In the movie Office Space, the (pretty) good guys hatch a plan to divert to themselves fractions of cents that their employer, Initech, has apparently been overcharging its customers by rounding billings upward. Had any customer discovered the scam, he might have filed a class action. But chances are customers agreed to arbitrate disputes and waived any right to join a class action when they signed a purchase order or clicked agree. So Initech can settle privately with any customer who complains – maybe even under a nondisclosure agreement – and need not change its billing system.

On October 24, the Senate voted to abrogate a new rule promulgated by the Consumer Financial Protection Bureau (CFPB) that would have overridden these now ubiquitous provisions barring consumers from joining any class action. The vote was 50 senators for and 50 against, with Vice President Mike Pence breaking the tie. So consumer class actions are pretty much dead in the financial industry. But business may regret this apparent victory.

The Senate vote was no doubt influenced by a Treasury Department report lambasting the CFPB and the rule. The most striking feature of the report is its title: Limiting Consumer Choice, Expanding Costly Litigation: An Analysis of the CFPB Arbitration Rule.

Limiting Consumer Choice? Really?

In practice, consumers have zero choice whether to agree to arbitration. Indeed, they seldom know that they have done so until they complain. But in the era of fake news, it seems Treasury is entitled to its own facts.

The Treasury critique might seem persuasive: Only 13 percent of consumer class actions result in recovery, of which 31 percent, on average, goes to plaintiff attorneys. And just 4 percent of class members claim their average $32.35 share of successful class recoveries. Treasury says this means that consumers place little value on class actions. But the CFPB rule was not about compensation or compliance or consumer choice. The idea that consumers will choose a bank or credit card based on whether it comes with arbitration or permits class actions is ludicrous. The rule was about deterring business practices that gouge consumers. The focus should be on the payout by the wrongdoers and not on who gets the money.

There is no doubt that class actions can be abused. The mere threat of liability to a class comprising thousands of consumers may be enough to induce a defendant to settle even if the claim is frivolous. But an individual plaintiff cannot simply declare an action to be a class action. The court must approve the lead plaintiff and lawyer as well as the definition of the class. If the court does not do so, the case reverts to an ordinary action. The CFPB rule would not have affected contracts requiring bilateral arbitration. Rather, it would only have prevented defendants from relying on such provisions to avoid a class action.

It is surprising that business has been so hostile to class actions since they provide a way to adjudicate numerous small claims all at once, thus precluding never-ending bother by the Lilliputian swarm. It is telling that when the class action first emerged under English law it was called a bill of peace. One would think that the prospect of achieving such peace by dispensing with the claims of thousands of consumers all at once – and probably for cents on the dollar – would be quite attractive.

Alas, abrogation of the CFPB rule returns us to the legal world as it was following the 2011 Supreme Court decision in AT&T Mobility LLC v. Concepcion. There, the plaintiff had signed up for cell phone service and a free phone. When AT&T sent him a bill for the sales tax – $30.22 – making the phone not free at all, the plaintiff filed a class action. But the contract of sale included an agreement to arbitrate and a class action waiver. The lower courts ruled that the class action waiver was unconscionable and thus unenforceable under California law, because it effectively precluded anyone from suing for such a small sum. The Supreme Court reversed, holding that California law was preempted by the Federal Arbitration Act (FAA), adopted by Congress in 1925 to assure that contracts to arbitrate would be enforced. In the majority opinion, Justice Antonin Scalia emphasized that an agreement to arbitrate is a bilateral contract in which two parties have agreed to arbitrate any dispute. But Justice Scalia also observed that class arbitration is oxymoronic – that a class action is inherently inconsistent with arbitration.

In the end, the argument from contract proves too much. An agreement to arbitrate is just that – an agreement between two parties to handle a dispute between the two of them. I cannot waive your rights. You cannot waive my rights. So how is it that the right of similarly situated consumers to join forces under established rules of civil procedure disappears as a result of many bilateral contracts that supposedly affect only the rights of the signatories? It is not clear that the FAA policy favoring the enforceability of agreements to arbitrate applies to class waivers. A class waiver is not an agreement to arbitrate. It is an agreement to refrain from exercising a right.

Moreover, the danger of abusive class actions is overblown. The court has the power to replace both plaintiff and lawyer if necessary to protect the interests of the class. Perhaps more important, the court must approve any settlement. Indeed, once filed, a class action may not be dropped without the court’s approval (because of the danger that the plaintiff or lawyer might be paid off to the exclusion of the class). Thus, the only real danger of abuse comes from failure of the courts to do their job. Indeed, several state courts became havens for class actions, presumably because judges were less than rigorous in enforcing the rules. Thus, Congress passed the Class Action Fairness Act (CAFA) of 2005, which among other things provides for the transfer of a state-court class action to federal court if the amount at stake is $5 million or more.

Proponents of arbitration argue that it is quick and cheap because it can dispense with many of the niceties of litigation in court. But it is also private. There is typically no published opinion. Thus, the public is deprived of information about their rights and remedies. And the law ossifies.

Consider the recent litigation about bank overdraft fees generated by the practice of clearing big checks before small checks. It is unlikely that the aggregate impact of the practice would even be considered in bilateral arbitration. The bank would likely argue that the dispute is with this customer who should have read the fine print and been more careful with his money. And even if a few consumers prevail, why would the bank change its ways? In contrast, a class action can address distinct collective interests of consumers.

One possible fix is punitive damages – also known as exemplary damages. If a wrong is difficult to detect or victims are unlikely to sue successfully, the wrongdoer may not be deterred by the prospect of mere disgorgement when caught. Thus, the law provides for triple damages in certain cases of antitrust violations and insider trading. In the absence of such a statutory remedy, punitive damages can address the issue. For example, if there is a 20 percent chance that a consumer will notice an overcharge and a 50 percent chance that the consumer will sue successfully, it makes sense to multiply any damages by 10 to deter the defendant from overcharging others.

As it happens, the Supreme Court ruled that punitive damages can be awarded in arbitration in Mastrobuono v. Shearson Lehman Hutton, Inc. (1995). But punitive damages are a poor substitute for a class action – and especially so in arbitration. Estimating the chances of detection and recovery is better suited to a court that is attuned to public policy and sees many cases. Moreover, if punitive damages are also meant to set an example, how exactly does that work if the decision and reasoning remain private? Before Mastrobuono, well-settled state law regarded punitive damages as akin to a criminal fine based on harms suffered by others not present in a bilateral arbitration. But as in Concepcion, the Supreme Court ruled that this sensible common law doctrine was trumped by the FAA.

To be clear, the rationale for punitive damages disappears in a consumer class action: If all victims are made party to the action, there is no need to multiply the damages. Moreover, one would think that business would prefer such a bill of peace – settling all claims likely for cents on the dollar – over bilateral arbitration with the possibility of repeated awards of punitive damages. Apparently not. Could it be that business reckons it will escape the need to answer at all for abusive practices because few consumers will bother to file claims?

Treasury prevailed in the Senate by focusing attention on compensation and poking holes in the idea that consumers are made whole by class actions. But the focus should be on deterrence – the payout – not the recipient. While it is easy to calculate how much consumers receive, there is no good way to measure the effects of deterrence. How do we quantify the benefit of preventing schemes that do not materialize because a thoughtful businessperson foresees the prospect of a class action? No empirical study is likely to show the best way to prevent a one-off scam that is unlikely to repeat. But that is no reason not to get the rules right – or at least to try.

This post comes to us from Richard A. Booth, the Martin G. McGuinn Chair in Business Law at Villanova University’s Charles Widger School of Law.