Yes, modding games is illegal there. But it has something to do with the way their copyright works afaik. If a company lets you modify their IP, they effectively give up their ownership rights from what I understood.
I play FFXIV and there it is against TOS too (of course it being a MMO modding can have another context), but for quite a few QoL improvements that came out with more recent patches you can clearly see the inspiration.
It would be interesting to know if modding a game like Skyrim there would be forbidden too.