Not sure if it’s policy but your experience is typical to what others have experienced.

As to your options, it’s actually more complicated since leaving after the 3 nights can trigger early departure fees which typically get charged on a cash basis.

I see three options to consider:
1) updating your booking to 3 nights has the problem that your room type is not available. I assume no awards rooms are available either. If they are, you could book a different room type. If not, you might need to change to a cash reservation
2) Are you arriving in the morning? You could tell the hotel you’ll be coming in early but that you booked from the night before. Easier to make it work if you are there early morning. This would tackle one additional night or 4 nights of your booking. If you are leaving later afternoon on the last day, you can basically not checkout. You depart as late as you want and do online checkout the following morning
3) You could do your basic 3-night stay but not check out until the fifth day. You do have a slight chance that cleaning service on the 4th day could raise a flag on their end