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There was a poster on the old Kindle forum, during the first few month of KU, that complained about being limited in the same way the OP describes.
Turns out she was borrowing hundreds of KU books per month. Her issue was part of an early scam, where "books" where published and placed in the KU program, by scammers. The books in question were nothing but masses of text, that made no sense.
She insisted they were legit books, and that she could read a few hundred books each month. The number she gave was outrageous, 300-400 per month, IIRC.
Anyway, here is the relevant snippet from the TOS for KU:
Restrictions
We reserve the right to accept or refuse membership in our discretion. You may not transfer or assign your membership or any Kindle Unlimited benefits. We may take reasonable actions necessary to prevent fraud, including placing restrictions on the number of titles that can be accessed from the program at any one time.
In all my years on the forums, she was the only person who ever came around posting about Amazon curtailing the number of books that could be borrowed each month.
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