I think that this is the straw that broke the camel's back, localbitcoin has been already struggling to keep up with all the other exchanging platforms, and the only thing that was keeping it alive was the hand to hand or face to face exchange, because that was the only trustworthy method that you could use between tow individuals without any risk of your money being scammed, and with that gone i think it is going to be a matter of time before localbitcoin shuts down, and it does not matter whether they were sharing info with government because transactions made on money transfer like Moneygram and western union and other methods where a dead giveaway.
The scam issue is not the only reason some chose or choose face-to-face/physical transactions. Some prefer it due to anonymity of cash and it can be beneficial to people who are banned from using bank accounts or international travelers with no bank accounts or debit card
I guess we are almost close to the time when cash transactions will be banned and demonized
