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UPDATE:I just received a notification from PayPal informing me that my account has been fully restored. Upon checking it there is a credit for the disputed amount from Paypal and no open cases. I also received a message apologizing for the inconvenience and acknowledging that the negative balance was covered by PayPal.So it seems that PayPal is aware that their policies potentially violate Australian Law and are just relying on Australian citizens not being well informed of their rights...I've got a lot to think about now, whether I trust PayPal enough to continue using them despite this resolution at last. I won't be using them to pay for services ever again, that's for sure. Thanks everyone for your support through this final chapter, I know it's been a conflicting mess.
WOW! I don't care for pay pal one bit! But I use it cause its the only way people seem to pay for anything anymore.