diff --git a/crates/compiler/solve/src/solve.rs b/crates/compiler/solve/src/solve.rs
index 7fc9ba7e1c..d38eafcf15 100644
--- a/crates/compiler/solve/src/solve.rs
+++ b/crates/compiler/solve/src/solve.rs
@@ -3141,9 +3141,17 @@ fn adjust_rank_content(
 
                 EmptyRecord => {
                     // from elm-compiler: THEORY: an empty record never needs to get generalized
-                    Rank::toplevel()
+                    //
+                    // But for us, that theory does not hold, because there might be type variables hidden
+                    // inside a lambda set but not on the left or right of an arrow, and records should not
+                    // force de-generalization in such cases.
+                    //
+                    // See https://github.com/rtfeldman/roc/issues/3641 for a longer discussion and
+                    // example.
+                    group_rank
                 }
 
+                // THEORY: an empty tag never needs to get generalized
                 EmptyTagUnion => Rank::toplevel(),
 
                 Record(fields, ext_var) => {
diff --git a/crates/compiler/solve/tests/solve_expr.rs b/crates/compiler/solve/tests/solve_expr.rs
index 049bc63e6f..ae9a1e23b9 100644
--- a/crates/compiler/solve/tests/solve_expr.rs
+++ b/crates/compiler/solve/tests/solve_expr.rs
@@ -7255,24 +7255,11 @@ mod solve_expr {
                 #   ^
                 "#
             ),
-            // TODO SERIOUS: Let generalization is broken here, and this is NOT correct!!
-            // Two problems:
-            //   - 1. `{}` always has its rank adjusted to the toplevel, which forces the rest
-            //        of the type to the toplevel, but that is NOT correct here!
-            //   - 2. During solving lambda set compaction cannot happen until an entire module
-            //        is solved, which forces resolved-but-not-yet-compacted lambdas in
-            //        unspecialized lambda sets to pull the rank into a lower, non-generalized
-            //        rank. Special-casing for that is a TERRIBLE HACK that interferes very
-            //        poorly with (1)
-            //
-            // We are BLOCKED on https://github.com/rtfeldman/roc/issues/3207 to make this work
-            // correctly!
-            // See also https://github.com/rtfeldman/roc/pull/3175, a separate, but similar problem.
             @r###"
         Fo#f(7) : Fo -[[f(7)]]-> (b -[[] + b:g(4):1]-> {}) | b has G
         Go#g(8) : Go -[[g(8)]]-> {}
-        h : Go -[[g(8)]]-> {}
-        Fo#f(7) : Fo -[[f(7)]]-> (Go -[[g(8)]]-> {})
+        h : b -[[] + b:g(4):1]-> {} | b has G
+        Fo#f(7) : Fo -[[f(7)]]-> (b -[[] + b:g(4):1]-> {}) | b has G
         h : Go -[[g(8)]]-> {}
         "###
         );