Yes, this can override group policy and make it so that your accounts do not have passwords required. This can cause a security gap, but you can easily fix it by querying for the accounts that have "Password-Not-Required" = true and switching the setting to false.
First, you can get the list of all user accounts that do not require a password:
Get-ADUser -Filter {PasswordNotRequired -eq $true}
Then you can correct the accounts using:
Get-ADUser -Identity User2 | Set-ADUser -PasswordNotRequired $false
https://learn.microsoft.com/en-us/powershell/module/addsadministration/set-aduser?view=win10-ps