ISPs are free to oversubscribe as much as they want.

As long as they also provide people the bandwidth sold to them when they want it.

Otherwise compensation should be in order if they throttle.

The point of oversubscription is maintaining a network that keeps costs low while providing a good service without congestion. They monitor their network (not your last mile connection, everything else) and once links start reaching 60-80% of capacity at peak times you start adding more capacity. Bad ISPs (like most US ISPs) let this go way too far though.