I agree it wouldn't make sense to put the configs on a global folder like $HOME/.config but I don't see what would be the problem of putting them on a .config folder at the root of the project directory.
Recursive behavior would still work, the same way that Git can recognize that there is a ".git" directory in one of the ancestor directories.
With .config folder at root of project then paths in configs are ../whatever/ instead of whatever/ and ../ is evil plus having ../ on front of every path is noisy.
Recursive behavior would still work, the same way that Git can recognize that there is a ".git" directory in one of the ancestor directories.