I think it could possibly be caused by something wrong in your system retroarch.cfg or even global retroarch.cfg. I'm not sure exactly what lines would cause it to not look at the per-game .cfg file, but I know doing things in the Retroarch GUI and using save on exit can populate a huge .cfg file in either the system based or global config. So it may be worth trying to revert to the .rp-dist(should be stock) for global and system retroarch.cfg, and seeing if that fixes it.
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