As a breeder,if a pup I bred had a hernia, I would keep it at least until the hernia had been sorted and the puppy given the all clear by my vet. If the breeder has been looking after this puppy, they will know it has ahernia, and if they haven't noticed, well what does that say about them?!
Why did you buy a dog of a KC registerable breed that is unregistered?
Bella is right, whatever sho sup now, cavs are prone to a lot of health problems, most of which will seriously negatively affect the dogs life and possibly lead to it having to be euthanaised later on. I know how you mts feel, but imagine how you'll feel to be told in three years time your gorgeous little dog has to be put to sleep? All because the breeder was too lazy to do some health testing... Syringomyelia is completely preventable.
I know this sounds callous, because a dog is an animal, but under the sale of goods act you can return the dog if it is not 'fit for purpose' and get afull refund. I know completely why you don't want to do this, but by not doing it you are paving the way for this idiot breeder to breed more unhealty puppies. And what about the rest of this litter? Their owners might not have insurance etc and might decide to PTS if problems occur.
If you really are determined to keep the pup, then if the breeder won't refund you, I would take him to small claims court. If the puppy develops further problems down the line which could have been health tested for, then take him to court to get compensation for treatment. This has been successfully done before and it is the only way unscrupulous people liek this who think they can make easy money out of dogs will stop and think.
KC reg. alone is not enough to say someone is a good breeder, but anyone who breeds a KC registerable breed and does not KC register is definiely not a good breeder. This puppy could be unregistered presicely because the breeder of your puppy's Mum knew she was a genetic carrier for SM and so decided to endorse her pedigree so she could never be bred from, or because the Mum is too old or too young to be registered, or because she is forced to have a litter every season.