Cool that video show what I already knew thanks for posting anyway. It is not that complicated. Any PND or PSD files using transparency and using it as I showed on my original post at the top causes that issue. In 3.4 both straight and channel packed have the same problem. In 3.5.1 only channel packed has that issue. This mean they solved the straight method but channel packed remains bugged. In 3.3 both work just fine.
Sorry I can’t share my files as they are from work but as I mentioned it is so easy to test this out with a simple label. The nodes used are as simple as it gets.