There's a type of attack where you put absurdly large inputs into fields that perform expensive calculations, like password hashing... So imagine 100 computers spamming the login form with the whole Bee Movie script 10x per second (which would be a pretty small attack)... Cheap to send, expensive to process. As others mention, the storage should be cheap, because the hashed version of the password is all the same length.

So it makes sense for apps to have SOME upper limit... But it should be like 64 or 100 or 128 or 500 or something. 12 or 16 or 20 is just obnoxious.