Chinese-owned online shopping platform Temu has agreed to pay $4.27 million and strengthen its data security and product safety measures to settle a lawsuit brought by the US state of Texas.

The settlement, reached with Texas Attorney General Ken Paxton, will require Temu to store personal information belonging to Texas customers on American-controlled servers and introduce tighter restrictions on access to that data from China.

The agreement follows a lawsuit filed in February accusing Temu and its parent company, PDD Holdings, of misleading customers about how their personal information was collected, stored and potentially accessed.

Texas authorities alleged that the company’s data handling practices could expose sensitive customer information to the Chinese government.

Temu has denied the allegations and agreed to the settlement without admitting any wrongdoing.

Under the new requirements, Temu must restrict access to Texas customers’ personal information by individuals and companies based in China. Limited exceptions will be permitted for essential business activities, including order fulfilment, fraud prevention and platform maintenance.

The company will also be subject to annual independent security audits of its shopping app, with penalties of US$8 million for each failed annual assessment involving serious breaches of the agreed safeguards.

The settlement extends beyond data privacy, introducing additional responsibilities for Temu to ensure products sold through its marketplace meet safety standards.

Temu must arrange annual independent testing for potentially hazardous substances in products commonly purchased by Texas shoppers, including lead, formaldehyde and PFAS chemicals.

Products found to contain dangerous substances above applicable safety limits must be removed from sale within two business days, with affected customers notified and refunded.

The company must also suspend sellers responsible for unsafe products, along with associated stores, within five business days or risk an additional US$600,000 penalty.

Certain regulated products will also require safety certification from sellers before they can be listed for sale.

Texas has secured a further provision allowing it to benefit from stronger consumer protections or larger settlements that Temu may agree to with other US states over the next three years.

The agreement marks the first settlement of its kind involving Temu in the United States, although the company is facing similar legal challenges in several other states.

Temu confirmed it had reached an agreement to resolve the dispute and said it would continue focusing on customers and businesses in Texas.

The settlement comes amid growing international scrutiny of the online marketplace’s data handling practices and the safety of products sold by third-party merchants.

In May, the European Commission imposed a €200 million fine on Temu after an investigation found shortcomings in how the company assessed the risks of illegal and potentially dangerous products being sold through its platform.

The investigation, conducted under the European Union’s Digital Services Act, raised particular concerns about children’s toys and electrical products that could fail to meet required safety standards.

Temu disputed the European Commission’s findings, describing the penalty as disproportionate and maintaining that its product safety systems had improved since the period examined by regulators.

The Texas settlement adds to the regulatory pressure facing Temu as authorities in the US and Europe seek greater accountability from online shopping platforms over consumer privacy, product safety and the activities of third-party sellers.