They are being denied. That's the default state when your visa expires and you have not been granted a new one. What the government is doing is telling people to not bother asking right now because everyone will be denied.

That is not what's happening here.

They're not making decisions. No one is being denied as a result of this.

Also, there are many cases in which a visa can expire and you're still allowed to be in the US and even work. As long as the reason why you got one is still there (there's a legal term for this but IANAL). It's just that when you leave you cannot come back without getting a new one.