This is like finding out Microsoft decided all internet traffic on windows should be proxied through their servers. Could there be a benefit? Yes. Does it raise serious questions? Most definitely.
It's not. According to the article, it only funnels insecure traffic through the Cloudflare VPN (eg, to a site with an invalid certificate). And this doesn't prevent you from using your own VPN as well.
If you're connecting to a site over HTTP, and the packet takes 10 hops to get there, that's 10 machines that can see who you're connecting to and what data you're sending. Including, in all likelihood, a major CDN like Cloudflare. Also including anyone on the same public Wifi network. This data was never kept private to begin with.
If you're connecting over HTTPS with a valid certificate, the VPN isn't used. Even if it were though, they couldn't see your data. It's encrypted.
What is the obvious privacy downside of selectively enabling a Cloudflare VPN when browsing on public Wifi or unsecured sites (which is when it enables)? That Cloudflare can see what sites you visit?
On public Wifi and unsecured sites, anyone could potentially see and modify the data anyway.