I don't believe this is true. I've set up a Facebook account, and provided Facebook an email address only, and had reasonable "Friend Suggestions" appear presumably based on the presence of that email address in other people's address books.

Facebook says that they save the contents of your address book, and that it might be used to suggest friends in the future: https://www.facebook.com/help/241275309301947/.

But users do. If you have my email address in your contacts list on Hotmail and you allow Facebook to search for friends in your Hotmail account (most people do I think), then I think you're illegally passing on personally identifiable information.