It's a countermaneuver against grade inflation.

Students and their often overinvolved and influential parents put a tremendous amount of pressure on instructors to provide high marks regardless of performance. This was always an issue but has become more and more uniquitous in recent decades.

Although some manage, it's extremely hard for indivudal instructors to stand up for earnest critical grading in the face of all this pressure. However, an institional policy like this lets them point to that policy as a sheild that deflects responsibility from individual teachers to a faceless, indiffent bureaucracy.

That's not to say that this is the best possible such countermaneuver, but that's the role it's trying to fulfill.

The grading system is already long broken -- far removed from your own meritocratuc ideal -- and this is a meager attempt to do something about it.