interest between borrower and lender, while an Account Control Agreement involves the bank as a third party to perfect that interest in specific accounts. The Account Control Agreement gives the lender 'control' under UCC Article 9, which is necessary for perfection when deposit accounts serve as collateral.
How long does it typically take to execute an Account Control Agreement?
Account Control Agreements typically take 2-4 weeks to execute, as they require coordination between three parties and banks often have internal review processes. The timeline depends on the bank's policies, negotiation of terms, and whether the secured party and bank have an existing relationship.
Can I still access my bank account after signing an Account Control Agreement?
Access to your account depends on the specific terms negotiated in the Agreement. Many agreements allow normal account access unless a default occurs, while others may restrict certain transactions immediately. The agreement should clearly specify your ongoing rights and any limitations on account usage.
Are there specific UCC requirements that make Account Control Agreements invalid?
Yes, under UCC Article 9, an Account Control Agreement must involve the actual account bank as a party, clearly identify the specific accounts covered, and establish the secured party's control rights. Agreements that don't meet these UCC requirements may fail to perfect the security interest, leaving the lender's collateral claim vulnerable.
Why do banks sometimes refuse to sign Account Control Agreements?
Banks may refuse due to internal policies, concerns about liability exposure, administrative burden, or conflicts with existing account terms. Some banks require additional fees, have lengthy approval processes, or only work with certain types of lenders, making it important to confirm bank participation early in the loan process.
About the Account Control Agreement
An Account Control Agreement is a critical legal document in secured lending that establishes control over deposit accounts or securities accounts used as collateral. Under United States law, particularly the Uniform Commercial Code, you need this agreement to perfect your security interest and gain priority over other creditors when financial accounts serve as loan collateral.
When do you need this document?
You'll need an Account Control Agreement whenever you're involved in secured lending transactions where bank accounts or investment accounts serve as collateral. This includes asset-based lending arrangements, working capital facilities, and commercial real estate financing where cash management accounts are pledged. The agreement is essential when you're a lender requiring control over a borrower's accounts to secure repayment, or when you're a borrower whose lender demands account control as a condition of financing. Investment firms and hedge funds also use these agreements when pledging securities accounts to prime brokers or other financing sources.
Key legal considerations
The control provisions are the heart of your agreement, defining when and how the secured party can exercise control over the account. You must clearly specify the triggering events that activate control rights, such as payment defaults, covenant breaches, or material adverse changes. The agreement should address the account bank's obligations to comply with instructions from the secured party while protecting the bank from conflicting demands. Notice provisions are crucial-establish clear procedures for how the secured party will notify the bank when exercising control rights. Consider including carve-outs for ordinary course transactions and operational needs of the account owner before control is triggered. The agreement must also address fees, indemnification provisions, and the duration of the control arrangement.
Legal requirements in United States
Under the UCC, particularly Articles 8 and 9, your Account Control Agreement must meet specific requirements to achieve perfection of the security interest. The agreement must clearly establish that the account bank will comply with entitlement orders from the secured party without further consent from the account owner. For securities accounts, compliance with federal securities laws including the Securities Act of 1933 and Securities Exchange Act of 1934 may be required. Banking regulations such as Federal Reserve requirements, FDIC regulations, and Bank Secrecy Act provisions must be considered, especially regarding customer identification and reporting obligations. The E-SIGN Act governs electronic execution of these agreements, and you must ensure compliance with state-specific banking laws that may vary by jurisdiction. The agreement should be structured to maintain enforceability under the Federal Bankruptcy Code, ensuring your perfected security interest survives bankruptcy proceedings.
GOVERNING LAW
Applicable law
This Account Control Agreement is drafted to comply with United States law. Key legislation includes:
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