There is no law that says that you have to answer their questions, but it can cause problems.
SAS 70 is an auditing standard designed to enable an independent auditor to evaluate and issue an opinion on a service organization's controls, and is meant for customers, investors, etc. to assure them that your organization can process and safeguard their data. If the auditors report that there is no assurance that proper care is being taken to safeguard data, a customer may decide to take their business elsewhere.
When I deal with auditors, I insist that all questions coming to me have to be cleared by our data security team and sent to me by them. This gives me a buffer against direct confrontations of the type you described, gives me time to prepare responses, and shows the auditors that I am protective of all aspects of data security. If there are questions that I have objections to, I discuss them with our data security team before providing an answer.
Youi may want to look at this:http://sas70.com/