The US Congress has begun moves to outlaw so-called "vulture funds", which buy up the sovereign debt of poor countries at a knock-down price and then go to court to enforce full payment.

A Democrat congresswoman, Maxine Waters, has introduced the Stop Vulture Funds Act, designed to protect impoverished countries from lawsuits by vulture funds. Waters said: "Over the past year, we have seen how the actions of a small number of unscrupulous and exploitative investors can hurt innocent people and cause economic chaos. We cannot allow the world's poorest countries to be exploited by these bad actors."

Most vulture funds are based either in the US or offshore centres such as the Cayman Islands.

The act would make it illegal for vulture funds to sue poor countries in US courts to obtain usurious payment. "Usurious" is defined as anything more than the purchase price of the debt plus 6% a year interest. Vultures often buy poor country debt on secondary markets at, say, 10 cents on the dollar and then try to recoup the full face value in court – a practice which can be very lucrative.

"The act would protect impoverished countries from the predatory practices of vulture funds and allow these countries to use their limited resources to meet the needs of their people," added Waters. "I am proud of my work in Congress to cancel poor countries' debts. We cannot allow vulture funds to erode the progress that has enabled many of the world's most impoverished nations to reduce poverty."

Her bill echoes a similar move made by a cross-party group of MPs in the UK last month led by Labour's Sally Keeble.

They called for a Developing Country Debt (Restriction of Recovery) bill that would ban hedge funds and other creditors from taking legal action to make large profits out of poor countries' debts. Such funds often use British courts and law firms to pursue claims.

At least 54 companies are known to have taken legal action against 12 of the world's poorest countries in recent years, for claims amounting to $1.8bn (£1.1bn). Vulture action is ongoing against Ethiopia, Cameroon, Argentina, the Democratic Republic of the Congo and others, according to World Bank reports.

In 2007, Donegal International, based in the British Virgin Islands, won a $15.5m repayment in the high court for Zambian debt it had bought several years earlier for $3.3m. Two-thirds of Zambians live on less than $1 a day, and debt relief was intended to free up vital resources for healthcare and education.

Poor countries, though, have been taking action to defend themselves. In April the Liberian government announced a deal with its commercial creditors to pay off its vast commercial debt at a rate of three cents in the dollar.

The total cost of the buyback of $1.2bn in commercial debt was $38m and was financed by the debt reduction facility of the World Bank, with contributions from the International Development Association, the US, Norway, Britain and Germany.

Almost all Liberia's commercial creditors took part, meaning vulture funds have in effect been barred from taking action against the country in future.