A so-called Vulture Funds bill - to stop finance companies using British courts to extort excessive debt repayments from some of the world's poorest countries - was passed in the frantic scramble to finish outstanding parliamentary business before Britain's general election in May.
"It's the first time since the global credit crunch that financial services companies have been told, 'Thus far and no further'. They won't be able to fleece developing countries, and they will have to comply with the same rules on debt relief as the public sector and the more responsible parts of the private sector," said MP Sally Keeble, who proposed the bill.
In the last few days of the outgoing parliament many proposed laws were abandoned or drastically cut so they could be rushed through without debate. Keeble told IRIN she was "absolutely delighted" that the bill had been passed - "It's a real landmark."
The companies targeted by the new law act as international debt collectors. They buy old debts incurred by developing countries from creditors happy to sell at a massive discount because they despair of ever getting paid. The new owners of the debt then pursue it far more aggressively than the original creditors would have done.
They also take advantage of the debt cancellation process offered to Highly Indebted Poor Countries (HIPC) by the International Monetary Fund and the World Bank. Once a country has gone through the HIPC process, most of its creditors agree to write off nearly all its debt, often accepting less than 10 cents for every dollar they are owed.
|The UK has set a standard; the next task is to press for similar legislation in Europe and the United States|
This is intended to make more money available for the country to spend on health, education and other essential services - but this is the moment the Vulture Funds have been waiting for.
As soon as the see the country has some money, they move in to collect the debt; unlike the other creditors, they demand payment in full, including years' worth of unpaid interest.
In one case, two finance companies based in Caribbean tax havens bought up Liberian government debt dating back to the 1980s, when Liberia's National Petroleum Corporation borrowed US$6.5 million from an American bank in the time of Samuel Doe.
By the time the debt's new owners took the case to court in London, the debt had swollen to more than $20 million. The claim may have been extortionate, but it was legal, and the funds won their case.
This judgement, and another where a vulture fund bought Zambian debt for $4 million and then sued for $42 million, caused an outcry in Britain. The Jubilee Debt Campaign, which called for the debts of the poorest countries to be cancelled and a change in the law, was launched in response.
Its spokesman, Jonathan Stevenson, told IRIN they felt it was wrong for these companies to make huge profits out of developing countries; Britain had given debt relief so that money could be used to relieve poverty, not to enrich financial speculators.
More to do
The new law specifically applies to the 40 countries which have taken part in the HIPC process, and limits the amount of debt that can be recovered in British courts to the level agreed by the other commercial creditors.
The Democratic Republic of Congo (DRC) is approaching completion of its HIPC process and the cancellation of its debts, and could be one of the first countries to benefit from the new law, Stevenson said. The DRC has said it is afraid some of its commercial debt may end up in the hands of debt recovery funds.
Although the campaigners and MPs from all parties who backed Keeble's bill are justifiably pleased, they stress that because there was no time for proper debate, the new law will only apply for one year unless the new parliament makes it permanent.
There is still the risk that when debt owners find it is no longer worthwhile to sue in Britain they will use courts in other countries, wherever the debtor has assets worth seizing. Keeble said the UK has set a standard; the next task is to press for similar legislation in Europe and the United States.