Hi, @T16
Thank you for posting in Microsoft Q&A forum.
I think the User Group Name attribute is used to determine whether the user has synchronized members to Azure AD groups, this might be by design.
But I agree it's really messes up the on-prem user group membership, glad to hear you got a workaround to fix this.
If you think this is a bug, you may try to send a bug report through the Configuration Manager Console, to do this, press the "Smile face" button in the top right corner and choose "Send a Frown".
For more details, see https://learn.microsoft.com/en-us/sccm/core/understand/find-help
If the response is helpful, please click "Accept Answer" and upvote it.
Note: Please follow the steps in our documentation to enable e-mail notifications if you want to receive the related email notification for this thread.