Scale Character without Collision Capsule becoming uselessly large?

You can always create custom collision channel and when your character is enlarged, you can set the capsule (root) collision to ignore or overlap with other actores. To still be able to block other characters, when they come directly to legs or torso, you will need to add few other collision capsules and attach them to appropriate bones. This way when your character is large, other actors will be able to walk between legs, but not through them.