It is still in the beta phase. Riot just rolled it out to NA for the guinea pig test. I expect in the coming weeks an official post about the system.
Excluding toxic players from getting free stuff from the hextech system is supposed to act as a deterrent and punish people since clearly their system to get people to change their tune either does not work or does not work quickly enough.
The only way the hextech "attitude adjustment system" works is if there is a way to eventually get put back on the nice list. If the system continues to work as it does today and all the free stuff is off limits to anyone who has been punished at any time, then it completely defeats the purpose as a way to try to get people to change their attitude.
Riot punished backwards. They didn't release some post saying "here is the deal moving forward. You get on the naughty list, the free stuff is gone". instead they took everyone who has ever been punished and put them on the naughty list. How does this help prevent toxicity? It doesn't.
You now have no reason to be a better person than you did prior to the system.
If Riot had said "here are the rules going forward from today". Then it would of acted as a deterrent. Sure this is how it works for new toxic players today, but that's a small number compared to their existing naughty list.
Just like everything else it was not thought out. You have to remember these are kids. This is their first real job. Have to keep your expectations of them having the details sorted out really low.