There were probably a lot of reasons why automatic seat belts were a passing phase, but the safety regulations you mention were likely the most significant. I believe automatic seat belts were considered valid passive side restraint and cheaper to implement until side airbag technology became the more economic choice. Plus all of the additional downsides like mechanical complexity and consumer preference stuff mentioned in other replies.

Anecdotally, the non-seat-belt types I knew would always just keep in unbuckled anyways. 🤷