Why is UndecidableInstances required for an obviously terminating type family?

In below (working) snippet

{-# LANGUAGE DataKinds, KindSignatures, TypeFamilies, UndecidableInstances #-}

type family Rev (acc :: [*]) (ts :: [*]) :: [*] where
  Rev acc '[] = acc
  Rev acc (t ': ts) = Rev (t ': acc) ts

type Reverse ts = Rev '[] ts

the Rev does an exhaustive pattern match on its second argument and recurses on strictly smaller data.

*Main> :kind! Reverse [Char, Bool, Float]
Reverse [Char, Bool, Float] :: [*]
= '[Float, Bool, Char]

So when I remove UndecidableInstances it is not clear to me why this would be rejected :-(

error:
      The type family application  Rev (a : acc) as 
        is no smaller than the instance head
      (Use UndecidableInstances to permit this)
      In the equations for closed type family  Rev 
      In the type family declaration for  Rev 
Failed, modules loaded: none.

I tried this on GHC v8.1.today, but older GHCs behave the same.

Trac metadata

Trac field	Value
Version	8.1
Type	Bug
TypeOfFailure	OtherFailure
Priority	normal
Resolution	Unresolved
Component	Compiler (Type checker)
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