Never heard of someone getting banned on steam by doing so. The only thing i hear is and have noticed myself firsthand it that steam deletes the game that has been purchased with a compromised card and lets you know the game has been deleted from the account. And TOS is not the law so in that regard they should delete the account or the game itself but not BAN THE WHOLE CONSOLE from going online. I do agree if the account would be deleted or the games but banning the console from even going online is going overboard and steam, microsoft and Sony doesn't do that. They do ban the console if ur running cfw and so forth wich i get then but using an account should not be a reason to ban your whole console. Nintendo is being a bitch and should only have deleted that account and thats that
No one's denying it's not nice of Nintendo for completely banning the consoles to acces any online service that goes through their network & account service, so eshop & your account & digital games on there also games that use their network for online. TC might only be able to play multiplayer games that don't work with nintendo service & servers, though from now on.
You're also comparing a PC with a console/handheld, which is not the same. Steam can ban your ip/MAC & account, but even if they do with PC it's kind of useless unlike with consoles/ handhelds as they have an console/device ID. On PC they can still blacklist you for accounts, so you using fake info afterwards & they notice they can take action against you, but on console/handheld they consider that device's ID also as your ID, hence this whole console/handheld ID ban.
While in some cases it might be OK to just ban the account, the thing is that Nintendo can't really see if it's regarding a stolen device being abused. If say it is regarding multiple accounts that gets reported together with a reported stolen device to Nintendo & both police & the real owner logs in on a new device & claims things don't work etc. Then it turns out it was TC that was using that account so he gets banned by Nintendo, so he contacts them. There TC claims he bought gamecode etc. What do you think will happen, since TC can't prove the account is created by him & what if he had other stolen accounts too on the Nswitch? Nintendo'll have to investigate & ban his device from their network just to be save that they aren't enabling a case of possible identity theft/fraud to continue through their network. Sure it's not nice, but it's obvious Nintendo probably had enough data to see that account has been, maybe used by multiple devices etc. In case of reported theft TC, might be seen as a suspect too, so he might even get sued by the legal account owner & there he might get a chance to defend his case in court & only after that Nintendo can see he's maybe also a victim or not & even then they are allowed to ban him for not following the ToS, they might decide to give him another chance too, but he'd need to get a new device if his account wasn't banned.
Also Sony & Microsoft also ban consoles from accesing their online service they have both an account & console ban in case off hacks & stolen devices or things they find severe.
This is why I said buying an account might be illegal, especially if you can caught using it without the owners written approval etc. & this is why the ToS is binding when creating an account as only the person that creates it can file a lawsuit against Nintendo regarding that account if they broke the law, like if they share his information without his consent etc. No matter what's in the ToS only the legal account owner in this case the creator gets to sue Nintendo as he/she signed an agreement with Nintendo. It goes the other way around too, Nintendo might actually also sue in cases of fraud etc., both are bound by that ToS.
A ToS might not be law, but it's a partially binding disclaimer that is connected to laws regarding contracts etc. When there's a case it will be completly clear. In other words opt-in & you the company are bound to follow certain laws. Opting-out means deleting/disabling that account on some cases. While laws don't say clearly accounts can't be bought. It can derive from ToS that the company cleary explained that when the user makes an account the user agreed that making an account is like creating an online ID, hence is responsible for that ID etc., so privacy & laws regarding ID can come in working there for both. Ofcourse what can't pass or can't be enforced through law will be ignored, but isn't illegal of Nintendo to ban that console from their network it works the same as you blocking Nintendo too.This is why you need to be careful, especially in some countries.
Another thing is anti-piracy there Nintendo has the right to ban your console from their network if you're guilty of that!You say you can understand with hardware mods, but software is connected to that account so piracy laws also apply there. I guess it's privacy/ID, piracy & money that makes them act so Draconian.
I find it abusive if they ban a console making it completely worthless for 2nd hand sale etc. & forcing you to get a new one if only your console was banned.
In case you can proof you did nothing wrong you can try & sue them, though & make a big deal out of it on SNS too. As they'll already tell you to go the retailer etc. if you bought a banned console. To be fair who has money to sue them regarding a console ban, if buying a new device is cheaper & less of a hassle in the end. I guess that if you get console ban unjustly you should just boycott them for life & never buy digital games, so they'll feel that. Sadly a lot of people don't do that & get a new console/handheld, new account etc., which is why they can happily continue with such practices.
tldr:Fraudulent activity might be the reason TC's device got banned. Is fraud illegal? Yes/No?I think it is. There you have an answer. In a sense, it's also a bit of protection for TC too, depending on how you see it. If they didn't do anything at all it's not good either.