Test Repository "Create Folder" permission is not being obeyed

Description:

Test Repository Create Folder permission is not being obeyed.

Steps to reproduce:

1. Grant Create Folders permission to a role/group of users.
2. Under Xray >>Miscellaneous settings for Hierarchical Test Organization, add a different Project role. Be sure the user added in 1. does not belong to it.
3.  

Actual Result:

Users with the proper permissions are not able to create folders.

Expected Result: 
Users should be able to Create Folders.

Affects Version/s:
6.5.0, 6.5.1
Note: This works correctly in version 6.2.8.