Does Google really look at text vs. bg colors?

Very long ago I heard a tale (perhaps from Google itself) about how bad (and dangerous from SEO / SE banning point of view) it is to use extremely low contrast text, i.e. bright yellow text on white background or dark-brown on black. It went like you could be banned from the search engine index immediately for that kind of stunt.

It is pretty clear – by this deceptive tactic you could hide irrelevant keywords from human visitors and present them with some unwanted content of your choice. At the same time those keywords presumably are indexed by search engines making your pages findable by wider audience.
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