Kind of like when Microsoft bought Mojang and locked one of the world's most popular online experiences behind talking to M$ servers? There is no way to play the game you paid for - even offline - if you are not interested in creating a Microsoft account. They don't seem too concerned with the whole "terrible idea which is barely legal" thing when there's an opportunity to force people into giving them data.
(this is not related to bans for chat, this is about MS just arbitrarily banning accounts)
I wouldn't put my money on them winning that one. It's wrong, but the laws were written by and for companies. I don't think a judge is going to say that a company who runs an online service can't ban users for violations of their policies. Hell, if the law cared about making sure companies couldn't arbitrarily cut off people's access to their purchases DRM would be outlawed.
This will keep people from getting banned on your server, but it doesn't do anything to help all of the people who have already been banned.
This only applies to people who own the JAVA version. People who only own Bedrock/Windows 10 version do not have this option.
You can simply mod servers so that they don't have this chat reporting. If everyone in the Minecraft community is so opposed, just create and exclusively join modded servers. Does not matter if they get labeled "Not Secure" if 90% of well-known popular servers have it, and there are tools and tutorials everywhere which make it so easy to set up even a 9-year old can do it.
What if Microsoft tries to force servers to enable chat reporting in a future update? Nope, not going to happen. Minecraft is nearly open-source and the amount of modders who care about this is huge, the technical and legal resources to do so are just not worth it.
I do get that Microsoft is obnoxiously tone-deaf with this, and I believe it's a terrible idea which is barely legal (revoking people's access to what they bought on shoddy evidence - if this actually starts happening to a lot of people I hope they get sued). But it's just - people are saying "Minecraft is dead". Minecraft is not remotely dead.