Story highlights PayPal backs off Secret Santa dispute with blog Regretsy

Regretsy's founder says PayPal shut down a fund-raiser

PayPal said it will now donate to the fund and issue has been resolved

Regretsy mocks offerings on crafts site Etsy but also gives to charities

PayPal has backed off an online spat with humor blog Regretsy after getting withering Web feedback for shutting down a drive to buy holiday gifts for children in need.

And the online payments service is even chipping in to help buy a few more gifts after temporarily shutting down the Secret Santa fund because the for-profit site was running it.

"(W)e can confirm that the funds have been released and we are working directly with the account holder on this matter," a PayPal representative said via e-mail. "We are also making a donation to Regretsy to help families in need this holiday season. We're very sorry this occurred."

Run by actress-comedian April Winchell , Regretsy is a snarky blog created primarily to mock what it considers awkward, ugly or otherwise head-turning offerings on the arts-and-crafts site Etsy

But, perhaps in a bid for some good karma, the site maintains a charity fund that has given money to causes from breast-cancer research to Etsy community members in need.

Last month, Winchell, who uses the pen name "Helen Killer" on the blog, put out a call for community members who knew of children at risk of not getting gifts this Christmas. On December 1, she announced that 200 children had been approved and put out a call for donations -- one that she wrote raised thousands of dollars in a few hours.

"You people make me sick," she wrote, mocking, as she frequently does, the tone some Etsy users take when they find their work has been featured on Regretsy. "Funded. Overfunded, in fact. In just a few hours. We now have enough money to make gifts to the families, as well as these kids. Good job a--holes."

Then came the trouble.

On Monday, Winchell wrote that PayPal, which was processing the donations, shut down the drive because she had used a "Donate" button that she learned is only for nonprofit groups. She said she had a "very long and jaw-dropping conversation with an incredibly condescending representative," who told her she had to refund donations.

She wrote she hatched a plan to return the donations, then "sell" the toys that had already been purchased to the donors, only to be told that, too, violated PayPal rules.

PayPal said it has clear guidelines for any business that uses the service to collect donations. (The statement did not directly address whether Regretsy had violated those guidelines, saying it can't comment directly on accounts due to privacy policies). The representative said such guidelines are required by law.

"We appreciate that this can be an inconvenience, but we have a responsibility to all our customers -- both donors and recipients; or buyers and sellers," the PayPal rep said. "In this instance, we recognized our error and moved as swiftly as possible to fix it."

"I would also like to say that I did not expect this kind of global outpouring of support, and 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," she wrote, noting that "Regretsy" had become a top trending topic on Twitter. "There is no real support or appreciation for the consumer anymore. The customer is always wrong.

"I am extremely grateful to all of you for your efforts. If Paypal is sincere about allowing us to make these gifts, you will have made a difference for 200 children and their families this holiday season."

In an email later Tuesday to CNN, Winchell said she'd had an "encouraging" conversation with PayPal and that they were still discussing a donation to the fund.