I'm not much for regulation of crypto/DeFi in general, but instant lending like this should absolutely, 100% be illegal. It's exclusively useful for exploits and MEV vampirism, and for nothing else.
You can't cash out flash loans, they need to repaid within the same block. The only legitimate use case seems to be arbitrage/stablecoin stabilization.
I can get loans on my assets to participate in defi, arbitrage, & and literally cash out my money into a bank account if i so wished. Pretty useful.