Racial classification in the United States is a bizarre and incoherent stew. For example, how did ‘ethnicity’ become distinct from ‘race’, and why exactly are there only “Hispanic” and “Non-Hispanic” distinctions for the former?
Law professor David Bernstein had written a few times about this issue. I think the cases he highlight illustrate just how absurd the results are in practice when the law is tasked with determining who is actually "Hispanic".
In DCS Elec., Inc., an administrative law judge upheld a hearing officer's ruling that a blond-haired light-skinned business owner who had undisputed Hispanic ancestry and spoke Spanish was not Hispanic for the purposes for SBA regulations. The hearing officer had found that she did not identify as Hispanic, nor, given her non-Spanish maiden and married last names, appearance, and accent, did others identify her as such. The ALJ found that the hearing officer's conclusion that she had not been denied business opportunities as a "Hispanic" and therefore did not qualify for the 8(a) program was not arbitrary and capricious. In a footnote in the decision, the judge noted that, "the [SBA's] regulations are not clear as to the meaning of the term 'Hispanic American,' i.e. whether it includes only Hispanics from this Continent."
Someone with Hispanic ancestry who speaks Spanish, is not "Hispanic" under the law because other people did not see them as Hispanic because they had blond hair, did not have Spanish last name, and had no accent. I don't envy the judges in this case because there is no winning playbook on how to deal with these issues.