This password security measure is a Chrome extension that's required by company policy to be installed on all corporate machines. It watches all input (to browser forms) and if it detects your password being typed anywhere other than an actual sign-on page, then the next time you sign on successfully you're required to change your password. I believe there's also an e-mail notification, but it's delayed.
This is actually a pretty good password security technique, specifically because people often inadvertently type their password into the wrong forms due to focus errors, lack of caffeine, etc.
Because I can't think of an efficient way to do that that doesn't involve having the extension have access to the password.
I mean, you could store the password hash + length, but then you're securely hashing every single overlapping substring of what you enter, which is not exactly fast. Especially as KDFs are designed to be slow.
And if you store the password hash then you enable an offline attack.
Even assuming that the connection is secure (never a good assumption), that still means that there is a single point of failure. And one with drastic consequences.
I do agree about the single point of attack though. Perhaps you could do an asynchronous substring check locally when the CPU is idle.