After upgrading a couple of Macs to 10.15.7, I can now log in using my password when I unplug the Smart Card. I ensured the configuration profile with the payload to "Enforce Smart Card Use" is still installed.
Now with the 10.15.7 update, I can unplug the Smart Card (screen saver kicks in) and log in using a password or Touch ID. Macs prior to 10.15.7 were fine, including Mojave, High Sierra.
Anyone else seeing this?