The blog Regretsy, which enjoys playing off the more creative designs found on Etsy, put together a fundraising drive for its readers to buy toys for underpriveleged families this holiday season. The blog set up a PayPal account where readers could submit donations. After Regretsy raised the money and purchased the toys, PayPal shut down the account and blocked Regretsy from accessing it.

PayPal’s reasoning: only non-profits can use the donation button and Regretsyis a for-profit company. PayPal sent a letter saying the blog had to refund all the money.

Regretsy then found the back-breaking straw: a disclaimer in the PayPal terms said PayPal would be keeping a small portion of the fees for any refund. PayPal was now blocking a charity drive and potentially making money off of it. Cue Internet anger.

Hundreds of irate fans blasted the site on social media forms, while blogs made merry over the news (most thorough goes to The Green Greeks, and most amusing goes to the blog Daily What, which ends with a curt “PayPal canceled Christmas.”).

PayPal, in what is becoming a common practice for corporations confronted by angry Internet denizens (see: GAP’s logo, JC Penney’s shirt debacle, Veg News’ meat issue), issued an apology and reversed its decision. Anuj Nayar, PayPal’s, director of communications wrote the company would be making a donation to help the cause and was working with Regretsy to fix the situation.

Update: The PayPal-Regretsy fight is going in for an extra round. Regretsy just posted an update: Despite PayPal’s announcement, it has not been in contact with the Regretsy team. In a new post, the owner of Regretsy writes that she has not heard from anyone at PayPal yet, but she’ll post when she does.

It’s fired up the flames PayPal was ostensibly hoping to quash. Writer Jenny Lawson tweeted, “Seriously, @PayPal release the statement AFTER doing the things you say you’ve already done.”

The Regretsy post thanks the readers for the global support, saying, “I truly believe that had you not all made your voices heard, no one from PayPal would have ever felt compelled to make this right.” (And thanks to the BlogPost readers for alerting us on the new post.)

Update 2: And scene. April Winchell, owner of Regretsy, wrote an email to say that “everything is resolved now, or at least as much as it will be.” She said in a final post on her blog that PayPal had suggested they’d donate $100 gift cards to each of the 200 families in need that Winchell had chosen as the original gift recipients in the charity drive she started. She also notes that the donate button did not cause her downfall: making too much money, too fast did. PayPal flagged her account when donations came in too quickly, something they say is a routine security check.