This is the crux of the issue. The problem is that when Facebook asks for "location information", the consequences of this are not being conveyed to the user. The user might think, "ah they want my location for the weather recommendations and event suggestions in my neighbourhood". They do not realise how something so "innocuous" as location information could be weaponised against them.
I used location data as an example because you could infer almost everything about a person just from that. You could know their social circle, their approximate tax bracket, which banks they use, who is their lawyer, their accountant and their wealth manager, their familiar situation, how healthy they eat, how healthy they are, whether they are chronically ill, and what type of chronic diseases they might have, what activities they engage in, what are their political leanings, I could go on, I do not think this is anywhere near an exhaustive list...
The user does not know that Facebook it going to tip off the insurance provider about the user's unhealthy eating habits or his chronic medical condition. Or maybe tip off his bank that he has substantial wealth elsewhere.