Robinhood will pay $65 million to settle charges it misled customers over payments from trading firms that overcharged users to execute transactions, US securities regulators said on Thursday.

In exchange for the payments, Robinhood routed orders to these firms, resulting in $34.1 million in higher customer fees, the Securities and Exchange Commission (SEC) said in an order that faults the firm's statements to customers between 2015 and late 2018.

A trading app that has soared in popularity during the pandemic, Robinhood has touted the lack of trading commissions in customer communications.

"Robinhood provided misleading information to customers about the true costs of choosing to trade with the firm," said SEC Enforcement Chief Stephanie Avakian.

"Brokerage firms cannot mislead customers about order execution quality."

Robinhood said it has improved its customer disclosures and trading execution processes compared with the period discussed in the SEC order.

"The settlement relates to historical practices that do not reflect Robinhood today," said Robinhood Chief Legal Officer Dan Gallagher.

"We recognise the responsibility that comes with having helped millions of investors make their first investments, and we're committed to continuing to evolve Robinhood as we grow to meet our customers' needs."

Robinhood agreed to pay the penalty without admitting or denying the findings. The company also agreed to retain a consultant to review its processes, including customer communications.

Robinhood disclosed some information about the payments in a securities filing, but omitted it from its website "because it believed that payment for order flow might be viewed as controversial by customers", the SEC order said, adding that Robinhood directed customer service staff not to disclose the payments when asked about Robinhood's source of revenue.

The SEC action comes amid heightened scrutiny of Robinhood after the suicide of a young trader earlier this year.

On Wednesday, the state of Massachusetts launched an administrative proceeding against the app, alleging it had lured in inexperienced users and allowed them to trade in risky instruments like options without proper education.