Are you using PayPal Payments Pro? Or PayPal Payments Standard?
If you are using PayPal Payments Pro, the server behaviors should list a Local Checkout server behavior.
If not, you can change the code directly, look for the following code:
$PP_DirectPayment_required[0][$nextIndex] = "UseSandbox";
$PP_DirectPayment_required[1][$nextIndex] = "true";
and change it to:
$PP_DirectPayment_required[0][$nextIndex] = "UseSandbox";
$PP_DirectPayment_required[1][$nextIndex] = "false";