This is an old WNG action that had a hammer spring rail pushed up right against the dampers. Dampers wouldn't lift of strings except for a little bit at the breaks and the ends. The rail had become warped and was bowed towards the dampers. I removed the spacers connecting the rail to the brackets and that helped, but some of the rail was still pushing right on the dampers. The owner did not want to spend any money to fix it more. They were happy with the minor repair I did.

I had never come across this problem before. What are some better repair options?

The spring rail doubles as the damper stop rail, so adjusting its position with shims where it is screwed to the frame is an adjustment you could make. What may be happening is that the action has been adjusted with a shorter hammer blow, and then the lost motion removed, and that may make the dampers lift sooner and higher. You can adjust the spoons if that is the case, but that takes some time. I sometimes give the action bolts a full turn to move the hammers closer to the strings, instead of shimming the hammer rail, which is not recommended by purists, but chances are we are just adding a few more years to a piano that should have been retired decades ago, so who cares as long as it works.

If the rail is truly warped you can remove it and steam it. While it is hot and damp position it on blocks underneath and weights on top in appropriate locations so as to straighten the rail.

What BDB says is likely also impacting this, but you can easily see if the spoons are lifting to soon - it sounds like the rail itself was impeding the dampers from lifting off the strings, which would not be from spoons lifting early.

Lifting too soon implies lifting too much.