UPDATE: In a somewhat surprising move for PayPal, it has finally decided to release Regretsy’s frozen funds!
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Yesterday, we brought you the tale of how a small misunderstanding on the part of Regretsy.com had led to PayPal telling the site it had to return hundreds of dollars people had donated for its Secret Santa campaign to put gifts in the hands of kids in need. Last night, things went from bad to worse and now every account associated with Regretsy is in limbo.

Consumerist contacted Regretsy head honcho Helen about the ordeal.

“I just had an hour long conversation with a jackass over there that was unbelievable,” she tells us. “First he said that you can only use the Donate button if you’re a nonprofit. I told them that was false; the PDF of instructions to use the Donate button only says ‘worthy cause.’ I pointed out that people have the donate button on their blogs to raise money for themselves, and he said, ‘You can use the donate button to raise money for a sick cat, but not poor people.'”

Helen says the PayPal rep also told her that, “No one above me will even speak to you,” and, “We know what you’re up to and we’re done playing games with you.”

The big problem facing Helen is that she had bought gifts for the Secret Santa campaign based on the donations.

“So now I’m really in a position like any other merchant — which is to say, I have inventory I need to sell,” she explains. “I asked him why I couldn’t just sell them as gifts and send them wherever the buyer asked. He said I had to send it to the seller ‘and we will make sure you do.’

“I said that felt discriminatory since they don’t make other retailers send purchases to the buyer only, especially not at Christmas. He said no one but a nonprofit would send gifts to someone else on buyer’s behalf. I said what about Amazon? he said, ‘I’m not going to argue.'”

The PayPal rep’s sole suggestion was that, if she wanted to sell these gifts, she would have to create a drop-down menu listing every single one of the hundreds of gifts (all different) and people would have to buy them that way.

“He said no one would buy a gift if they didn’t know what they were getting,” recalls Helen. “I said, ‘What about mystery gifts and grab bags? That happens all the time. What about sites where they say, let us choose for you?’ He said, ‘It doesn’t say that on the site.’ I said, ‘What if I put that on there?’ He said, ‘It’s too late, we know what you’re trying to do and we’re not going to let you do it.'”

There was also some debate on how precisely this non-profit qualification is spelled out in the terms of service. The PayPal rep claimed it was quite clear, but Helen took him to task on this, she says he responded that they “take everything on a case by case.”

I said that means I’m not privy to the criteria they use, which means I could run afoul of them at any time. He said “Not if you read the terms of use.”

Continues Helen:

He said, “You’re the one who is refusing to provide documentation.” I pointed out that I have given them everything from Articles of Incorporation to notarized statements to affidavits, all while out of the country. He said, “But you refuse to give us your nonprofit paperwork.” I told him once again, that I am a corporation, not a nonprofit, and they are demanding a document I don’t have is not being difficult. I said, “Its like your penalizing me for not giving you my trucker’s license.” He said my only recourse was to refund everything or become a nonprofit. Like today I guess. Should have that all ready by Christmas.

PayPal then froze Helen’s personal account, including the revenue for her book, which has absolutely nothing to do with any of the charitable fundraising done on the site.

“They’ll be holding that money for 6 months,” Helen tells Consumerist.

She also offers the following tl;dr version of events as she sees them:

• They allowed me to use a donate button, and got a portion of the donations
• Then made me return the donations, and kept a portion of the fees on the donations
• They allowed me to use a Buy Now button to sell these gifts individually, and got a portion of those sales
• Then made me return the sales, and kept a portion of the fees on the sales
• They processed the toy purchases, and made fees on that
• They have made a fortune for not doing anything but making me manually return thousands of $2 sales and contributions.

At this point, we would be shocked if the PayPal people to come out from their undersea lair to play nice and resolve the issue. The company is usually a safe bet to make the Worst Company In America bracket and we have a hunch this all but solidifies a high seed come tournament time.

CATS 1, KIDS 0 [Regretsy.com]

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