I am very anxious for this bug to be fixed as well. There have been several reports of this and the devs are aware. Here is what Daniel (one of the devs) just said in the discord server two days ago regarding this:

"Yes, it's really weird too O.o It used to work just fine, I think it might be something that went wrong with the middleware.
I feel like it might be something that I either do some weird duct-tape on, or I need to change the whole middleware which would be a lot of work ><; not something I can take on right now.
My big priorities right now are the switch update and potion paws 🥲
I will try to find a fix for that once those 2 priorities are out of the way"

But I will be happy to update you on this thread when I know the issue has been fixed

Originally posted by Sgt_Cheddar_:

if they fix this password issue, i will buy it and a couple copies., so if or when this issue is fixed, please let me know!

I can confirm the passwords are working now. We tested it yesterday and there were no issues. But if you encounter any problems, please post. Thanks.