Liberty Tax Service promised its customers speedy tax refunds while failing to disclose that they were actually taking out high-interest bank loans on their behalf subject to finance charges and debt collections, a state appeals court has ruled in upholding a $1.3 million judgment against the tax preparation firm.

Evidence supported a San Francisco judge's findings that Liberty misrepresented its refund anticipation loans and violated California laws against false advertising and unfair business practices, the First District Court of Appeal said in a 3-0 ruling last week.

The judge ordered $135,000 in reimbursements and $1.17 million in civil penalties against Liberty, a Virginia firm that has more than 2,000 outlets and franchises nationwide, including nearly 200 in California.

The reimbursements are for payments Liberty improperly authorized the banks to collect for their customers' past debts, the court said. The suit was filed by the state attorney general's office in 2007.

Refund anticipation loans are short-term bank loans secured by tax refunds expected by the borrowers, mostly low- or moderate-income taxpayers. The customer usually gets a check within days, while the bank later collects the actual refund from the account of the customer, who is responsible for any remaining balance, plus fees and substantial interest.

After a non-jury trial, Superior Court Judge Curtis Karnow ruled in 2009 that Liberty's fee on the checks it issued, typically $24 to $30.95, was an undisclosed finance charge.

Karnow also said the tax preparation company misrepresented the loans as tax refunds, failed to inform customers that the banks would collect Liberty's debts, and falsely advertised that most of the payments would be available the next day.

In a ruling Thursday, the appeals court agreed with Karnow that Liberty's fee was an undisclosed finance charge, rejecting the company's argument that it was only covering the banks' cost of setting up accounts to handle tax refunds.

The court also upheld the judge's orders requiring Liberty to tell customers that it was offering loans, not refunds, disclose the name of the bank and all fees, and discipline employees and franchise-holders who failed to comply.

Robert Stumpf, a lawyer for the company, said it is considering an appeal to the state Supreme Court. He said that Liberty has already paid the civil penalty and that most of the issues "centered on actions that took place a number of years ago and have limited bearing on the company's current operations."

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Court rules against Liberty Tax Service