Pay Pal is the worst.
They are a 3rd party vendor who Leaches off actual processor systems.Their entire business model is to contract with the actual processors and throw their service fees on top and pass that all off on their customers.
They market themselves as being a safe but most of all fast. Every one likes fast until there is a problem. When there is a problem they pass that off their customers as well as long as they can get away with it. To actually fix a problem takes time, resources and money which they do not want to deal with.
To fight with them you have to be prepared to get Nasty. You need to demonstrate that you are not going away and that if need be you will bring an army of resources to conduct your own investigation into their business practices.
I had a similar problem with them several years ago and they were giving me a the whole run around as to their investigation policies and why they were justified in sticking me with the loss. I had to threaten to sue them, not in small claims, but to get the US attorneys office to conduct an investigation since this would constitute Mail and Wire Fraud which is a federal case. I also pointed out that if they were doing this to me they were probably doing this to thousands of accounts a day which probably translates to Hundreds of millions a year, which would most likely prompt a class action suit -
They reimbursed me the Next Day. I never used them again.