This is generally sound advice but it's not a random side project of someone in that case. It's an official partner of the libraries so your suspicion is a bit misplaced.
It's a for profit company that sells its services to libraries.
I think suspicion of any company that asks for your password with a third party is warranted. Asking for credentials like this not only teaches bad security practices, but even if Kanopy is trustworthy today, the company could easily be sold to a less trustworthy owner and all the data from your library account siphoned and sold to data brokers.
Kanopy uses your card number and PIN to access an API for whatever ILS the library allows Kanopy to point to.
Libraries allow access when they pay for giving access to Kanopy for their patrons.
However, in theory, this could give Kanopy access to try and harvest checked out materials via our catalog with these credentials. In practice, we haven't seen them doing this. Your PIN/password should after all be different from the ones you use for every website.
"Then, we'll ask you for your public library card number and PIN/password"
That's a hard no.
Don't give your password to anyone