I don't think you lose your library. From what I was told, your account is put into a no-purchase mode where you can play your games but can't purchase any new ones.
They used to ban users altogether, I think they've changed their policy. They also used to ban users if someone gifted them a game and the transaction buying the game was charged back.
It's pretty unreasonable to claim fraud (charge back) if you buy a game and then someone gifts you...
I think the problem was, I could have your account shut down by gifting you a game and charging back the purchase.