I have a Paypal merchant account with their debit card and trust me - I would have earneed miles a long time ago if it worked like that.

As has already been mentioned - your fees are actually about 2.2% - only you get 1.5% back for every non-pin charge to your paypal card. So if you are willing to risk getting your account locked yes you could earn lots of miles - but at a much higher cost than you mentioned above.

The Paypal card does work very well as a caskback card though - you can transfer money into your paypal account from your banks and spend everything on your paypal card - getting 1.5% back on everything. The biggest disadvantage is the lower level of protection offered by debit cards verses credit cards.

I also have experienced how easy it is to get your paypal account locked - however I must say their CS has improved dramatically. It recently took them a few hours to get my account unlocked once I had faxed all the requested documents - and this was on a Saturday. A couple years ago I spent more than a week and many hours of waiting on hold to accomplish the same. Hold time has decreased also.

Anyhow - Paypal is not the least expensive way to get miles!