Was testing out a site that was about to go live and came up with this error even though the sandbox account worked ok. It seems that the live merchant account wasn’t setup properly.

The error upon submitting the payment data to Paypal

Data does not match input character set or default encoding. For more information, please contact the merchant.

Solution

Log into your PayPal account
Go to your profile
Under the selling preferences column, select Language Encoding
Make sure your website language is set to Western European Languages
Click the more options button
Make sure encoding is set to windows-1252 or UTF-8.
Then save settings