This definitely happens! As a non-specific example, there's often an extra step to avoid this by making a "credentials" file with restricted permissions. If you don't do that, you're often stuck passing the password as a commandline argument.

Command line Wifi config comes to mind, but I've encountered this situation in other contexts before. It happens also when you want to connect internet-facing servers. Usually when you're forced to enter the pw via commandline argument.