If implemented properly, it's totally possible that security is not reduced for that user. However there are at least three problems with it:
1) When not implemented properly, it is treated as an alternative authentication mechanism, not an additional required mechanism. My ultra strong password is useless if it's enough to steal my phone number and convince customer support that the attacker simply forgot the password.
2) It gives a false sense of security. I already have 2FA enabled! What do you mean I should be using TOTP/FIDO2/TLS client certificates?!
3) It reinforces an unfortunately widespread security anti-pattern, which reduces security for Web users in aggregate. So what if it's not a great idea? Everyone is doing it! Or put another way, MD5 password hashing is better than storing passwords in plain text. But please, please, please do not use MD5 password hashing! There are much better ways to accomplish that goal without introducing more flaws.