In MDL-67042 were raised a couple of issues:

1. Only fields with "Visible to" set to "Everyone" should be displayed in the Custom field filter.
2. Avoid custom "Text" fields with the "Password field" set to "Yes" to be displayed in the Custom field filter.

The first one will be fixed there and this issue has been created in order to review the behaviour of the custom fields having password-type information.

As Jake commented: "The password field is present because custom fields were based on user profile fields, but we don't really have a good use case for password fields on a course. Currently, as Marina says, whether the field is a password or not has no effect on display. Its value will still be shown as text in places like the course list (/course/) and in global search results, web services, etc. Only the teacher sees the password field and only on the course edit page. We need to consider all these areas, and the password option in general - hence the suggestion to do this in another issue."