Type checking this makes GHC 7.8.3 loop:

{-# LANGUAGE MultiParamTypeClasses #-}
module Foo where

class Class3 a => Class1 a where

class Class2 t a where
  class2 :: (Class3 t) => a -> m

class (Class1 t, Class2 t t) => Class3 t where

Does not happen in 7.6.3.

I think it's something to do with the Class3 constraint appearing in class2.