I guses that works, but it only really prevents surreptitious password collection. If you're in a position to do active attacks (eg. MITM), you can just substitute their public key with your own.
The stakes are “we lost all the user passwords”. This is a problem that can occur if e.g. the POP is logging too many things. Preventing passive collection at POPs also prevents all sorts of footguns like these that can lead to a breach, it is smart security sense IMO.