First quick thing to debug this is to make sure your user isn't listed in /etc/ftpusers Contrary to what it sounds like, users listed in that file are not allowed to log in via FTP. Also, make sure that the following line is uncommented:

 DefaultRoot                    ~

Though more generally, I'd strongly encourage you to access the server using SFTP. In fact, since you can already access the server over SSH there is nothing else you need to setup! FTP clients like Filezilla support this out of the box.

I have the same problem after update Proftpd to 1.3.4, here what's fixed it:

Comment lines AuthPAMConfig and AuthOrder in /etc/proftpd.conf and restart server

# Use pam to authenticate (default) and be authoritative
#AuthPAMConfig          proftpd
#AuthOrder          mod_auth_pam.c* mod_auth_unix.c

For anyone with the 530 login error here is a config file that works !
God bless

#
# /etc/proftpd/proftpd.conf -- This is a basic ProFTPD configuration file.
# To really apply changes, reload proftpd after modifications, if
# it runs in daemon mode. It is not required in inetd/xinetd mode.
#

# Includes DSO modules
Include /etc/proftpd/modules.conf

# Set off to disable IPv6 support which is annoying on IPv4 only boxes.
UseIPv6                         off
# If set on you can experience a longer connection delay in many cases.
IdentLookups                    off

ServerName                      "Debian"
ServerType                      standalone
DeferWelcome                    off

MultilineRFC2228                on
DefaultServer                   on
ShowSymlinks                    off

TimeoutNoTransfer               600
TimeoutStalled                  600
TimeoutIdle                     1200

DisplayLogin                    welcome.msg
DisplayChdir                    .message true
ListOptions                     "-l"

DenyFilter                      \*.*/

# Use this to jail all users in their homes
DefaultRoot                     ~

# Users require a valid shell listed in /etc/shells to login.
# Use this directive to release that constrain.
RequireValidShell               on

# Port 21 is the standard FTP port.
Port                            21

# In some cases you have to specify passive ports range to by-pass
# firewall limitations. Ephemeral ports can be used for that, but
# feel free to use a more narrow range.
# PassivePorts                  49152 65534

# If your host was NATted, this option is useful in order to
# allow passive tranfers to work. You have to use your public
# address and opening the passive ports used on your firewall as well.
# MasqueradeAddress             1.2.3.4

# This is useful for masquerading address with dynamic IPs:
# refresh any configured MasqueradeAddress directives every 8 hours
<IfModule mod_dynmasq.c>
# DynMasqRefresh 28800
</IfModule>

# To prevent DoS attacks, set the maximum number of child processes
# to 30.  If you need to allow more than 30 concurrent connections
# at once, simply increase this value.  Note that this ONLY works
# in standalone mode, in inetd mode you should use an inetd server
# that allows you to limit maximum number of processes per service
# (such as xinetd)
MaxInstances                    30

# Set the user and group that the server normally runs at.
User                            proftpd
Group                           nogroup

# Umask 022 is a good standard umask to prevent new files and dirs
# (second parm) from being group and world writable.
Umask                           022  022
# Normally, we want files to be overwriteable.
AllowOverwrite                  on

# Uncomment this if you are using NIS or LDAP via NSS to retrieve passwords:
# PersistentPasswd              off

# This is required to use both PAM-based authentication and local passwords
# AuthOrder                     mod_auth_pam.c* mod_auth_unix.c

# Be warned: use of this directive impacts CPU average load!
# Uncomment this if you like to see progress and transfer rate with ftpwho
# in downloads. That is not needed for uploads rates.
#
# UseSendFile                   off

TransferLog /var/log/proftpd/xferlog
SystemLog   /var/log/proftpd/proftpd.log

# Logging onto /var/log/lastlog is enabled but set to off by default
#UseLastlog on

# In order to keep log file dates consistent after chroot, use timezone info
# from /etc/localtime.  If this is not set, and proftpd is configured to
# chroot (e.g. DefaultRoot or <Anonymous>), it will use the non-daylight
# savings timezone regardless of whether DST is in effect.
#SetEnv TZ :/etc/localtime

<IfModule mod_quotatab.c>
QuotaEngine off
</IfModule>

<IfModule mod_ratio.c>
Ratios off
</IfModule>


# Delay engine reduces impact of the so-called Timing Attack described in
# http://www.securityfocus.com/bid/11430/discuss
# It is on by default.
<IfModule mod_delay.c>
DelayEngine on
</IfModule>

<IfModule mod_ctrls.c>
ControlsEngine        off
ControlsMaxClients    2
ControlsLog           /var/log/proftpd/controls.log
ControlsInterval      5
ControlsSocket        /var/run/proftpd/proftpd.sock
</IfModule>

<IfModule mod_ctrls_admin.c>
AdminControlsEngine off
</IfModule>

#
# Alternative authentication frameworks
#
#Include /etc/proftpd/ldap.conf
#Include /etc/proftpd/sql.conf

#
# This is used for FTPS connections
#
#Include /etc/proftpd/tls.conf

#
# Useful to keep VirtualHost/VirtualRoot directives separated
#
#Include /etc/proftpd/virtuals.conf

# A basic anonymous configuration, no upload directories.

# <Anonymous ~ftp>
#   User                                ftp
#   Group                               nogroup
#   # We want clients to be able to login with "anonymous" as well as "ftp"
#   UserAlias                   anonymous ftp
#   # Cosmetic changes, all files belongs to ftp user
#   DirFakeUser on ftp
#   DirFakeGroup on ftp
#
#   RequireValidShell           off
#
#   # Limit the maximum number of anonymous logins
#   MaxClients                  10
#
#   # We want 'welcome.msg' displayed at login, and '.message' displayed
#   # in each newly chdired directory.
#   DisplayLogin                        welcome.msg
#   DisplayChdir                .message
#
#   # Limit WRITE everywhere in the anonymous chroot
#   <Directory *>
#     <Limit WRITE>
#       DenyAll
#     </Limit>
#   </Directory>
#
#   # Uncomment this if you're brave.
#   # <Directory incoming>
#   #   # Umask 022 is a good standard umask to prevent new files and dirs
#   #   # (second parm) from being group and world writable.
#   #   Umask                           022  022
#   #            <Limit READ WRITE>
#   #            DenyAll
#   #            </Limit>
#   #            <Limit STOR>
#   #            AllowAll
#   #            </Limit>
#   # </Directory>
#
# </Anonymous>

# DL / UP

AllowStoreRestart On
AllowRetrieveRestart On

# Include other custom configuration files
Include /etc/proftpd/conf.d/


code

Hello. After hours and hours of trying out solutions i finally found one that worked on multiple vps'es.

Here are the following steps:

nano /etc/shells

add the following to the end of the file

/bin/false

Now create an account using:

useradd USERNAME -d /home/USERNAME -s /bin/false

Give the user a password

passwd USERNAME

create a folder for the user.

mkdir /home/USERNAME

Give the ownership to the user

chown -R USERNAME:USERNAME /home/USERNAME

you are done right now it should work if you followed the steps correctly

Thank you so much JudgeDot.
You are perfect :-)