These are/were rampant in product design hiring. Especially "startups" or smaller companies. The direction is always the same "spend max a couple hours!" but the understanding is clearly you must spend significantly more. Some are cute with clearly non work related problem, like a previous company I worked for that did "design an app for a time machine" or similar. But many are very very obviously current problems the company is facing.

In my last job search (~3 years ago) I was presented with many requests to complete a design challenge. I rejected them outright and the responses I got (typically from a 3rd party "design recruiter") were quite astounding. Some acknowledged and moved on, but there were several who clearly expressed frustration, disdain, sometimes almost anger. One dropped me from another role I was working with them on for refusing.

Now it's a total red flag for me. But judging from Blind posts it's still a common practice.