Easy to reproduce problem. Make a 2x2 cube, select all 4 faces on one of the sides and collapse. Result will be rather weird and unusable geo, see attachment.
ptoing, thanks for report that.
I repeat your process and got a slight different resulta, but still the unwanted one.
I don't remember to use this option. Usually I do that for edges. It looks that no many people uses it as well.
As an option to "fix" that apply dissolve command to the faces first (DEL or BACK-SPACE) and then collapse them.
Thanks. yeah. I do not use this often, and I know about the work around. Just thought I would report it
Fix in the next release. (a patch is available)