Relative (competitive or curved) grading is mainly usable in large classes, since small classes could end up with strong or weak students who would be graded unfairly with competitive grading.
However, absolute grading can be done with thresholds that are different from typical US high school thresholds of 90% = A, 80% = B, etc. to allow for more difficult tests and the like.
Colleges probably prefer a bias toward underplacement because (a) fewer students will flunk out, and (b) lower level courses are less expensive to offer than additional more advanced courses that students may be able to take if they started with higher placement.
That is a general aspect of the US, not specific to college or a specific college. Of course, people used to much lower cost medical care outside the US may be in for a shock.