It turns out one can only edit the "Maximum number of multiple records" at a Custom Field Set creation time. After that it is only possible via database value update in the civicrm_custom_group.max_multiple. Out of curiosity - why is that?

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When you first create a custom group and it does not yet contain any data (e.g. no custom records have been saved for any contact) you are allowed to change anything. Once data exists, it is more restrictive to prevent data loss.

However, in checking this I discovered a bug which was causing it to act stricter than it should. The logic is supposed to be that the maximum can be increased but not decreased. The bug was preventing it from being changed at all. Here is the fix: https://github.com/civicrm/civicrm-core/pull/27916

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