The user should be presented with the option to checkout with PayPal or with a credit card. If they choose to cancel the checkout then they will be returned to the same checkout page they saw earlier. At this point the user can choose to checkout with PayPal or enter their credit card just like the first time through. If you the user looses the ability to checkout with a credit card after canceling the PayPal checkout this could be confusing to the user and leave them only with an option that they do not want.
If you do not want to offer the Direct Pay method then you can remove this part of the checkout and leave only the Express Checkout option available.